Online Gaming has good opportunities for growth in a decade: Manish Agarwal, CEO, Nazara Technologies

Manish Agarwal, Chief Executive Officer, Nazara Technologies, talks about Q1FY22 results, segmental growth, margins, advertisement expenditure as a percentage of revenue, pipeline products, cash deployment among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

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Q: Results have been good and more importantly except for telco subscription all segments are growing. What has been the major reason behind it? Going forward, what kind of performance should be expected?

A: As you said, the result is good. It is our endeavour that both revenue growth and profitability growth go hand in hand. As you said 6% quarter-on-quarter revenue growth and I would like to say that there is a 45% growth in this quarter as compared to the first quarter of the last year. There is seasonality in our business, so, it is better to watch Q1 over Q1 Vs Q4 over Q1. So, if you have a look in those terms then there is a 45% revenue growth at Rs 131 crore as against Rs 90 crore posted in the same quarter last year. This time, the EBIDTA margins stand at 23% Vs -15% posted last year in the same quarter. Our eSPorts, gamified and free to play mobile segments have performed well. I have always said that these three segments are our growth segments, and we will take these segments forward and grow them in the future. The gaming market is growing and currently, the market is quite small, and we are seeing around us, how the trend for gaming is increasing and people are playing games. So, we are confident about the growth as we will continue to grow due to our current products. And in terms of network, we will continue to add more companies to our portfolio in the coming times due to which our performance will improve further. 

Q: Out of five segments, three segments were profitable in Q1FY22. When can we see all the segments showing profits and what would be their overall contribution?

A: If you have a look then four segments are profitable Telco subscription, Gamified early learning, Freemium and eSports. Real money gaming is small; now, therefore it is in loss, but the loss is quite small if seen in absolute terms. As its scale will go up, it will turn profitable. It is our DNA that each segment grows in scale, and they are profitable. In this, wherever, investment is required, definitely, we will invest but investment does not mean that you may end up in loss because of the investment. So, it has always been our DNA to invest keeping in mind the profitable scalable growth and make it grow further. 

Q: Margins have also improved in the reported quarter. Going forward, what will you say about the band in which the margins will be and are they at a sustainable level or will improve further?

A: If you have a look at the margins, it has increased a lot due to the gamified learning segment, while the marketing spends in gaming learning has reduced this year to around Rs 42 crore as against around Rs 70 crore that was spent last year. So, the marketing spends has reduced in the segment, while there is underline user growth due to which the margins have increased. But we wish that its user growth which has been 25% YoY should increase to 40-60% and we would like to spend more on marketing, keeping in mind that profitability of our unit economics is maintained. This year, margins are looking higher as the marketing spend has declined and we believe that we don’t want to sustain such high margins, but we wish that there is revenue growth in the segment and the margin should stay in the range of 10-13%, which is good. Because the market size is huge, the opportunity is high, and maximization of the margins will be equal to making a self-goal. 

Q: As per my understanding, you are saying that margins should not stay at these levels but the range of 12-13% is a realistic range for the coming time. Is it that you are saying?

A: Yes. I am saying that a margin of 12-13% is the right margin expectation with which you can capture the growth and market opportunity growth rather than maximizing the margins. 

Q: What has been your advertisement expenditure as a percentage of revenue for the quarter and what will you say about the entire FY22?

A: If we will have a look, we used to have around 50% of the advertising spends but this time it will be around 30-32%. This is where the main difference between the marketing spends and EBITDA margin and, in our business, if more marketing is done then the subscriber growth will be more. So, I believe that marketing spends of around 45-50% should be expected from us because in a segment like gaming we should focus on growth not on maximizing the EBITDA margin.  

Q) What are your new launches in pipeline? Also, what is your outlook on growth from a client addition point of view? You have cash of around Rs 370 crore as of March 31, 2021. How will you use the cash and what are your plans for cash deployment?

A: First of all, I will answer the question related to the cash, if you have a look at the cash, then we have a track record that we have added good companies and good founders with ourselves in the last 3-4 years. This year and the coming years as well we will use this cash to add more companies to our portfolio. In our current portfolio, every company is making its cash and are cash positive, so until and unless there is an idea of doing a big CAPEX is there, presently not present, such huge cash is not required. So, our cash will be used in M&A and inorganic growth. If you have a look at our current products, our cricket championship game is India’s biggest cricket game and in that, we will invest in marketing and promoting it. We will also invest in the marketing of Kiddopia, which is a learning and educational games app for the kids. The two investments will be made on marketing only if we can earn $1.50-3 by investing $1, which means we think a lot before investing. Therefore, our new product launches will come through M&A. The growth of the current products is concerned, they are market leaders in themselves, and it will be grown further.