India’s online gaming industry has attracted the attention of venture capitalists and private equity investors over the past three years due to the size of its market. valued at Rs 10.1 billion and is expected to reach Rs 15.3 billion. With a large population of mobile users in the 15-30 age bracket across the country, India stands out as a lucrative market for companies that offer consumer gaming content.
One such startup that benefited from increased fundraising was WinZO, which nabbed a $65 million seed round led by Griffin Gaming Partners towards the end of FY21.
The company which positions itself as an ‘online skill gaming platform’ saw its scale grow 3.8x while its losses increased nearly 2x in the fiscal year ending March 2021, according to its annual financial statements filed with the Registrar of Companies (RoC),
WinZO serves as a platform for third-party game developers to host multiplayer games and claims to have over 75 million registered users. It collects an entry fee on popular multiplayer events and charges a commission on all collections. The company onboarded Mahendra Singh Dhoni as a brand ambassador (former shilling Dream 11) in March this year to capitalize on the influx of fantasy sports gamers in India and also launched a game development fund. worth $20 million.
Initially limited to skill-based multiplayer games, WinZO now also hosts daily fantasy sports competitions on its platforms with prizes of up to Rs 2 crore to predict the winning team and tickets of up to Rs 4,400 per entry .
Its operating income jumped 287% to Rs 103.46 crore in FY21 from Rs 26.72 crore in the previous fiscal year (FY20). WinZO also earned Rs 1.66 crore as non-operating income during the year from its financial assets in the form of interest income and gains on the sale of investments.
On the expense front, the cost of hosting games (including development fees and server costs) is the company’s largest cost center, accounting for 66.1% of its annual costs. These expenses increased almost 3 times to Rs 103.5 crore in FY21 from Rs 34.6 crore in FY20.
WinZO also increased its employee base to meet the growing user base and benefit payments increased by 147.2% from Rs 5.42 crore paid during the fiscal year. Rs 20 to Rs 13.4 crore in FY21. These payments also included the remuneration of the two co-founders amounting to Rs 2.45 crore and stock option expenses of Rs 1.77 crore.
WinZO relies on extensive advertising campaigns during the IPL and strategic influencer marketing partnerships to drive engagement on its platform. As a result, advertising and promotion expenses emerged as the second largest expense item for the company, accounting for nearly 20% of annual spend. These costs increased 2.7 times to reach Rs 30.46 crore in FY21 from Rs 11.15 crore in the last fiscal year (FY20).
Legal and professional fees and commissions (paid to sell agents) increased by 4.7X and 2.4X to Rs 5.67 crore and Rs 2.05 crore in FY21, from Rs 1, 2 crore and Rs 87 lakh respectively in FY20. It booked a jump of 2.8 times total expenditure to Rs 156.5 crore in FY21 from Rs 54.06 crore spent in FY20.
Along with a surge in revenue, the startup’s losses also jumped 1.9X to Rs 51.36 crore in FY21 from Rs 26.7 crore reported in FY20. At the unit level, the company spent Rs 1.51 to earn a single rupee of operating income, improving the unit economy compared to Rs 2.02 spent on the same during the 2020 financial year.
Even though WinZO spent more in the fiscal year ending March 2021, the strong increase in scale helped it improve EBITDA margin from -96.6% in FY20 to -48 .64%. The company’s cash outflow increased by 2X to reach Rs 47.06 crore in FY21 from Rs 22.86 crore in FY20.
With the gaming market looking crowded, the competition was strong enough to make even brand ambassadors move, as seen in the case of MS Dhoni. This indicates continued pressure on earnings as ad spend will remain elevated, and a slowdown on the funding side could seriously affect any industry player living on the edge of one fundraiser to the next. Just like many of their players who hope to earn a lot of money from their games.