2 hours ago 1

Q4 2024 Zedge Inc Earnings Call

Thomson Reuters StreetEvents

Wed, Oct 30, 2024, 3:59 a.m.28 min read

Good day and welcome to the Zedge Earnings Conference Call for the Fourth-Quarter and end of year fiscal 2024 results during management's prepared remarks, all participants will be in a listen-only mode. (Operator Instructions)
After today's presentation by the Zedge management team, there will be an opportunity to ask questions (Operator Instructions)
I will now turn the call over to [Brian Siegel]. Please go ahead.

Brian Siegel

Thank you, operator. In today's presentation, Jonathan Reich, 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 call.
These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in the reports that Zedge periodically files with the SEC. 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. The earnings release has also been filed on Form 8-K with the SEC.
I would now like to turn the conference over to Jonathan.

Jonathan Reich

Thank you all for joining us today. We wrapped up fiscal 2024 with strong momentum, posting
14% year-over-year revenue growth in the fourth quarter, driven by continued expansion in the Zedge Marketplace with subscription revenue up 31% and Average Revenue Per Monthly Active User, or ARPMAU, soaring by 43%, hitting a record $0.079.
Zedge Premium's Gross Transaction Value, or GTV, increased by 56%, driven by enhancements in content and monetization, further showcasing the positive impact of our team's execution.
For all of fiscal 2024, we delivered revenue growth of 11% representing $30.1 million in revenue, non-GAAP net income of $1.8 million, and flat non-GAAP EPS of $0.13, even while beginning to reposition GuruShots, continuing to roll out innovative product enhancements, testing new offerings, and scaling marketing and user acquisition initiatives across our core platforms.
While the Zedge Marketplace's monthly active user numbers fluctuated between 25 million and 30 million, we significantly improved the revenue generation capabilities of our user base as evidenced by the growth in our premium offerings, including 25% growth in subscription revenue to a record $4.3 million, a nearly 40% increase in Zedge Premium's GTV to a record $2.2 million and a nearly 10X increase in iOS revenue, all leading to the record ARPMAU we reported in Q4.
We also strengthened our balance sheet during the year, with cash and cash equivalents up by more than 10% to $20 million, or $1.38 per share, even after repurchasing $600,000 in stock and paying off our $2 million term loan, not to mention the material investments we made in marketing and user acquisition mentioned earlier.
Additionally, Zedge's stock appreciated by 71% from $2.12 at the end of fiscal year '23 to $3.62 at the end of fiscal year '24, leading to our inclusion in the Russell Microcap Index. Despite this performance, we still believe that, at a trailing enterprise value to EBITDA of less than 6X, we are significantly undervalued on both an absolute and relative basis, so we are putting our money where our mouth is. After completing the previous $3 million share buyback in July, the board approved a new $5 million plan in September.
Looking to fiscal year '25, we are committed to driving growth by further scaling our businesses, and optimizing our offerings with innovative product enhancements, testing new product initiatives, and expanding our reach across all business areas, capitalizing on the solid foundation laid in fiscal '24.
One of our primary goals is to convert our user base, historically composed of content consumers, into content creators, a transformation critical to positioning us as a leader in the Creator Economy. To accomplish this, we will continue embedding generative AI capabilities across our product portfolio, driving innovation and enhancing users' experiences.
Our focus in the coming year is on agility and growth. In fiscal 2024, we centralized key support functions, including marketing, monetization, data, and analytics. In fiscal year 2025, we are turning more of our attention to evolving our technology platform to better enable rapid development of new apps and products by creating an engine with modular and reusable components that can be easily recycled and/or refactored from project-to-project.
Optimizing our tech platform enables us to increase efficiency, reduce costs, and fosters a rapid fire organization. These efforts will enable us to explore, adapt, test and launch new products, enhancements, or ideas quickly. We will also be positioned to make faster decisions to double down on the initiatives that deliver attractive ROIs or pull back on ones that don't, ultimately allowing us to achieve sustainable and profitable long-term growth.
Core to our ongoing success is the world-class marketing organization that we built and tuned in fiscal 2024. The team is scaling user acquisition investment responsibly and is delivering cohorts with attractive Return on Ad Spend, or ROAS, profiles.
At the same time, it is addressing a myriad of other challenges with skill and proficiency, including the need for producing lots of ads efficiently, analyzing performance, ensuring each platform that we use to market our products adds incremental value, and finally, that we focus our ad spend on targetting the right user segments despite having less information about them than existed a couple of years ago.
Now, I'd like to discuss several key product initiatives. For the Zedge Marketplace, pAInt, our Gen AI image creator, has been a standout success with over 22 million images generated since its introduction in 2023. We are committed to converting our users, who traditionally consumed our content, into master creators. We are also working to attract new user cohorts that may not have found Zedge relevant when we only focused on mobile phone personalization.
With the release of paint 2.0 in September, we introduced a powerful set of image-to-image capabilities powered by AI. By enabling capabilities beyond creating wallpapers, users can now reimagine any image, creating entirely new visuals either by text prompting, via image upload or even by taking a photo in real-time.
They can then add filters, edit photos, create avatars and/or stickers, and render output in any size. We expect that these enhancements will unleash higher levels of creativity that will improve engagement and retention.
We are already working on the next iteration of our suite of AI tools, with the focus being on introducing an AI audio generator. As the year progresses, we plan to release even more features and enhancements to provide best-of-breed service. Taken together, we expect these activities will assist in driving user growth, improving engagement, and bolstering retention.
Turning to Emojipedia, we remain excited about its growth potential as we head into fiscal 2025. Over the past year, we introduced the Emoji Playground, availing users with popular features like emoji mashups and quizzes.
In keeping with our consumer into creator theme for fiscal year 2025, we will soon enhance the Playground with custom emoji creation and digital sticker capabilities powered by Gen AI. Additionally, in the second half of fiscal 2025, we expect to roll out a redesigned Emojipedia experience and improve the Playground's games section.
At GuruShots, reversing our losses and resuming growth are our top priorities, and we will chart its future based on how successful we are in these endeavors. To accomplish this, our strategy has shifted towards prioritizing product features and enhacements that can drive new user growth ahead of elements designed to appeal primarily to legacy player cohorts.
This is evident from the changes we have already made, and the roadmap that we have planned for this fiscal year. To-date, we have introduced a robust onboarding experience to ease more users into the engagement funnel, adopted a coin-based in-game economy with multiple currencies, and most recently, launched Missions, a proven gamification technique for driving engagement and improving retention by rewarding players for completing specific goals.
Later this fall, we will introduce Duels, a fast-paced, real-time, player-vs-player dynamic that allows users to compete against each other, even while they are playing in longer-duration GuruShots Challenges.
Our pivot wouldn't be complete without coupling these activities together with robust marketing initiatives that seek to target a broader range of potential new players with attractive ROAS profiles as well as utilizing LiveOps strategies to optimize in-app purchases.
Taken together, we believe that this multi-layered approach will ultimately widen the top of the funnel, bring in more users, engage them in a fun, exciting and strategic experience and ultimately unlock revenue growth. While not a slam dunk, early results from the recent introduction of Missions point to improved engagement, adding to the successes we've experienced with the new onboarding funnel and coin-based economy.
Finally, from a new product standpoint, in early fiscal 2025 we began testing WishCraft, a stand-alone generative AI app created with the goal of radically simplifying the creation process to draw in users that have not historically thought of themselves as creators.
We also continue monitoring AI Art Master, a casual AI art battle game born from GuruShots' leadership in the photo competition vertical, where players create AI art and compete in themed and fast-paced competitions in order to earn accolades for creativity, style, and aesthetic talent.
While these products remain in beta, we are, as described earlier, hard at working at filling our pipeline with a host of products that we can iterate on quickly with a fail fast approach. I feel compelled to underscore that we believe that this strategy can yield outsized returns, with Rovio as a great example.
Rovio launched 51 games prior to hitting the jackpot with Angry Birds, which as of February of 2023 had grossed in excess of $500 million and 360 million installs. Long story short, we have a great team of product, marketing, monetization, designers, and engineers, all focused on unearthing that diamond in the rough and taking it to the next level.
Both our fourth quarter and full year results show that we are on the right track to generating sustainable, profitable long-term growth. Our strong performance is a testament to the investments we've made in growth and innovation, and despite the ongoing industry and geopolitical challenges, and macroeconomic uncertainties, we remain well-positioned to capture market opportunities across our product lines.
Lastly, as part of optimizing our business, we are committed to smart capital allocation strategies, including implementing the new stock repurchase program for up to $5 million, which, when combined with our operating leverage, we believe will deliver long-term shareholder value.
Now I'll turn the call over to Yi to review the financials in more detail. Yi?