Service sector

Buy this 2021-listed small-cap services sector stock for robust gains of 55%, gained 10.27% in 3 months

Stock market outlook

On Friday, September 2, Nazara Technologies’ stock closed at Rs 666.50 each, down 0.62% from its previous close. The 52-week low is Rs 475.05 each and the 52-week high is Rs 1,678 each, respectively. It has a market capitalization of Rs 4,376.55 crore.

Returns on investment

Returns on investment

It gave a positive return of 3.44% in one week and a negative return of 5.14% in one month, respectively. It has given a positive return of 10.27% over the past 3 months. However, over the past year, it has given a negative return of 27.51%. The stock was listed on the stock exchange last year in March and since its listing, its value has fallen by 16.27%.

Acquisition of WildWorks to fill in the blanks in the 8-12 age bracket

Founded in 2003 by Clark Stacey and Jeff Amis, WildWorks is a US-based game development studio focused on playful early learning (GEL) for children ages 8-12. Animal Jam by WildWorks is the #1 app in its category (70% 5 star rating) and has attracted over 150 million players in the past. The game is available on iOS and Android devices in addition to MAC and PC. In an all-cash transaction, Nazara has agreed to acquire 100% of WildWorks’ equity for US$10.4 million. At an annualized 1HCY22 revenue of US$5.8 million, the acquisition occurred at an EV/Sales multiple of approximately 0.9x. The transaction should be finalized within a week and consolidation is expected from September itself. Nazara was planning to expand beyond the 2-7 year old category where Kiddopia operates and the acquisition of WildWorks not only helped fill the white space in this regard, but also boosted the growth prospects of the segment (Kiddopia’s revenue has stagnated within a band of Rs472mn-525mn over the past 6 quarters due to a change in Apple’s privacy policy).

WildWorks will benefit after being inducted into

WildWorks will benefit after being inducted into the “Friends of Nazara Network”

Over the past few years, WildWorks revenue has grown from US$20 million in FY2019 to US$13.8 million in FY21 as weak BS l prevented investing in user acquisition, resulting in a declining subscriber base (see Figure 1 on page 2 for key KPIs).

However, after being inducted into the Friends of Nazara network 1) acquisition spend will increase leading to higher growth 2) lessons learned from Kiddopia’s business can be leveraged and 3) DataWrkz expertise (Ad-tech company in the Nazara portfolio) can be used to optimize customer spending. Additionally, WildWorks is looking to expand content production and increase its geographic reach through partnerships in Asia-Pacific and LatAM. “As a result, we expect WildWorks to record revenue of Rs 1,473 million with an EBITDA margin of 20% for FY24E,” the brokerage said.

Con Call Highlights

Con Call Highlights

1) WildWorks ARPU has remained stable over the past few quarters as no price increases have been taken.

2) Subscription revenue is 80% of the business mix, with the rest coming from DPI and ads.

3) About 70%/15%/15% of subscribers use iOS/android/desktop respectively.

4) Future user acquisition spending will be directed to influencer marketing.

5) Money received will be used to pay WildWorks creditors.

6) An ESOP pool will be created for the founders Mr. Clark Stacey and Mr. Jeff Amis.

7) WildWorks is Mr. Clark Stacey’s sole business and he is not involved in any other business.

Outlook

Outlook

The brokerage said: “We are increasing our sales estimates by 5% / 10% for FY23E / FY24E respectively as we integrate the acquisition of WildWorks (consolidation impact will be 7 months in FY23E), a company U.S.-based interactive entertainment company Nazara envisioned expanding beyond the 2-7 age category where Kiddopia operates and the acquisition of WildWorks helped close that gap (target market is 8-7). 12 years). In addition, this acquisition also revived the growth prospects of the GEL segment as integration into the “Friends of Nazara network” would transform WildWorks, as the lessons of Kiddopia can be leveraged while the expertise from DataWrkz can also be used to optimize CAC, and acquisition spend should also increase from there to drive subscriber growth (93,916 2QCY22).”

Buy for a target price of Rs 1,031 each

Buy for a target price of Rs 1,031 each

The brokerage said: “Overall, we expect Sales/PAT CAGR of 46%/77% on FY22-24E and believe that Nazara’s portfolio approach to gambling not only diversifies unforeseen risks (problem of Apple’s privacy policy or regulatory uncertainty surrounding RMG), but also creates additional risks to leverage growth via an inorganic route Retain BUY with a DCF-based target price of Rs 1,031.

Disclaimer

Disclaimer

The stock was picked from Prabhudas Lilladher’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.