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ZI

Zedge, Inc. (ZDGE)·Q3 2025 Earnings Summary

Executive Summary

  • Revenue returned to growth, up 1.3% year over year to $7.76M, with GAAP EPS at $0.01 and non-GAAP EPS at $0.06; adjusted EBITDA rose 46% to $1.2M .
  • Results materially beat Wall Street consensus: revenue beat by ~15.1% ($7.76M vs $6.74M*) and EPS beat by $0.08 ($0.06 vs -$0.02*). The beat was driven by higher ARPMAU, subscription growth, and improved ad CPMs as TikTok re-entered the market mid-quarter .
  • Cost reduction initiatives began to flow through P&L (SG&A -6% YoY; restructuring charges $0.58M in Q3), supporting sequential profitability improvement and free cash flow, despite $~1.0M restructuring/retention cash payments .
  • Management introduced new growth vectors: DataSeeds.AI (signed first AI dataset partnership) and impending rollout of AI audio generation within Zedge Premium—both potential catalysts for subscription/engagement and B2B revenue .

What Went Well and What Went Wrong

What Went Well

  • Subscription engine: Active subscriptions hit ~896K (+37% YoY); subscription revenue grew 13.4% YoY; ARPMAU reached a record $0.099 (+32.7% YoY). “Average revenue per monthly active user increased by 33% year over year, indicating that we're monetizing each user more efficiently.”
  • Profitability/FCF: Adjusted EBITDA +46% YoY to $1.2M; free cash flow of $0.8M despite ~$1.0M cash payments for restructuring/retention; GAAP op income swung positive to $0.2M .
  • Strategic initiatives: “We launched DataSeeds.AI… [and] signed our agreement with a leading global AI technology company,” and “we are about to roll out an AI audio generator… positioning us as one of the consumer platforms to enable user generated audio content at scale.” .

What Went Wrong

  • MAU down: Total MAU declined 20% YoY to 22.1M, reflecting mix-shift away from lower-LTV users; well-developed market MAU declined 13% YoY .
  • GuruShots drag: Digital goods and services revenue (which includes GuruShots) fell 45% YoY as Zedge reduced UA spend pending “GuruShots 2.0” planning .
  • Ad market disruption: TikTok ban impacted ad CPMs early in quarter; management noted demand/CPMs improved only after mid-February re-entry, limiting full-quarter benefit .

Financial Results

Headline Financials vs Prior Year, Prior Quarter, and Consensus

MetricQ3 2024Q2 2025Q3 2025Consensus (Q3 2025)
Revenue ($USD)$7.66M $6.98M $7.76M $6.74M*
GAAP Diluted EPS ($USD)$0.01 -$0.12 $0.01 n/a
Non-GAAP Diluted EPS ($USD)$0.03 -$0.01 $0.06 -$0.02*
Operating Margin (%)-1.7% -31.8% 2.1% n/a
Adjusted EBITDA ($USD)$0.9M -$0.1M $1.2M n/a

Values with asterisk retrieved from S&P Global.

Revenue Mix

Revenue Category ($USD)Q3 2024Q2 2025Q3 2025
Advertising Revenue$5.5M $4.7M $5.6M
Digital Goods & Services$0.9M $0.6M $0.5M
Subscription Revenue$1.1M $1.2M $1.3M
Other Revenue$0.2M $0.4M $0.4M

KPIs

KPIQ1 2025Q2 2025Q3 2025
MAU (MM)25.0 24.7 22.1
Well-Developed Markets MAU (MM)5.5 5.6 5.2
Emerging Markets MAU (MM)19.5 19.1 16.9
Active Subscriptions (000s)698 791 896
ARPMAU ($)$0.077 $0.078 $0.099
Zedge Premium GTV ($MM)$0.70 $0.68 $0.61

Notes: Deferred revenue totaled ~$4.90M (current $3.07M + non-current $1.83M), aligning with management’s “nearly $5M” description and 83% YoY growth .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Annualized Cost ReductionsFY26 run-rate~$3.9–$4.1M savings from restructuring/other items ~$4.0M annualized savings affirmed Maintained
Restructuring Charges (P&L)Q3–Q4 FY25Expected ~$1.1M additional charges across Q3/Q4 Q3 actual $0.58M; Q4 tail ~$0.325M Clarified (lower in Q4 vs Q3)
Cash Payments (Restructuring/Retention)Q4 FY25Not previously quantified~$0.6M cash outflow in Q4; immaterial in FY26 New detail
Free Cash FlowQ4 FY25General improvement post-restructuring “YoY improvements in cost structure and free cash flow should become more visible in Q4,” despite seasonality Maintained (directional)
Revenue/Top-lineQ4 FY25Cautious optimism post TikTok re-entry “Continued momentum in core business through the first month of Q4,” no numeric range Maintained (qualitative)
MAU TrajectoryNear termStabilization efforts ongoing “Key user metrics… have started to stabilize,” focus on higher-LTV users Improving (qualitative)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2)Current Period (Q3)Trend
Ad market/TikTokQ2: TikTok withdrawal depressed CPMs; cautious optimism on re-entry TikTok back mid-Feb; CPMs improved; partial-quarter benefit Improving
Subscriptions/LTVQ1–Q2: Sub growth +21% YoY (Q1), +13% (Q2); push to higher-value tiers including lifetime Active subs +37% YoY; lifetime mix rising; deferred revenue with 100% gross margin over tail Improving
GuruShotsQ2: Restructuring; planning “GuruShots 2.0”; UA spend cut to improve ROAS DGS -45% YoY; continued softness while 2.0 ideation proceeds Near-term headwind
AI initiatives (consumer)Q1–Q2: pAInt 2.0 rollout; AI emoji generator at Emojipedia; planned AI audio creator Rolling out AI audio generator within Zedge Premium; expanding GenAI suite Expanding
B2B AI/Data (DataSeeds.AI)Not present in Q1; introduced late Q2 context Launch of DataSeeds.AI; first AI dataset partnership signed New growth vector
EmojipediaQ1: record revenue; AI emoji generator beta Stable; digital stickers planned for World Emoji Day; site redesign underway Stable/expanding features

Management Commentary

  • “We generated $0.8 million in free cash flow… On the bottom line, we saw meaningful year-over-year and quarter-over-quarter improvements in GAAP and non-GAAP net income and EPS… as the cost savings from our global restructuring began to take hold.”
  • “Active subscribers reached an all-time high of nearly 900,000… subscription revenue increased by 13%… deferred revenue… standing at nearly $5 million at quarter’s end.”
  • “We launched DataSeeds.AI… We’ve already signed our first AI dataset partnership with a leading AI company…”
  • “We are about to roll out an AI audio generator… positioning us as one of the consumer platforms to enable user generated audio content at scale.”
  • “Average revenue per monthly active user increased by 33% year over year… our focused investment in paid user acquisition plays an important role in this success across both Android and iOS.”

Q&A Highlights

  • Ad CPMs and TikTok: Management explained CPMs rose as TikTok re-entered mid-Feb; partial-quarter benefit; Zedge is a strong UA platform for TikTok; broad programmatic market dynamics improved pricing .
  • MAU trajectory: Focus on stabilizing MAU in well-developed markets via high-ROAS paid UA; May-to-May flat in those cohorts; prioritizing higher-LTV user base .
  • Zedge Premium: Expanded to web; continued tooling for creators; strategic link to DataSeeds.AI for on-demand content .
  • AI audio feature: Limited rollout by end of June, then scale; monetization via subscription and potential paywall for non-subscribers .
  • Cash/restructuring mechanics: Q4 restructuring P&L charges ~$325K; Q4 cash outflows ~$600K (retention + restructuring); FY26 cash severance becomes immaterial .

Estimates Context

MetricConsensus (Q3 2025)Actual (Q3 2025)Surprise
Revenue ($USD)$6.74M*$7.76M +$1.02M (~+15.1%)*
EPS (Primary) ($USD)-$0.02*$0.06 (Non-GAAP Diluted) +$0.08*

Values with asterisk retrieved from S&P Global.

Implications: Both top-line and EPS materially beat consensus, driven by subscription strength, higher ARPMAU, and improved ad CPMs as TikTok re-entered the market; models likely need to raise near-term EBITDA/FCF estimates to reflect cost take-out timing and subscription cohort dynamics .

Key Takeaways for Investors

  • Broad-based beat: Revenue and EPS meaningfully exceeded consensus, supported by subscription growth and ARPMAU expansion; sequential swing to GAAP profitability and stronger adjusted EBITDA .
  • Monetization quality improving: Deferred subscription revenue (~$4.90M total) and lifetime plan mix support predictable high-margin revenue recognition over 30 months .
  • Cost actions working: SG&A down 6% YoY; Q3 restructuring charges booked ($0.58M), with Q4 tail (~$0.325M) and declining cash severance—FCF leverage should improve into FY26 .
  • New growth vectors: DataSeeds.AI (first AI partnership signed) and AI audio feature rollout add incremental B2B and consumer monetization optionality—potential multiple expansion catalyst if traction emerges .
  • Mix-shift strategy: MAU decline is a deliberate pivot from lower-LTV to higher-LTV cohorts; core KPIs (ARPMAU, subscriptions) show healthy monetization despite smaller footprint .
  • GuruShots near-term drag, medium-term option: UA cut to preserve ROAS while 2.0 is designed; expect DGS softness near term with upside optionality post-relaunch .
  • Trading lens: Near-term sentiment supported by beats and cost leverage; watch Q4 seasonality, ad market stability (TikTok status), DataSeeds.AI commercialization, and AI audio adoption to gauge durability of margin/FCF trajectories .