Zedge, Inc. (NYSEMKT: ZDGE) has reported a 14% increase in revenue for its third quarter, driven by significant growth in its Zedge Marketplace. The company's ad revenue saw a 20% rise, while Zedge+ subscription revenue jumped 35%. The growth in Zedge Premium's Gross Transaction Value (GTV) by 44% and a record average revenue per monthly active user (ARPMAU) of $0.074, up 39% from the previous year, underscored the company's strong performance. Despite a GAAP loss from operations, Zedge demonstrated a positive trajectory with an increased non-GAAP net income and diluted EPS. The company ended the quarter with a substantial cash reserve and plans to buy back stock aggressively.
Key Takeaways
- Zedge's Q3 revenue increased by 14% year-over-year, with total revenue reaching $7.7 million.
- Ad revenue and Zedge+ subscription revenue increased by 20% and 35%, respectively.
- Zedge Premium's GTV hit a record $590,000, marking a 45% increase.
- ARPMAU reached $0.074, a 39% increase year-over-year.
- The company's GAAP net income and EPS were at $0.1 million and $0.01, respectively, with non-GAAP net income and diluted EPS up by 60% and 54%.
- Zedge is focusing on product diversification, marketing strategies, and AI capabilities expansion.
- GuruShots revenue declined, but the company plans to revitalize it with new features and a coin-based economy.
Company Outlook
- Zedge is building a full-stack marketing team and investing in influencer and product marketing.
- The company plans to introduce new features, including a Gen AI creation app called WishCraft.
- Efforts are being made to optimize subscription plans and test localized pricing and messaging.
- Zedge is working on initiatives to grow the premium content's revenue contribution.
Bearish Highlights
- Digital goods and services revenue, which includes GuruShots, fell by 20%.
- The company reported a GAAP loss from operations of $0.1 million.
- A setback occurred with the website design for Emojipedia, although it is seen as a temporary issue.
Bullish Highlights
- Zedge's strategic investments in marketing and product innovation are expected to drive future growth.
- The introduction of a coin-based economy in GuruShots could enhance user engagement and revenue.
- The company is confident in its ability to accelerate revenue growth and profits, creating shareholder value.
Misses
- Despite overall growth, Zedge experienced a decline in revenue from its digital goods and services segment.
- The GAAP loss from operations indicates that profitability challenges persist.
Q&A highlights
- CEO Jonathan Reich emphasized the company's commitment to user acquisition and retention through improved onboarding experiences and new game features.
- Zedge is aligning marketing spend with feature releases to optimize return on ad spend.
- No further questions were asked at the conclusion of the call.
InvestingPro Insights
Zedge, Inc. (NYSEMKT: ZDGE) has demonstrated notable financial movements that investors may find compelling. The company's approach to capital management is reflected in its balance sheet, with cash reserves surpassing debt, indicating a solid financial position. This aligns with the company's recent announcement of plans to buy back stock aggressively.
From a profitability standpoint, Zedge's impressive gross profit margin of 93.19% for the last twelve months as of Q2 2023 stands out. This metric not only showcases the company's ability to manage costs effectively but also supports its strong performance in the marketplace as highlighted in the recent revenue growth.
Investors may also be encouraged by the significant return over the last week, with a price total return of 13.48%, and a robust six-month price total return of 50.0%. These figures suggest a positive investor sentiment and a potential upward trend in the company's stock performance.
InvestingPro Tips highlight that analysts predict Zedge will be profitable this year, which could be a turning point for the company as it seeks to transition from a GAAP loss from operations to a profitable entity. Additionally, the fact that Zedge does not pay dividends could imply that the company is reinvesting earnings back into growth and development, a strategy that may appeal to growth-focused investors.
InvestingPro Data further enriches the narrative with real-time metrics:
- Market Cap (Adjusted): 43.82M USD
- P/E Ratio (Adjusted) as of Q2 2023: 29.98
- Revenue Growth (Quarterly) for Q2 2023: 11.28%
For those interested in a deeper analysis, InvestingPro offers more tips on Zedge, with a total of 8 additional tips available at https://www.investing.com/pro/ZDGE. To access these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Zedge Inc (ZDGE) Q3 2024:
Operator: Good afternoon. Welcome to Zedge’s Earnings Conference Call for the Third Fiscal Quarter 2024 Results. During management's prepared remarks, all participants will be in listen-only mode. [Operator Instructions] After today's presentation by Zedge’s management, there will be an opportunity to ask questions. [Operator Instructions] I will now turn the call over to Brian Siegel.
Brian Siegel: Thank you, operator. In today’s presentation, Jonathan Reich, Zedge’s Chief Executive Officer, and Yi Tsai, Zedge’s Chief Financial Officer, will discuss Zedge’s financial and operational results that were reported today. Any forward-looking statements made during this conference call during the prepared remarks or in the question-and-answer session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results in the future to differ materially from those discussed on today’s call. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in the reports that Zedge periodically files with the SEC. Zedge assumes no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that our earnings release is available on the investor relations page of the Zedge website. The earnings release has also been filed on Form 8-K with the SEC. I would now like to turn the conference over to Jonathan.
Jonathan Reich: Thank you, Brian. And thank you all for joining us today. I will start by briefly reviewing our third quarter results, which continued to show the positive impact of our investments in FY ’23 to set Zedge up for sustainable, long-term growth. After my remarks, Yi will provide a deeper dive into the quarter. Q3 revenue increased 14% from last year as we continued managing the geopolitical, macroeconomic, and industry-specific challenges spanning the landscape. The Zedge Marketplace was the driver of this performance, with ad revenue up 20% from last year and Zedge+, our marketplace subscription offering, boosting revenue by 35%, including the first jump in net subscriber gains in over seven quarters. Additionally, Zedge Premium's GTV, or gross transaction value, was up 44%, primarily driven by improvements to content and monetization. These factors resulted in average revenue per monthly active user, or ARPMAU, jumping 39% to a record $0.074. Let’s turn to our strategic priorities for the fourth quarter and the beginning of fiscal 2025. As you recall, one of our goals for this year was to build a full-stack marketing team. We’ve achieved much of our goal, as the core team now has dedicated SEO, ASO, user acquisition, and creative resources that are focused on unlocking growth. Going into fiscal ’25 we expect to address influencer marketing and also invest in product marketing. Furthermore, the additions and upgrades that we’ve made to our product development organization are resulting in innovation and product diversification while also driving cost efficiencies that we expect to propel revenue and profit growth in the years to come. Take Generative AI. We introduced pAInt in 2023 and, since January 2024 alone, our users have created close to 14 million wallpapers. pAInt led to the development of a standalone Gen AI creation app, WishCraft, which is currently in beta with select invited users. Additionally, we introduced a print-on-demand capability, enabling AI creators to print their art on home décor, tees, hoodies, and the like. We are also in the midst of expanding the Zedge Marketplace's AI capabilities, which will provide users with fun, exciting, and easy ways to transform themselves into creators, beyond the app itself, so that users can apply the same techniques to items from their personal photo libraries. At GuruShots, we forked the game’s codebase, enabling us to inexpensively develop AI Art Master, a hybrid casual game that remains in soft launch while we focus on returning GuruShots to growth. These initiatives are aside from the operational benefits that we are realizing by embedding AI into many aspects of our operations including marketing, coding, and analysis. Emojipedia didn’t perform as well as in past quarters, which we primarily attribute to an issue relating to the website redesign not yielding the outcome we expected. After identifying the issue, we promptly remedied it. In addition, we are looking forward to releasing several new, exciting features ahead of this year’s celebration of World Emoji Day on July 17th. Moving to GuruShots, where the mandate is to unleash the growth that was core to our investment thesis at the time of the acquisition. As previously reported, our upgraded team is heavily focused on feature development, which, hadn’t received the attention it deserved since the acquisition. The updated product roadmap is full of innovative new features designed to drive the 10% to 30% revenue growth that successful new feature intros delivered in the past, by making GuruShots more accessible to a broader audience. Additionally, by innovating and tying marketing dollars to new features, we are being more efficient with our ad spend. Currently, we rolled out a new onboarding experience to 25% of our Android audience, which is already monetizing better than the legacy experience. While it is too early to know if this is scalable or sustainable over the mid and long-term, it does give reason for optimism. By creating an outstanding onboarding experience, we enable newbies to immerse themselves in gameplay in a seamless, intuitive and simplified manner. Furthermore, we have capped the number of participants in each onboarding challenge in order to increase a player’s chances of winning. The funnel will introduce more features and complexity as the player progresses in the game, enabling skill-based user segmentation, which ultimately creates a more fun experience for everyone. We are also poised to overhaul the game’s economy. The release of our new multi-currency, coin-based economy is imminent, and we believe that it will be crucial in adding and retaining new users by opening up significant opportunities for more players to earn and spend in-game resources. By enabling more value-adds for players, we can manage resource consumption to optimize coin purchases further, while making the game even more captivating and fun. While our focus is on attracting new users, switching to a new economy will potentially introduce some volatility from existing players who maybe averse to change. Despite falling short of the initial expectations we had for GuruShots at the time of the acquisition, GuruShots remains the leading photo competition game available on the market with more than 170 million photos that have been in active GuruShots competitions. Photography in general continues growing exponentially due to the ubiquity of mobile phones, and with the advent of AI enhancement tools, high-quality pictures are within everyone’s reach. With all the innovation opportunities in the pipeline, I believe we are approaching a turning point for this business, and I look forward to sharing details as they unfold in Q4 and fiscal 2025. In summary, I believe we are on the right path to accelerate revenue growth and profits, and we are just beginning to realize the potential in each of our products. When combined with our stock’s low valuation and our active buyback, I believe we are well-positioned to deliver shareholder value in the quarters and years to come. Now, I would like to turn the call over to Yi, who will review our financial results. Yi?
Yi Tsai: Thank you, Jonathan. Total revenue in the third quarter was $7.7 million, up 14% from last year. This growth comes despite decreases in MAU, which came in at $27.7 million for the month of April. Digital goods and services, which encompasses revenue from GuruShots, came in at $0.9 million, down 20% from last year. GuruShots’ revenue continues to be negatively impacted by Apple’s ATT framework, macroeconomic issues, and geopolitical unrest. Subscription revenue was up 35% versus last year. This metric was up sequentially for the fourth straight quarter as our net active subscriber trends continued to improve, and our higher value iOS subscriptions and value-added Zedge+ offering for Android replaced lower-cost legacy subscriptions, which only removed ads. Zedge Premium's GTV, which came in at a record $590,000 grew 45% from last year. ARPMAU was a record $0.074, up 40% year-over-year, reflecting stability in ad pricing and the positive impact of our new iOS and Android subscriptions. Cost of revenue declined by 9% and was 5.9% of revenue. SG&A increased by 35% to $6.8 million. This increase was driven mainly by marketing expenses related to an increase in paid user acquisition, which is helping to drive growth. As we scale, we expect to see operating leverage rebound. Additionally, the higher marketing expense reflects the growth in subscription revenue which means we receive cash upfront, but also pay higher upfront fees to Google (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). Note that revenue on these subscriptions is recognized over the life of the subscription, but at a 100% operating margin. GAAP loss from operations was $0.1 million versus a loss from operations of $8.4 million last year. Last year’s loss included an $8.7 million, non-cash, accounting write-down related to acquisitions. GAAP Net income and EPS for were $0.1 million and $0.01, versus a loss and loss per share of $7.7 million and $0.55, respectively, in the prior year. Last year’s loss reflected the tax-adjusted, non-cash, accounting write-off for acquisitions I just mentioned. Non-GAAP net income and non-GAAP diluted EPS for the quarter increased 60% and 54% to $0.5 million and $0.03 versus $0.3 million and $0.02 in the prior year, respectively. Adjusted EBITDA was $0.9 million versus $1.7 million in the prior year. Note that D&A decreased 35% versus last year primarily due to the impairment loss on intangible assets recorded in Q2. From a liquidity standpoint, we added nearly $2 million in cash to our balance sheet and finished the quarter with $19.9 million in cash and cash equivalents. We also bought back 60,000 shares of stock, as average daily trading volumes were lower and our buyback parameters were fixed ahead of the closed window period. When our window opens up in a few days, we plan to more aggressively buy back stock in the market. Thank you for listening to our third-quarter earnings call, and I look forward to speaking with you again on our year-end call in October. Operator, back to you for Q&A.
Operator: [Operator Instructions] The first question comes from Allen Klee with Maxim (NASDAQ:MXIM) Group. Please proceed.
Allen Klee: Yes, good afternoon. For GuruShots, could you -- I'm not sure if I caught -- what was the revenue for GuruShots in the quarter?
Yi Tsai: Sorry, Allen. It's $0.9 million.
Allen Klee: That's what I thought I heard. And that shows up in the digital goods and services, right?
Yi Tsai: Correct.
Allen Klee: Okay, so within GuruShots, I mean, you're doing really well pretty much everywhere else. I'm trying to understand a little, like new features that you said could cause a 10% to 30% jump in revenue, What is the plan for adding these new features?
Jonathan Reich: Great question, Allen. So during the earlier part of the call, I had mentioned, we've got essentially three major areas that we are working on. First is onboarding, and that is the experience that a new user will have when they download the app for the first time and start planning. We've rolled out a new onboarding experience in beta to 25% of our Android audience. And what we're seeing is that deeper funnel events are generating more revenue for us. Deeper funnel events meaning a user that downloads the app, joins a competition, and then continues to second, third, fourth, and fifth competition by way of example. That onboarding process is one which we will optimize. And if we are successful in that endeavor, we believe that we will accomplish two goals. One is that we will attract more users to actively begin playing the game on a recurring basis. And number two is that we will retain those users, thus generating more revenue, as I described a couple of minutes ago. Secondary of changes with respect to our economy. Today the economy is a resource-based economy which is fueled by a user making in-app purchase for a specific game resource. We expect that later this month we are going to begin, or not begin, but we will turn on a brand new economy, which will be a coin-based economy that has multiple currencies. That opens up the door for many different possibilities. But by way of example, you have a new user, they begin playing the game, they haven't done super well because they're really trying to acclimate themselves and assimilate all the information that's being thrown before them. Nonetheless, we have the ability of rewarding them with different currencies in order to keep them motivated and ultimately allow for them to spend those currencies on game resources. The more that they spend on game resources, then the likelihood is that they will want to replenish their currency and make more purchases. And that, like I said, is expected to be rolled out this month. And then the third area of focus, which will take place after we've tuned the economy and the onboarding process, will be around progression dynamic. So today we have users that get stuck. They get stuck at a certain level and they can be stuck there for very, very long, even though they are active players. Progression analysis is the, or progression mechanics is really the focus that we will have in order to help those users progress to the next level based upon where they are struggling. So you can imagine that we have a set of users that get stuck at a certain level, and in a certain sense, they don't know how to progress to the next level. We can then create competitions around that segment of users that will ultimately translate into those users being able to graduate and continue moving up the totem pole, if you will. So that progression mechanic piece or mechanics piece will begin to be focused on after we've completed the full rollout of onboarding coupled with game economy optimization. And with respect to onboarding and game economy, like I said, we've got 25% of the onboarding available to our Android user base today. And the game economy will be rolled out -- the new game economy will be rolled out weeks back during the month of June. A lot of detail there. I hope that I was clear in that. If you have any further questions, would love to hear them.
Allen Klee: Are there any new features that you'll be adding in the next three months?
Jonathan Reich: Well, onboarding is -- I don't know what you mean by feature, but onboarding is, we're viewing that as being a feature-driven experience. If a new user downloads the app today and is not in the new onboarding experience, they are faced with a very, very complex user interface which they need to master. There's a steep learning curve there. The notion of onboarding is to incrementally add complexity to the gameplay with the goal of initially getting the user into a competition with access to fewer of the bells and whistles that they eventually will gain access to as they master the gameplay. So we are describing that as a feature enhancement as opposed to some, let's call it new feature like a new in-game resource or something like that.
Allen Klee: Okay, great. Thank you. And you mentioned that SG&A, incremental SG&A is going into some paid marketing. Could you talk a little about where that paid marketing, what the focus is of the areas that you're trying to gain customers from?
Jonathan Reich: Sure, so the paid marketing is for the meantime primarily focused on user acquisition for both Zedge and for GuruShots. And the focus there is not simply paid user acquisition, but it is focused around paid user acquisition tied to return on ad spend, as well as aligning our paid marketing spend with feature releases and improvements in the app. So when you take a look at the Zedge app, it is a utility, has a lower lifetime value than GuruShots, and engagement is not as frequent. Therefore, we target a faster payback period for that app and give or take somewhere around 90 days. So we spend a dollar on user acquisition today. Then we want to know that we are whole in around 90 days. With GuruShots, it is a longer payback period. Lifetime value is much higher when compared to Zedge, ringtones and wallpapers. And specific to GuruShots, because of the exercise that we have on onboarding and in the game economy, we are really trying to time the expansion of our marketing investment of our marketing investment with the maturation of onboarding and the economy rollout.
Allen Klee: Okay, that makes sense. And then advertise, so you probably can't add this, but your monthly active users, thinking about like getting that number to stabilize, any thoughts on where you think that these actions will get that to kind of stabilize and then inflect positively?
Jonathan Reich: Sure, so I can't give you timing on that. I can tell you that specific to Zedge ringtones and wallpaper, there is a lot of time and effort going into how do we grow this user base, what are the features that we are adding, how do we use product marketing in order to keep users engaged, and so on and so forth. And it is a very high priority and significant area of focus for literally everyone in the company. The product team is constantly looking at ways in which we can not only retain users, but grow that user base as well. And that will continue to be a major focus of pretty much all investment that we have in terms of the Zedge ringtone and wallpaper market, if you will.
Allen Klee: That's great. And advertising has been very strong. Subscriptions are pretty solid. Could you maybe just comment a little on, I guess, advertising rates go up with subscriptions and you have more in the bundle with subscriptions now than you had in the past, so there's more value. And you're also rolling it out to iOS users. Are those the main things? Are there any other things that you should also be thinking about?
Jonathan Reich: So we are not only -- not only have we bulked up on the subscription offer and we continue to look for additional value adds. And I think that over time we will see additional value adds bundled into the subscription. But we are also optimizing with different types of subscription plans. Testing one-week subscription, testing two-week subscriptions, testing one-month subscriptions, testing annual subscriptions, testing lifetime subscriptions, as well as testing subscriptions on a more localized basis. So not only testing pricing on a localized basis, obviously the cost of the subscription in India would be significantly different than what cost of subscription would be in the United States, but also localizing the experience so that the messaging that's used to draw or to convert a user into subscriber is highly, highly localized. So taken in concert with one another, we continue to see that growth. And that is apparent in the numbers that we shared with you today.
Allen Klee: That's great. And I know you gave some information on pAInt, with good grading kind of a creator economy. How do we think about like the amount that people are using? Does it seem like the percent of people that are using pAInt that there's still a lot of opportunity for that to grow?
Jonathan Reich: I mean our perspective is that our marketplace is the premium marketplace I should say is a growth opportunity for us. We do have several initiatives underway now that we are investing in in order to unlock incremental growth and see to it that as a part of the overall revenue pie that we have, that premium content is a larger portion of that pie. So there will be continued investments there. And as you mentioned, GTV had grown nicely due to several initiatives that we had delivered on in this past quarter.
Allen Klee: Okay. And for Emojipedia, you mentioned there was a little bit of a step back on a website we designed. Do you view that as kind of a temporary thing, or how are you thinking about that?
Jonathan Reich: We do view that as a temporary thing. And the approach that we had taken, we had tested and I guess at scale things did not ultimately reflect what our testing had indicated. So when we saw that the numbers were diverging, we pulled back. And in terms of new initiatives for Emojipedia, there are a whole set of initiatives around rolling out new product features, capabilities, and so on and so forth that will begin to come off the assembly [line] (ph) between now and the end of the calendar year.
Allen Klee: Okay, great. Well that's it for me. Thank you so much.
Jonathan Reich: Thank you.
Operator: This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.
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