Nazara Tech: Esports Analysis 🚀

Deep dive into Esports segment of Nazara

This is for the 1st time we are covering one of our portfolio companies for 2nd time here at ‘Finding Outperformers’. We last covered Nazara tech in Nov’22 in the blog post named Can Nazara make it big? can be found here: Link. Our key reason why we bought it was the valuation comfort we felt in front of the huge potential that the company has. Since then, the price has further gone down. From ~Rs 600 in Nov’22, the share price today stands at ~Rs540. Since our view is long-term, we aren’t very concerned about short-term volatility affecting the company’s share price and continue to track all its subsidiaries closely. Here is how it has performed since its listing 2 years ago:

The general public views Nazara Tech as a gaming company, which isn’t true. We view it as a VC that invests in the gaming ecosystem. In this blog, we want to focus on 2 key subsidiaries of Nazara that are part of their Esports segment: Nodwin Gaming & Sportskeeda (Absolute Sports)

Nodwin Gaming

Nazara owns ~55% of Nodwin gaming. This is amongst South Asia's largest esports & gaming companies with about ~80% market share in their category. They are primarily focused on organizing esports/gaming events for companies like Kingfisher, Red Bull, Nvidia, etc., along with collaborating with global gaming companies like ESL, Riot Games, etc. They recently started focusing more on event management as they acquired certain IPs like Bacardi NH7 Weekender (bought the rights during covid). Acquired in FY2018 by Nazara, Nodwin’s annual revenues barely touched Rs 17 Cr back then which today stands at an estimated Rs 400 Cr in FY2023, growth of 25 times in just 5 years!

Here’s a picture of an event I got to attend organized by Nodwin here in Delhi in Nov’22 for Red Bull:

The founder and CEO of Nodwin, Akshat Rathee, is one of the smartest people when it comes to gaming, in the whole of Asia. His vision is inspiring! His story is crazy as well, a guy who would identify & catch the next big opportunity before others realize the gaps, and make tons of money. Here’s an interesting 11-year-old youtube video link we found of Akshat Rathee’s interview where is narrates how he earned Rs 8 lacs when he was in class 11, back in 1995.

We also find a mini-Nazara being built out of Nodwin, after looking at the acquisitions they did in recent years. Whether it’s acquiring ~10% stake in Rusk Media (owner of Alright! and Playground), or ~35% stake in Wings (gaming accessories producer, recently onboarded Shubhman Gill as their brand ambassador), or their latest acquisition Branded (Singapore-based event organizer with IPs like: It’s A Girl Thing, All that Matters, etc) acquired 51% for $1.3M, a deal happening at ~4 times revenue multiple. Nodwin is focused on acquiring businesses in adjacent areas following an ecosystem approach which can be a big win in long term.

SportsKeeda (Absolute Sports)

Sportskeeda is involved in media, journalism, social media, sports marketing, advertising, content, video, etc. Nazara Tech owns ~75% of it. It is expected to make ~Rs 120Cr in revenue for FY23, growing at ~35% YoY.

They were big beneficiaries of covid as their Monthly Active Users (MAU) went up more than 3X times in just the 2nd half of 2020. As shown in the graph, a steep rise in their user base was registered back then, which somehow has relatively flattened in recent quarters. The MAU currently stands at 7.6 Cr as per Q3FY23 reported figures by the company.

In a recent corporate development, the founder & CEO Porush Jain resigned from the company, and the then COO Ajay Pratap Singh is now the current CEO of Sportkeeda. Via his recent appearance and social media activities, we find Ajay equally dedicated, motivated, and capable along with being more aggressive in taking this media company to greater heights.

USA contributes ~60% of its revenue which has been doing extremely well! In fact, their recent acquisition of ~Rs16 Cr of US-Based Pro Football Network is focused on that. This acquisition involves significant cash outflows and adding to it, it was said that Absolute Sports is looking to pursue multiple acquisitions in the near future to further strengthen its position in the sports media landscape. This clearly shows that the new CEO wants to pursue the inorganic way of growth which in our view isn’t bad seeing the valuations are not that high in global markets for IP, brands and sports/gaming-related entities. Adding to it, Nazara as a whole has a good amount of cash on its books as a whole and hence can support further investments and M&As.

Apart from Esports, Gamified early learning (Kiddopia) & Adtech(Datawrkz) are the next 2 exciting portions of their business which we shall discuss in some other blog as we continue to track the closely.

What can push the share price higher?

1. Globally, the valuations are still depressed for startups due to ongoing macro-uncertainties, especially after the fall of Silicon Valley Bank and Credit Suisse. Recent economic and job data from the USA have shown a significant impact now being witnessed by the economy from rate hikes. Dovish Fed, which might spark a rally in global tech companies can be a major trigger in the re-rating of stocks like Nazara Tech.

2. Continued momentum on the front of new acquisitions across business segments will be the key and would be closely watched. There was surely a pause in corporate developments after the previous CEO of Nazara resigned around September’22 and momentum seems to be gaining now.

3. Upcoming results of Q4 FY23 will be closely watched, especially on the profitability front. Profit margins were compressed in FY23 in the first 3 quarters compared to FY22 quarters as the company focused on growth and hiring key employees. Profitability improvement can draw interest from institutions.

That’s it for today! Hope you enjoyed our analysis!

Note/Disclaimers: Nazara Tech is a high-risk investment. Our bias is involved due to ownership in personal and client portfolios. This blog isn’t investment advice but rather written from research motive only; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the Decision maker is responsible for any outcome