Zedge, Inc. (ZDGE) is a leading digital marketplace and game developer that empowers creators and connects them with a community of prospective consumers. The company's diverse portfolio includes the popular Zedge Ringtones and Wallpapers app, the innovative GuruShots photo competition platform, and the authoritative Emojipedia resource. With a focus on driving sustainable growth and shareholder value, Zedge is navigating the evolving landscape of the Creator Economy.

Business Overview

Zedge operates in the rapidly growing Creator Economy, where over 1 billion people create and share content across social platforms, mobile apps, and video games. The company's flagship product, the Zedge Ringtones and Wallpapers app, offers a wide array of mobile personalization content, including wallpapers, video wallpapers, ringtones, and notification sounds. As of April 30, 2024, the Zedge app had been installed nearly 661 million times and had 27.7 million monthly active users.

In addition to the Zedge app, the company's portfolio includes GuruShots, a recognized category leader in gamifying the photography vertical. GuruShots provides a platform that enables amateur photographers to compete in a wide variety of photo contests, showcasing their work and gaining recognition through votes, badges, and awards. The company estimates that the total addressable market for amateur photographers using their smartphones to take and share artistic photos is 30-40 million people per month.

Zedge's third major business segment is Emojipedia, the world's leading authority on all things emoji. Emojipedia provides up-to-date and well-researched emoji definitions, information, and news, as well as hosts the annual World Emoji Awards. In April 2024, Emojipedia received approximately 36 million monthly page views and had approximately 10.4 million monthly active users, of which 55.5% were located in well-developed markets.

Financials

In the fiscal year ended July 31, 2024, Zedge reported annual revenue of $27,241,000, a net loss of $6,102,000, annual operating cash flow of $3,162,000, and annual free cash flow of $1,702,000. These figures demonstrate the company's ability to generate substantial revenue and cash flow, despite the challenges posed by the macroeconomic environment and industry-specific headwinds.

For the third quarter of fiscal 2024, Zedge reported revenue of $7,658,000, up 14% from the same period in the prior year. This growth was driven by a 20% increase in advertising revenue and a 35% jump in subscription revenue, reflecting the company's success in monetizing its user base. However, digital goods and services revenue, which encompasses the GuruShots segment, declined 20% year-over-year due to the impact of Apple's App Tracking Transparency (ATT) framework and broader macroeconomic factors.

Zedge's key performance indicators (KPIs) also showed mixed results. Monthly active users (MAUs) for the Zedge app decreased 13.4% to 27.7 million, with a continued shift towards users in emerging markets. However, average revenue per monthly active user (ARPMAU) for the Zedge app increased 39.7% to $0.074, driven by higher advertising rates and strong subscription revenue growth.

At GuruShots, monthly active payers (MAPs) declined 20.7% to 5,408, primarily due to the challenges posed by the ATT framework, which impeded the company's ability to invest profitably in paid user acquisition campaigns. Average revenue per monthly active payer (ARPMAP) for GuruShots remained relatively stable, decreasing 0.4% to $53.0.

Strategic Initiatives

Zedge is actively pursuing several strategic initiatives to drive user growth, increase engagement, and advance its in-app economies across its portfolio of products.

In the Zedge Marketplace, the company is focused on building a full-stack marketing team with dedicated resources in areas such as SEO, ASO, user acquisition, and creative. Additionally, the company is investing in product development to drive innovation and cost efficiencies, including the introduction of generative AI capabilities through the pAInt feature and the development of a standalone AI creation app, WishCraft.

At GuruShots, the company is heavily focused on feature development to make the platform more accessible to a broader audience. This includes a revamped onboarding experience, the introduction of a new coin-based in-game economy, and the implementation of progression mechanics to help users advance through the game more seamlessly. These initiatives are designed to drive 10-30% revenue growth through improved user engagement and monetization.

For Emojipedia, the company is looking forward to releasing several new features ahead of this year's World Emoji Day celebration on July 17th, as it works to address the challenges encountered with the recent website redesign.

Liquidity

As of April 30, 2024, Zedge had $19.9 million in cash and cash equivalents and working capital of $17.1 million. The company maintains a $4 million revolving credit facility with Western Alliance Bank, including a foreign exchange contract facility of up to $7.5 million.

In the nine months ended April 30, 2024, Zedge generated $5.2 million in operating cash flow and $1.8 million in free cash flow. The company has a strong balance sheet and liquidity position, which provides the financial flexibility to execute on its strategic initiatives and weather any potential macroeconomic or industry-specific challenges.

Risks and Challenges

Zedge operates in a dynamic and competitive industry, facing risks and challenges that include:

1. Macroeconomic and geopolitical factors: The company is subject to the impact of global events, such as rising interest rates, inflation, and regional conflicts, which can affect consumer spending and the broader technology landscape.

2. Industry-specific headwinds: The implementation of Apple's App Tracking Transparency (ATT) framework has posed challenges for the company's user acquisition efforts, particularly in the GuruShots segment.

3. Competitive landscape: Zedge competes with a variety of digital content providers, photo competition platforms, and emoji-related resources, which could impact its market share and pricing power.

4. Successful integration and execution of acquisitions: The company's ability to effectively integrate and execute on its acquisitions, such as GuruShots and Emojipedia, is crucial to realizing the expected synergies and growth opportunities.

Outlook

Zedge is well-positioned to capitalize on the growth of the Creator Economy and unlock the full potential of its diverse portfolio of products. The company's strategic initiatives, including the focus on marketing, product development, and in-app economies, are designed to drive sustainable revenue growth and profitability.

While the company faces various risks and challenges, Zedge's strong balance sheet, liquidity position, and commitment to innovation position it well to navigate the evolving market landscape. With a focus on shareholder value creation, the company's low valuation and active share buyback program further enhance its investment appeal.

Conclusion

As Zedge continues to execute on its strategic priorities and capitalize on the opportunities within the Creator Economy, the company is poised to deliver long-term value for its shareholders.