Nazara Technologies Ltd

NSE:NAZARA

Earnings Call Analysis

Quieted Performance with Promising Aspects

The focal areas of the earnings call included eSports growth, specifically a 26% year-on-year rise and 61% EBITDA increase in Q2 FY'24. Sportskeeda's achievement of crossing 100 million users hinted at upward scaling potential. The Adtech segment suffered a revenue decline but showed margin improvement. Animal Jam stabilized margins between 22-24%. Classic Rummy was projected to see EBITDA losses in Q3 due to a new GST regime, with a recovery expected by Q4. The 'Make in India' emphasis is forecasted to be strategically significant, despite its current marginal financial impact. Overall, the company balances growth initiatives and cost optimization across diverse verticals.

Robust Performance in eSports and Content Publishing

The company has exhibited strong growth in its eSports segment, with a 21% increase in H1 FY '24 and an impressive 26% year-over-year growth in Q2 FY '24. The EBITDA for this segment followed suit, marking a 16% rise in H1 FY '24 and a substantial 61% jump year-over-year in Q2 FY '24. Spearheading this segment is Nodwin, which itself has experienced a 15% revenue bump in H1 FY '24 and 20% in Q2 FY '24, partially due to the return of popular game BGMI and its related events. There's anticipation for further growth with the addition of IPs around these games. Simultaneously, Sportskeeda, the content platform, continued its upward trajectory with a 50% year-over-year growth in H1 FY '24 and a 47% increase in Q2 FY '24, culminating in a significant EBITDA growth during both periods.

Adtech Segment Reveals Mixed Results Amidst Strategic Shift

In the Adtech space, the company faced a reduction in revenue, falling to INR 50.2 crores in H1 FY '24 from INR 67.6 crores in H1 FY '23 due to the loss of a key client. Nevertheless, the focus on high-margin clients led to an increase in the gross margin percentage from 18% to 24.6%, illustrating the benefits of its strategic shift. Despite this, the EBITDA in this segment dropped, reflecting higher investments in sales and marketing efforts to bolster the sales pipeline and forge key partnerships.

A Strategic Approach to Capital Deployment and M&A Activities

The company is carefully curating a strong pipeline for potential acquisitions, eyeing opportunities that promise fruitful growth. There's an emphasis on prudence in capital deployment, with intentions to complete strategic deals before the close of the current financial year. Notably, additional capital has been raised to bolster the company's negotiating power to embark on more substantial transactions and to streamline direct investment into their subsidiary businesses. These moves are hoped to add value across different segments, including gamified learning, eSports, and sports content.

Exploring Synergies Between Game Studios and Publishing

Nazara seeks to capitalize on both owning game studios and providing a platform for publishing, particularly in the promising Indian market. Their strategy involves leveraging the insights gained from owned studios to enhance the publishing initiative, which may serve the dual benefit of fostering acquisition opportunities as well.

Scaling Challenges in User Acquisition and Focus on Indian Market

The company acknowledged difficulties in scaling their marketing spend, which has plateaued around $800,000 to $900,000 a month. In response, they are engaging with Google to overcome these limitations and are considering the incorporation of well-known IPs to enhance user acquisition for their gaming applications. Additionally, there's a significant focus on the 'Make in India' narrative for the gaming sector, which is expected to become a strategically crucial source of monetization for the company in the long run.

Long-Term Margin Improvement and Seasonal Sales Strategies

With a focus on growth, Nodwin, the eSports subsidiary, aims for a long-term margin improvement target of upwards of 10% to 15%, though specific guidance hasn't been provided. Meanwhile, WINGS gaming accessories are expected to contribute to profits in the upcoming third quarter, following increased inventory acquisitions for major seasonal sales events. The company aims to grow the brand while maintaining profitability, backed by strategic brand ambassador partnerships.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, Good day, and welcome to the Nazara Technologies Limited Q2 and H1 FY '24 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.

This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict.

I now hand the conference over to Mr. Abhisek Banerjee. Thank you, and over to you, sir.

[Abhisek Banerjee, analyst]

Hello, everyone. Welcome to the Nazara Q2 FY '24 Conference Call. We have with us from Nazara management Mr. Nitish Mittersain, Founder and CEO; Mr. Sudhir Kamath, COO; and Ms. Anupriya Das, Head of Corporate Development. Thanks, everyone, for giving us the opportunity to host this call. And now over to Mr. Nitish Mittersain for his opening comments. Thanks, sir.

[Nitish Mittersain, executive]

Good morning, everyone, and a very warm welcome to all of you to Nazara Q2 FY '24 earnings call. This call is joined by Sudhir Kamath, our Chief Operating Officer; Mr. Rakesh Shah, our CFO. [Technical Difficulty] In Q2 FY '24, our revenue increased by 13% year-on-year, reaching INR [ 297.2 ] crores. Our EBITDA grew by 30% year-on-year to INR [ 27.9 ] crores, and our PAT [ increased 53% to INR 24.2 crores ].

For H1 '24, we reported a revenue of INR 551.7 crores, and EBITDA for the same period reached INR 61 crores, which is up 19% year-on-year; and our PAT [ climbed ] 42% to INR 45 crores. The EBITDA margin for the first half of the year was reported at 11.1% compared to 10.6% in the comparative period of the previous [ year ]. Core [ Adtech ] business segment, Gaming and eSports continue to [Technical Difficulty] 43% EBITDA down in the first half, while Q2 saw year-on-year 14% growth and a 46% EBITDA growth.

The eSports segment [indiscernible] H1 FY '24 saw a [ 21% growth ] in earnings and [ 16% ] growth in EBITDA, while Q2 saw a 26% year-on-year revenue growth and 61% growth in EBITDA.

Our Adtech business is still overcoming the challenges faced earlier due to the loss of the key customer, but our margin profile is improving quite well, especially driven by [ products ] business. And last two quarters, efforts of building a strong sales pipeline are likely to convert into much better results in the coming quarters.

Also, an internal [ view ] of accounts, user acquisition capability is yielding promising results as we had originally envisaged. And we have right now experimented this with [indiscernible] and hopefully expand it to many of our different businesses, going forward.

Overall for the first half of the year, we had met out this consolidated, well-focused -- strongly on ensuring that the KPIs or the key performance indicators that we focus on, in the right direction. And the business is generating cash, which will be deployed in coming quarters for accelerating organic growth as well as the [indiscernible]. Especially on the M&A front, given the opportunities in front of us, we are quite confident that we will be able to deploy our cash results quite well. We have over INR 1,300 crores of cash on our consolidated book, including the INR 510 crores we recently raised in this quarter from Nikhil Kamath and SBI Mutual Fund.

I believe Nazara is well positioned to [ debut ] acquisition opportunities to further accelerate our growth in the coming years. We also see a promising based-in-India opportunities in the gaming industry, where Indian developers can create high-quality games not only for the home market, but also for the world.

Our new division, Nazara Publishing, is here to provide capital and services to assist developers in [ creating ] top-quality games to this growing consumer base.

I would now like to hand over the call to Anupriya, our Head of Corporate Development, to give some highlights of our performance segment-wise in this quarter. Thank you very much, and over to you, Anupriya.

[Anupriya Das, executive]

Thank you, Nitish. Good morning, everyone. Wish you a very happy Diwali. As you are all aware, Nazara operates across 3 business segments: Gaming, eSports and Adtech. Gaming Includes gamified early learning, skill-based real money gaming, freemium and [ telco ] subsegments.

This segment grew by 19% year-on-year in H1 FY '24 and 14% year-on-year in Q2 FY '24, coupled with EBITDA growth of 43% year-on-year in H1 FY '24 and 46% year-on-year in Q2 FY '24. This segment contributed 39% in revenue and 68% EBITDA in H1 FY '24. The EBITDA margins for this business is a robust 22.7% in H1 FY '24 and 20.9% in Q2 FY '24.

Now within Gaming, if you talk about specific IPs, Kiddopia, the revenue grew by 8% year-on-year in H1 FY '24 to INR 113.9 crores and 6% year-on-year in Q2 FY '24 to INR 56.3 crores. EBITDA for the business increased INR 29 crores, a year-on-year increase of 57%. In Q2 FY '24, EBITDA increased by 46% to INR 12.9 crores.

We've continued to focus on acquiring customers at an optimal cost to ensure healthy EBITDA margin. This has resulted in margin expansion. EBITDA margin increased from 17.5% in H1 FY '23 to 25% -- 25.5% in H1 FY '24, while Q2 margins increased from 16.5% in Q2 FY '23 to 22.9% in Q2 FY '24.

Seasonally weak quarter, which is the back-to-school post-summer break, coupled with challenges in scaling up [ U.S. ] spend via [ Google ] has led to a 2.7% decline in subscribers in the current quarter. However, we are working closely with various ad networks to enhance scale of user acquisition while maintaining the optimal level of CPTs.

We are also working on a multi-prong approach to bring growth back for Kiddopia. This includes going beyond direct-to-consumer acquisition sources to school network licensing popular IPs to drive organic growth, focusing on scaling up new markets and opening new revenue streams such as advertising and merchandising. While some of these initiatives will take some time to show up in results, we are hopeful they will create a platform for stronger future growth.

Moving on to Animal Jam, this is an IP we acquired in August 2022. Since then, we have worked on multiple things. We have optimized non-core costs, which has resulted in EBITDA margin of 24% in Q2 FY '24, a significant increase from 11.6% in Q4 FY '23. Within the product, the focus has been on improving monetization loops. This has resulted in a 46% year-on-year increase in ARPDAU in Q2 FY '24. New user monetization increased to 2.0% in this quarter versus 1.4% in the -- at the time of acquisition in August 2022.

We are working on licensing deals to introduce popular IP within Animal Jam, which would drive organic growth. We expect to start scaling up marketing spend in the coming quarters to drive revenue growth as well.

Moving to WCC. The revenue for the WCC franchise stood at INR 5.4 crores in Q2 FY '24, with an EBITDA growth of [ 23% ] year-on-year. In Q2, we transitioned our main titles WCC2 and WCC3 to online-only mode, where customers who want to play offline have to pay and/or watch a rewarded video ad. This resulted in a lower daily and monthly active users, but we have not seen any different ad revenues.

Further, this gives us more clarity on the true ARPU of our players, and so we can increase spend on user acquisition that would help us scale up this business to its true potential. We are also increasing focus on launching WCC in global markets, where the ARPU would be much higher.

Moving to OpenPlay, which is our IP in the skilled-based real money gaming segment. The present revenues and EBITDA reached to INR 25.2 crores and INR 3.3 crores, respectively, in H1 FY '24. In July 2023, the GST Council decided levy a 28% tax on the entry fees of real money games. This has come into effect from 1st October 2023.

Due to the implementation of new GST tax regime, from October 1, we expect Classic Rummy to post an EBITDA loss in Q3 FY '24 before stabilizing to breakeven by Q4 FY '24, again. There have been industry-wide issues related to large claims from authorities over past tax liabilities. We continue to monitor the situation closely.

With clarity on taxation, Nazara will seek to grow the OpenPlay business once it's stabilizes from the GST impact as well as actively explore attractive acquisition opportunity in the real money gaming segment.

Moving to eSports. This segment grew by 21% in H1 FY '24 and 26% year-on-year in Q2 FY '24, coupled with an EBITDA growth of 16% in H1 FY '24 and 61% year-on-year in Q2 FY '24. This segment contributed to [ 52% ] in revenue and 28% in EBITDA in H1 FY '24.

Nodwin, the revenue increased by 15% in H1 FY '24 and 20% in Q2 FY '24. A significant development in H1 FY '24 was the return of BGMI. Nodwin conducted the second season of BGMI Master Series for India, which was telecasted on Star Sports and Rooter.

Multiple events including PUBG Mobile Club Open, PMCO, and PUBG Mobile Pro League South Asia, PMPL, were held in international markets. As the popular games have only recently returned, we expect momentum in IPs around these games and associated media [ rights ] to pick up, going forward.

As per the usually the key period for Nodwin, where we have many established IPs and event schedules, our gaming accessories business, WINGS, launched gaming-focused laptop series for the [ festival ] season. Some of the revenue during this period moved into Q3 due to Diwali being in November this year.

Moving to Sportskeeda. We have supported a robust year-on-year growth of 50% to INR 87.2 crores in H1 FY '24, and 47% year-on-year in Q2 FY '24 to INR 41.4 crores. EBITDA for the business improved to INR 25.1 crores in H1 FY '24, which is a growth of 44% year-on-year; whereas for Q2 FY '24, EBITDA increased to [ 9.6% ], which is a growth of 32% year-on-year.

In the month of September, we are happy to announce the Sportskeeda crossed the 100 million user mark for the first time. We've been able to significantly scale Pro Football Network, a business we acquired in March 2023. In September '23, PFN was ranked as the #2 NFL-focused website in the U.S. PFN business also achieved EBITDA profitability in September this year.

Moving to Adtech. Over the last year, we've been focusing on reducing low-margin work and moving towards higher-margin business clients and simultaneously, expanding our client base to remove any further concentration risk. The loss of a key client continues to impact revenue from this quarter, resulting in a year-on-year decline of revenue from -- to INR 50.2 crores in H1 FY '24 compared to INR 67.6 crores for H1 FY '23.

However, the gross margin percentage has sharply improved from 18% to 24.6%, and total gross margins have also increased from INR 12.0 crores to INR 12.3 crores in the same period, showing that this revised approach is beginning to pay off.

While gross margins have improved, Datawrkz EBITDA has declined from INR 6.8 crores in H1 FY '23 to INR 3.2 crores in H1 FY '24. This reflects a significantly higher investments in our sales and marketing efforts in the form of team overheads as well as marketing events.

These investments in marketing during Q2 FY '24 and ongoing efforts in current third quarter have significantly bolstered our pipeline and started leading to a higher conversion rate from our sales pipeline and the formation of key partnerships. Additionally, we recently welcomed a senior marketing head, who will say our spearhead marketing initiatives across all verticals.

Mediawrkz, the dedicated publisher monetization solution division of Datawrkz, has earned the prestigious Google Certified Publishing Partner certification. This is expected to help with increased market penetration in conjunction with new ad monetization products being rolled out by Mediawrkz.

We continue to benefit from a close working between Datawrkz and Animal Jam team and extend to -- and expect to expand this to various other companies within our group.

With this, I'll close my remarks here, and we'd like to open the call for Q&A. I will prefer Mr. Sudhir and Rakesh Shah to join me for the Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Jinesh Joshi from Prabhudas Lilladher Limited.

[Jinesh Joshi, analyst]

Yes. In the opening remarks, you mentioned that due to this implementation of new GST rate from October 1, we expect Classic Rummy to post an EBITDA loss in 3Q, but we expect that to stabilize in 4Q. So what I want to understand is what changes are we instituting to kind of get a breakeven within a quarter, given the fact that the tax rate on full bet value is quite discouraging?

Also, in order to attract players, I mean, do we plan to reduce our platform fee or give a higher joining bonus? What is our plan here, basically?

[Nitish Mittersain, executive]

Jinesh, this is Nitish. So the way the GST has been implemented, right, there is a 28% tax on deposit now, effective 1st of October. At this point of time, all the market players, including us, are [indiscernible] entire impact of this increase in tax [Technical Difficulty]. What that means is, it basically erodes our margins. And therefore, we made a comment saying that in Q3, [ there will be ] some level of EBITDA loss as we optimize the business.

The way we are looking to come back to a breakeven, and the early signs are quite positive, is, one, of course, as we knew that this change is coming down, we had undertaken significant cost optimization measures, I think they are helpful to us.

Second is, we will slightly increase our commission that we charge or the rates that we charge, which will increase our net revenues. And the third, we have also, for example, incentivized the users to withdraw less. There's usually a very circular loop, it will keep withdrawing and again, positive. So we're kind of incentivizing the users to keep money in the system rather than continuously withdraw and deposit to reduce our outgoing tax liability.

So I think these are some ideas I'm sharing, but there is a lot of work and a lot of ideas that the team is implementing. And we are very confident that the business will stabilize very [Audio Gap ] and then set a base for the future growth.

I think from Nazara perspective, all along, we have been saying, for us, getting clarity on taxation and regulatory aspects of the real money gaming space is very important before we took a much more aggressive move. I believe that, that has largely been achieved now. And therefore, we are in a good position to both push aggressively for growth in OpenPlay, going forward, as well as look at potential acquisitions in that space.

[Jinesh Joshi, analyst]

Sure, sir. Got that. My second question is on eSports. Now I believe eSports was a medal event in the recently concluded Asian Games. So would you have any specific data to share on viewership and sponsors, which can give us some idea on the acceptance of the sport as such?

Also, I believe this time around the competition was on some 7 titles. So how does the selection of the games happen? And do you expect the titles to rise, going forward?

[Nitish Mittersain, executive]

Jinesh, the first part of the question, just [ look ] up a bit. Can you just quickly summarize it, please?

[Jinesh Joshi, analyst]

Yes. So eSports was a medal event in the recently concluded Asian Games. So do you have any specific data on viewership and sponsors, which you would want to share that can give us some idea with respect to the acceptance of the sport as such?

[Nitish Mittersain, executive]

So answering your second question first is that the Asian Games are currently chosen by Olympic Committee, OCA -- sorry, not -- by the OCA, and it was broadcast from SonyLIV. We do not have very specific data on it, but I think it's a great first start for the eSports [ we brought ] into the Asian games.

I think it helps create the credibility of eSports being seen as a proper sport. And even though [Technical Difficulty] comment they would look at bringing on eSports into the Olympics soon. So I think all in all, it's a very positive thing. There were no separate sponsors other than the Asian Games sponsor, specifically for this.

[Operator]

[Operator Instructions] The next question is from the line of Mr. Abhishek Kumar from JM Financial.

[Abhishek Kumar, analyst]

Congratulations on fundraise, really some [ marquee ] investors there. So my question is on the utilization of these funds. One, while it's given in one of the slides, the area that you're looking at, but in terms of timelines, do we have any timelines by which we want to deploy these funds? And then I have a follow-up.

[Nitish Mittersain, executive]

Sure. So Abhishek, we've built a pretty strong pipeline in, I would say, most of this year and last 12 months, I would say. And the market is very conducive for us to be able to potentially acquire businesses at attractive prices and that businesses that we believe can grow well for us in the future. So we're having a strong pipeline. We're looking at trying to take some of these across the finish line in the next couple of quarters.

But we are not in some tearing hurry. We want to make sure that just because we have raised capital, we don't randomly buy anything which is not helpful for us. So we want to be very prudent about how we deploy. At the same time, I think we'd love to see some deployment of this capital [ before ] the end of the current financial year.

[Abhishek Kumar, analyst]

Okay. And maybe a related question was that, see, we are already -- even before this preferential money comes in, we were sitting at INR 820-odd crores of cash, and it is well distributed across our subsidiaries. So I mean, I was just wondering what was the need of -- I mean do we really need INR 500 crores additional? And is the money which is lying in different subsidiary, fungible enough for us to kind of make acquisitions at the corporate level?

[Nitish Mittersain, executive]

So to answer your second question first, we see a lot of opportunities on the M&A side for the specific subsidiaries running their own businesses. And therefore, it is most efficient for us to deploy the capital directly from there rather than bring it back to the corporate at this point of time. If we have not seen opportunities in each of these businesses, then we would probably try to do that.

But at this point of time, we have acquisition pipelines in each of our businesses, whether it is the gamified learning business, whether it is the eSports business, Sportskeeda, et cetera. So the idea is to really drive from there to buy businesses or opportunities that will add value to each of that segment.

In terms of why did we pull in additional capital, I think we're really at a point of time where the value opportunity for us is significant. And I'd love to see us be able to take some larger transactions than what we have done in the past. And therefore, we wanted to make sure that we have money in the bank. It puts us in a very strong negotiation space. We can negotiate [ hearts ] and close some good deals. That was really the intent to preempt our strategy.

[Abhishek Kumar, analyst]

Okay. Okay. And maybe one last question on the strategic direction from these acquisitions. So on one hand, we are saying that we are -- we have already launched the publishing business. And at the same time, we are looking to acquire, and from what I read on the presentation, some of the game studios.

So just wanted to understand where do we want to position ourselves as a publishing platform, allowing games studios and developers an opportunity to really build games, et cetera, or -- in the medium term, I mean, or do we really want to be ourselves game studios, building these games for various platforms?

[Nitish Mittersain, executive]

Yes, I think both of these activities, which is acquiring and owning our own game studios as well as providing a platform that allows publishing, especially in a market like India, which is much anticipated to grow big, and a lot of Indian developers as well as global developers want to access this market; are both very complementary and synergistic.

A lot of our learnings from the studios that we operate can be replicated in the publishing initiative and be very helpful to the third-party developers that we bring in. Publishing, of course, will be without equity in -- to the developers. But the studios that we really like, we may also acquire. So actually, the publishing can also become a fantastic funnel for future acquisitions by Nazara.

[Operator]

The next question is from the line of Mr. Mukul Garg from Motilal Oswal Financial Services.

[Mukul Garg, analyst]

Nitish, just following up on this Nazara Publishing, can you share some thoughts on how you are seeing the value emerging from this model over the medium term?

While you have committed for minimum INR 1 crores investment in each game, generally, how it will play out if a game starts gaining traction? Will your investment be more about kind of as a stake thing or as a publishing kind of platform? What other kind of return opportunities you can generate out of it in the longer term? And then I have a subsequent question.

[Nitish Mittersain, executive]

Sure. So there are two aspects to this when we allocate capital in our publishing: One is developers who require capital to develop the game, build their teams, fund their teams, et cetera. I think if we deploy capital there, that will go in the form of equity, and we would have a stake in the company.

And then there are developers who may have games that they have already made or already self invested in, and they are just looking for a publisher to bring it to the market, invest capital in user acquisition, for example, provide some additional support in terms of game design, live operations, et cetera.

So I think depending on which developer, on a case-by-case basis, we may take equity stakes upfront or not in these developers.

In terms of the long-term strategy for publishing, we believe that how can Nazara create a very large consumer base across a large number of high-quality games that we publish. We also intend to launch our Nazara [ SDK ], which will be embedded in each of these games. And hopefully, that help us build a very large network, which can then provide additional value addition as the ability to cross-promote, have more first-party data, et cetera.

So we're not looking at this broadly from a stand-alone success of a game, but also building out the publishing network over a period of time.

[Mukul Garg, analyst]

Right. And just two follow-up questions on this. Are you kind of now beginning to look at kind of positive kind of spend from users on these games in India? And you can kind of like talk a little bit about WCC also, how you see the longer-term profile? Because it has been in a fairly narrow range and obviously, monetization hasn't been that positive as of now.

And second, you -- what was the impression you got at IGDC? Are you seeing an improvement in the quality of games coming out and the interest in people?

[Nitish Mittersain, executive]

So I think with growing consumer base and the more time consumers are spending -- Indian consumers are spending playing games on their phone, the more they are evolving into starting to pay for it.

So I think incrementally, you're definitely starting to see better IP convergence, although they are still far behind what we would see as local standards in evolved markets like U.S. But I believe that this will accelerate, and that's what we are kind of gearing ourselves for. Also, micro payments, [ UPI ], additional payments in India have progressed so well that they are going to be a very strong tailwind for users making these [ high teens ].

Secondly, to your question on WCC, I think we are surely a little frustrated in terms of how WCC has not scaled up because the franchise is so strong and the game is so well developed over many years. And I think there's a lot more that can be achieved over here.

And for -- towards that, there's several things here: One is we kind of got a new CEO, who's coming from background of electronic [ arts ], et cetera. He has spent the last 6 months doing a lot of groundwork to get the game ready for a much larger launch.

The other thing you must have noticed in our presentation is that we're making some key decisions, which may disrupt the status quo that has been for the last 20 quarters or years. For example, we moved all our users to online-only mode because there were a lot of users playing offline, which we were unable to monetize. Now by moving users online, we are able to increase the ARPU per user and therefore, our LTV/CAC equation becomes much better, and that should allow us to scale up.

A lot more focus has been increased on live -- of maintaining much more live operations versus just content updates. I think there's a lot of activity happening in the back end. And I'm hopeful that by Q4, we should be able to start spending a lot more in WCC to scale it to the level it really should deserve.

The last question you had was on IGDC. Nazara was a diamond sponsor at IGDC this year and was very well received. What we are seeing on the ground is there is a lot of energy, a lot of enthusiasm by many [ A&D ] and young developers. There were a few thousand developers there. We also hosted -- in fact, we hosted a launch exclusively for new and upcoming developers, which was very well received.

And we've had, for our publishing, new launch of a publishing division already, I think, close to 100 applications that have come in from developers for the games.

So I think, a very great start. I'm enthused that the Make in India story in India is going to be very big for gaming. And that's exactly an area of focus. It may not become a very large source of monetization for Nazara immediately. I think strategically and eventually, this will be very important for us.

[Mukul Garg, analyst]

Sure. And just if I may ask one more question, on Kiddopia, the activation rate continues to moderate down. Any color on that? Or is it more volatility and should not be kind of listed there for longer term?

[Nitish Mittersain, executive]

No, I think we've been using [ Google ] as the main source of user acquisition. And unfortunately, we have not been able to scale our spend. We have been trying to scale our spend, but the spend has not grown beyond the steady-state $800,000 a month, $900,000 a month.

So there's two, three things we are doing: One is we are very actively working with very senior teams at [ Google ], and they are responding very well with us to try and solve this scale-up problem. We are getting activations in the range that we want, but we are not able to scale.

So hopefully, both the teams working together will find some solution. We're also considering going back to some of the other strong ad networks that we were working with earlier, where we hope we can open more scale.

And then, as we mentioned and Anupriya spoke a bit about it, we are also trying to find alternate ways of growth versus just linear user acquisition spend growth. I think, generally for our kids games, not specifically just Kiddopia, but even Animal Jam or any other game that we may acquire, I think IP licensing will be a very powerful way to break through this logjam of user acquisition.

And we'll advance conversations with a few IPs, well-known IPs to bring them into our games. That would boost our ability to do better user acquisition as well as drive a lot more organic growth. So these are the ideas that we are currently working on.

[Operator]

[Operator Instructions] The next question is from the line of Mr. Manan Poladia from MKB Securities.

[Manan Poladia, analyst]

Am I audible?

[Operator]

Yes, sir, you're audible.

[Manan Poladia, analyst]

First of all, congratulation on posting a great [ deck ]. So I have a couple of questions. The first one is on the eSports side, specifically Nodwin. So what I want to understand is I understand it currently, we're in an investment phase for Nodwin, et cetera, and we are not really focused on driving EBITDA margins or EBITDA per chance.

What I want to understand is in the long term, say, from a 5, 10 fiscal sort of perspective, what sort of margin would we be aiming at in the future for Nodwin? And just a follow-up on that. The content use from H1 FY '23 to '24 have dropped from 377 million to 221 million. Is there a specific reason for that, maybe certain IPs being pushed like [ BGMI's ] coming here and the [ Diwali ad revenues ] going upwards? So if you could just clarify on that.

[Nitish Mittersain, executive]

Sorry, your second question was?

[Manan Poladia, analyst]

So my second question was on the content use dropping from 377 million to 221 million in H1 FY '24 versus H1 FY '23. I just wanted to understand the disparity between this? Is it because some IPs have been postponed or Q1 didn't have [ BGMI ] IPs?

[Nitish Mittersain, executive]

Yes. No. So on the second question, a lot of -- as you know, a lot of these games were the popular games of brands, which came in Q1. And it takes some time for -- also, some of these popular games, when they came in, the government had announced that they will review it in 3 months or 6 months, I think it was 3 months.

So I think a lot of the launches around these were tentatives. And while we did successfully do the [ BGMS ] on Star Sports, I think there is some lag effect. There's been some push into the next quarters.

In terms of the IP spread across quarters, you will see much more back-ended into H2. We've got a slew of IPs happening in October, November, December, which is the main season, and also in the first quarter of -- sorry, Q4 of this year, which is Jan to March.

In terms for -- in terms of margins, I think -- I mean, our stated policy of Nodwin has been that we need to start [ HAP ] grow. Over a period of time, we are very hopeful that these margins will increase upwards of 10%, 15%, but we don't have a specific guidance on that at this point of time.

[Manan Poladia, analyst]

Correct. I understand. Secondly, my other question is basically an accounting question. All I want to understand so if you look at our P&L for this quarter, sequentially at least, there has been this large jump in purchase of stock in trade and change in inventories of stock in trade, and I'm guessing it had something to with gaming, but I'm not completely sure. If you could just provide some clarity on that?

[Nitish Mittersain, executive]

You're talking about stock?

[Manan Poladia, analyst]

So no, when you look at the P&L, there is the first [ expansion ] line item, which is purchase of stock in trade; and the second line item, which is just change in [ inventory ]?

[Nitish Mittersain, executive]

This is basically linked to our WINGS gaming accessories because this is the main season, the Big Billion Day on Flipkart, et cetera. So you would see more stock acquired for the sale of that.

[Manan Poladia, analyst]

Okay. Okay. So this will -- the profits of this will start showing in Q3?

[Nitish Mittersain, executive]

Yes. I mean again, this business has grown very well for us from the time we acquired, so we're still building of the brand, et cetera. So it's a low-margin business still for us, but growing quite well. We bought Shubman Gill and good brand ambassadors and all on it. So we're right now looking to grow the brand and the scale of -- while remaining profitable. That's our approach.

[Operator]

The next question is from the line of Mr. Rahul Jain from Dolat Capital.

[Rahul Jain, analyst]

Just wanted to check about this Animal Jam business, the metric on ARPDAU or the [indiscernible] basis, monetization has improved, but we see that the revenue has been pretty stable, although we have done well on the margin.

So what kind of thought process we should imply here? Do you see some scalability challenges from a demand side of it? Or -- because if these metrics are up, somewhere possibly the churn might have gone up. So if you could explore on this thought and how we could see growth here from a medium-term perspective?

[Sudhir Kamath, executive]

Sudhir here, let me take that one. So I think if you look at Animal Jam and [indiscernible] since we acquired it last year, the emphasis is very much been on fixing a lot of the underlying basics first.

The first couple of quarters was really around that. And since then, as you would have seen, the results have been that the margins have now increased significantly. So our revenues are still, if you look at it, slightly flat, but that is a misleading picture because this is also seasonal.

And the peak season for Animal Jam, which targets kids in the [ U.S. ], is actually this current quarter and the next quarter, Halloween, New Year, et cetera, event is coming up. So that's where you actually see the revenue scale up beginning to happen.

But just to step back, essentially, what we're saying is that we've kind of fixed the margins of the business the last couple of quarters that we've been steady now at 22%, 24% kind of margins compared to maybe single digits when we started. And the revenue scale-up is something that is beginning to happen.

There is a lot more that needs to be done in terms of both user acquisition and maybe brand-related investments in the coming months. But we've fairly come to table that those initiatives are pretty [indiscernible].

[Rahul Jain, analyst]

Right. Sorry, I missed the part in case you shared about the churn, what has been the behavior on a 1-year basis?

[Sudhir Kamath, executive]

So this is not a subscription business. So I don't think churn is the right word here...

[Rahul Jain, analyst]

Or you can say maybe the paid user, whatever way you want to...

[Sudhir Kamath, executive]

So the paid numbers had dropped slightly, but they have actually been coming back quite strongly. So if you look at the total [ numbers ], eventually, the revenue that you will see, and we're quite comfortable that in the coming quarters, we will see much better numbers there.

[Rahul Jain, analyst]

Understood. Understood. And on the Adtech side, given that we have a lot of positioning in the Western world. And there, what we are seeing with other adtech businesses, the challenges continues. So what are the thoughts here from a 1- or 2-year perspective?

[Sudhir Kamath, executive]

Datawrkz, which is our primary vehicle for Adtech, if you look at that, that's the services business. So it's definitely not immune to what is happening in the broader Adtech space or advertising space, if you will. eCPMs are definitely under pressure, globally.

That said, what Datawrkz does is it provides the service to customers who are looking to deploy money for these acquisitions. What we've seen is that [ they'd ] be focusing on moving towards higher-margin trends, also focusing more on the product side of the [indiscernible] that is definitely beginning to have an impact.

Of course, our scale is really too small. So we don't -- I mean there's a lot of room left to grow that business and to keep growing the margins from where we are. You also see that as more of a strategic capability, which we can use for our other deals. So we've done that in Animal Jam that they've had a pretty positive impact. We're starting to do a lot of work also, using Datawrkz, on Nextwave now and potentially on other companies that we acquire.

[Rahul Jain, analyst]

And one interesting data you shared is that PFN was possibly scaled to the #2 position. And what I understand it's a very, very large market when I look at the top tie-out there. So do you see a very, very hyper scalability potential in near term in that business, just like we saw for the mean SK business?

[Sudhir Kamath, executive]

So -- sorry, can you just repeat that? I couldn't get the last part of it.

[Rahul Jain, analyst]

So the last part was like -- I mean, in a way, we could say that the Sportskeeda growth and margin profile scaled up very, very sharply in the last couple of years. So do we see -- and the market for PFN is also very, very large. So that way, you see that scale-up on a very small base could be very, very steep in the next couple of years?

[Sudhir Kamath, executive]

Yes. So I think when we acquired PFN on [ April ] time, so if you remember at that time, it was still a negative-margin business. And I think we had mentioned that time that we are looking to have a breakeven year with them. And you have to kind of note that in September, we already had a breakeven month for PFN.

We do expect the margins to keep increasing on that business, and Sportskeeda has proven a playbook of how to grow EBITDA margins and profitability. And they're deploying that quite well in PFN as well. The amount of scale that it can reach in terms of revenue is definitely much higher than where they are today. But I think it'd be a good combination of both revenue as well as profit equity growth that we should see on that business.

[Operator]

The next question is from the line of Nitin Jain from Fairview Investments Limited.

[Nitin Jain, analyst]

And congratulations on a good quarter. So my first question is, last year, you gave out a full-year guidance for the company -- entire company after the Q2 results. So this year, you have not given any guidance. So like how should we interpret this? Is there uncertainty in the business, going forward or -- if you can elaborate?

[Nitish Mittersain, executive]

I'll take this. This is Nitish. No, I think we are quite confident that Q3, Q4 will pick up from H1. I think what we found in the last couple of years is when we give a hard guidance right, in trying to make sure we meet that guidance, a lot of strategic decisions kind of become questionable in terms of whether we should do or not. We really don't want to box ourselves by giving a guidance.

If we believe, for example, that let's say, Kiddopia or Animal Jam, they get fantastic acquisition opportunity and we're able to massively scale up our user acquisition, right? So now we don't want to be saying we'll give the X EBITDA guidance and therefore, we should restrain ourselves, and we need to be able to take such opportunity. So we just don't want to box ourselves by not being able to take the important strategic decisions. That's the focus.

[Nitin Jain, analyst]

Okay. Got that. So just a follow-up on that. Like I'm not looking for numbers, but directionally, how do we see the year panning out compared to FY '23?

[Nitish Mittersain, executive]

Yes. So I think directionally, we should continue to see higher growth than H1 in terms of the revenues and also higher growth on EBITDA for the rest of the year. That's what we are working towards.

[Nitin Jain, analyst]

Okay. No, I mean -- okay, great. So in terms of the margin, we should be better than last year or...

[Nitish Mittersain, executive]

Yes, definitely.

[Nitin Jain, analyst]

Okay. Perfect. And my next question on Kiddopia. So the unit economics, they seem to have deteriorated like for second quarter in a row. And also, our margin improvement is more out of the inability to scale up our spend.

So how do we read this? Like is it out of increased competitive intensity in the business? Because larger players like ABCmouse, they are seeing a good growth. And also on Kiddopia, last year, I think there was a mention of taking this business to specific geographies in Europe, like I think Germany. So is that still on cards?

[Nitish Mittersain, executive]

So the unit metrics, we generally found them largely in a range once we factored in seasonality. I'm not sure if you are talking about any specific metric you want to highlight.

[Nitin Jain, analyst]

Yes. So I mean the CPT is back to like around $39. And our subscriber growth has -- second quarter, it has declined. And ARPUs, again, they are kind of on a declining trend.

[Nitish Mittersain, executive]

No. So we've been doing a lot of experiments. CPT has been largely in the range of $36 to $38. But in an attempt to unshackle the scalability issue, we've been experimenting, trying to see whether increasing the CPT a little bit increases our scale, et cetera. So I think a part of that you are seeing this is experimental. Even the ARPU's slight decline is [indiscernible] recovered in Q3 is because we did add some summer promotions to see whether that gives us a spike.

So I think because we want to obviously break out of this plateau that we are at, we obviously have done a lot of experimentation. So I think that is what we're seeing, nothing much beyond that.

In terms of competitive pressures, actually, if you look at some of the Similar web type of -- or App Annie data, even Animal -- even ABCmouse has declined in the last 2 quarters, so it's not that it's specific to Kiddopia. Kiddopia, in fact, continues to remain strongly on #2, behind ABCmouse. So we are not so worried about that.

I think in our mind, we have to find alternate ways to break through this logjam. And we are, as mentioned in our -- elaborated in [ these ], we have started working on a few of these ideas.

Lastly, on the Germany thing, we have done an experiment at that point of time, it's been not done great. So we are kind of [ focused ]. Then the [ IDF ] issue had happened, so we're gone back to focus on the U.S. markets, but one of our growth strategies now is to [ passively ] open new markets as well.

[Nitin Jain, analyst]

Okay. Great. And just one last follow-up on Kiddopia, again. So last time we took a price hike, you had given some data showing how we are -- how Kiddopia was still cheaper compared to the other subscriptions. So do you see yourselves exploiting that gap, going forward, or not as yet?

[Nitish Mittersain, executive]

No, we are not looking at immediately doing further price hikes. I think our focus right now is singularly on how do we [ restart ] acquisitions.

[Operator]

The next question is from the line of Mr. Manan Poladia from MKB Securities.

[Manan Poladia, analyst]

What I also want to understand is when we speak about Sportskeeda and PFN, so PFN, I think, going forward, is going to be a much larger portion of Sportskeeda, somewhat I understand. And the larger player is significantly larger, right? I just want to understand what kind of scale are we looking at with respect to PFN, say, in the next 3 to 5 years?

[Nitish Mittersain, executive]

Sudhir, do you want to take it?

[Sudhir Kamath, executive]

Yes, sure. See, I don't think we can give specific guidance on PFN itself, but one thing I can definitely say is if you look at NFL, NFL is the largest sports market in the U.S., in fact, even in the world. It has a [ contribution ] of something like 56% of the total sports market in the U.S.

PFN is still quite small, as you said, compared to the beta. There's a lot of room to grow from where we are. I think our focus is very much that we want to keep scaling up the number of users, and we've seen that successfully starting to happen.

The main NFL season itself is September onwards. So we are still in the second month of this year's season. So we do expect to see much higher user as compared to last year.

And I think that then, we will start giving you some more breakup or clarity on what is the kind of revenue and user numbers we can see from the [ sponsorships ]. But I think at this point, it's too early to look at how much it can grow. We just know that it can grow a lot.

[Manan Poladia, analyst]

My second -- sorry?

[Sudhir Kamath, executive]

There's one other small point on this, which I should mention, which is the acquired PFN. One of the key things we're also looking at is the synergies between PFN and Sportskeeda. And Sportskeeda also has a strong presence in the U.S.

And combined with PFN and Sportskeeda, we think that now provides the critical mass to start looking at much more direct [ sell ] to customers, which also then will help drive profitability to EBITDA much more than -- or even higher than what [indiscernible], especially for PFN. So we just [ wanted ] to mention that.

[Manan Poladia, analyst]

My second question is with regards to the new [ batches ] that we have built, about 1,300 crores or so. So what I wanted to understand is when we're looking at acquisitions from here, going forward, is there one specific scale or size that we're looking at?

Secondly, are we looking at acquiring in different businesses than we already are in or are we looking at acquiring with respect to, say, bolt-on acquisitions, where we can develop synergies?

[Nitish Mittersain, executive]

I'll take this. So in terms of the scale of acquisitions, like I mentioned, if something is very strategic to us, we make a bolt-on for a smaller business. And most likely, that will happen at the subsidiary level and not at the corporate level. We're looking at larger acquisitions at the corporate level.

While there's not necessarily any specific number, but I would say, we would look at these businesses generating INR 100 crores, of course, of revenue at a minimum level, ideally. So that's what -- and largely being profitable. So I think that's what we're looking at.

We are definitely not looking at launching any new segments of business at this point of time. I think there's a lot more that can be done in our core Gaming IP, sports -- eSports and even Adtech business. So I think whatever acquisitions will be done, will be, one way or other, synergistic to our existing businesses.

[Manan Poladia, analyst]

So I have just a small follow-up to that. Now that we've spoken about RMG in this call as well, all the regulation has happened and that [ 20% ] GST slab has come in, so are we looking at RMG now more positively? Or are we still looking at letting the industry stabilize for a bit and then get into RMG acquisitions? What is the situation there? Plus, what kind of games? Like are we only focusing on Rummy or are we going to do poker, [indiscernible] as well?

[Nitish Mittersain, executive]

So specific to RMG, our -- we are looking at it as glass half full, which means they're leaning positively towards seeing what are the opportunities. And we have -- even earlier, we were in very active discussions with a lot of players. So I think within the OpenPlay business, there could be bolt-on acquisitions for sure, and there are some discussions going on.

We could look at some new formats outside of the existing OpenPlay business as well, where we will be -- we will only go into a new format if we believe we can be a leader in that segment, [ otherwise ] we will not.

But within the OpenPlay business, we'll definitely look at consolidation. I think the only one thing we need to figure out at this point of time is in the past -- many of these companies are sitting with past tax claims right now. And how do we navigate that piece while will doing any M&A activity is something we are trying to figure out.

[Operator]

As there are no further questions. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

[Sudhir Kamath, executive]

Thank you, everyone, for joining, and wish everyone a happy Diwali.