Acquiring Fusebox Games And Integrating Barbie Will Boost Future User Engagement

Key Takeaways

• Strategic acquisitions and licensing agreements on popular IPs are expected to enhance user engagement and boost revenue and profit potential.
  
• Expanding esports activities and international growth are key to increasing segment revenue and overall profitability.
  
• Dependency on costly brand partnerships and struggling segments, like Nodwin Gaming, alongside unproductive acquisitions, risks pressuring net margins and financial flexibility.

Catalysts

Operates a gaming and sports media platform in India, Africa, the Middle East, the Asia Pacific, the United States, and internationally.

• The strategic acquisition of Fusebox Games, along with existing games like Animal Jam and upcoming integrations of popular entertainment IPs, is expected to drive future user growth and engagement, impacting revenue positively.
  
• Licensing agreements for integrating well-known IPs such as Barbie and Little Angel with Kiddopia are anticipated to enhance user engagement and reduce acquisition costs, potentially boosting both revenue and net margins.
  
• Nazara’s active acquisition of popular IPs like CATS: Crash Arena Turbo Stars and King of Thieves, with plans to publish them under its umbrella, is expected to result in direct revenue and profit contributions, supporting earnings growth.
  
• The preferential placement and strong cash reserves are positioned to support further strategic acquisitions, enhancing long-term revenue potential and EPS growth through organic and inorganic expansion.
  
• Increased esports activities and IP-driven live events by Nodwin, alongside its international expansion, are set to increase esports segment revenue and profitability, bolstering overall earnings growth.

Nazara Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nazara Technologies's revenue will grow by 26.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.2% today to 8.7% in 3 years time.
• Analysts expect earnings to reach ₹2.4 billion (and earnings per share of ₹26.79) by about April 2028, up from ₹854.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.9x on those 2028 earnings, down from 99.4x today. This future PE is greater than the current PE for the IN Entertainment industry at 48.2x.
• Analysts expect the number of shares outstanding to grow by 4.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.69%, as per the Simply Wall St company report.

Nazara Technologies Future Earnings Per Share Growth

Risks

• The dependency on brand partnerships and IP licensing, while beneficial for user acquisition and engagement, may introduce significant costs and obligations including minimum guarantees and revenue-sharing arrangements, potentially impacting net margins if not managed effectively.
  
• The esports segment, specifically Nodwin Gaming, is currently running at a loss, and the path to consistent profitability appears uncertain. Continued investment in growth and the need to overcome operational challenges, such as event cancellations, could strain earnings.
  
• The capital raised for acquisitions, like Space & Time, is affecting margins due to the mixed accounting of gross and net revenues and the higher-cost geography of the UK. Unless integration improves margins, profitability can be pressured.
  
• The write-off of investments in Brandscale Innovations and potential provisioning for loans suggests risk in the company's ability to recoup investments, pointing to a potential negative impact on net earnings and financial flexibility.
  
• High user acquisition costs for platforms like Kiddopia, particularly if their ARPU growth is underwhelming, could adversely affect net margins, exacerbated further if IP partnerships do not deliver the expected reduction in user acquisition costs.

Valuation

• The analysts have a consensus price target of ₹978.2 for Nazara Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1315.0, and the most bearish reporting a price target of just ₹665.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹27.4 billion, earnings will come to ₹2.4 billion, and it would be trading on a PE ratio of 62.9x, assuming you use a discount rate of 15.7%.
• Given the current share price of ₹969.55, the analyst price target of ₹978.2 is 0.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.