Earnings call transcript: Zedge misses Q1 2025 forecasts, stock drops

Zedge Inc. (ZDGE) reported disappointing financial results for its fiscal first quarter of 2025, missing both earnings and revenue forecasts. The company posted an EPS of -$0.01 against a forecast of $0.06, and revenue of $7 million, falling short of the expected $8.3 million. With a market capitalization of just $31 million and an impressive gross profit margin of 93.93%, this micro-cap company maintains strong operational efficiency despite current challenges. This significant miss led to a 5.31% drop in Zedge’s stock during regular trading hours, with an additional 6.54% decline in aftermarket trading, bringing the price to $2.00. According to InvestingPro analysis, the stock appears undervalued at current levels, with multiple ProTips supporting this view.

Key Takeaways

• Zedge reported a net loss, missing both EPS and revenue expectations.
• Subscription revenue and net active subscriber growth showed positive trends.
• The company undertook restructuring, reducing its global workforce by 22%.
• Market reaction was negative, with the stock nearing its 52-week low.
• Zedge plans to launch new AI-driven features and continue its share buyback program.

Company Performance

Zedge’s overall performance in Q1 2025 reflected significant challenges, as the company reported a 10% year-over-year decline in total revenue. Despite this, subscription revenue increased by 13%, and net active subscribers grew by 22%, indicating some positive momentum in its subscription services. However, the company’s GAAP net loss of $1.7 million and non-GAAP net loss of $200,000 highlight ongoing financial pressures.

Financial Highlights

• Revenue: $7 million, down 10% year-over-year
• GAAP Net Loss: $1.7 million ($0.12 per share)
• Non-GAAP Net Loss: $200,000 ($0.01 per share)
• Subscription Revenue: Up 13% year-over-year
• Zedge Premium GTV: $700,000, up 27% year-over-year

Earnings vs. Forecast

Zedge’s Q1 2025 EPS of -$0.01 fell short of the forecasted $0.06, a negative surprise of 117%. Revenue also missed expectations by $1.3 million. This marks a significant deviation from previous quarters, where the company had shown more stable performance.

Market Reaction

The negative earnings report led to a sharp decline in Zedge’s stock, which dropped 5.31% during regular trading and an additional 6.54% in aftermarket trading. The stock’s current price of $2.00 is close to its 52-week low of $1.93, reflecting investor concerns over the company’s financial health and future prospects.

Outlook & Guidance

Looking forward, Zedge remains cautiously optimistic about recovering ad revenue as market conditions improve. The company is focusing on cost savings from its restructuring efforts, which are expected to enhance its bottom line. With a healthy balance sheet showing more cash than debt and strong free cash flow yield, Zedge appears well-positioned to fund its growth initiatives. The company plans to launch an AI audio creator in Q3 or early Q4 and is exploring a 2.0 version of its GuruShots product. For detailed analysis of Zedge’s growth potential and comprehensive valuation metrics, investors can access the full Pro Research Report available on InvestingPro.

Executive Commentary

CEO Jonathan Wright emphasized the company’s belief in its undervalued stock, stating, "We continue to believe our stock is significantly undervalued based on multiple valuation metrics." He also highlighted the focus on building new features and monetizing them effectively, saying, "Our perspective is to continue to build with new features and monetize those features well."

Risks and Challenges

• The ongoing macroeconomic environment poses challenges for ad revenue.
• Restructuring and workforce reductions may impact operational efficiency.
• The withdrawal of TikTok from the market has affected user acquisition spending.
• Falling CPMs across the industry could pressure advertising revenue.
• The company’s ability to innovate and launch successful new products remains critical.

Q&A

During the earnings call, analysts inquired about the timeline for restructuring cost savings and the impact of the TikTok market situation. The company addressed concerns about monthly active user growth and elaborated on its lifetime subscription strategy as a means to enhance long-term value.

Full transcript - Zedge Inc (ZDGE) Q2 2025:

Conference Call Operator: Good day, and welcome to Zedge’s Earnings Conference Call for the Second Quarter Fiscal twenty twenty five Results. During management’s prepared remarks, all participants will be in listen only mode. After today’s presentation by Zedge’s management, there will be an opportunity to ask questions. I will now turn the call over to Brian Siegel.

Brian Siegel, Investor Relations, Zedge: Thank you, operator. During today’s call, Jonathan Wright, 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 calls. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in Zedge’s periodic SEC filings. 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 and has also been filed on Form eight ks with the SEC. Finally, on this call, we will use non GAAP measures. Examples include non GAAP EPS, non GAAP net income and adjusted EBITDA. Please see our earnings release for an explanation of our use of these non GAAP measures. Now, I would like to turn the call over to Jonathan.

Jonathan Wright, Chief Executive Officer, Zedge: Thank you, Brian. Good afternoon, everyone, and thank you for joining us today to discuss Zedge’s second quarter fiscal twenty twenty five results. This quarter presented a challenging macro environment negatively impacting ad revenue. For the most part, the unclear regulatory status of a TikTok ban resulted in TikTok pulling back on user acquisition spend, which had a ripple effect across the industry on companies where ad spend is an important revenue driver. Both Apple and Google removed TikTok from their storefronts for close to a month.

With less demand from a high bidder, CPMs fell across the industry, although our optimization efforts did enable our overall CPMs to rise versus last year, helping offset the lower demand and lower MAU sets. While total revenue declined 10% year over year to $7,000,000 TikTok’s return to the Apple and Google App Stores in fiscal Q3 is yielding encouraging results even while we await a final outcome about TikTok’s future in The U. S. The other key event during the quarter was our announced restructuring in order to improve operational efficiency, profitability and free cash flow. Overall, between our restructuring and other items, we expect to reduce our annualized expense run rate by approximately $4,000,000 primarily related to a 22% reduction in our global workforce, driven by cuts to the Guru Schatz team and the closure of our Norway office.

Taken together, this will yield annualized cost savings of approximately $3,000,000 in compensation related and other expenses and $1,200,000 in savings resulting from the expiration of the retention bonus payments owed to Gurushat’s employees under the terms of the April 2022 acquisition. Our financials will start reflecting these savings in Q3 and culminate in Q4. The impetus in undertaking the restructuring was to improve efficiency, enhance our ability to invest in growth opportunities and position Zedge for sustainable profitability. In addition, we expect that this will help us in generating free cash flow. I also want to underscore that we acted decisively to mitigate the impact of TikTok’s mandated withdrawal from the market by focusing efforts on areas under our control, such as further optimizing our ad inventory.

For example, this quarter we added new demand partners and a new ad unit. With these continual optimizations, we are enhancing engagement driven monetization strategies and strengthening our subscription and premium offerings. Our quarterly subscription revenue growth remains strong, increasing 13% year over year, reflecting our success in effectively monetizing our user base. We continue to reap the benefits of our revamped subscription offering and upselling legacy subscribers to higher value plans, which helped to drive a 22% increase in active subscribers. This quarter, we not only experienced an uptick in subscriptions from well developed markets, but also from emerging markets, which points to our ability to iterate until achieving success.

Zedge Premium continued to see strong momentum with GTV growing 27% year over year. Our relentless efforts to optimize monetization continues to pay off. For example, the work we’ve done with rewarded video has made this category a powerful monetization channel for increasing Zedge Premium’s GTV. Rewarded video usage grew nearly 40% with very impressive low double digit conversion rates, effectively activating a new segment of purchasers of smaller volumes of Zedge credits and expanding the overall ecosystem. The launch of Paint two point zero on iOS in September and Android in October was also significant to our GenAI strategy, introducing powerful new creation capabilities, including image to image and real time photo editing.

Paint has gained significant traction over the past year with increasing engagement metrics from a low single digit percentage of Zedge Marketplace’s daily users to a low double digit percentage more recently. Engagement metrics specific to Paint surged more than 100% year over year in February, further underscoring its growing popularity. Let’s not forget that GenAI is still early in consumer market adoption and we offer a great product for an attractive price. In the coming quarters, we are going to further expand the Zedge Marketplace’s GenAI capabilities by offering an AI audio creator. This expansion represents a significant opportunity to further engage with users in an emerging and growing vertical with the goal of converting our consumers into creators by empowering them with an easy way to make awesome ringtones, sound effects and personalized audio clips.

By diversifying our AI driven offerings, we aim to tap into the growing demand for customizable audio content, while opening new monetization opportunities. While Gurusoft’s faced continued challenges in Q2, our late January restructuring plan will help lower costs and drive the business toward breakeven as we revamp the unit for growth. Fortunately, there was only a slight sequential revenue decline when compared to Q1. Looking beyond the cost structure improvements we made, we are early in the process for reimagining GuruShots two point zero and looking at everything from gameplay to content generation to monetization and more to unlock value from this asset. Once the strategy and roadmap are solidified over the next few quarters, we will begin to allocate investment based on key milestones to enhance engagement and long term revenue potential.

Emojipedia’s results were roughly flat compared to last year. On a positive note, the introduction of Emojipedia’s first AI feature and AI emoji generator monetized with rewarded videos has been encouraging. Users can now design their own custom emojis, allowing them to easily make their creative dreams a reality. This is in keeping with our goal of turning consumers into creators. Additionally, we plan to continue to expand the emoji sandbox over time with new content and features.

And finally, we are in the process of redesigning the emojipedia.org website to a more modern user friendly experience, which we believe will drive further engagement. Looking ahead, we are cautiously optimistic that the worst of the ad revenue decline is behind us. And while TikTok is back in the market at this time, like the rest of the industry, we will continue to monitor the situation and adjust if the situation is resolved in an adverse manner. That said, we are excited by the potential of the roadmap for all of our products. We continue to believe our stock is significantly undervalued based on multiple valuation metrics, and we expect to continue actively buying back shares under our existing $5,000,000 authorization.

With that, I’ll now turn the call over to Yi to discuss our financials in more detail. Yi?

Yi Tsai, Chief Financial Officer, Zedge: Thank you, Jonathan. Total revenue in the second quarter was $7,000,000 down 10% from last year, mainly due to the advertising headwind the industry is facing the quarter that Jonathan mentioned and the continued challenges at Gruyusha. Second quarter subscription revenue was up 13% from last year, and our net active subscriber growth rate continued to improve and was up 22% year over year and sequentially for the seventh straight quarter. Our higher value iOS subscription and value added ZX plus offering for Android are not only seeing organic growth, but they also continue to outpace churn, which is mainly replacing lower cost legacy subscription, which only remove ads. Zedge Premium’s GTV achieved roughly $700,000 up 27% versus last year as the combination of our feature and content offering and monetization expertise continue to drive attractive growth.

Despite the pressure on advertising, ad now still grew 9% year over year to $0.078 GURU SHOT, which is reported under digital goods and services revenue, remain a challenge, down 33% from last year, but only 4% sequentially. We expect the year over year comp to start to improve in our fourth quarter and into 2026. Cost of revenue was 6.4% for the quarter, roughly flat year over year on an absolute basis. SG and A increased by 9% to $7,100,000 during the quarter. This increase was mainly driven by marketing expenses related to higher paid user acquisition at the Zedge marketplace, and our subscription model has higher near term expenses as the timing of revenue and costs down align.

This is especially the case for a lifetime subscription, which also carry a higher platform fee than an annual subscription. For example, for a lifetime subscription, platform fees are expensed immediately, while revenue is recognized over two point five years, leaving us with 100% operating margin after the initial purchase and helping improve operating margin leverage as we scale. We had restructuring charges of $500,000 and noncash asset impairment charges of $800,000 during the quarter related to our announced restructuring activity in late January and early February. Last year, we had asset impairment charges of $12,000,000 related to writing down the Gurusha acquisition, which has now been fully written down. We currently expect to take a total of approximately $1,100,000 in additional restructuring and noncash asset impairment charges during our third and fourth fiscal quarter.

GAAP loss from operation was $2,200,000

Unidentified Executive, Zedge: for the

Yi Tsai, Chief Financial Officer, Zedge: quarter compared to $12,000,000 last year. GAAP net loss and loss per share for the quarter were $1,700,000 and $0.12 compared to $9,200,000 and $0.66 respectively last year. Non GAAP net loss and loss per share were 200,000 and $0.01 compared to non GAAP net income and EPS of $500,000 and $0.04 in the prior year. Cash flow from operations was $700,000 and free cash flow was $600,000 for the quarter. While both were down from last year, we believe this should start to improve in the third and fourth quarters as our restructuring savings start to impact the bottom line.

Adjusted EBITDA for the quarter was negative $100,000 versus positive $1,500,000 in the prior year. Note that D and A decreased 58% or over $400,000 compared to last year due to the impairment of intangible. From a liquidity standpoint, we finished the quarter with over $20,000,000 in cash and cash equivalents. During the quarter, we bought back 245,000 shares under our 5,000,000 share repurchase program that was announced in Q1. Thank you for listening to our second quarter earnings call, and I look forward to speaking with you again on our third quarter call in mid June.

Operator, back to you for Q and A.

Conference Call Operator: Thank you. We will now begin the question and answer session. The first question today is coming from Alan Klee from Maxim Group. Alan, your line is live.

Alan Klee, Analyst, Maxim Group: Yes. Hi. Good afternoon. Could you I missed when you said what you expected the restructuring charges to be in your third and fourth fiscal quarters. Could you repeat that please?

Unidentified Executive, Zedge: Hi, Alan. Because of the accounting rule, we can’t really approve certain severance and donation benefit until it’s been communicated to the impacted employee. So that occurred in February, which fall in Q3. Additionally, we are looking to certain impairment related to our office space in China. Those costs will be recorded in either Q3 or Q4 as we look for sub tenant and how we negotiate with our current landlord.

I hope that answers your question.

Alan Klee, Analyst, Maxim Group: Yes. So you’re targeting around $3,900,000 to $4,100,000 dollars annualized cost savings. That’s compared to the prior $12,000,000 what does that compare to of the base? And then second, when do you have a sense of how much of that shows up in of that’s annualized, but how much of the amount you might see in fiscal third quarter and how much in fiscal fourth quarter?

Unidentified Executive, Zedge: I mean, the cost saving is annualized, so approximately about $1,000,000 per quarter.

Alan Klee, Analyst, Maxim Group: But will it be fully at that run rate for the third quarter or will it be at that run rate in the fourth quarter or sometime next year? When will it do you think it will be at that $1,000,000 savings?

Unidentified Executive, Zedge: Yes. From third quarter, we should start seeing that $1,000,000 amount of run rate per quarter in savings. Before you factor in the investment on restructuring charges.

Alan Klee, Analyst, Maxim Group: So will you see the full $1,000,000 do you think in the third quarter or do you think you won’t quite be there yet in the third quarter?

Unidentified Executive, Zedge: We will see that $4,100,000 in the third quarter because current impact in employee, they’re still on the payroll, but they will be offset against the restructuring charges, which is not part of the normalized SG and A expenses, if you will.

Alan Klee, Analyst, Maxim Group: Okay. Thank you. And then just in terms of the business, just when you were talking about TikTok, how

Conference Call Operator: you said you have some sense that

Alan Klee, Analyst, Maxim Group: it’s starting to improve. How maybe I wanted to ask your average revenue per I don’t even know if I’m going to say it right, per monthly active user. That metric look like it held up for the quarter, but is that because of things like subscriptions and marketplace spending getting blended into it or why I’m talking about sequentially, but or what’s the why is that?

Unidentified Executive, Zedge: Yes. So we have declining advertising revenue, but it was partially offset by the growth in subscription revenue and also from that premium. But remember, the average revenue per monthly user, it will be a lower base because we have a lower amount. So sequentially, our arm now is still higher compared to last year sequentially.

Alan Klee, Analyst, Maxim Group: Okay. For Guru Shatz, what help me understand again, right now you’ve I guess allocated a good amount of the cost cutting related to it. How do you think of are you still trying to do some initiatives to increase the top of the funnel and the engagement and usage of new users or what’s the status with that?

Jonathan Wright, Chief Executive Officer, Zedge: Yes, Alan, this is Jonathan. So in GuruShots, we have the existing GuruShots game as we know it today. And the focus is on optimizing revenue performance and with reduced ad spend, bringing in new users with a very attractive ROAS profile. Separate and apart from that, we are now in ideationplanning stage for what GuruShots two point zero will be, and how we will be able to improve the game materially built on modern infrastructure in order to realize and recognize the value that we believe that the game carries with it. We are not as of yet doing any development work on GuruShots two point zero.

When I say development work, I mean coding and stuff like that. We’re now in ideation phase, game design phase and thinking about where we can bring the game such that we can ultimately make a presentation to the Board and have a recommendation as to what should come next in terms of that part of the business.

Alan Klee, Analyst, Maxim Group: Okay. In the past, the last quarter you mentioned Wishcrap and AI Art Master were in beta. Is there any change in that or what’s happening there?

Jonathan Wright, Chief Executive Officer, Zedge: Those are still in beta. And obviously with the restructuring, there’s not a tremendous amount of effort being invested in those. I believe that sometime between now and the end of Q3, we will make a decision as to what we’re going to move forward with, what we or what we might just say like, hey, no sense in moving forward on this one and move on to some other project. But we’re not there yet.

Conference Call Operator: Okay.

Alan Klee, Analyst, Maxim Group: And similarly with AI Audio, I think I heard you say something like looking to launch that maybe in the next couple of quarters. So any thoughts

Jonathan Wright, Chief Executive Officer, Zedge: AI Audio is we are expecting to add an AI Audio feature to the Zedge marketplace in the paint suite in the next couple of months. And I hope that that will actually be in Q3. If not, in Q3, it will be the beginning of Q4. But that will not be a separate app, that will just be part of our AI suite of solutions, adding a new Vista, which is outside of the realm of visual and entering us into the realm of audio.

Alan Klee, Analyst, Maxim Group: Okay, got it. If I step back and I think about your company, I think you get very high marks over time with what you’ve done on monetizing advertising. And the challenges have come from GuruShots and monthly average users. So it sounds like, I mean, tell me if I’m wrong, but GuruShots you’re downsizing and then addressing. Monthly active users.

How do you think about just in general that and some of it’s macro, some of it, I don’t know what it is. Just how do you think about getting that to start to grow?

Jonathan Wright, Chief Executive Officer, Zedge: Yes. So, I think that there are a couple of pieces in motion there. One is continued product innovation and resilience in terms of how we invest in the products and how we get users to engage with new features and the like. And then another feature of this relates to subscriptions, whereby we monetize better with subscriptions and subscribers. There is a funnel there in terms of what happens second year, third year and some lifetime.

And as you know, we’ve discussed about the growth that we’ve had with lifetime subscriptions and so on and so forth. So holistically, our perspective is try to continue to build with new features and monetize those features well, optimize

Unidentified Executive, Zedge: the

Jonathan Wright, Chief Executive Officer, Zedge: segment of prospective subscribers and try to get lifetime subscribers. And for those users that don’t subscribe, optimize our ad inventory to generate the greatest ROI. And that’s in the Zedge marketplace. In terms of and I should certainly mention investment in paid user acquisition to complement the strong organic growth that we have for this Edge marketplace. And we’ve been doing that successfully.

When it comes to GuruShots, part of the reason that we have undertaken the restructuring relates to the notion of giving us runway in order to redesign and then come out with something that we think will strike the chord and spark the growth that we believe is achievable. And that will also be a function of not only product, but also investment in marketing. And as I indicated earlier, we’ve scaled back considerably in terms of our marketing spend for Guder Shops, yielding a much more attractive ROAS profile. And then we’re keeping fire powder in the keg such that when Guru Shops two point zero comes to fruition that we have the money to invest and to grow that user profile and that user base profitably.

Alan Klee, Analyst, Maxim Group: Thank you.

Jonathan Wright, Chief Executive Officer, Zedge: How can I answer your question?

Alan Klee, Analyst, Maxim Group: Yes. Thank you. You mentioned lifetime subscriptions and pushing to grow them. Does there at some point become an issue if you just do lifetime subscriptions that you start to lose like subscription revenue because everyone signed up for the lifetime or how do you think I mean, you get the benefit in the short term, but how do you think about that?

Jonathan Wright, Chief Executive Officer, Zedge: That’s a great question. Remember, we have a very, very large set of users that are coming into Zedge on a regular basis, new users that is. And the way that we think about it is really segmenting based upon where we see the best possible outcome for any particular user. So I think with the robust organic growth coupled with the paid user acquisition that we invest in, we have room to maneuver there. It’s not binary.

It’s not like we only have lifetime subscription and if you don’t sign up for it, you can’t use the app. Remember, we’ve got multiple tiers. We’ve got subscriptions within subscriptions. We’ve got annual subscription, monthly subscription, lifetime subscription. So then we have the free tier and then we have features that are available by a user interacting with a rewarded video.

So there is a pretty wide range of paths that we can steer users down in order to yield the best possible outcome per segment, if you will.

Alan Klee, Analyst, Maxim Group: Okay. Thank you. I’m not sure if I heard what you guys said right. When you you made some commentary that you expected improvement in advertising from what you’ve seen so far in the next quarter. But I don’t know if you went this far.

Let me ask, the quarter you just reported, I think is your seasonally strong quarter. So the next quarter, I believe is normally seasonally not as strong. Did you make a comment that you think your fiscal 3Q revenue would be above fiscal 2Q or am I extrapolating something you didn’t say?

Jonathan Wright, Chief Executive Officer, Zedge: No, you are extrapolating. What we’ve said is we think that the challenge imposed with the inavailability of TikTok for basically around the month is behind us. TikTok being back in the market has the impact of

Jonathan Wright, Chief Executive Officer, Zedge: increasing CPMs

Jonathan Wright, Chief Executive Officer, Zedge: and that is what we are experiencing. And coupled with that, TikTok being back in the market also helps us on the paid user acquisition side because there are more platforms, so supply demand dynamics kick in and are benefiting us. Seasonally, you are correct. Our fiscal Q2 quarter is the strongest quarter. And although it’s with some optimizations we’ve done with our ad inventory that from what we can see the pressure that the downside pressure that existed when TikTok wasn’t around is in the rearview mirror.

And then from a, I guess, political perspective, my understanding is that the seventy five day window has been extended, which, I guess could point to the outcome that President Trump is trying to achieve and that is finding an appropriate buyer to keep TikTok alive and well in The U. S.

Alan Klee, Analyst, Maxim Group: Okay. Thank you. Sure. I’m trying to okay. Those are my questions.

Thank you so much.

Conference Call Operator: Thank you. There were no other questions at this time. That concludes our question and answer session and conference call. You may disconnect your lines at this time. Thank you for your participation.

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