OnMobile Global August 2024 Concall Highlights: Gaming Drives Growth, Cost Optimization Key to Profitability
OnMobile Global Limited (OMGL) reported a flat quarter in terms of overall revenue for Q1 FY25, ending June 30, 2024, at INR 126 crores. However, the company showcased strong growth in its Gaming segment, which saw a 22.9% revenue increase year-on-year and a 13.6% expansion in active subscribers. This performance, coupled with cost optimization efforts, positions the company for improved profitability in the coming quarters. The appointment of Bikram Sherawat as the new President and COO brings a wealth of industry experience and a strong focus on sales, bolstering the company's growth prospects.
a. Financial Performance:
OnMobile's Q1 FY25 revenue remained flat sequentially at INR 126 crores, compared to the previous quarter. Gaming revenue was a bright spot, experiencing a substantial 22.9% year-on-year growth. Gross profit stood at INR 63 crores, representing a 51.1% margin, but marginally lower than the previous quarter. Notably, operating expenses (OPEX) decreased by 15.9% sequentially, with a 9.5% reduction in manpower costs excluding capitalization. EBITDA for the quarter reached INR 9 million, impacted by a one-time charge-off of INR 5.6 crores previously capitalized. The company reported a net loss of INR 15.3 crores, attributable to the charge-off and depreciation related to ONMO capex. Radhika Venugopal, Global CFO, highlighted that the EBITDA remains positive and Days Sales Outstanding (DSO) improved to 91 days, the best in the past 12 quarters. Cash balance increased to INR 68.8 crores, setting the stage for future operational improvements.
b. Operational Updates:
OnMobile expanded its Gaming deployments from 101 in Q4 FY24 to 111 in Q1 FY25. The number of optimized accounts, critical for effective marketing efforts, increased from 35 to 46. The company continues to execute its strategy of optimizing the majority of its deployments, with a target of 200 optimized accounts by the end of 2025. Bikram Sherawat, President and COO, emphasized the importance of optimizing service pricing, particularly in emerging markets like India, and exploring new revenue channels through bundling and channel partnerships. The company is focused on renegotiating customer contracts with key clients, seeking to increase revenues and improve terms.
c. Management Insights:
Francois-Charles Sirois, Executive Chairman and CEO, expressed satisfaction with the Gaming segment's performance, noting it was in line with expectations. He highlighted the synergy created by optimizing gaming teams and platforms, resulting in cost savings that will continue in future quarters. He emphasized the Mobile Entertainment segment's stability, with ongoing negotiations for RFPs and new Ring Back Tone (RBT) deployments expected to fuel future growth. Sirois also underscored the strategic value of Bikram Sherawat's return to OnMobile, praising his experience and industry connections.
Radhika Venugopal further clarified that Gaming is on track to achieve profitability by the end of the current fiscal year, with cost optimization playing a key role. She attributed the overall reduction in costs, particularly in Gaming, to the company's focus on efficiency.
d. Strategic Initiatives and Future Plans:
OnMobile's key strategic focus is on achieving profitability and growth in the Gaming segment. The company plans to continue expanding its subscriber base and optimize marketing efforts to maximize the return on investment. The company is focused on strengthening its core business, focusing on renegotiating contracts and optimizing service pricing in the Tones and Video segment. They are also exploring new revenue channels and partnership opportunities to enhance revenue generation. The company's focus on optimized account marketing is integral to the long-term growth strategy. The leadership team expressed confidence in reaching a steady-state contribution margin of 25% plus for Gaming by FY26, and a blended margin that includes the Mobile Entertainment business, which will also show positive EBITDA.
e. Q&A Session Highlights:
- Revenue and EBITDA Guidance: Management expects Gaming revenue to continue its strong growth trajectory, fueled by optimized marketing and subscriber acquisition. While a specific revenue growth percentage wasn't provided, the target is to continue the strong growth seen in the first quarter. Management guided that Gaming should become profitable by the end of the fiscal year and that they are on track for the Gaming contribution margin to be 25%+ by FY26.
- Optimized Accounts: The company plans to increase the number of optimized accounts, aiming to reach around 100 in the next year or two. Management expects that, with this level of optimized accounts, they will achieve an overall EBITDA margin of 25% to 30% by combining the performance of the Gaming and Mobile Entertainment segments.
- Chingari: The company clarified its position regarding its strategic investment in Chingari, acknowledging that they have not seen the expected synergies with their own business. However, they are optimistic about Chingari's future prospects, given its successful transition to a strong App Store presence.
- Vodafone Account Loss: The leadership team acknowledged that the loss of the Vodafone account had an impact on the company's revenue performance. However, they indicated that opportunities to re-engage with the customer exist.
Conclusion:
OnMobile's Q1 FY25 earnings call provided a mixed bag of results. While overall revenue remained flat, the Gaming segment demonstrated impressive growth. The company's strategic focus on cost optimization and improving the efficiency of its marketing efforts is expected to drive future profitability. The return of Bikram Sherawat as President and COO brings a renewed focus on sales and operational execution. The path forward is dependent on the company's ability to sustain its Gaming growth momentum, optimize marketing spend effectively, and renegotiate favorable terms with key customers. With Gaming on track to profitability by the end of the fiscal year, and with a renewed leadership focus on delivering results, OnMobile is well-positioned for a more positive outlook in the coming quarters.
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