Zedge, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended July 31, 2020. Although the request references 2020 Q4, this filing is an annual report; it provides selected Q4 operating indicators but not a clear standalone quarterly income statement.
Business context
Zedge operates a digital publishing platform centered on its mobile personalization app, monetized primarily through advertising, paid subscriptions and Zedge Premium. It reported approximately 32 million monthly active users (MAU) and 450 million cumulative installs at fiscal year-end. Shortz, a short-form fiction app, launched in beta during FY2020.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $9.47 million | $8.82 million |
| Direct costs; gross margin | $1.20 million; 87.4% | $1.38 million; 84.4% |
| Operating loss; operating margin | $0.40 million; -4.3% | $2.89 million; -32.7% |
| Net loss | $0.56 million | $3.34 million |
| Cash from operations | $2.12 million | $0.08 million |
| Cash and cash equivalents at year-end | $5.11 million | $1.61 million |
| Working capital at year-end | $3.9 million | Not stated here |
Revenue rose 7.4%, while reduced operating expenses narrowed the operating and net losses. Advertising revenue fell 6.7% to $7.41 million (78.2% of revenue); paid subscriptions grew to $1.60 million from $0.16 million; and Zedge Premium and Shortz revenue increased to $0.46 million from $0.13 million. Prior-year service revenue of $0.59 million ended after the customer contract terminated in May 2019. Direct costs fell 13.3%, largely due to cloud infrastructure savings; SG&A declined 20.1%, primarily reflecting lower compensation and discretionary spending.
At July 31, 2020, total assets were $12.01 million and total liabilities were $3.12 million. The company had $0.22 million of PPP loan debt and no outstanding borrowings under its revolving credit facility. Its $2.5 million revolver was renewed after year-end as a $2.0 million facility through September 2022. The company said cash on hand and expected operating cash flow should cover anticipated requirements for the 12 months ending July 31, 2021.
Material changes and Q4 indicators
- FY2020 MAU declined 5.6% year over year to 31.9 million. Developed-market MAU fell 18.6% to 9.6 million, while emerging-market MAU rose 1.4% to 22.3 million; emerging markets reached 70% of total MAU.
- For the three months ended July 31, 2020, ARPMAU was $0.0284, up 50.3% from $0.0189 a year earlier. Q4 revenue was not clearly provided in the filing text supplied.
- Paid subscribers reached approximately 504,000 at year-end, up from 134,000; 89% were annual subscribers. FY2020 subscription gross sales were approximately $2.41 million, while recognized subscription revenue was $1.60 million.
- Zedge Premium gross transaction value increased 50% to $728,000. Advertising remained the dominant revenue source; MoPub and Google accounted for 28.8% and 26.1% of FY2020 revenue, respectively.
- Operating cash flow improved to $2.12 million, with deferred revenue increasing $0.82 million, primarily from subscriptions and Zedge Premium. Financing cash flow included $2.25 million gross proceeds from an equity offering and a $0.22 million PPP loan.
Outlook, risks and unusual items
Management provided no quantified revenue or earnings guidance. It plans to refine subscriptions, invest selectively in product and growth, develop Premium and Shortz, and diversify beyond advertising. Management reported that advertising rates began stabilizing in late spring 2020 and subscriptions rebounded after early pandemic disruption. It reduced discretionary spending and temporarily froze hiring, then selectively resumed product hiring in Lithuania. Management cautioned that COVID-19 effects remain uncertain and future results may differ materially from historical trends.
- Key risks include declining MAU, the shift toward lower-ad-rate emerging markets, dependence on advertising and third-party ad platforms, customer and revenue concentration, privacy and advertising-targeting changes, and reliance on Google Play and Apple distribution policies.
- The filing cites a September 2019 Google Play suspension lasting about 72 hours after problematic third-party advertising code; the company estimated approximately $100,000 of lost revenue and a material MAU decline.
- The company reported a $0.15 million foreign-exchange loss in FY2020, including $0.22 million of losses from hedging activities. A $0.25 million investment impairment was recorded in FY2019; the investee transferred substantially all assets to its lender in June 2020.
- The Saregama India copyright case, which had sought approximately $1.6 million, was dismissed after the injunction was lifted in August 2019. The company reported no litigation contingencies recorded for FY2020 or FY2019.
- The independent auditor gave an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at July 31, 2020; the auditor did not attest to internal controls.
Most important facts for investors to verify
- Whether MAU and developed-market engagement stabilize, and whether higher ARPMAU can offset declining user counts and lower emerging-market ad rates.
- Subscriber retention and renewal, the economics of subscription sales after platform fees, and the pace at which Premium and Shortz produce durable revenue.
- Advertising exposure and concentration: confirm current reliance on major ad platforms and customers, and assess potential effects of privacy or operating-system policy changes.
- Liquidity assumptions and financing: monitor operating cash flow, use of the renewed revolver, and the status and potential forgiveness of the $218,000 PPP loan.
- COVID-19 effects on advertising demand, handset sales, user acquisition and future spending; the filing provides no quantified forecast.