Nazara Technologies Limited (NAZARA) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Nazara Technologies Limited Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jinesh Joshi from PL Capital. Thank you, and over to you, Mr. Joshi.

Yes. Thanks, Sean. Good day, everyone. On behalf of PL Capital, I welcome you all to the 2Q FY '27 earnings call of Nazara Technologies Limited. We have with us the management represented by Mr. Raymond Stauffer, CEO; Mr. Mithun Sachete, Executive Director; Mr. Arun Agarwal, CFO; and Ms. Anua, Head of Corporate Development. I would now like to hand over the mic to the management for opening comments. Over to you, Raymond.

Good morning, everyone, and thank you for joining us. As you are all aware, this is my first earnings call as the CEO of Nazara. And was since day 1, my priority has been to align the teams and operations while leveling up group capabilities by enhancing Nazara's Central platform. And part of that has started to show throughout Q2 FY '27. This quarter, as you've seen, has been a key step in Nazara evolution into a global gaming platform. It is also the first quarter to include Blue to on Besse consolidated from first of August 2026. Q2 was a record quarter for us. Revenue was INR 803 cores or highest ever, up 53% year-on-year. EBITDA grew 93% to INR 120 cores and EBITDA margin expanded 311 basis points to 14.9%. Profit after tax from continuing operations was INR 35 crores compared with a loss of 34 quarters in Q2 FY '26. For H1 FY '27, revenue grew 20% to INR 1,232 crores, and EBITDA grew 52% to INR 166 crores. Gaming revenue grew 122% to INR 656 crores at a 21.5% EBITDA margin, contributing 82% of consolidated revenue and effectively all EBITDA before corporate costs. Mobile revenue grew 167% to INR 550 crores too. And there are -- months as Partenza, Bluto Bestway generated revenue of INR 329 crores, up 49%. The EBITDA grew 64% to INR 64 cores driven by rapid product iterations, new markets, AI automated user acquisition and cross-promotion. Bluetile leadership team holds 5.8% Azara aligning our interest effectively to all of shareholders. Our existing gaming studios delivered organic growth of 11% in revenue and 17% EBITDA underpinned by sustained investment in content. Walworth grew revenue 41% on Animal Jam contents. Kidopigrew revenue at 21% and Fusebox launch traders and a new big brother season. Curve grew about 27% and EBITDA 61%, driven by sovereign tower, the mobile view of Walby Life and Human fall flash, which has surpassed 60 million players. But more importantly, long term, our platform is strong and is being enhanced. Bluetile core capabilities now operate as a group centers of excellence across marketing, data, products and technology where they are embedded in all 4 of them. In a single month, the marketing COE team has produced over 290 ad creators for 3 studios across the group and a single AI-ready data stack is going to power analytics across the group. Every day we launch and every study we acquire now PlugScret into these proven systems, enabling us to scale faster and more profitably. As you know, we have also expanded our leadership team, besides myself. We're very excited to have Mithun Sacheti, Founder of CaratLane, join us as Executive Director. -- and Arun Agarwal, former Global CFO of Nest Digital Engineering onboard Desk, Chief Financial Officer. And with that, I will hand it over to Anupriya to discuss segmental performance. Anupriya , over to you.

I just wanted to ask if, Mithun, you would like to add something here, and then I can probably cover the segmental performance.

Sure. Thanks, Anupriya. Good afternoon, everybody. Some of you might know this. I've been a Nonexecutive Director on the Board of Nazara, recently moved into the executive role as a part of the promoter group. And I want to share why it's relevant as well. My life has been focused on building businesses and working founders, obsessing about consumers I think the new consumer is most -- spending most amount of time in gaming. And I think that data provides that opportunity more than any other place right now. The current market opportunity for us and consumer trends, both point towards an intersection or short-form casual gaming along with the market of U.S., it's possibly 1 of the few categories in the world, which is seeing the kind of growth it is right now as well. at Nazara, -- my role largely is going to focus on making sure that we have strategic conversations and focus on governance, which is of utmost important for anybody who's dealing in the public domain. Arun has joined us as a CFO in this, and we're all very excited as the new management. The team transition is more or less complete now and with Raymond leading as the CEO and Arun as the CFO, it's exciting times for Lazara going forward. Thank you. Over to you, Anupriya.

Thank you, Mithun. I will now cover the segmental performance. In Q2 FY '27, our Gaming segment revenue grew 122% year-on-year to INR 656 crores. EBITDA grew 114% to INR 141 crores, resulting in an EBITDA margin of 21.5%. Excluding Glut and Best, gaming revenue grew organically by 11%, and EBITDA grew 17%. Mobile gaming revenue, including Bluetile and Best Play grew 167% year-on-year to INR 550 crores, with EBITDA up 11% to INR 103 crores. Top revenue grew 21% year-on-year as subscribers grew over 5% and ARPU increased to 7.94%, growing 8% year-on-year. EBITDA declined as Copia stepped up user acquisition spend to accelerate scriber growth while keeping the economics within our target threshold. While bars grew revenue 41% and EBITDA 39% year-on-year, our new animal an content, including Monster High teen season. Fuel book revenue fell 4% year-on-year on lower organic installs as downloads of similar games declined globally, while EBITDA grew 7%. Fuel box launched rates and a new base student, Lavare was the #1 free roll bank playing game in the U.S. App Store in July. In PC and console, cost revenue grew 25% year-on-year to INR 77 crores and EBITDA grew 61% to INR 30 crores, with margin expanding from 30.8% to 38.9%. Sovereign tower received an overwhelmingly positive response in steam. WobiLife's mobile launch reached #3 on both App Store and Play Store on her chart. And human fall flag has crossed 60 million. Moving to the off-line base. EBITDA grew 29% year-on-year to INR 8 crores and flat revenue of INR 29 crores with margin rising from 20.3% to 26.2%. Functionally need 10 new stores in the last 12 months with 5 more to open in FY '27, and margins improved on record birthday revenue. As 2.0 design and rebranding is complete, it launched slightly delay pending regulatory approvals. Within our other businesses, AdTech comprising of data boonsace and time delivered Q2 FY '27 revenue of INR 124 crores and EBITDA of INR 0.8 crores. DataWorks pipeline is converting into new clients, though we expect to temporarily dip in H2 as alter client restructures and positive ad spend. Absolute to total revenue of INR 23 crores and an adjusted EBITDA of INR 1.7 crores, excluding Piela franchisee cost a month and expenses. Protocol network revenue grew 20% year-on-year with an EBITDA margin of 17% versus negative 18% in Q2 FY '26. At Sports Kira content syndication partnership launched in Q1 are now contributing revenue partly offsetting lower ad rates, while operating costs were down 13% quarter-on-quarter. With this, I conclude my remarks, and we will open the call for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Aditya Kumar from AK Investment.

Firstly, Raymond congratulations for taking up the position at Nazara. It's a very big responsibility. My first question is, I have a couple of questions. First question is, what is the focus area for us under your leadership for 1 year that you want to fix or you want that something needs to be streamlined like a developing team or center of excellence, whatever. So can you just share that? What is your focus for 1 year that you want to fix in Nazara.

Sure. So thanks, for the question. So we're focusing firstly on the Nazara platform. So we have a really strong baseline to work on top of -- so we're going to -- the first actions we're going to take is leveling up those COEs and leadership positions from the Blue to team over to Nora. -- in order to enhance our marketing data tech products, AI capabilities. In the future, we'll also create a new COE and ad monetization COE that will allow us to also enhance every single studio's ad monetization capabilities. With, what we want to do is create a very strong but flexible platform, a platform that is informed by all studios, but it's also able to share with the rest of the studios, all the learnings and everything that we've gathered. So it's an ever-evolving platform that keeps up to date with the standards of the industry. I think the biggest focus is going to be to align operations, sets a deliverable bar and introduce AI in every single 1 of the studios through the OEs -- so in a year's time, what we need to achieve is an AI-operated company group and set of studios that could feed into and from those -- that central platform. Of course, this is all -- and the main focus as we've discussed and has been previously laid out, is gaming. And so that is where most of our efforts are going to go into.

Okay. Okay. Great. Sounds good to hear. And on the gaming part, should we expect any flagship product launches under your leadership for next 1 year or mostly, it will be on the existing games only the majority of our focus will be to get more and more revenue share. So can you share some light here yes.

Sure thing. Yes, both of them, right? So like the teams, all our studios are launching high qualitative games in the respective verticals and we need to do 2 things. One is relentlessly iterate over the existing games, which are proven to work and have a really big audience and second of all, keep on launching new games. You can see, for example, the curve team improving certain like unit economics in some of their pass games, but also signing new IPs and consistently launching new games, right? There's many in the pipeline right now that have been launched recently. We've had several successes and others that are coming in the next months. You also have companies like Fuze box. They've found great success in Davila. They keep on optimizing that game. And recently, this month, they just launched traders, which has great initial metrics. So the answer is we'll focus on both in order to maximize our reach, both horizontally and in depth as much as we can.

Okay. Lastly, I have a question on as shareholders. For a long-term vision for the company, we have grown revenue very strongly, right, in your leadership in blue tire and best play. Where do you see under your leadership for Nazara in the next 5 years that you would be disappointed that if we don't achieve that under your leadership for 5 years. So what is the target you have for 5 years?

I think like we need to remain like focused on the target, which is growing qualitatively, right? We need to ensure that each studio has the capabilities to keep on delivering games and keep on delivering growth. Organically, through each 1 of these studios and then at a central level inorganically through further M&A. So our target is to grow qualitatively consistently through the next -- throughout the next 5 years.

So what is the growth rate that we are targeting 25% or 30%? What is that?

We're not giving exact guidance right now. As you know, I just entered the job. But what I can say is that like we are consistently going to expect growth both organically and inorganically from both the studios and the Central Group.

[Operator Instructions] Next question is from the line of Kunal Bajaj from Choice Institutional Equities. Please go ahead.

Firstly, Raymond, congratulations on your new role. I have 4 questions in broad. Starting with -- can you help explaining the new COE strategy under -- and post gluteal consolation that is one. Secondly, we have seen that we have stopped giving a breakup of the off-line game. So why are we doing that? Thirdly, we have seen that the Fuse box revenue have fallen around 4% on a Y-o-Y basis. This is purely on the fact of lower organic installs. And I believe Q1 was also kind of a bigger quarter as well. So how we see the revenue going forward for the next 2 quarters? And lastly, any update on the disinvestments that we have highlighted in the last call over the noncore verticals.

Yes. So regarding the first question and the COE leadership. So the changes -- the leadership at Blue tel was operating at a larger scale and essentially with tooling operational capabilities and the AI know-how that was already there and being applied. So what we decided to do is in order to fast track the DOE transition essentially changed that leadership and enhance it with the Blue tole existing capabilities. So each 1 of these is going to bring a lot to the table. I'll give you a few examples. So marketing, for example, is bringing to the table a fully operational AI-ready ad creative production system, which has allowed us released 290 creatives in 1 month across 3 studios in the group. This will increase exponentially as the team sets up the right tooling the right systems with each 1 of the studios. The second piece, for example, in marketing is through AI, through these tools through the scalability, being able to, from 1 team manage essentially the marketing or help manage the marketing across pretty much every single gaming studio. That allows us to optimize FTE employees or contractors. -- essentially, we are able to reduce blocks when we have a spike of work, and we don't have enough people in a studio or reduce idleness by really deploying the FTE efficiently across the group. On the data side, for example, we're working on essentially building a semantic layer that is consumed by AI and then makes a marketplace available to every studio that allows us to scale without throwing people at the problem. This will like increase and allow for growth without having a proportional increase in FTE behind it. products and tech will also bring a ton of efficiency and capabilities. On the tech side, our new AI frameworks will reduce game development cycles by a lot, like we're talking very high percentages. So teams will be able to launch new games faster, develop new features faster, integrate them in their existing games also launch new games. So that's kind of the rationale behind that COE leadership change. And we're building the teams around this business like now in transition, but we've gotten a hold of it and they're pretty much deployed across all gaming stores as of today. The second question, you broke off slightly. I believe you were mentioning something about off-line gaming. Could you repeat that question?

Yes. So actually, I wanted to understand that we have discontinued giving not win numbers as well as the breakup of the off-line business. So any strategy behind that?

So on the offline business, essentially, our strategy is to continue to grow the different centers, right? -- and essentially look at it as 1 single unit because like both of them are very much into time. So as you know, Funky Monkey have been really delivering both growth on the top line and bottom line. they've launched a ton of new centers. They've done really well in the centers that they've opened. And so we expect their success to keep on delivering. On cash 2.0, -- but we have -- we're making really good progress in Smash the new smash experience. However, there's been a slight delay. So I believe it's going to be launched in the next few months. Regarding nonwind, I will defer to Anupriya. Anupriya, do you want to quickly jump in?

Yes. So in line with our focus on gaming businesses, we have started reporting -- we didn't think to not win as an update. However, it is an associate and a part of our business, and the business is going well. A few points that I would like to cover is that the Comicon IP is going very strong. Vizag is 1 of the cities at the Comcon debut, and they've seen very, very good traction. They're expanding the huge media strategy is playing out very well. In terms of numbers, we are seeing almost flat revenue and EBITDA growth for H1 for -- and it is because 2 of the IPs iTotal and all that matters have moved from Q2 to Q3. So accounting for all of that, we'll see growth in the coming quarters as well. And I think other than that, I just also want to mention that in line with our strategy and maybe -- here, we are looking at ourselves increasingly from a platform level. So we will also try to report our gaming businesses consolidated, which allows us to make more decisions on the capital allocation prudently focusing on businesses which are growing in a particular quarter, and we are seeing good as the ability to send increases. Raymond please feel free to add in sure where we want to talk about our platform strategy.

Yes. So essentially, as we grow these units, right, we want to be very flexible in how we deploy capital, how we like to grow this platform and how we invest across the board. And I think that's a key piece of like this forward-looking growth, qualitative growth, right? So as we move forward, we would like consolidate these units in order to be able to invest flexibly and also be able to share much more between those units throughout that specific segment. And I think your third question was around Fusebox revenue. Anupriya can take this or so essentially refuse box Yes. So for Fusebox, as you correctly mentioned, the revenue, we've seen a slight revenue decline. This has been mainly due to a decrease in slight organic like installs. However, the team has done a great job in like optimizing EBITDA on the other end of things. They've increased the unit economics and the user average revenue per user. This has been done through our own web shop. So instead of like the fees that are being charged to the normal app stores now, the fees are much lower on our proprietary web shops. And also they've optimized content and employee costs throughout the year. I think that the most important piece here for Fusebox though, is we're pretty bullish into what they're doing as a team, right? There the capability they have to sign new IPs and to launch new games with those IPs, those reality TV show IPs. The market is extremely big, right? There is barely any competition. And essentially, they're extremely good at executing on that segment. We've seen this with traders. They just launched a great metrics. So we'll know more about this in the coming months, but we're very excited about like the team's capabilities to keep on launching the specifically now with the platform enhancing those development times and marketing capabilities. And the fourth question sorry, you also -- I didn't get it fully. It was about investment in noncore elements. Is that correct? Can you rephrase?

The participants disconnected. The next question is from the line of Priyam Shah from Tree Natera Asset Managers. Mr. Sha.

And exciting times ahead for you all. So I just wanted to understand over the last 2 years, almost all of Nazara growth has come through acquisitions, be it use Box, Smash and now blue tile. And this has been in our DNA acquiring an anchor studios and then ramping them up. And the organic base that we had went through the Pokobadiwrite-off the North build sort of deconsolidation. This is the first quarter where post Poker put the portfolio is fully in the numbers, more or less, right? So this is the right sort of base to anchor on. given our run rate of roughly INR 900 crores a quarter once Bluetile is in for a full period, can you just give us a 3- to 4-year revenue framework, what organic growth rate the existing gaming portfolio can deliver and from which engine. So what share of future growth will come from M&A and what would come from organic. This is what I wanted to understand, basically, a 3- to 4-year sort of road map in terms of numbers.

Yes. So thanks a lot for the question. So essentially, our main focus is qualitative growth, as I mentioned. So I think as you correctly pointed out, this was the first quarter in some time with organic growth. And I think we want to double down on qualitative growth coming from the synergies that this platform creates. So by enhancing this platform by fully focusing on having state-of-the-art tools, capabilities and AI synergies in each 1 of the departments, we really expect each 1 of these gaming studios and the gaming segment to grow organically. At the same time, we know that there are many interesting opportunities. Specifically now with like the onset of AI across the industry that we would like to think about. And so that combination can be a very powerful one, 1 in which we built this platform to support the studios, but we also allow the studios to inform that platform where we also acquire new companies that can actually also mold that platform and make it better and more efficient to double down on the organic growth, compounding both sides of it. As of now, we can't really give that future guidance. We can't just set those numbers because we are just focused on delivering qualitative growth, and that's our main target, both organically, also inorganically in the next few years. So that's what we're focused on, and that's what we'll deliver.

[Operator Instructions] The next question comes from the line of Samarth Patel from Equirus.

Thanks for the opportunity and congratulations on for the new rule. I had a couple of questions. So for the blue tile and base play, if I look at the first quarter we had around 10.5% EBITDA margin, and the user acquisition was around 85% of our total revenue. while I look at the August and September numbers that you have given, the margins are at around 19.5%, and our advertisement and promotional spend has fallen to 75%. So I just wanted to understand that we have deliberately dialed down the acquisition? And does the revenue growth hold at this lower intensity of advertisement spend? And what kind of margin and spend ratio we should build from here onward. That's my first question.

Thank you very much for the question. So when it comes to gaming and specifically mobile gaming, there's a very strong seasonality component. And you need to -- you essentially need to move with that seasonality. August is like this quarter is the worst seasonality. So essentially, August is pretty much the worst month in the year. So essentially, what we do and the team does in those cases is adapt progressively. So when we talk about site when we talk about these kind of things, we need to look at the year as a whole, and we need to look at quarterly evolutions, but we should never anchor ourselves in 1 quarter or another in terms of EBITDA margin. The team's main mandate is qualitative growth, year-on-year quality of growth. And that you can see with the numbers from like comparing FY these quarters FY '27 with FY '26. And so the team will continue to drive that quality of growth through the right marketing allocation. If there is a certain seasonality element to be taken into consideration the marketing team adapts accordingly. So that's pretty much the reason behind this. You also need to understand that as we purchase current users, we're building our future cohorts. -- users that will play for years in our games, right? So we will deploy marketing spend whenever it makes sense, wherever it makes sense. But ultimately, always with 1 thing in mind, which is qualitative growth.

Well understood, Raymond, but can you help us understand what kind of revenue growth we can expects from Blue tell and Bestplay from here onwards? The margin aspect is well understood, but any sort of guidance that you can provide on the revenue growth side?

So again, so we're focusing on that quality of growth, right, and we intend to deliver year-on-year growth throughout the next years. We won't commit to any specific guidance. But as I mentioned, right, both Blue to and test they are also receiving a lot of information and a lot of capabilities from the rest of Nazara too. So we expect it to be a bidirectional relationship with Nazara, in which Blue to vested will also incorporate a lot of good practices, a lot of tools that the rest of the teams are using in order to further our growth.

Understood. That was really helpful. Now my second question is on Fusebox. If I look and we touched upon this, Fusebox revenue fell around 4% on a year-on-year basis and slightly lower organic installs. So now with Tata live and I think the other season also starting from September, -- when do you expect Fusebox to return to growth? And any flavor that you can give around trade cohort? And how is this monetizing against, let's say, a vile cohorts?

Yes. So thanks for the question. So essentially, here, we're not going to give any specific time line on any of this because it doesn't really kind of makes sense, but what I can definitely say is the team is doing the right things at a very fast pace. They've launched traders like -- and they're also preparing several new seasons. They're shorting or like shortening the content cycles that -- so the amount of time they need to release new content, also the amount of time they need to release new games. And the forward-looking strategies, essentially we're going to keep on signing IPs and keep on signing games, right, with a growing speed capacity in both content and game launches. So traders itself is looking pretty good. So the initial numbers put some of these cohorts. They're the most loyal cohorts, of course, because they're coming from our other games. But like I believe it's 2x of what Love Island is seeing or even more. Anupriya correct me if I'm wrong.

Yes, 3, yes.

Yes. So essentially, we're seeing very good initial metrics, very good retention, very good payer retention. -- day 1 payer percentages are extremely healthy. So of course, this is the initial cohort. So we need to now like pretty much expand marketing operations and ensure that the game reaches the right audiences.

And if I may just add a few things here, especially for Fusebox. So we have a very steady cadence of seasons across our IPs, right? Now that we have 4 IPs, and we have around 7 seasons planned for the have already been delivered. And the 2 are live now, as you mentioned, gather and as well as a new season of data is being launched, there's Lawrenson in all the content challenge for us box is extremely busy, also driven by their own process optimization, which allows them to create content faster. And as Raymond mentioned, Crater is update success that we have seen early this, but we are excited about it, and we will step up UA and content investment as and when are seeing. So we will see entry on revenue depending on the seasonality of content, but there is strong efforts going on, on both long-term and short-term basis for delivering growth profitably.

Understood. That was really helpful, one. Now on Wilbur, for this particular quarter, we have strong very -- we have seen very strong revenue growth -- and I think Animal games public release was supposed to be on robblocks by end of first quarter of FY '27. And then I think we had also planned for launch of Clinigen in second quarter FY '27 -- so have both of these been completed? And what are they contributing currently in terms of revenue?