Onmobile Global Ltd (ONMOBILE) Q3 FY23 Earnings Concall Transcript

Onmobile Global Ltd (NSE:ONMOBILE) Q3 FY23 Earnings Concall dated Feb. 07, 2023.

Corporate Participants:

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Nir Efrat — Chief Executive Officer, ONMO Inc

Asheesh Chatterjee — Global Group Chief Financial Officer

Francois-Charles Sirois — Executive Chairman

Analysts:

Pratik Jagtap — Ernst & Young — Analyst

Danish Jain — Individual Investor — Analyst

Mithun Aswath — Kivah Advisors — Analyst

V.P. Rajesh — Banyan Capital Advisors — Analyst

Prakash Ramaseshan — Pragya Consulting — Analyst

Saikiran Pulavarthi — Pulavarthi Advisors — Analyst

Patrick Mathias — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the OnMobile Global Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Pratik Jagtap from EY. Thank you, and over to you, sir.

Pratik Jagtap — Ernst & Young — Analyst

Thank you, Inba. Good day, and welcome to the Q3 FY ’23 Earnings Call of OnMobile Global Limited. Representing the management today, we have FC, Executive Chairman; Sanjay Baweja, Managing Director and Global CEO; Asheesh Chatterjee, Global Group CFO; Nir, CEO of ONMO; Biswajit Nandi, Senior VP Global Sales; Radhika Venugopal, Vice President, Finance.

The call will start with a brief update about the overall performance during the quarter by Sanjay Baweja; Nir will give brief update on ONMO; Asheesh will update on the financials, which will be then followed by FC, speaking on overall business activity and sharing his thoughts on future plans. We will then open for Q&A session.

I would like to mention that some of the statements made in today’s call may be forward-looking in nature and may involve risks and uncertainties that we see. For a list of such considerations, please refer to the earnings presentation. OnMobile Global undertakes no obligation to publicly revise any forward-looking statement to reflect future or likely events or circumstances.

Having said that, I now hand over the call to Mr. Sanjay. Over to you, sir.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Thank you, Pratik. Thank you all for taking this time out today to join us. Hope you’re all doing well. I want to start by wishing everyone a very happy and prosperous New Year. The results and the presentation are already posted on our website, and hopefully, all of you have had a chance to look at them. As usual, I’ll give a brief update on our products and business, and then Nir will talk about ONMO products a bit, and then Asheesh will take you all through the highlights of the financial performance.

So let me begin by — with the updates on Challenges Arena. Throughout the quarter, actually Challenge Arena sales has seen a very healthy growth. Revenue from Challenges Arena during the quarter grew in line with the number of customers who went live last quarter. Last quarter, six customers went live. And as a result, on 31st December ’22, 35 customers were live, which is an increase of about 21%. Revenue increased more than 50% quarter-on-quarter and nearly seven times year-on-year. And it was, in fact, increased 21 times since its inception quarter.

In Q3 FY ’23, 12 new customers agreed to our terms for Challenges Arena, taking our cumulative elements to as high as 62 as of now. The continuous increase in customer agreements will reflect in the coming quarters from a revenue perspective. We expect the momentum to continue and these cumulative agreements to reach around 67 by the end of this financial year, driven by successful outbound sales and efforts resulting in an increased sales in FY ’23 — in ’24.

As on Q3 FY ’23, out of the total 62 customer confirmations, the geographic split is Middle East and Africa is about 39%, followed by 31% in Asia, 19% in LatAm and 11% in Europe. Our plan is to double down our focus on MEA and Asia, where there’s a large amount of addressable market that we see. There is an — also an untapped market in LatAm and Europe as well, which we will look forward to. Further, out of these 62 customers, 45 are actually new logos, which is almost 73%. And these clearly serve as evidence of our noteworthy success, both in terms of sales and from the perspective of our potential future chances of cross-selling other products to them. We are continuing to see a healthy pipeline and expect to be live and sign many more clients in the coming quarters.

In terms of usage and actual consumers, the cumulative gross paying subscribers at the end of December ’22 stood at about 13.6 million as compared to 10.5 million at the end of October ’22, a growth of 29.4%. We are targeting to touch 17.6 million subscribers in Q4 FY ’23. Challenges Arena net active base increased to 3.1 million from about 2 million at the end of Q2. We are now targeting to touch about 3.8 million subscribers at the end of Q4 ’23. To achieve the base of this first 1 million subscribers, we took almost four quarters. But as of Q3 FY ’23, we were at 3.1 million active subscribers, which was an addition of 1 million-plus subscribers within quarter. This gives us confidence that CA is well positioned in the market and also puts us in a great position to benefit from the revenue growth in the coming quarters.

The current momentum is a lead indicator of the revenue growth we expect to see. I would like to reiterate that this is a subscription business and that revenue will increase enormously as we continue to add subscribers. Indeed, we believe that Challenges Arena will significantly boost our revenues in the coming quarters. The revenue from Challenges Arena, like I said, increased by more than 7x year-on-year. It has grown close to 21x in the last seven quarters and shown as high as a 52% growth quarter-on-quarter on this quarter itself.

Now let me talk also about the profitability of Challenges Arena. As stated in previous earnings calls, we are currently in the investment phase, investing in growth through disproportionately high marketing spend, particularly in the new geographies our operators with whom we go live on a quarter-on-quarter basis. As we go live with more and more customers, there is initially an increase in terms of the marketing spend that we have to do with that particular operator. Having said that, let me add that we accrue higher gross margins as the revenue mix skews in favor of the new products like Challenges Arena. We anticipate this to continue resulting in an improvement in the profitability going forward. As you are all aware, the Challenges Arena has a significantly higher EBITDA as compared to our existing product. We expect CA to generate an EBITDA of more than 30% in the coming quarters.

Coming now to ONMO. As informed in the previous call, ONMO B2B business has started generating revenue for us from the last two quarters. As on 31st December ’22, we had 18 customer confirmations, out of which four are live. Cumulative approvals are likely to reach about 23 by the end of Q4 ’23. Revenue witnessed a growth of 77% quarter-on-quarter. We have continued to see strong traction among the prospective customers. We are confident of generating higher B2B revenue in FY ’24. Also, please note that we are expecting at least four more customers to go live by the end of Q4. So we are at four now, and the expectation is — we’ll be at eight by the end of this over current quarter, which is the Q4.

But let me also update on the Tones and Video. Let me start by saying that the legacy business, as is evident from the numbers, has been a bit of a challenge in the past few quarters and, may I say, the past few years. However, the new customer relationships that we have formed due to CA has enabled us to cross-sell the Tones business across various operators across the globe. We have got five new customer agreements where one customer is already live and the others will go live over the next couple of quarters, some in this quarter and the balance in next.

Further, I’m really pleased to let you know that we have received another customer confirmation from a large customer who has operations in five countries for the Tones business. This will go live over the next few quarters again, and we will give you details as soon as we can in terms of the logo, et cetera. This is giving us real confidence about the stability and growth of our legacy revenue in the next year. However, for this quarter, we saw a drop of 1.3% [Phonetic] on Tones revenue due to lower revenues than a couple of customers. Video also degrew about 2% quarter-on-quarter due to some customer actions that we’ve had.

Lastly, let me briefly mention about our employees. We’ve had a very stable workforce, and in fact, attrition levels have been reduced over the last six months, and we continue to strengthen our teams for two new businesses, both CA and ONMO.

With this, I would like to hand over the call to Nir, who will talk about ONMO and after whom Asheesh will talk about the financial performance. Over to you, Nir.

Nir Efrat — Chief Executive Officer, ONMO Inc

Thank you, Sanjay. Yes. Hello, again, everyone. My name is Nir Efrat. I’m the CEO of ONMO. As Sanjay mentioned, we’re starting to see the traction and the ramping up of the ONMO operation. We’re now allowed with several telcos, but we have quite a long list that’s getting launder of new telcos in the pipeline that will go live this quarter and then in the following quarters.

The team has been busy working on three main streams. First one is to really reshape and reinvent our operations and where does it allow everyone the product team, the B2B team, the sales team and user acquisitions team, along with server deployment used to really go live faster in a very smooth way and be available for reserves very fast. And I’m happy to say that we have managed to do that and now have a well-oiled machine just supports the onboarding of ONMO and rolling out with customers.

The second stream is improving the product. We’re building a world class product. That is meant to create a much higher level of engagement and retention. And the key element of that is social engagement. We’re very happy about the direction of product is going, and it’s supposed to create very, very, very sticky viral and engaging experience for users around the world.

And the third bucket is getting more and more titles and premium content from content providers. We’re now in talks with several content — key content providers in Western markets and other markets in order to engage with them and add their games into the platform. We’re going to share some news soon about that. But I’m very excited to be able to offer many users of ONMO, a AAA and premium content in that. And that’s it for me.

I’ll turn it over to Asheesh.

Asheesh Chatterjee — Global Group Chief Financial Officer

Thank you, Nir. A warm welcome, and thank you, everyone, to join us on this call. I’ll share the key financial highlights for this quarter and nine months ended December 31, 2022. In terms of the nine months FY ’23 performance, we reported revenues of INR415 crores, a growth of around 1% on a year-on-year basis. Gross profit grew by 4.3% to INR210 crores, and our gross margin improved by 150 basis points to 52.9%. The growth was primarily driven by Challenges Arena.

On the cost front, in the nine months FY ’23 due to higher investments in CA and ONMO, our marketing expenses have increased by 91.3% Y-o-Y. EBITDA stood at rupees 10.7% with a margin of 2.7% for the nine months FY ’23. Our profit after tax is INR8.8 crores with a margin of 2.2%. In terms of quarter three FY ’23 performance, we have reported revenues of INR137 crores, gross profit witnessed a growth of 3.4% on a quarter-on-quarter basis to INR71 crores and our gross margins improved by 170 basis points to 53.9% quarter-on-quarter.

On the cost front, in quarter three, marketing grew by 10.5%, again, primarily due to investments in new launches. EBITDA stood at INR2.7 crores with a margin of 2% for the quarter. The increase in EBITDA was due to improvement in gross margins, which is largely on account of renew mix, which is increasingly in favor of Challenges Arena, which enjoys a much higher margin versus our legacy business. Our profit after tax — after tax is INR4.1 crores. Our margins, our PAT margins are for the quarter at 3.1%.

In terms of geography, India has registered the highest growth at about 30%, while Asia follows it up with around [Phonetic] 20% growth on a Y-o-Y basis during the [Technical Issues]. During the quarter, we also incurred R&D, our product development expenditure of INR21 crores, as we continue to foray into the B2B space in gaming. A lot of operating metrics and data have already been shared in the presentation deck. I’m sure all of you have access to the same. Some of the metrics are being shared for the first time to give you more visibility on the scale-up of Challenges Arena and ONMO. This may not be given in each quarter.

With this, I will now hand over the call to FC.

Francois-Charles Sirois — Executive Chairman

Thank you, Asheesh. Thank you, guys. Thanks all for logging into this call. I want to start by talking about consistency. It’s very important for me to be consistent in what we say to our team, what we say to our investors and what we deliver. When we look at the first item that we announced, which I’m quite proud of is the growth of Challenges Arena, it is consistent and as planned, actually. So the team is really delivering on this and the growth will continue. So for me, that’s a good march.

ONMO following CA’s growth. It is our target to at least meet what CA is doing in this year, or ONMO in the coming year, and that’s exactly where we are in the revenue path. So again, consistency on this. Tones stable. As you know, we mentioned at the beginning of this year that Tones would be stable on a yearly basis. We have a small hiccup last quarter, this quarter. But again, if I step back and look at the year with Tones, especially now that we signed new customers coming in, in the course of the next quarters. We can say that the Tones and legacy business will be stable at least, which will help. So for me, consistency is important and that’s what the team is delivering here. So that’s the first point I want to share with you.

Second one is, I want to come back on Challenges Arena, again and look at the materiality. Before Challenges Arena was really small, so it doesn’t have much impact. Now it’s really a key quarter for us as you can feel the impact of Challenges Arena. It is getting material and grew by INR60 million this quarter. We’re passing the INR10 million run rate and you see it already in the gross margin changing. So as we move forward in the next quarters, this — the size of Challenges Arena, the size of the revenue and the size of the profitability will have an impact on the business. And we would clearly see — we are seeing it right now.

To that end, also the marketing dollars, you can see are increasing. And that’s — again, I don’t want to repeat myself, but that’s something we’ve mentioned in past calls where we need six quarters — sorry, six months, two quarters to really launch and invest in marketing before we start making money, real money on this operator. But the first initial launch is the cost of marketing. So again, we launched this quarter a lot of operations, a lot more than the quarter before. So you see the marketing expands, growing. Now it was planned. It was part of the plan. So it keep on going as we onboard more operators.

We have many operations right now, both with CA and ONMO over 39 operators. It is a diversified revenue mix with a lot of operators in key markets having important revenue. So it’s really a mix. It’s not driven by a couple of operators, it’s really diversified. And obviously, we’re focusing on key markets with key operators: first, especially with ONMO now to have the biggest impacts early on. But that’s — our strategy is working.

And I just want to finish on this thought here. When we look at all the revenues generated today with CA and ONMO, we have more operators. When we look at how many people we have on the backlog, operators in the backlog? We have today as of the numbers, 43 operators, 27 with CA, 16 with ONMO to launch. So we have more operators to launch right now that I’ve already said we’re ready to launch than what we have live. So that’s the kind of revenue that’s coming up in the coming year.

And obviously, we’re not stopping there. We’re signing more and more operators. So for me, it’s the confirmation of the plan. And I want to make sure that investors understand what we’re investing because we are investing, just to be clear. We’re investing in this growth. And I am quite confident that it will pay back in the coming year. So that’s what I wanted to share today with all.

So let’s open the floor for questions, please.

Questions and Answers:

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We will take the first question from the line of Danish Jain, an Individual Investor. Please go ahead.

Danish Jain — Individual Investor — Analyst

Yeah. Hi, sir. I have three basic questions. So first question is on the Challenges Arena revenue. Sir, with the strong pace of growth, the new product guidance for the quarterly dividend for FY ’23, as well for FY ’24? This is my first question? And my second part is on margin side, a company is in right now investment phase, they’re putting more the higher marketing expenses, which impacting margins. So can you — so when you expect to be a stable margin or normalized marketing expenses which can add to higher margin? Or we can assume by Q1 or Q2 of FY ’24, we can expect to the margins start improving? And my third part is on — if you provide some update on the fundraising plan, how that part is going on? Or companies having any plan to monetize the current investment or part of investment in Chingari? So these are my three basic questions. Thank you, sir.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah. Thank you for your questions. As far as Challenges Arena is concerned, it will continue to — like we said, it will continue to grow rapidly from — and you’ve asked about how the next year would look. Our target would be that we at least show you a triple-digit growth year-on-year. So whatever we do for this year, we should more than double in the next year on an overall basis. I can’t give specific numbers from a target perspective. But clearly, to be a triple-digit growth that we are looking at or targeting ourselves.

And yes, you’re right. This is the investment phase. And from a process perspective, from the way it works is that every new geography, the first — like FC also mentioned, the first two quarters, three quarters towards the investment and then the profitability starts improving. Now as bigger and bigger base becomes more than two quarters, three quarters old, we will see profitability improving pretty rapidly. And you’re right, Q1 — Q2, Q1, Q3 next year, will have a significantly better profitability as compared to the current numbers, because like I said, the base of Challenges Arena customers who are there — who’ve been there for two quarters, three quarters will grow. And therefore, the profitability is bound to grow.

As far as fundraising plan is concerned, we continue to look at those aspects. But having said that, and our need for fundraising is mostly from an ONMO perspective where, again, the investment is there — going there in terms of the product development, which like Nir mentioned, we are continuing to refine our product into a world-class product. And there’s no specifics, but we have enough options from an equity perspective, which we are working on with people and debt where we have numbers already with us in terms of banks wanting to give us the funding. So we are still deciding as to what is the best way forward from a company perspective.

Danish Jain — Individual Investor — Analyst

Okay. And sir —

Sanjay Baweja — Managing Director and Global Chief Executive Officer

I hope that answered your three questions.

Danish Jain — Individual Investor — Analyst

Yeah, sir. Also company having any plan to monetize the current investment in Chingari? Or you can provide the current valuation of the designation we’ve done in Chingari, sir?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah. So I can’t — I mean, obviously, I can’t give the current valuation for Chingari. That’s not something that — because they’ve not had a recent transaction really. But the estimate is far higher than what we invested in, but we don’t know that. They are in the process of raising funding. My sense is — and looking at the markets that have been there, I think although the numbers will probably be greater than what we’ve invested at, we can’t put a finger on what exactly the number. And yes, we will look at diluting or exiting Chingari at some stage, but may not be immediate.

Danish Jain — Individual Investor — Analyst

Okay. Thank you for detailed answer. Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mithun Aswath from Kivah Advisors. Please go ahead.

Mithun Aswath — Kivah Advisors — Analyst

Yeah. Hello?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah, please.

Mithun Aswath — Kivah Advisors — Analyst

I just wanted to understand for the next year, you mentioned that you could double the Challenges Arena business. Even if you were to do that, on an overall level, what sort of revenue growth are you going to see? Because I’m just looking at your numbers from FY ’19 to now, we’ve actually been flat or been declining in terms of overall revenues or even from FY ’18. I think, FY ’18, we were at about INR630 crores of top line, and now we’re at a run rate of about INR520 crores. Even if I assume Challenges Arena doubles in terms of the run rate in FY ’24, and the remaining business remains flat, we would touch maybe around INR600 crores. Is my working right? Because somewhere I’m — that was my first question.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Okay. Let me start by answering that. Your working is not completely, right? While you’ve put that — added the numbers of Challenges Arena, I was — because I was answering only for Challenges Arena, I mentioned Challenges Arena. ONMO, we’re going to have a multiple triple-digit growth, while we may get a 2x for Challenges Arena. For ONMO, we may have a much higher number, and I don’t want to get into the detail of how much higher, because that’s also the base is smaller. But having said that, it will be a very different triple-digit growth. So that’s the second part.

The third part is the — and I mentioned in the — initially, when I spoke is that even for Tones business, we expect some growth. So clearly — and I get where you’re coming from in terms of 2018 onwards. I mean, our biggest challenge is to get to that first 2018 number. We will go towards that. How far we reach that or where do we reach from very how close we are to that, or how whether we cross it, I won’t put a finger on that, but we are gunning for that number for sure.

Mithun Aswath — Kivah Advisors — Analyst

Right. My second question was on the marketing spend that you’re doing initially is bearing fruit in terms of customers and subscribers. I just wanted to understand, once you have all these operators on board, what would a normalized marketing spend look like? But just wanted to understand that. And if you could also give details on what is the revenue from the ONMO part, apart from the Challenges Arena?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So the marketing spend on a sustained basis is maybe slightly below 50%. It’s below 50%, and this is a product where the gross margin as high as about 90-odd percent. So that’s the range we are talking. It will be below 50%, and I don’t — can’t give specific numbers, because continuously we’ve seen changes happening, because many new operators keep joining and we have an uptick, and then we have a clear reduction. Our aim is to get to a number which is in its 40s in terms of the marketing spend. And therefore, the balance, a lot of that will go towards profitability. What is your question on ONMO, sorry?

Mithun Aswath — Kivah Advisors — Analyst

Yeah. What is the revenue there that you have not mentioned, I think, in your presentation?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah, I think it’s a small revenue. We’re growing rapidly. We’ve not mentioning yet that ONMO revenue, but let me show you next year onwards, we’ll start mentioning that separately on an ongoing basis. It’s a small revenue net. Like we started with Challenges Arena in the first few quarters, we didn’t really mention the specifics, but we will start doing that from Q1 of next year.

Mithun Aswath — Kivah Advisors — Analyst

And just one last question. There is a massive deterioration in the cash balance that you’ve had from over INR260 crores in Q4 ’21 to now only INR73 crores. So you know there’s been a substantial cash burn to achieve whatever you are doing right now. And I just wanted to understand, even in this quarter, you have a product development cost of close to INR20 crores. I’m not getting clarity in terms of where this money is going. Is it for new games? What are you spending this on? Is it a onetime marketing spend? Because don’t you see this could be a risk if those subscribers come on to the platform on your — on the telecom operator that you are on? And then later, if they stop. I just wanted to get a sense of how this model will work compared to your Tones and your Videos business, which has been largely stable over the years. So I just wanted to get a sense of how this will work.

Asheesh Chatterjee — Global Group Chief Financial Officer

So I’ll take that. This is Asheesh. So our marketing investments are more like working capital investments that happen when we kind of launch an operator. So they — there’s a CAC payback of two months to three months. So whatever we kind of spend behind acquiring a customer eventually comes back to us in — from our subscriptions over a two, three period — two-month, three-month period. So you do have a teaming leading or a timing difference between when we are in the launch phase, when we’re acquiring a customer and when the customer completely breaks even in terms of return of the CAC.

In terms of investments, yeah, we continue to invest behind ONMO, which is one of our biggest product development initiatives we have taken up in the company. So our internal accruals, we believe will improve as we go ahead, quarter three was a little tough quarter, but I think we see new accounts getting added even in the legacy business. So we will see improvements both in margins and operating profits going forward. And we will look at alternatives of augmenting our cash reserves. We have been always a debt-free dividend paying company. So we have enough elbow room to do that.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah. Let me just add to that. While you asked about Challenges Arena, let me say that the Challenges Arena is profitable for us. And going forward, it will become more and more profitable. So to your point of whether this investment is going towards the marketing, no. Challenges Arena is now at a stage where it is taking care of itself. I think the bigger spend is towards the product development that is happening in ONMO. And that’s where our biggest focus is because Challenges Arena is our presence in this year and the coming year in terms of revenue growth. And the year subsequently will show ONMO growing pretty rapidly. And that’s why the investment is moving into ONMO in a big way, and that’s where we’ll see huge growth coming over the next three years, four years and beyond.

Mithun Aswath — Kivah Advisors — Analyst

Just again, on this product development expense of INR20 crores in Q3 and is about INR16.7 crore in Q2 and INR15 crores in Q1. What is this essentially going into? If you can kind of make us understand what actually the spend is going towards? And — because this marketing spend is different, what is this spend going towards? And when do we expect? And what kind of return on this do we expect over the coming year or so? So just I’m not getting a sense of where this money is being spent.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So product development largely goes into salaries. So we have R&D centers in Sweden, Montreal and we have teams sitting in US as well as India. So a large chunk of it goes towards developing our cloud gaming product ONMO. And we have already spent a good amount over there. So that’s where that piece is coming. As you know, ONMO is a unique platform, which has the snapshot technology as well as a streaming technology. So that is that platform, which we have been building over the last few quarters. As we ramp up the launch of ONMO across multiple operators, we will move to a commercial live and that’s when we’ll stop capitalizing these expenditures in the coming quarters.

Mithun Aswath — Kivah Advisors — Analyst

Okay. Thank you.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

And sorry, just to add one of your questions in terms of what was our ONMO revenue. I think we have mentioned it in our presentation for this Q3, it is INR4.6 crores.

Operator

Thank you. We’ll take our next question from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Thanks for the opportunity. And congratulations on the fantastic ramp up with the subscriber base in Challenges Arena.

Operator

Mr. Rajesh, sorry to interrupt. Could you please use the handset mode and speak, sir, your audio is a bit muffled.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Is it better now?

Operator

Yes, please go ahead.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Hello? Yeah. So my first question was that in Q4, you are showing the subscriber growth, which when compares to over Q3, it’s much lower than in the preceding quarter. So is it just the nature of the ramp up with the telecom clients that you have signed, which is why the growth in Q4, and subsequently not as good as that it has been historically? Or what’s going on basically there?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Sorry, I mean, what exactly are you saying? Are you talking about our net active subscribers? What is the question that I couldn’t get it, I’m sorry?

V.P. Rajesh — Banyan Capital Advisors — Analyst

No problem, sir. I’ll repeat myself. So what I’m saying is in — I don’t have the presentation in front of me. But in one of your charts, you are showing the customers you are going to add in Q4, which is a four-point something. And that quarter-over-quarter growth in Q3 also, you added four plus, or just about four, I think. So my question is that this is not the kind of growth that you have — that one has been seen in the previous quarters. Also given the number of countries [Phonetic] that you are adding telecom partners, it seems a very low growth compared to what you have been historically in the — exceeding three quarters, four quarters. So just curious if it is a one-off, and some of the partners will start ramping up in Q1? Or is this sort of the new level for your subscriber growth? That’s the question.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah. So I think this is a kind of a cumulative business where subscribers keep coming in. And yes, as an element of churn. But we will have more and more customers are there, the amount of overall subscribers will continue to grow. And whether — for example, what I mentioned we were able to add 1 million subscribers in the quarter, maybe we’ll do that even earlier for the next quarter. So I think very clearly as from 10 customers to now 35 and going beyond in this quarter as we speak, we will have a much larger base of consumers from an addressable market perspective. And therefore, our ability to add more and more consumers [Indecipherable] and every consumer is a paying consumer to that extent. So yes, there is opportunity to get more and more consumers as we go along.

V.P. Rajesh — Banyan Capital Advisors — Analyst

So you’re saying this quarter or the Q4 quarter growth that you are projecting is an aberration and there’ll be more growth quarter-over-quarter in the number of steps that you add [Phonetic]? Is that the way one should look at it?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah. I mean, 4 million is a good number. Please remember, Q2, if you recollect, we had some issues, and therefore, the Q3 number is a larger number as compared to Q2, because if you recollect at the end of Q2, we had said that there were some customer issues, which had impacted us a bit, especially in September itself. So that kind of — we came back sharply. But I think — please also remember that although these are smaller things. But this has lesser days in terms of a quarter being a February month. But all of this, broadly we will continue to grow at this pace and may be higher as we go along. So aberration or not, our growth pace will continue to expand is what I’ll say.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Understood. And then on the base business, could you share what has been the decline in revenue for the first nine months?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah, just give a second. It’s largely relatively flat. It’s a 1% growth in revenues over year-on-year, nine months.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay. So the question really is that do you think now in Q3, that base business, the legacy business has stabilized and as you were saying that you are getting more customers in Tones and Videos. So what kind of growth can we expect in fiscal year ’24? Is going to be a triple-digit? I’m just talking about business? Or could we see a double digit growth in that business?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

For next year specific numbers, I would not like to give, but we will have — I mean, it’s very difficult to put a finger on this because there is an element of customer getting involved into some marketing actions that they might want to take. But we will definitely see growth whether it’s double-digit or around that would not want to put a finger on that one as yet. While I’m particularly sure about Challenges Arena and ONMO, from a legacy perspective, you’ll see growth for sure. I would not like to put a finger on from a double-digit or whatever. I think as we go along, we’ll give you more clarity maybe in the coming quarters.

V.P. Rajesh — Banyan Capital Advisors — Analyst

But you expect growth in that business in fiscal year ’24, even if, let’s say, single-digit — mid single-digit growth?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

That’s our objective. That’s our target. We hope to achieve that.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay. And then on the marketing spend that you get this quarter, if you can just give some idea about as to how much was it for ONMO versus Challenges Arena?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So largely, 50% of the cost is towards the new businesses, Challenges Arena and ONMO.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay. All right. And the remainder is for the legacy business, right? Is that the way one should understand that?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Okay. Okay. And then on the Chingari side, you’ve commented about the valuation, but my question is more on the business synergy that we were thinking about when we made that investment. So how is that objective signing out in terms of getting direct customers like consumers for the B2C business of ONMO?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So as of now, we’ve shifted our staffs and for the correct reasons in terms of a large amount of funding, which would be required from a B2C perspective. We’re now focused more on B2B business for — even for ONMO over the next two years, three years. And our focus is to gain critical mass there where we are across the globe with our network. So — and post that is when we will focus on getting to B2C. Because as Nir mentioned, during that time frame, the finish of the product will also get finer and finer and the world-class product, which is now getting there will get even better. So to that extent, Chingari is the flow of the — is not as much being used by us, because the B2C part has taken that shift. So that’s where we are as of now.

V.P. Rajesh — Banyan Capital Advisors — Analyst

So then given the situation of our balance sheet, would you consider monetizing that particular investment in this round?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yes. Whenever — no, so this round, they are doing probably a born round [Phonetic]. But whenever the next round happens, we will give it a very, very serious look in terms of monetizing. Maybe even earlier, but definitely in their next round of equity, we will give it a serious, serious talk. And obviously, the Board will take the final call. But we will definitely look at a very serious consideration in terms of getting that cash, because like you rightly pointed out, I think our need is the cash. And whenever we get that opportunity, we will seriously look at that.

V.P. Rajesh — Banyan Capital Advisors — Analyst

Understood. Thank you, and all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Prakash — Ramaseshan Prakash from Pragya Consulting. Please go ahead.

Prakash Ramaseshan — Pragya Consulting — Analyst

Sir, thank you so much for taking my call, and congratulations on good set of numbers. The question I’m asking is that as I see the turnover, 85% of the turnover presently is legacy and 15% is CA with a very small amount of ONMO. And if I look three years ahead, I’m willing to look a little bit beyond next year. Do we see like CA and ONMO having similar number as the legacy business in terms of overall numbers? And of course, hopefully, better EBITDAs because by then, the marketing and their business development spend should be done? I’m trying to understand like as an overall business, when do we get to a point where the one-time business development is done, the one-time marketing costs are done, then we get to some kind of stability in terms of EBITDAs and revenue growth?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So you’re right. We expect both Challenges Arena and ONMO to be as big or bigger than our legacy businesses. So we’ve got two parts of legacy business, Tones and Videos. We expect both Challenges Arena and ONMO to be bigger than those. So clearly, that — and you’re right, whether it happens in two years from now or maybe third year from now, but definitely, that’s what is likely to happen. Clearly, from our perspective that’s what we are aiming for.

And also from a profitability perspective, the maturity of the profitability comes from geography after geography or operator of — more precisely operator after operator. And like we said, and I think FC also mentioned, every two quarters, three quarters, but the moment the two quarters, three quarters are over, it starts to get into the mature state where we end up making 30%-plus kind of margin in a particular operator. So — but having said that, as we continue to launch more and more operators, the initial spend is — and we are — like we said, this is the time of investment for getting more and more customers and thereby getting more and more consumers. So initially, whenever we launch a new customer, there is a definite much bigger chunk of marketing spend in terms of percentage of revenue, but it settles down at the — in their 40s over time.

And therefore, like I said, we are already — for Challenges Arena, we’ve started to become profitable. Over the next few quarters, our profitability from Challenges Arena is set to increase, because like I said, the base is getting bigger and we will continue to get more and more profitable as we go along. You can notice that our gross margins have started to get better and better. So we were in the 40s. We are up in high 50s. Hopefully, next year, by the end of next year, we’ll be in 60s. So that’s where the growth is happening. As we change from the perspective of mix, clearly, we will see also bottom line getting impacted positively as we go along.

Prakash Ramaseshan — Pragya Consulting — Analyst

Just following on the question to say, let’s say we look three years ahead to FY ’26. At that time, the marketing spend should have gone down to at least a point where you’ve got a 30% EBITDA on both ONMO and CA. And whatever is the EBITDA of the legacy business, the blended EBITDA should be over 20%, it is somewhere there.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah.

Prakash Ramaseshan — Pragya Consulting — Analyst

I’m not asking for an actual number. I’m just asking for direction.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

No, your mathematics is correct.

Prakash Ramaseshan — Pragya Consulting — Analyst

All right. Thank you, sir. Thank you. And best of luck.

Operator

Thank you. Our next question is from Mithun Aswath from Kivah Advisors. Please go ahead.

Mithun Aswath — Kivah Advisors — Analyst

Yeah. Just on your enter [Phonetic] you were mentioning about your investment in Chingari. I wanted to understand how much would be invested so far? And what was the valuation? What is the stake that you have? And what was the last round valuation of Chingari?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So we have hold about 10% equity in Chingari. From a valuation perspective, in the last round, which is much earlier, I think it was — although they’re not quite public, but I think it was around $80 million, I think, somewhere around there. Currently, obviously, they’re looking at much bigger numbers. And I don’t want to put a number to that. But they are expecting to raise money over the next six months to 18 months to 24 months. So hopefully, we will be a part of that plan. We may — like I mentioned earlier to another question, we will definitely look to get liquidity from there.

Mithun Aswath — Kivah Advisors — Analyst

And how much have you invested for that 10%?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

You’re coming — so we’ve invested in two rounds. I think the first round was probably at half the valuation. The second round was double and many other people also invested. And then that’s where we are.

Asheesh Chatterjee — Global Group Chief Financial Officer

I think we have invested close to around INR40 crores, INR41 crores for our 10%. And as Sanjay mentioned, that it was — this was in two rounds, one at a different valuation and the other at a different valuation.

Mithun Aswath — Kivah Advisors — Analyst

So INR41 crores is what we have invested. That’s what I wanted to know. That’s all. Thank you.

Operator

Thank you. Our next question is from the line of Saikiran Pulavarthi from Pulavarthi Advisors. Please go ahead.

Saikiran Pulavarthi — Pulavarthi Advisors — Analyst

Yeah. Hi, thanks for taking my questions. And congratulations on a good scale up on CA. So just three questions from my side. The first question is, at this point of time, whether the legacy business was trending at what again, say, 10% to 11% EBITDA margin, which we were reporting before the gaining scale up? That’s my first question. And the second question, you — one of the earlier question, while answering you mentioned that you are capitalizing the employee expenses primarily for ONMO development. I mean you said that at certain point of time, we will decide to what I can say expense it in the P&L. So just want to understand, sir, if that’s the case, considering this as potentially marketing expenses, the scale which ONMO has to have to be EBITDA positive, should be substantially higher? Is my understanding, right? And third question is that, sir, you mentioned that the marketing expenses 50% is gaming and 50% is erstwhile. But if I look at the historical numbers, in Q1 FY ’21, the marketing cost was somewhere around INR5 crores and currently it’s around INR20 crores. Just trying to understand, sir, do you mean that the legacy marketing expenses are almost like doubled since Q1 FY ’21? Thank you.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

So from a legacy margin perspective, you’re right, we were at 10%, 11%. In fact, we were slightly higher than that, 12% to 13%. And — but like you rightly mentioned, there has been a focus on growth, and we — initially we had people working towards Challenges Arena and now to ONMO. ONMO cost is getting capitalized, but we did not capitalize any of the people’s cost or anything related to Challenges Arena. So clearly, Challenges Arena cost got absorbed in the P&L and therefore, you see some amount of reduction from a profitability perspective and also the marketing aspect. So clearly, that’s something that we have. And now, we are focused on making that more profitable. I think we will continue to get the legacy percentages back once we segregate and show that. And Challenges Arena will of course, be much more profitable as we’ve been talking about that.

In terms of capitalization, like we said, that ONMO part is getting capitalized. And yes, we will have — revenue will be much higher. So ONMO will be — will need to generate a lot more revenue to be profitable. So — and we will expect that to happen over the next year towards the end of next year. What’s the third part of the question?

Saikiran Pulavarthi — Pulavarthi Advisors — Analyst

On the marketing cost, sir. Marketing costs.

Sanjay Baweja — Managing Director and Global Chief Executive Officer

Yeah. So on marketing, our legacy marketing has remained flat. So largely the entire growth that you see versus previous years is only largely Challenges Arena and ONMO. There was no ONMO last year. It was a very small amount of Challenges Arena last year. So it’s the entire growth that you see is on the back of new products.

Saikiran Pulavarthi — Pulavarthi Advisors — Analyst

So last year, the total marketing cost is around INR40.7 crores and currently it’s around INR54 crores. You mean to say that FY ’22 INR41 crores doesn’t have meaningfully anything related to CA?

Asheesh Chatterjee — Global Group Chief Financial Officer

No I think — if you look at the nine-month number, it’s INR28.4 crores last year and that’s gone to INR54.3 crores.

Saikiran Pulavarthi — Pulavarthi Advisors — Analyst

Got it. So sir, you mean to say that FY ’22 doesn’t have meaningful anything regarding this year, is it right?

Sanjay Baweja — Managing Director and Global Chief Executive Officer

It has very small amount of CA. It has no ONMO.

Saikiran Pulavarthi — Pulavarthi Advisors — Analyst

Okay, great. Thank you so much, sir. Thank you.

Operator

Thank you. Our next question is from the line of Patrick Mathias [Phonetic], an Individual Investor. Please go ahead.

Patrick Mathias — Individual Investor — Analyst

My question actually got answered. It was on the valuation front. So the question was asked previously and got answered. Thank you.

Operator

Thank you. Our next question is from the line of Mithun Aswath from Kivah Advisors. Please go ahead.

Mithun Aswath — Kivah Advisors — Analyst

Yeah. This question is more to FC. I just wanted to understand, we’ve, over the years, had several other avatars and initiatives. It was Music and then Tones and then now we’re going into gaming. I just want to understand these have been experiments that we have done. Do we see that, how does we feel on this journey that we are taking? I just want to understand whether you think it is in the right direction because we had these plans for direct-to-consumer, which have been shelved down? So I just want to understand what his thoughts are in terms of how the company is positioned? And how it will look like maybe a couple of years from now?

Francois-Charles Sirois — Executive Chairman

Yeah. Good point. The initial Tones, when you talk about Music, you talked about the Music app that we wanted to launch on top of Tones, right? That was in 2016. And if you remember right, to do that, we were actually buying the Tones business from the operators in India. We’d actually verbal deals with all the operators to transfer their business. So right away, the actual subscribers would have been our subscribers. So the fall of that model happened after the demonetization that happened in November 2016 and the actual Jio launch in 2017 that actually did a mess in the telecom industry, and that’s where they actually really, really went really rough on us on Tones, which actually killed that model, right?

2018, we actually decided to go into gaming. That’s why we did the first acquisition of Appland, if you remember, right? And the key was really to push gaming towards operators, but we knew we needed to get into cloud gaming. We analyzed all the solutions in 2019. And that’s where we decided to develop our own. To be honest, with the type of investments, and we actually reviewed this to the Board yesterday, but the type of investment we did to build our own cloud gaming infrastructure and pure-play mobile service — mobile gaming service, we’re the only pure-play mobile gaming service towards mobile operators. And I repeat it, the only way to do a pure-play 5G mobile service cloud gaming is to deploy servers within an operator. Nobody else really does that for mobile users. But the actual investment to do this, we’ve done it with — it is a big cost, as you can see cash-wise that we’ve invested. But in relative terms to other competitors, that I’ve invested in cloud gaming, it’s really, really a small amount. So that investment was done end of 2019, where we really decided into that. We did the [Indecipherable] in the course of 2020, and we developed the platform.

The D2C incentive, just to be clear, I truly believe ONMO is a D2C first approach where the engagement, the service has to be exact — has to be a D2C service. But the beauty of our plan now is to really focus on deploying that D2C service across operator for the subscription revenue. As you can see, we launched an operator. Yes, we invest in marketing, but we get subscription revenues. The funnel is direct, right? As soon as we put the marketing dollars, we know how much revenues we’re making, which is very different for D2C. As you know, you invest in marketing in D2C, and you don’t know you get free subscribers by the time they’re engaged and they decide to pay the funnel is very long and painful and more costly. So that’s why, Nir, and the whole approach, Nir has with the team is really to build a D2C first product. So that plan was not — although, we did really small D2C first in India, as you can see. But we did the metrics and it makes more sense to really focus on operators.

Keep in mind that every deployment we’ll be doing soon will be linking to the same D2C site. So it will be a center D2C site linked to all the operators that we’re adding on this, using the same servers for the D2C service and the B2B service. So for now, we’re not putting any money in D2C. That’s why Chingari we’re not really using the traffic. I mean, and it still goes on our site. This is still play, but we don’t monetize it, right? We didn’t monetize that part. We’re really focusing on delivering the operators, maximizing the revenues. And what I like that we see the traction with Challenges Arena, and we’re following the exact same traction, right? So we have like two service in a row getting launch. So does this answer your question?

Mithun Aswath — Kivah Advisors — Analyst

No, I’m completely with you with what you’ve done and obviously things change. I just want to know where do you see the company two years from now? Because I just wanted to understand because you have ambitions of — I think you had assured [Phonetic] ambition to make this a gaining sort of company, and that’s why it was driven there. Now it seems that you’ve become more conservative and you want to keep profitability and that’s the focus. So I just want to understand from you, as the promoter, what do you want OnMobile to become? That’s what I was trying to ask [Phonetic]?

Francois-Charles Sirois — Executive Chairman

Well, first of all, just on the financial business, I like profitability, right? So we hear with all investors. When we invest dollars, we put it at the right place, right? So my view is in the next year to have a profitable company having very attractive gaming services. And today, we have a suite of service. Gaming was a very small part of our revenues. Now it’s really growing. We’re hitting almost 15% now. And my view is to have a real growing company altogether, including the legacy, but that makes money. And right now, we’re in the tough phase where we’ve done the investments. We’re putting the marketing dollars. And now there’s more onboarding to be done, as I was mentioning with operators. So right now, financially, it looks tough. But every time we activate a customer, an operator, we know will make money. And that’s the key here. So that’s —

Mithun Aswath — Kivah Advisors — Analyst

Okay. Thank you.

Francois-Charles Sirois — Executive Chairman

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you, sir.

Francois-Charles Sirois — Executive Chairman

Thank you. Thank you all. So a big quarter. We were doing a lot of work. All your questions exactly when the budget says exactly right now to plan for the year ’24 — ’23-’24, so, we’re right into it. Next call will be in end of May, so I look forward to share the developments with all of you. Bye until then. Thank you all.

Operator

[Operator Closing Remarks]