Zedge, Inc. 10-Q Analysis & Summary – 3/14/2025

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Zedge, Inc.

10-Q

Quarterly report

Filing date:

03/14/2025

TLDR:

ELI5:

Zedge, like a store for phone wallpapers and ringtones, made less money this quarter, but lost less money overall compared to last year. They’re trying to save money and improve their photo game, but face some challenges with world events.

Accession #:

0001213900-25-024149

Published on

March 16, 2025

Analyst Summary

Revenue decreased due to declines in advertising and GuruShots revenue, partially offset by subscription revenue growth.
Net loss improved significantly due to the absence of a large impairment charge from the prior year.
The company implemented a restructuring plan to reduce costs, including workforce reduction and closure of Norway operations.
Geopolitical risks, particularly the conflict in Israel, pose a significant threat to the company’s operations.
Management is focused on developing GuruShots 2.0 to revitalize the platform and unlock its potential value.
The company is focused on increasing ARPMAU (Average Revenue Per Monthly Active User) through subscription offerings and AI-driven features in the Zedge app.
Subscription billings increased by 39.4% to $3.647 million for the six months ended January 31, 2025.
Zedge Premium-gross revenue (“GTV”) increased by 42.1% to $1.361 million for the six months ended January 31, 2025.

Opportunities and Risks

Opportunity: Successful execution of GuruShots 2.0 could revitalize the platform and drive user engagement and revenue growth.
Opportunity: Sustained growth in Zedge Marketplace subscriptions and ARPMAU could improve overall financial performance.
Risk: Geopolitical risks in Israel could disrupt the company’s operations and impact financial results.
Risk: Continued challenges in GuruShots growth and profitability could hinder overall company performance.
Risk: Dependence on key customers poses a risk if those relationships are disrupted.
Risk: Declining MAU in the Zedge app is a concern and could impact future revenue growth.

Potential Implications

Company Performance

Successful execution of cost-cutting measures and the GuruShots 2.0 plan could improve operational efficiency and profitability.
Continued revenue decline could negatively impact the company’s ability to invest in growth initiatives.
Geopolitical risks could disrupt operations and negatively impact financial results.

Stock Price

Positive developments in GuruShots 2.0 and subscription growth could positively impact the stock price.
Negative news regarding geopolitical risks or continued revenue decline could negatively impact the stock price.

Zedge, Inc. SEC Filing Report (10-Q) – January 31, 2025

Executive Summary

This report analyzes Zedge, Inc.’s Form 10-Q for the quarterly period ended January 31, 2025. Key findings include a decrease in revenue, driven by declines in advertising and GuruShots revenue, partially offset by growth in subscription revenue. The company implemented a restructuring plan to reduce costs, including a workforce reduction and closure of Norway operations. Despite the cost-cutting measures, the company reported a net loss. Geopolitical risks, particularly the conflict in Israel, pose a significant threat. Overall, the outlook is cautiously neutral, pending successful execution of the GuruShots 2.0 plan and sustained growth in Zedge Marketplace subscriptions.

Company Overview

Zedge, Inc. operates digital marketplaces and competitive games, primarily focusing on mobile content for personalization. Its main products include the Zedge app (wallpapers, ringtones), pAInt (AI wallpaper generator), GuruShots (photo challenge game), and Emojipedia (emoji resource). The company targets the creator economy and aims to connect creators with consumers. Recent developments include the restructuring plan, the introduction of a subscription tier in the iOS version of the Zedge app, and ongoing development of GuruShots 2.0. The company faces challenges related to macroeconomic conditions, geopolitical instability, and the integration and growth of its GuruShots acquisition.

Detailed Analysis

Financial Statement Analysis

Condensed Consolidated Balance Sheets

	January 31, 2025 (Unaudited)	July 31, 2024	Change
Cash and Cash Equivalents	$20,054	$19,998	$56
Total Assets	$37,092	$38,195	-$1,103
Total Liabilities	$8,887	$7,299	$1,588
Total Stockholders’ Equity	$28,205	$30,896	-$2,691

Key Observations:

Cash position remains relatively stable.
Total assets decreased slightly, indicating a contraction in overall resources.
Total liabilities increased, suggesting increased financial obligations.
Stockholders’ equity decreased, reflecting the net loss and other comprehensive losses.

Condensed Consolidated Statements of Operations and Comprehensive Loss

	Three Months Ended January 31		Six Months Ended January 31
	2025	2024	2025	2024
Revenues	$6,979	$7,771	$14,173	$14,852
Loss from Operations	($2,219)	($11,930)	($2,676)	($11,609)
Net Loss	($1,679)	($9,230)	($2,018)	($9,246)
Loss Per Share (Basic & Diluted)	($0.12)	($0.66)	($0.15)	($0.66)

Key Observations:

Revenue decreased in both the three and six-month periods, indicating a slowdown in business activity.
Loss from operations improved significantly due to a large impairment charge in the prior year.
Net loss also improved, following the trend of loss from operations.
Loss per share reflects the net loss improvement.

Key Ratios

Ratio	Calculation	Three Months Ended January 31, 2025	Three Months Ended January 31, 2024	Six Months Ended January 31, 2025	Six Months Ended January 31, 2024
Gross Margin	(Revenue – Direct Cost of Revenue) / Revenue	93.6%	94.1%	93.6%	93.6%
Operating Margin	Loss from Operations / Revenue	-31.8%	-153.5%	-18.9%	-78.1%
Net Profit Margin	Net Loss / Revenue	-24.1%	-118.8%	-14.2%	-62.3%

Key Observations:

Gross margin remains high and stable, indicating efficient cost management in direct costs.
Operating and Net Profit Margins are negative, but improved significantly year-over-year due to the prior year’s impairment charge.

Cash Flow Analysis

	Six Months Ended January 31, 2025	Six Months Ended January 31, 2024
Net Cash Provided by Operating Activities	$1,878	$2,812
Net Cash Used in Investing Activities	($266)	($800)
Net Cash Used in Financing Activities	($1,494)	($2,010)
Net Increase (Decrease) in Cash and Cash Equivalents	$56	($61)

Key Observations:

Operating cash flow decreased, indicating less cash generated from core operations.
Investing activities used less cash, primarily due to reduced capitalized software development costs.
Financing activities used less cash, mainly due to the absence of term loan prepayment.

Management’s Discussion and Analysis (MD&A) Insights

Geopolitical Risks: The MD&A highlights the significant impact of the Israel-Hamas conflict on the company’s operations, particularly affecting its workforce and potentially impacting foreign investment and currency fluctuations. This is a major risk factor.
GuruShots 2.0: Management emphasizes the development of GuruShots 2.0 to revitalize the platform and unlock its potential value. The success of this plan is critical for future growth.
Zedge App Monetization: The company is focused on increasing ARPMAU (Average Revenue Per Monthly Active User) through subscription offerings and AI-driven features.
Cost Cutting: The restructuring plan, including workforce reduction and closure of Norway operations, is expected to improve operational efficiency and reduce costs.
Key Performance Indicators (KPIs): The company uses MAU (Monthly Active Users) and ARPMAU for the Zedge app, and MAP (Monthly Active Payers) and ARPMAP for GuruShots to measure performance. Declines in MAU and MAP are concerning, while growth in ARPMAU is a positive sign.

Red Flags and Uncommon Metrics

Impairment Charges: The significant impairment charge related to GuruShots in the prior year indicates potential overvaluation of the acquired assets and challenges in integrating the business.
Restructuring Charges: The restructuring charges in the current period reflect the company’s efforts to streamline operations and reduce costs, but also indicate underlying challenges in achieving profitability.
Dependence on Key Customers: The concentration of revenue among a few major customers poses a risk if those relationships are disrupted.
Foreign Exchange Risk: The company’s exposure to foreign exchange fluctuations, particularly with the Norwegian Kroner (NOK) and Euro (EUR), can impact its financial results.

Comparative and Trend Analysis

Revenue Decline: The consistent decline in revenue across both segments is a concerning trend that needs to be addressed.
Subscription Growth: The growth in subscription revenue for the Zedge app is a positive trend that should be sustained.
GuruShots Challenges: GuruShots continues to face challenges in growth and profitability, requiring significant changes to its business model.
Cost Management: The company is actively managing costs through restructuring and operational efficiencies, which is reflected in the improved loss from operations.

Conclusion and Actionable Insights

Zedge, Inc. is undergoing a period of transition, marked by cost-cutting measures and efforts to revitalize its GuruShots platform. While the company has made progress in improving its loss from operations, revenue growth remains a challenge. The geopolitical risks in Israel pose a significant threat to the company’s operations.

Overall Assessment: Neutral. The company’s future performance depends on the successful execution of its GuruShots 2.0 plan, sustained growth in Zedge Marketplace subscriptions, and effective management of geopolitical risks.

Recommendations:

Focus on Revenue Growth: Implement strategies to drive revenue growth in both the Zedge Marketplace and GuruShots segments.
Execute GuruShots 2.0: Prioritize the development and launch of GuruShots 2.0 to revitalize the platform and attract new users.
Manage Geopolitical Risks: Closely monitor the situation in Israel and develop contingency plans to mitigate potential disruptions.
Diversify Customer Base: Reduce dependence on key customers by diversifying the customer base.
Monitor KPIs: Continuously monitor key performance indicators (MAU, ARPMAU, MAP, ARPMAP) to track progress and identify areas for improvement.

Commentary

Zedge Inc.’s financial performance shows a mixed picture for the six months ended January 31, 2025. Revenue decreased slightly, driven by a decline in GuruShots revenue, while Zedge Marketplace revenue remained relatively stable. The company experienced a significant reduction in net loss, primarily due to the absence of large impairment charges that impacted the prior year. However, restructuring charges and continued losses from GuruShots remain concerns. The company’s focus on cost management and subscription growth in the Zedge Marketplace could be key to future profitability.

Financial Ratio and Metric Analysis

Profitability

Metric	January 31, 2025	January 31, 2024	Trend	Industry Comparison
Gross Profit Margin (Six Months Ended)	93.6%	93.6%	0%	Generally, software and app development companies have high gross profit margins, often exceeding 60%.
Operating Profit Margin (Six Months Ended)	-18.9%	-78.1%	75.8%	The industry average varies widely, but established tech companies often aim for operating margins above 15%.
Net Profit Margin (Six Months Ended)	-14.2%	-62.3%	77.2%	Similar to operating margin, a positive net profit margin is expected, with top performers exceeding 10%.
Return on Assets (ROA) (Annualized)	-5.4%	-24.2%	77.7%	The industry average ROA is around 5-10%, but this can vary significantly.
Return on Equity (ROE) (Annualized)	-14.3%	-59.8%	76.1%	A good ROE is generally considered to be above 15-20%, but this depends on the industry.
EPS (Basic and Diluted) (Six Months Ended)	$(0.15)	$(0.66)	77.3%	N/A – EPS varies greatly depending on the company’s stage and profitability.

Liquidity

Metric	January 31, 2025	July 31, 2024	Trend	Industry Comparison
Current Ratio	3.35	3.84	-12.8%	A current ratio between 1.5 and 2.0 is generally considered healthy.
Quick Ratio (Acid-Test Ratio)	3.35	3.84	-12.8%	A quick ratio above 1.0 is usually desirable.
Cash Ratio	2.80	3.20	-12.5%	A cash ratio of 1.0 or higher indicates a company can cover its current liabilities with its cash and equivalents.

Solvency/Leverage

Metric	January 31, 2025	July 31, 2024	Trend	Industry Comparison
Debt-to-Equity Ratio	0.32	0.24	33.3%	A debt-to-equity ratio of 1.0 or lower is generally considered healthy.
Debt-to-Assets Ratio	0.24	0.19	26.3%	A debt-to-assets ratio below 0.5 is generally considered good.
Interest Coverage Ratio (Times Interest Earned)	N/A	N/A	N/A	An interest coverage ratio of 3.0 or higher is generally considered safe.

Activity/Efficiency

Metric	January 31, 2025	January 31, 2024	Trend	Industry Comparison
Asset Turnover (Annualized)	0.76	0.78	-2.6%	The average asset turnover ratio varies by industry.
Inventory Turnover	N/A	N/A	N/A	N/A
Days Sales Outstanding (DSO) (Annualized)	77 days	84 days	-8.3%	The ideal DSO depends on the industry and the company’s credit terms.
Days Payable Outstanding (DPO) (Annualized)	56 days	43 days	30.2%	A DPO close to the industry average is generally desirable.

Valuation

Metric	January 31, 2025	January 31, 2024	Trend	Industry Comparison
Price-to-Earnings Ratio (P/E)	Negative	Negative	N/A	The average P/E ratio varies by industry and market conditions.
Price-to-Book Ratio (P/B)	2.7	2.2	22.7%	A P/B ratio between 1 and 3 is often considered reasonable.
Price-to-Sales Ratio (P/S) (Annualized)	1.1	1.0	10%	A P/S ratio below 2.0 is often considered attractive.
Enterprise Value to EBITDA (EV/EBITDA)	Negative	Negative	N/A	The average EV/EBITDA ratio varies by industry and market conditions.

Growth Rates

Metric	January 31, 2025	January 31, 2024	Trend	Industry Comparison
Revenue Growth (Six Months Ended)	-4.6%	N/A	N/A	Growth rates vary widely depending on the industry and company size.
Net Income Growth (Six Months Ended)	78.2%	N/A	N/A	Growth rates vary widely depending on the industry and company size.
EPS Growth (Six Months Ended)	77.3%	N/A	N/A	Growth rates vary widely depending on the industry and company size.

Other Relevant Metrics

MAU- Zedge App: Decreased by 14.2% to 24.7 million. This decline in user base is a concern, as it can impact future revenue growth.
ARPMAU – Zedge App: Increased by 8.7% to $0.0777. This indicates that the company is generating more revenue per user, which is a positive sign.
Subscription Billings (Non-GAAP): Increased by 39.4% to $3.647 million for the six months ended January 31, 2025. This non-GAAP metric provides insight into the company’s subscription revenue growth, as it includes changes in deferred revenue.
Zedge Premium-gross revenue (“GTV”): Increased by 42.1% to $1.361 million for the six months ended January 31, 2025. This indicates growth in the Zedge Premium service.