Zedge, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2021. The filing also provides selected fourth-quarter user and monetization metrics; it does not provide a clear standalone Q4 income statement. Zedge operates a digital publishing platform, principally the Zedge personalization app, with Shortz and, after year-end, Emojipedia.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $19.569 million | $9.470 million | Up 106.6% |
| Operating income (loss) | $7.803 million | $(0.403) million | Improved $8.206 million |
| Net income (loss) | $8.248 million | $(0.559) million | Improved $8.807 million |
| Operating cash flow | $10.130 million | $2.122 million | Up $8.008 million |
| Cash and cash equivalents at year-end | $24.908 million | $5.111 million | Up $19.797 million |
| Working capital at year-end | $23.4 million | Not stated here | — |
Advertising generated $15.741 million (80% of revenue), up 112%; subscriptions generated $3.311 million (17%), up 107%; other revenue was $0.517 million. Direct costs were $1.194 million, or 6.1% of revenue, versus 12.6% a year earlier. SG&A rose 31% to $9.311 million but fell to 47.6% of revenue from 75.1%. Depreciation and amortization was $1.261 million. Operating margin was approximately 39.9% and net margin approximately 42.1%.
Year-end liabilities totaled $4.322 million, including $4.177 million current liabilities; no revolving-credit borrowings were outstanding. The company had a $2.0 million revolving facility, subject to borrowing-base and covenant terms. Financing cash flow included $15 million of ATM stock sales and $0.873 million from option exercises.
Business and period comparisons
- Zedge reported 34.4 million monthly active users (MAU) at July 31, up 7.8% from 31.9 million. Emerging markets accounted for 75% of MAU, versus 70% a year earlier; India represented 25%. Developed-markets MAU was 8.5 million versus 9.6 million, while emerging-markets MAU was 25.9 million versus 22.3 million.
- For the three months ended July 31, 2021, ARPMAU was $0.0501 versus $0.0284, up 76.3%. In the quarter, emerging-markets users grew 16.1% year over year while users in developed economies declined 11.5%.
- Active paid subscriptions reached approximately 752,000, up from 504,000; net additions slowed to 248,000 from 370,000. About 90% were annual subscriptions, and subscription revenue per average active subscriber per month was $0.41 versus $0.43.
- Zedge Premium generated $945,000 in gross transaction value and $509,000 in net revenue, compared with $728,000 and $459,000, respectively, in FY2020. It remained a small part of revenue.
- Growth reflected higher advertising rates and improvements to the ad stack, alongside higher subscription revenue. The company reported that advertising revenue recovered after a pandemic-related decline in early 2020.
Outlook, risks and unusual items
- Management expected to increase paid user-acquisition spending in FY2022, particularly with attention to developed markets and return on investment, and planned to launch iOS subscriptions. No quantified revenue, earnings or cash-flow guidance is provided.
- On August 1, 2021, Zedge acquired substantially all Emojipedia assets for a purchase price not expected to exceed $7 million: $4.8 million funded at closing and the remainder tied to post-closing EBITDA. The $4.8 million escrow deposit was recorded in other assets at July 31. Emojipedia was not included in FY2021 operating results.
- The $218,000 PPP loan was forgiven in FY2021 and recorded in interest and other income, a non-recurring contributor to results. The company also released valuation allowances on deferred tax assets, recording a $477,000 deferred tax benefit; the total income-tax benefit was $202,000.
- Key exposures include heavy reliance on advertising and a few platforms/customers, lower ad rates as the audience shifts toward emerging markets, dependence on Google and app stores, privacy and ad-targeting changes, competition, and potential migration from MoPub following its announced sale. COVID-19 effects on device sales, advertising and user growth remained uncertain.
- Management identified a material weakness in controls over review of the valuation allowance for deferred tax assets. Remediation was incomplete as of November 5, 2021. The filing also refers to a restatement discussed in the company’s November 5, 2021 Form 10-Q/A. Management said additional procedures supported the presented annual financial statements; the auditor did not attest to internal-control effectiveness.
- The prior Saregama India copyright case, which sought approximately $1.6 million, was dismissed after the injunction was lifted. The company reported no litigation-related contingent liabilities for FY2020 or FY2021.
Investor verification priorities
- Review the November 5, 2021 Form 10-Q/A to understand the interim-period restatement, its amounts, and the tax-control weakness and planned remediation.
- Check whether MAU growth, developed-market user trends, ARPMAU and paid-acquisition returns support sustainable growth, particularly given the lower monetization of emerging-market users.
- Track advertising concentration, including the disclosed FY2021 revenue shares of MoPub (30%), Google (22%) and Facebook (12%), and assess the potential effect of MoPub platform changes.
- Verify Emojipedia’s final acquisition consideration, post-close EBITDA performance, integration costs and contribution to revenue and cash flow.
- Separate recurring operating performance from the PPP forgiveness and deferred-tax valuation-allowance benefit; assess dilution from ATM issuance and equity compensation.