What's the Nazara of Nazara's IPO?
Nazara's IPO hits the market today! Here's all you need to know. ReadOn
No kidding! The world around us is getting digitized at a break-neck pace. The books, the in-person conversations, the drama theatres, the schools, the gaming tournaments - everything has entered the arena of digitization, virtualization and gamification. And, in this new world order- comes an IPO that has changed gaming in India. (If you want to learn the what, why’s and how’s of IPO, read it here).
Nazara Technologies Limited is going to be the first gaming company to be listed in India. In today’s piece, we cover how the gaming industry has evolved and how Nazara has managed to stay at the helm of affairs.
In the good old days, playing was a no-cost affair. All we needed was a couple of friends and we would invent a game of our own to keep us entertained. Then came some frills, such as bat-ball, a chess set, cards and a lot many low budget games. We were happy, life was good. We did not know that we needed more. But, with the advent of video games, we strived for more and more. More levels to cross, more games to win.
Even video-games have covered a journey of their own. From being available only on separate gaming devices or consoles, the games became omnipresent and are now available on PCs and mobile phones.
Today, the Indian gaming industry is $1.5 Bn big and out of this, around 80% of the market belongs to mobile gaming. In fact, the mobile gaming industry in India is expected to grow at 39.6% CAGR from $1.2 Bn in 2020 to $3.1 Bn in 2023.
Now, selling gaming devices can fetch you money, but how do you earn by making games for computers and mobile phones?
You must be thinking, duh! that’s easy. Some games you pay to purchase from app stores (paid-apps), and other games are free to download, but you have to pay to unlock certain levels and features (freemium/in-app purchase).
And there are some games that are absolutely free, where they make money by showing you ads (in-app advertising). But, that’s not all. There are more ways in which the gaming companies are making revenue.
Because games are so closely integrated with the devices they operate on, it is only smart to have an agreement with telecom operators that have a large user base.
Gaming companies make available their games to telecom operators and these telecom companies offer these games to users on a periodic subscription. Revenues are then shared between gaming and telecom companies.
Now, those were the regular, straight-forward ways of making money. But, the gaming companies have ignited more wants and desires in the hearts of its loyal players, which has created more revenue streams for them.
How?
By becoming the BCCI or ICC of the world of virtual-gaming. Just like the cricket bodies organize cricket tournaments and make money by selling tickets, merchandise and broadcasting rights, gaming companies organize tournaments for video-games such as PUBG, COD, etc. This is called the “e-sports” model. e-sports is growing rapidly. Presently, the global e-sports market is more than $1 billion and is expected to grow at 16.15% CAGR. Nodwin, a subsidiary of Nazara is currently dominating the Indian eSports market with over 80% of the total market share in India.
All work and no play makes Jack a dull boy. So, the new age gamification has targeted the education vertical to provide students a novel way of learning. Its global market is expected to grow with a 41.8% CAGR from the present $9.8 billion to $27.8 billion in 2023. Kiddopia, a gamified learning app by Paper Boats (a subsidiary of Nazara), currently operating in the USA, ranks 5th in gamified learning apps.
Real money games have become all the rage these days. They charge entry fees from the players and can be a game of chance or a game of skill.
So, Nazara Technologies has made significant inroads in all the emerging markets of gaming. From making significant money from a tele-subscription and freemium model in 2018, the company has now diversified its portfolio with more than 70% of its revenue from e-sports and gamified learning.
The company's revenue has increased from Rs. 172.04 crores for the year ended March 2018 to Rs. 247.51 crores for the year ended March 2020.
The pandemic accelerated the growth, as more and more people turned to online sources of entertainment and the company recorded a revenue of Rs. 200.46 crores in just 6 months for the year 2021.
But, Nazara Technologies is not the sole ruler of the gaming industry.
In the Indian gaming market, Reliance Jio, Dream 11, MPL, and Games 24x7 have also established themselves as key players. So, to increase its top-line (revenue), especially during Covid, when the market was witnessing a behavioural shift towards gaming apps, Nazara’s bottom line (profits) had to take a hit.
More ad spends have led to a net loss of Rs. 26.61 crores for the year ended March 2020 as compared to a net profit of Rs 6.71 crores for the year ended 31 March 2019. And well, the ad-spends are only expected to go up in the coming future. The gaming industry keeps evolving, consumers preferences keep changing. One hit game and everyone will go flocking. So, the company has to keep expending money to innovate and create more games to stay updated in the industry.
This lack of profits could be a serious issue for the company on listing day.
Here’s some basic information on the IPO that will come handy when it hits the market:
The company has evolved with changing times and proved its metal in the industry. It has been around since a long time and knows the ‘game’ of the gaming industry. It has proved itself to be a long-run horse worthy to be bet upon, and maybe this makes it one of the most lucrative IPOs. This, apart from the fact that it is backed by Rakesh Jhunjhunwala. But, how do we know that it is lucrative?
Grey Market Premium (GMP)
Grey Market is an over-the-counter unofficial market, where even before the official listing of shares, investors can buy and sell IPO shares. Looking at the GMP, one may determine how the shares are going to perform on the date of listing, and apply accordingly. Nazara Technology’s GMP is INR 840 (a 76% premium on issue price!) as on 16 March 2021.
Then why go for an IPO if the company does not want any money? Because it believes that listing will increase the visibility of the company and boost its brand image.
So, are you ready for the big IPO?
This piece has been deeply researched by Mohit.