Executive Summary

Q2 2023 showed revenue recovery with topline up 41.4% year over year to $9.82M and up 55% sequentially vs Q1 ($6.32M), driven by clients shifting spend to search engine marketing; gross margin remained slightly negative at ~-1% and operating loss narrowed materially versus last year .
Operating expenses fell sharply (G&A down 53% y/y to $1.18M) on lower amortization following 2022 impairments and cost actions, improving operating loss margin to 14% from 39% last year .
Liquidity trended lower but stable: cash was $2.00M and working capital $5.47M at quarter end; H1 operating cash outflow improved to -$0.86M (vs -$2.14M last year) .
No formal guidance or earnings call transcript were provided; near-term stock catalysts hinge on continued mix shift to search marketing, execution of new SaaS and livestream initiatives, and cost discipline amid supplier/customer concentration and regulatory risks (HFCAA) .

What Went Well and What Went Wrong

What Went Well

Revenue re-accelerated: Q2 revenue rose 41.4% y/y to $9.82M as SMEs resumed activity post COVID peak and shifted to search engine marketing (“SEM”) channels .
- “Business activities and performance are gradually getting back to normal in the second fiscal quarter; and a portion of our clients’ ad consumption shifts from using our ad portal placement services to using our search engine marketing service.” (press release) .
Cost discipline: G&A down 52.8% y/y to $1.18M in Q2 (lower amortization after 2022 impairments; reduced admin expense) and sales/marketing down to $0.05M .
Margin mix improvement inside core category: SEM gross margin improved to ~0.5% in Q2-23 from -3% in Q2-22 as volumes recovered and mix normalized .

What Went Wrong

Profitability remains negative: gross loss of $0.11M (overall gross margin ~-1%) and operating loss of $1.34M (14% margin), albeit improved vs last year .
Other income normalization: total other moved to ~$0.07M expense in Q2-23 vs $0.997M income in Q2-22, mainly from lower gains on warrant liabilities, pressuring bottom line .
Blockchain SaaS still drags: SaaS revenue minimal ($0.025M in Q2) while amortization drove large negative gross margin in the category (indicative -740% GP ratio disclosure at category level) .

Financial Results

Summary vs prior year and prior quarter

Metric	Q2 2022	Q1 2023	Q2 2023
Revenue ($USD Millions)	$6.945	$6.316	$9.820
Gross Margin %	-1%	-5%	-1%
Operating Income ($USD Millions)	$(2.713)	$(1.312)	$(1.336)
Operating Margin %	39% loss margin	21% loss margin	14% loss margin
Net Income ($USD Millions)	$(1.714)	$(1.143)	$(1.403)
Diluted EPS ($)	$(0.24)	$(0.16)	$(0.19)

Notes: All per-share figures reflect the 1-for-5 reverse split effective Jan 18, 2023 .

Segment/Category revenue mix (Q2)

Category	Q2 2022 ($USD M)	Q2 2023 ($USD M)	Commentary
Distribution of right to use search engine marketing service	$5.775	$9.643	Core SEM volumes recovered post COVID peak; client mix shifted to SEM .
Internet advertising placements (ad portals)	$1.170	$0.152	Clients diverted spend toward SEM and short-form video platforms, pressuring portal ads .
Blockchain-based SaaS services	$0.000	$0.025	Early-stage BIF/NFT subscriptions; still nascent .
Total Revenue	$6.945	$9.820	—

KPIs and Balance Sheet (quarter-end, $USD Millions)

KPI	Dec 31, 2022	Mar 31, 2023	Jun 30, 2023
Cash and Cash Equivalents	$4.391	$1.592	$2.000
Accounts Receivable, net	$1.745	$1.567	$1.045
Working Capital	$6.61	$5.55	$5.47
Net Cash from Operating Activities (YTD)	—	$(0.916) (Q1)	$(0.862) (H1)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
—	—	Not provided	Not provided	N/A (No formal guidance in Q2 press release or 10-Q) .

Earnings Call Themes & Trends

Note: The Q2 materials did not include a conference call transcript; themes below reflect disclosures in the Q1 and Q2 press releases and Q2 10-Q -.

Topic	Previous Mentions (Q-2: FY2022; Q-1: Q1 2023)	Current Period (Q2 2023)	Trend
COVID/macro recovery	FY22 saw sharp decline from recurring lockdowns; 2022 revenues down 44.6% . Q1 2023 still impacted by peak infections; revenues fell 17.5% y/y .	Gradual normalization in Q2 lifted SEM demand and revenues .	Improving sequentially.
Mix shift to SEM	FY22 weakness in SEM from lockdowns . Q1 2023 portal ads underperformed; clients preferred cheaper, traffic-driven SEM .	SEM up strongly; portal ads declined further; SEM GP improved .	Structural shift toward SEM.
SaaS/BIF platform	Early-stage; limited revenue in FY22 .	Minimal revenue, negative gross due to amortization .	Long-dated; currently dilutive.
Cost discipline	FY22 G&A reduced via lower SBC offset by higher allowances . Q1 2023 sales/marketing trimmed .	Q2 G&A down 53% y/y; continued headcount/expense control .	Ongoing savings.
Liquidity/cash use	FY22 op cash outflow improved vs 2021 . Q1 2023 operating cash outflow ~$0.92M .	H1 2023 operating cash outflow ~$0.86M; cash $2.0M .	Operating burn moderating; cash lower.
Supplier/customer concentration	Concentrations noted in FY22 and Q1	Q2 supplier “A” 71% of cost; customer “F” 14% of revenue; AR concentration persists .	Concentration risk remains.
Regulatory/HFCAA	HFCAA delisting risk disclosed in FY22/K .	HFCAA risk reiterated in 10-Q .	Ongoing risk factor.
New initiatives (livestream)	—	New majority-owned livestream ops subsidiary formed in July 2023; expected profit/cash in next 12 months .	Potential incremental growth driver.

Management Commentary

“Business activities and performance [were] gradually getting back to normal in the second fiscal quarter” with clients shifting ad budgets to SEM channels (Q2 press release) .
“For the three months ended June 30, 2023, the Company narrowed its gross loss incurred and generated positive net cash flow from its core business” (Q2 10-Q MD&A) .
On SEM procurement and pricing: “We purchased these search engine resources from well-known search engines… in relatively large amounts… at a relatively lower rate… and charged clients the actual cost consumed… plus a premium” (Q2 10-Q) .
On SaaS/BIF: “SaaS services… provided based on technologies of [our] self-developed software platform, which does not need any further material cash outflow to other third-party service providers” (Q2 10-Q) .
On new growth vectors: “In July 2023, [we]… expand[ed] its business into the livestream operation industry… expect… operating profits and additional cash inflow” (Q2 10-Q) .

Q&A Highlights

No earnings call transcript or Q&A details were included with the Q2 2023 press release or 10-Q; no guidance clarifications were disclosed therein .

Estimates Context

Wall Street consensus (S&P Global) for Q2 2023 EPS and revenue was not available for CNET at the time of this analysis; as a result, we cannot assess beats/misses versus estimates. We attempted to source via S&P Global but did not retrieve usable estimate data. Where consensus is unavailable, investors should anchor on sequential and y/y trends from company-reported figures .

Key Takeaways for Investors

Revenue recovery is real and broad-based within SEM; watch for sustainability of SEM gross margin improvement as volumes normalize and pricing/premia hold .
Cost actions are translating into better operating leverage; continued discipline (lower amortization, leaner S&M) supports further loss reduction if revenues hold .
Profitability inflection still requires either higher SEM margins, portal ad stabilization, or contribution from new streams (livestream, SaaS) which are currently nascent/dilutive .
Liquidity is adequate but tight for a micro-cap; H1 operating cash burn improved yet cash declined; recovery of short-term loans and negotiating supplier terms are important near-term levers .
Concentration risks (supplier “A” at 71% of Q2 cost; customer concentration in AR) and HFCAA-related listing risk remain structural overhangs, warranting a higher risk premium .
Near-term trading catalysts: continued sequential growth and margin stabilization in Q3/Q4; updates on livestream operations ramp; any formal guidance initiation; and progress on cash collection/credit loss trends .

Supporting Details

Additional context on prior two quarters (for trajectory)

Q1 2023: Revenues $6.32M (-17.5% y/y); operating loss $(1.31)M (21% margin); EPS $(0.16) largely reflecting COVID peak impacts and cost reductions .
FY 2022 (context for Q4): Revenues $26.24M (-44.6% y/y) with gross loss $(0.19)M; large G&A reductions offset by higher allowances; reverse split restored Nasdaq bid-price compliance (early 2023) .

Cash flow and working capital (H1 2023)

H1 2023 operating cash outflow improved to $(0.862)M vs $(2.144)M last year; investing outflow $(1.462)M) largely from short-term loans to unrelated parties; working capital $5.47M at 6/30/23 .

Concentrations and credit losses

Supplier concentration: Supplier A represented 71% of Q2 cost of revenues (22% for Supplier B); 74% concentration with Suppliers C/D a year ago shows persistent reliance on a few providers .
Accounts receivable and other current assets allowances and movements (including legacy Digital Sun default) reflect continued credit-risk management focus .

Citations: Company Q2 2023 8-K earnings press release and exhibits ; Q2 2023 10-Q, including MD&A and notes -; Q1 2023 8-K press release -; FY 2022 8-K press release -; and Q3 2023 8-K (for subsequent trend reference) -.

ZW Data Action Technologies Inc. (CNET)·Q2 2023 Earnings Summary