8-K: Zedge Reports Second Quarter Fiscal 2025 Results, Announces Restructuring

Zedge's Q2 2025 results show a revenue decline offset by subscription growth and restructuring plans to improve profitability.

Summary

• Zedge, Inc. announced its second quarter fiscal 2025 results, which ended January 31, 2025.
• Revenue decreased by 10.2% to $7.0 million compared to the same quarter last year.
• The company reported a GAAP operating loss of $2.2 million, an improvement from the $11.9 million loss in the previous year, which included non-cash asset write-offs related to GuruShots.
• GAAP net loss was $1.7 million, or $0.12 per share, compared to a net loss of $9.2 million, or $0.66 per share, in the prior year.
• Non-GAAP net loss was $0.2 million, or $0.01 per share, compared to a non-GAAP net income of $0.5 million, or $0.04 per share, in the prior year.
• Free cash flow was $0.6 million for the quarter.
• Zedge Marketplace active subscriptions increased by 22%, and subscription revenue increased by 13%.
• Zedge Premium GTV increased by 27%.
• The company announced restructuring activities, including a 22% global workforce reduction, expected to save approximately $4 million in annualized costs.
• The company repurchased 244,826 shares of Class B Common Stock.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While there are positive aspects like subscription growth and cost-cutting measures, the overall revenue decline and net loss temper the outlook. The company is taking steps to address the challenges, but the near-term outlook remains uncertain.

Positives

• Subscription revenue increased by 13% year-over-year.
• Zedge Premium GTV increased by 27% year-over-year.
• The company generated $0.6 million in free cash flow.
• Restructuring activities are expected to save approximately $4 million in annualized costs.
• The company repurchased 244,826 shares of Class B Common Stock.
• GAAP operating loss improved significantly from $(11.9) million to $(2.2) million year-over-year.
• Zedge Marketplace active subscriptions increased 22% year-over-year.

Negatives

• Total revenue decreased by 10.2% to $7.0 million compared to the same quarter last year.
• Advertising revenue declined over 14% year-over-year.
• Digital Goods and Services Revenue decreased 33.0% year-over-year.
• Non-GAAP net loss was $0.2 million, compared to a non-GAAP net income of $0.5 million in the prior year.
• MAU decreased 14.0% year-over-year.

Risks

• Uncertainty surrounding TikTok's U.S. pre-ban status impacted advertising revenue.
• Lower MAU contributed to the revenue decline.
• The ongoing drag from GuruShots affected overall revenue growth and profitability.
• There is still a risk that TikTok could be banned in the U.S.

Future Outlook

The company is cautiously optimistic about a rebound in advertising revenue due to TikTok's reentry into the market and the introduction of a new ad unit. The impact of the recent restructuring is expected to reduce expenses and improve adjusted EBITDA and free cash flow. New AI creation features are expected to drive growth in fiscal 2026 and beyond. The company believes its current valuation makes it an attractive value stock and will continue to aggressively repurchase shares.

Management Comments

• Jonathan Reich, Zedge's CEO, stated that the revenue decline was primarily driven by the pullback in TikTok's U.S. ad spend, lower MAU, and the ongoing drag from GuruShots.
• Reich noted the company remained focused on optimizing ad inventory and engagement-driven monetization strategies.
• Reich concluded that the company believes its current valuations make it an attractive value stock and will continue to aggressively repurchase shares.

Industry Context

The report highlights the impact of changes in the digital advertising market, particularly the reduction in ad spend by TikTok, which affected CPMs across the industry. This reflects a broader trend of volatility in digital advertising revenue streams and the need for companies to diversify their monetization strategies.

Comparison to Industry Standards

• It's difficult to directly compare Zedge's performance to industry standards without knowing the specific benchmarks for companies in the mobile content and digital marketplace space.
• However, the decline in advertising revenue due to TikTok's reduced ad spend is a common challenge faced by many platforms that rely on programmatic advertising.
• Companies like Pinterest and Snap have also reported fluctuations in ad revenue due to changes in the broader advertising market.
• Zedge's focus on subscription revenue growth aligns with a broader industry trend of companies seeking recurring revenue streams to offset volatility in advertising revenue.
• The restructuring and cost-cutting measures are similar to actions taken by other tech companies to improve profitability in a challenging economic environment.

Stakeholder Impact

• Shareholders may be concerned about the revenue decline but encouraged by the cost-cutting measures and share repurchase program.
• Employees are affected by the workforce reduction.
• Customers may benefit from new AI features and content.
• Suppliers and creditors may be impacted by the company's restructuring efforts.

Next Steps

• The company will continue to introduce new AI creation features in the Zedge Marketplace and Emojipedia.
• The GuruShots team is optimizing the existing game for revenue growth while also developing a comprehensive plan for GuruShots 2.0.
• Management will host an earnings conference call to discuss the results, outlook, and strategy.

Key Dates