Zedge, Inc. (ZDGE) Q4 2024 Earnings Call Transcript

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Overview

The earnings call summary reveals mixed financial performance: strong growth in some areas but significant declines in others, such as GuruShots revenue and increased SG&A expenses. The Q&A section highlights management's vague responses, especially regarding GuruShots and advertising revenue, raising concerns about transparency and growth. Despite some positive elements like stock repurchases and loan payoff, the lack of clear guidance and worsening financial metrics suggest a negative outlook. Given the absence of market cap data, a 'Negative' prediction (-2% to -8%) is reasonable, considering the overall sentiment and potential investor concerns.

Key Financial Performance

Total Revenue (Q4) $7.6 million, up 14% year-over-year.

Total Revenue (FY 2024) $30.1 million, up 11% year-over-year.

Advertising Revenue (Q4) Up 13% year-over-year.

Advertising Revenue (FY 2024) Up 15% year-over-year.

Subscription Revenue (Q4) Up 31% year-over-year.

Subscription Revenue (FY 2024) Up 25% year-over-year.

Zedge Premium's GTV (Q4) $600,000, up 56% year-over-year.

Zedge Premium's GTV (FY 2024) $2.1 million, up 39% year-over-year.

ARPMAU (Q4) $0.079, up 43% year-over-year.

Net Active Subscribers Improved sequentially for the fifth straight quarter.

Cost of Revenue (Q4) 6% of revenue, decreased 4% year-over-year.

Cost of Revenue (FY 2024) 6% of revenue, decreased 17% year-over-year.

SG&A (Q4) $6.9 million, up 33% year-over-year.

SG&A (FY 2024) $25.6 million, up 17% year-over-year.

GAAP Loss from Operations (Q4) $0.1 million, compared to income of $0.2 million last year.

GAAP Loss from Operations (FY 2024) $11.8 million, compared to a loss of $6.9 million last year.

GAAP Net Loss (Q4) Nil, compared to net income of $0.2 million last year.

GAAP Net Loss (FY 2024) $9.2 million, compared to a loss of $6.1 million last year.

Non-GAAP Net Income (Q4) $0.3 million, down from $0.6 million last year.

Non-GAAP EPS (Q4) $0.02, down from $0.04 last year.

Adjusted EBITDA (Q4) $0.8 million, down from $1.6 million last year.

Adjusted EBITDA (FY 2024) $4.7 million, down from $5.7 million last year.

Cash and Cash Equivalents (End of FY 2024) $20 million, up by nearly $2 million.

Stock Repurchase (FY 2024) $600,000 in stock repurchased.

Stock Price Appreciation (End of FY 2024) 71% increase from $2.12 to $3.62.

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Operating Highlights

pAInt 2.0: Released in September, it introduced image-to-image capabilities powered by AI, allowing users to create new visuals from existing images.

AI audio generator: In development, aimed at enabling users to create audio content such as ringtones and notifications.

WishCraft: A stand-alone generative AI app in beta, designed to simplify the creation process for users unfamiliar with AI.

Emojipedia enhancements: Plans to introduce custom emoji creation and digital sticker capabilities powered by Gen AI.

Zedge Marketplace: Subscription revenue increased by 31% in Q4, with a record ARPMAU of $0.079, driven by user engagement and premium offerings.

GuruShots: Revenue declined by 24% in Q4, with a strategic shift towards new user acquisition and engagement.

Operational efficiencies: Centralized key support functions in fiscal 2024, focusing on optimizing the technology platform for rapid development.

Marketing efficiency: Achieved improved Return on Ad Spend (ROAS) through a world-class marketing team and effective ad optimization.

Strategic shift: Repositioning GuruShots to prioritize new user acquisition and engagement, with a focus on product features that drive growth.

Creator Economy focus: Aiming to convert content consumers into creators, enhancing user engagement and retention.

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Risk or Challenges

Competitive Pressures: Zedge faces competitive pressures in the marketplace, particularly in converting its user base from content consumers to content creators, which is critical for positioning in the Creator Economy.

Regulatory Issues: The company is sensitive to compliance with legal and platform-specific regulations, particularly regarding data collection and advertising.

Supply Chain Challenges: There are challenges related to producing ads efficiently and ensuring that marketing platforms add incremental value, especially with less user information available than in previous years.

Economic Factors: Zedge is navigating ongoing industry and geopolitical challenges, as well as macroeconomic uncertainties that could impact growth and profitability.

Operational Risks: The company is experiencing high operating leverage due to increased spending on marketing and lower revenue from GuruShots, which has seen a 24% decline in revenue for the quarter.

Investment Risks: Zedge's subscription model leads to higher near-term expenses as revenue is recognized over time, which can create cash flow challenges.

Product Development Risks: The company is in the process of testing new products and features, such as WishCraft and AI audio offerings, which may not yield immediate success and could require rapid iteration.

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Guidance & Outlook

Revenue Growth: Zedge posted 14% year-over-year revenue growth in Q4 and 11% for fiscal 2024, totaling $30.1 million.

Subscription Revenue: Subscription revenue increased by 31% in Q4 and 25% for the year, reaching $4.3 million.

Average Revenue Per Monthly Active User (ARPMAU): ARPMAU increased by 43% to a record $0.079.

Gross Transaction Value (GTV): Zedge Premium's GTV increased by 56% in Q4, achieving $600,000, and 39% for the year, totaling $2.1 million.

Stock Buyback Program: A new $5 million stock repurchase plan was approved in September.

AI Integration: Plans to embed generative AI capabilities across product offerings to enhance user experience and engagement.

Product Development: Focus on evolving technology platform for rapid development of new apps and products.

Marketing Strategy: Centralized marketing functions to improve user acquisition and optimize ad spend.

Fiscal Year 2025 Outlook: Zedge aims to drive growth by scaling businesses, optimizing offerings, and enhancing user engagement.

GuruShots Strategy: Shift towards prioritizing new user acquisition and engagement to reverse losses and resume growth.

Emojipedia Enhancements: Plans to introduce custom emoji creation and redesign the Emojipedia experience in fiscal 2025.

Operating Expense Management: Commitment to manage operating expenses relative to revenue growth, focusing on ROI.

Long-term Growth Strategy: Focus on sustainable and profitable long-term growth through smart capital allocation and innovative product development.

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Shareholder Return Plan

Share Buyback Program: Zedge repurchased $600,000 in stock during the year and approved a new $5 million share buyback plan in September.

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Key Q&A

Q:In terms of GuruShots, I was wondering if there's any metrics you can provide, whether it be like the number of users, how that's changing, as well as just retention and engagement rates associated with that app?

A:At this point in time, the KPIs that we've included in the release are the ones that you should be looking at. Directionally, as I said during my call, during my comments, the focus for GuruShots is really geared towards new users and having them come into the funnel, convert into players, and then having them engage to a point where they are generating revenue by purchasing coins that they can use to accomplish certain goals within the gameplay.

Q:In terms of the Zedge offering, could you just talk about for the fact that it's driving the growth in Marketplace gross transactional value as well as subscription numbers as well as how you're getting to that higher average monthly revenue per monthly active user?

A:In terms of GTV, gross transactional value, for our premium artists, we are doing many things in the app in order to promote content as well as making Zedge relevant to the Creator Economy. We are actually seeing growth in premium art from the use of AI and the ability to offer outstanding content that meets the need and the desire of our users.

Q:Can you just talk about how advertising revenue is trending and how you've been able to respond to some of the industry changes in terms of the data you're able to access?

A:From an advertising revenue perspective, we are using third-party for mediation, and it's really a function of being in the programmatic offering that, that third-party has. However, we are beginning to focus on collecting both zero-party and first-party data, obviously, being very sensitive to compliance with any regulations.

Q:I was wondering if you could just give some commentary around both the AI audio offering and the WishCraft beta app?

A:With pAInt 2.0, we've taken our initial foray into the world of Gen AI creation. The next iteration of pAInt needs to be something specific to audio. WishCraft is a standalone Gen AI image app, so either text-to-image or image-to-image. We are setting specific thresholds in terms of what KPIs need to be reached as we iterate rapidly.

Q:For Emojipedia, I was just wondering your outlook for that in '25, as well as just how that performed compared to the third quarter?

A:Yes, you're correct. In Q3, we had launched a redesign, and that redesign did not perform as was anticipated. We made the changes, that has been remedied, and Emojipedia has been humming along nicely.

Q:How do you feel about the returns that you're getting from paid advertising?

A:We have actually seen, just by way of focusing on the Zedge app, we've actually seen that we have been able to reduce our CPI cost per install and do that by spending actually less money, but even seeing an improvement in terms of the number of installs.

Q:How do you feel about how you might manage your operating expense growth relative to revenue growth in the next fiscal year?

A:We are very, very much committed to ensuring that we're not racking up the expenses unless the ROI is there. However, if the ROI is there, then we want to pursue it.

Q:Review of Unclear Management Responses

A:Management did not provide specific metrics on GuruShots user numbers, retention, or engagement rates, stating only that they are focusing on new user acquisition and engagement without disclosing detailed KPIs. Additionally, while they mentioned the use of third-party mediation for advertising revenue, they did not clarify how this impacts their overall advertising strategy or performance.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

ZDGE Transcript

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