Q4FY23 Review: Nazara Technologies: Key segments deliver healthy growth

Nazara Technologies (Nazara) reported Q4FY23 revenue growth of 65% YoY (~30% organic) — in line with IIFLe — led by eSports (+53% YoY), acquisition of ad-tech company Datawrkz (+33% YoY) and gamified e-learning (+56% YoY, +12% organic). Ebitda margin at 9.6% (+110bps YoY/-10bps QoQ) was below IIFLe of 12%, as Nazara continued to invest for driving growth in key segments. Management expects to continue investing to drive strategic leadership in segments like eSports/RMG/Adtech, while improving margins in other segments in FY24. Analysts of IIFL Capital Services reduce their FY24-25 EPS by up to 4%, on the back of lower growth assumptions; but their 12-month SoTP-based TP rises to Rs720 (from Rs700) on roll forward.

Broad-based growth across key segments: 

Among segments, Kiddopia led growth in Q4 clocking 56% YoY growth, driven by price hikes, flat QoQ subscribers despite seasonal pull-back, consolidation of Wildworks and increased marketing spends. Nodwin grew by 57% YoY, on growth in multiple IPs and gaming accessories. Sportskeeda grew by 41% YoY, driven by growth in US. Real Money Gaming grew by 11% YoY, despite a decline in MAUs. Datawrkz grew 33% YoY; however, it lost a significant client in Q4 that could impact near-term growth.

Investments hurt margins: 

Ebitda margin were flat QoQ at 9.6% — up 110bps YoY — as Nazara prioritised revenue growth over margins. Nodwin’s margins remained depressed at 4.4% (vs 2.5% in 4QFY22), since it invested in scaling its own IPs and Gaming Accessories business. Sportskeeda’s margins declined sequentially to 27.5% (vs 37.9% in 3QFY23), as it sustained investment in American sports. Kiddopia’s unit economics held steady, driven by price hikes and lower cost per trial.

Risk-reward balanced, given multiple moving parts: 

The stock is trading at 38x on FY25 P/E. Analysts of IIFL Capital Services SoTP-based 12-month TP is Rs720. They would look for continued organic revenue growth momentum across business segments and improved visibility on margin trajectory to turn more constructive. Key risks: Aggressive M&A, regulations.

Analysts of IIFL Capital Services forecast Nazara to deliver 23%/48% revenue/EPS Cagr over FY23-26. The stock is trading at 38x on FY25 P/E. Maintain ADD on balanced risk-reward.