Item 1. Business
Item
1. Business
Company
Overview
Zedge
builds digital marketplaces and friendly competitive games around content that people use to express themselves. Our leading products
include Zedge Ringtones and Wallpapers, a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones,
and notification sounds which historically was branded as Zedge Premium, and GuruShots, a skill-based photo challenge game. Our vision
is to connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce.
We
are part of the ‘Creator Economy,’ where over 1 billion people create and share their content across social platforms, mobile,
and video games, and content marketplaces. Within this group of individuals, over 200 million identify as creators, people who use their
influence, skill, and creativity to amass an audience and monetize it. Furthermore, approximately 12% of full-time creators earn more
than $50,000 per year, and 10% of influencers earn more than $100,000 per year. We view the Creator Economy as an untapped opportunity
for Zedge to expand its business, especially as we execute by connecting our gamers with our marketplace.
The
Zedge Ringtones and Wallpapers app (which is named “Zedge Wallpapers” in the App Store), which we refer to as our “Zedge
App,” is a marketplace offering a wide array of mobile personalization content including wallpapers, video wallpapers, ringtones,
and notification sounds, and is available both in Google Play and the App Store. As of July 31, 2022, our Zedge App has been installed
nearly 569 million times since inception and, over the past two years, has had between 32.0 and 36.3 million monthly active users (“MAU”).
MAU is a key performance indicator (“KPI”) that captures the number of unique users that used our Zedge App during the final
30 days of the relevant period. Our platform allows creators to upload content to our marketplace and avail it to our users either for
free or for a price, via ‘Zedge Premium.’ In turn, our users utilize the content to personalize their phones and express
their individuality.
In
fiscal 2022 we introduced several new customer facing product features including ‘NFTs Made Easy’ and social and community
features, all meant to improve customer engagement, MAU, and revenue growth over the long term. In addition, due to developments outside
of our control, we migrated to a new ad mediation platform - Applovin MAX -, which monopolized internal resources and delayed the completion
of other product initiatives we had planned for in fiscal 2022. Applovin paid us a one-time $2 million integration bonus and their performance
has been on-par or better than our prior platform. Following the transition, work resumed on the delayed development and most have been
rolled out as of September 30, 2022.
The
Zedge App’s monetization stack consists of advertising revenue generated when users view advertisements when using the Zedge App
or surfing our website, the in-app sale of Zedge Credits, our virtual currency, that is used to purchase Zedge Premium content, and a
paid-subscription offering that provides an ad-free experience to users that purchase a monthly or annual subscription. As of July 31,
2022, we had 692,000 active paying subscribers.
In
late 2021 we introduced NFT functionality to a limited number of Zedge Premium creators via ‘NFTs Made Easy’. Over time we
believe this product enhancement has the potential to drive significant artist growth and revenue production. ‘NFTs Made Easy’
is an eco-friendly platform that enables artists and consumers to sell and purchase NFTs within the Zedge App even though they may lack
deep knowledge and proficiency in the crypto space. All transactions are made using Zedge Credits.
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In
April 2022, we acquired GuruShots Ltd (“GuruShots”) a recognized category leader focused on gamifying the photography vertical.
GuruShots offers a platform spanning iOS, Android, and the web that provides a fun, educational and structured way for amateur photographers
to compete in a wide variety of contests showcasing their photos while gaining recognition with votes, badges, and awards. We estimate
that the total addressable market of amateur photographers using their smartphones to take and publicly share artistic photos is 30-40
million people per month and that the market is still in its infancy. Every month, GuruShots stages more than 300 competitions that result
in players uploading in excess of 1 million photographs and casting close to 4.5+ billion “perceived votes,” which are calculated
by multiplying the number of votes that each player casts by a weighting factor based on various factors related to that user. To improve
engagement, GuruShots has adopted a set of retention dynamics focused on individual, team and community dynamics that create a sense
of belonging, inspiration, recognition, improvement, and competition.
Today,
GuruShots utilizes a ‘Free-to-Play’ business model that leads to strong monetization with the purchase of resources that
are used to give paying players an edge while still maintaining a fair and competitive experience for all participants. Over the past
six years, the monthly average paying player spend has increased in excess of 14% annually to more than $55 per player.
As
we look to the future, we are advancing several initiatives that we expect will drive user growth, increase engagement, drive in-app
purchases, and advance our in-game economy. Some of these include:
● On-Boarding .
Revamping the customer onboarding experience in order to maximize first time purchasers by
immediately drawing new players into simplified photo competitions that are limited to a
small audience taking place in a short time duration.
● Subscriptions .
Introducing value-adds that we can bundle into a subscription. For example, we started testing
a feed of short and engaging instructional videos that offer players techniques for improving
their photographs. If users engage with this content, we expect to bundle it into a paid
subscription.
● Economy .
Evolving the game economy by maturing the game’s progression mechanics and features,
earn and spend dynamics, and introducing soft and premium currencies tied to resources and
benefits. Furthermore, we hope to introduce an advertising layer in the monetization stack
in the future.
We market GuruShots to prospective players, primarily via paid user
acquisition channels, and utilize a host of creative formats including static and video ads in order to promote the game. Our marketing
team invests material resources in analyzing all attributes of a campaign ranging from the creative assets, offer acquisition channel,
and platform (i.e., iOS, Android, and web), just to name a few, with the goal of determining whether a specific campaign is likely to
yield a profitable customer. When we unearth a successful combination of these variables we scale up until we experience diminishing returns.
Ultimately, we believe that the efforts we are making to advance the product coupled with the investment in user acquisition can significantly
increase GuruShots’ player base.
Beyond
our commitment to growing both the Zedge App and GuruShots on a standalone basis, we believe that there are many potential synergies
that we can capitalize on that exist between the two businesses. Specifically, we plan to enable the ability for GuruShots players to
become Zedge Premium artists and sell their photos to our audience of 30+ million MAU as standard digital images or NFTs. In addition,
we look to benefit from the experience that the GuruShots team possesses and test gamifying the Zedge App. We believe that successful
gamification can contribute to increasing engagement, retention, and lifetime value, all critical KPIs for our business. Longer term,
we believe that there are complementary content verticals that lend themselves to gamification.
In
August 2021, we acquired Emojipedia Pty Ltd (“Emojipedia”), the world’s leading authority dedicated to providing up-to-date
and well-researched emoji definitions, information, and news as well as World Emoji Day and the annual World Emoji Awards, and Emojitracker,
which provides real time visualization of all emoji symbols used on Twitter. Emojipedia receives approximately 46.4 million monthly page
views and has approximately 7.6 million monthly active users of which approximately 45.19% are located in well-developed markets. It
is the top resource for all things emoji, offering insights into data and cultural trends. As a voting member of the Unicode Consortium,
the standards body responsible for approving new emojis, Emojipedia works alongside major emoji creators including Apple, Google, Facebook,
and Twitter.
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We
believe that Emojipedia provides growth potential to the Zedge App, and it was immediately accretive to earnings. In the past year, we
have made many changes to Emojipedia including migrating to a new ad mediation platform, redesigning the Emojipedia website, and introducing
localized versions of Emojipedia in Spanish, French, German, Italian, and Portuguese. We will continue to enhance this offering and are
exploring new features including a native mobile offering as well as additional monetization opportunities.
Our
Strategy
Our
vision is to connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce.
Our
Strategic Flywheel
Our
long-term strategy calls for creating a flywheel that leverages the synergies of a “gaming and marketplace” dynamic across
our portfolio, engaging communities of consumers with content that can function on a multitude of online and mobile platforms including
social networks, messaging, and gaming. This is unlike the existing dynamic that many gaming platforms offer to players, who can create
and sell virtual goods that are valuable only within the context of that particular ecosystem. Although the foundation of our strategy
is currently centered around the Zedge App and GuruShots, over time we expect to expand into other content verticals that have relevance
beyond gameplay.
Using
our current products as an example, GuruShots is a skill-based game that attracts creators (mainly, amateur photographers) with friendly
photo competitions in which they compete to gain recognition and pedigree. We believe that adding the ability to sell their content to
the Zedge App’s 30+ million MAU is an attractive benefit that enables players not only to have fun, but also to earn money while
doing so. This dual purpose will likely improve user growth, engagement, retention, and monetization while simultaneously expanding our
relevance to a broader community interested in high-quality photographs. If our assumptions are correct, we will have a flywheel that
drives the aforementioned KPIs while also enabling us to expand into new verticals (through internal development or acquisition), gamify
them, and add new content to our marketplace.
Executing
this strategy calls for concentrating our efforts on the following goals:
● Continue
growing our user base, profitably . We expect to continue devoting resources to growing
our user base profitably by:
○ studying
our users’ needs and enhancing our products to meet those needs;
○ developing
and offering new features and services that are attractive to both new and existing users;
○ investing
in paid user acquisition campaigns that yield profitable customers, based on empirical data
and focused, primarily, on well-developed markets; and
○ expanding
our reach by collaborating with strategic partners.
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● Improve
monetization . Continue developing monetization methods that will help us grow, including
advancements of the in-app economy, NFTs, subscription models, e-commerce, and new advertising
products, implementations, and optimizations. We believe that our products and customer base
are attractive to advertisers, brands, artists, and players and will yield new monetization
opportunities. In addition, we expect that we will be able to capitalize on cross marketing
our suite of products to this customer base.
● Ongoing
product and technology investment in and across our product suite . We plan to make continued,
selected investments in product feature sets and functionality in order to both maintain
our existing user base and attract new users. In addition, we envision applying our product
expertise to verticals that we currently do not have in our portfolio, as well as gamifying
the Zedge App.
● Better
utilize data to improve user acquisition and customer engagement . We plan to better utilize
data to scale profitable user acquisition and improve the use of our product through personalized
recommendations and content feeds, enhanced search and content discovery, and optimized pricing.
● Building
our marketplace into a best-of-breed platform for artists and creators . Our goal is to
build our marketplace into one that artists view as prioritizing their needs and addressing
all aspects of their marketing and revenue generation goals including, but not limited to,
ease in managing their virtual storefront, promotion, education, reporting, and distribution.
● Increase
our marketing efforts for our Zedge App . Historically, we haven’t invested materially
in marketing initiatives for our Zedge App. Going forward, we envision the need to better
promote our Zedge App and to amplify our Zedge App’s value proposition to artists and
individual creators. We envisage these creators and influencers and brands self-promoting
their availability on our Zedge App in order to extend their reach, generate incremental
income and drive more end-user traffic to our platform. Furthermore, we also plan to scale
up paid user acquisition focusing on users that we believe can yield profitable customers,
and also continue to invest in app store optimization, search, marketing automation, social
marketing, and community management in order to retain and expand our Zedge App’s customer
base.
● Diversify
our revenue stack . Historically, the majority of our revenue has been derived from advertising.
We plan to diversify our revenue by developing a subscription offer and introducing advertising
into GuruShots. Furthermore, we expect to further our NFT offering, opening up the potential
for trading revenue as well as revisiting print on demand, particularly with GuruShots’
player’s content. We also have a set of product initiatives specific to Emojipedia
that will enable new revenue streams from this asset.
● Selectively
pursue strategic investments, partnerships, and acquisitions . On a selective basis, we
will look to invest in, partner with, or purchase entities that can provide synergistic growth
opportunities for our Zedge App and otherwise. For example, in April 2022 we acquired GuruShots
and in August 2021 we acquired Emojipedia. Each of these acquisitions offers new growth opportunities
both on a stand-alone basis as well as on an integrated and synergistic basis that we believe
can impact our business in a materially positive fashion.
Our
Competitive Advantages
We
believe that the following competitive strengths will drive the growth of our business:
● Large,
global customer base . We benefit from having a large customer base. As of July 31, 2022,
we had approximately 40 million MAU spanning across all of our products, of which approximately
27% were in well-developed markets and 73% were in emerging markets. Typically, customers
in well-developed markets monetize at a material premium when compared to those in emerging
markets. The Android version of our Zedge App is available in 17 languages and Emojipedia
is available in 19 languages. We possess a highly diversified portfolio of content and attribute
this in part to our global reach which makes us attractive to creators interested in meeting
various customer tastes and preferences. In addition, our diverse customer base attracts
advertisers seeking customers that have adequate disposable income to purchase their products
and services. Our Zedge App’s large customer base is also a draw to artists and brands
looking to market their content to a critical mass of users.
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● Leading
global provider of mobile personalization content . Our Zedge App has a global customer
base of approximately 32 million MAU, enabling users to easily personalize their mobile phones
with a wide variety of free, high-quality ringtones, wallpapers, notification sounds, video
wallpapers, custom app icons (only available for iOS), and NFTs. We believe that our Zedge
App is well positioned for continued leadership in the personalization space.
● Deep
Knowledge of Gaming . We have leaders with years of experience in building and operating
games of skill across digital platforms including iOS, Android, and web. We intimately understand
game design, onboarding, game mechanics, LiveOps, feedback loops, in-game resource balancing,
scarcity, and how to make a game fun, challenging, and fair.
● Combining
Gaming and a Real-world Activity. We have years of experience in combining game dynamics
with a real-world activity. In the case of GuruShots the real-world activity is photography.
Successfully combining these is non-trivial and requires a great deal of expertise and understanding
that the team has acquired over the years.
● High-quality
products . We do our best to provide our customers with high-quality products and superior
user experiences. We prioritize our customers’ needs and believe that this focus is
critical for our long-term growth and expansion. We invest significant resources in product
development, design, and usability. We beta test product enhancements extensively and closely
monitor customer feedback to ensure that we meet users’ needs. To date, our Zedge App
has received more than 11 million reviews in Google Play where it boasts a 4.6 star rating
out of a maximum of 5 stars. GuruShots has a 4.5 star rating in the App Store albeit from
a universe of several thousand reviews.
● Human
Capital . We have a team of highly experienced professionals that take pride and ownership
in their work product. Our diverse employee base is passionate about our product suite and
its mission to build a tightly coupled ecosystem of “games and marketplaces.”
Our culture is founded on respect and empowerment which are critical in light of us having
offices in four different countries with a hybrid in-person work attendance policy. We strive
to create an environment where our employees can be autonomous and creative. Our people possess
deep expertise in product design and management, development, marketing, monetization, data
and analytics and operations.
● Management
team . We have an experienced management team with longstanding tenure with the company
and deep knowledge of the mobile app landscape who are highly focused on execution. Our core
management team possesses a solid understanding of the mobile app industry, product design
and development, operations, and monetization. Collectively, our management team has a proven
ability in building and scaling a business and pursuing opportunities with a manageable risk
profile.
● Large
and diverse content catalog . Our large and diverse catalog of content includes wallpapers,
ringtones, notification sounds, video wallpapers, photographs, and emojis. With artists and
contributors spanning the globe, we have assembled a vast array of both User Generated (UGC)
and licensed content to meet the needs of our users.
● Technology
and infrastructure . Our products are built upon scalable technology and infrastructure
that reliably serves tens of millions of MAU, globally. We use a combination of off-the-shelf
and proprietary technologies and infrastructure solutions that scale efficiently to meet
the needs of our large customer base.
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Competition
We
face competition in all aspects of our business and especially from other digital marketplaces and gaming companies. In running our business,
we need to account for:
● Consumers.
We compete for consumers’ leisure time, attention, and spending versus alternative
forms of entertainment that are available to them as well as against online platforms and
marketplaces that offer utility and content for mobile phone personalization.
● Content
creators . There are many online platforms that offer content creators an eco-system in
which they can make their content available to consumers. Some of these platforms may have
better incentives, paid or other, that may potentially make them more attractive than our
marketplace.
● Advertisers .
We face significant competition in securing spend from advertisers.
● Other
Game Developers . Game developers that offer more engaging and interesting games. These
competitors, many of whom we may not be aware of, may be more proficient at capitalizing
on user acquisition channels in order to gain access to large user bases and their network
effects to expand virally and quickly.
● Alternative
options and products for mobile personalization and emojis . There are many other marketplaces
and platforms that offer mobile personalization content, games, and emoji resources, some
of whom are better funded than we are. We believe that we possess a competitive advantage
because of our:
○ large
user base;
○ “one-stop
shop” approach to mobile personalization, which avails customers of ringtones, wallpapers,
notification sounds, and video wallpapers within the same Android app;
○ flexibility
that allows the customer to selectively choose what they would like to personalize without
handing over the core elements of the native operating system to a third party and overwhelming
the user with a myriad of complex options;
○ large
content catalog;
○ recognized
and well-respected brands;
○ proprietary
recommendation engine; and
○ market
ranking and longevity.
● Rapid-Paced
and Changing World of Mobile App Development . The mobile app eco-system changes quickly
and regularly with new apps capturing massive audiences competing for consumer’s time,
mindshare, and money. This is an ongoing competitive threat requiring us to do our best to
adapt as necessary to remain relevant and meaningful.
Our
History
In
2003, Tom Arnoy, Kenneth Sundnes, and Paul Shaw launched a consumer website at www.zedge.net that people used to upload and download
ringtones.
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In
December 2006, IDT Corporation acquired 90% of Zedge. Zedge Holdings, Inc. was incorporated in Delaware in 2008, and our name was changed
to Zedge, Inc. in 2016.
In
2009, we introduced the Android version of our Zedge App. The Zedge App provided ease of use by negating the need for customers to first
download a ringtone or wallpaper to their computer and then upload that content to their mobile phone.
We
launched the iOS version of our Zedge App in 2013, followed by the launch of the Windows Mobile Zedge App in 2014.
During
2014 and 2015, our Zedge App introduced app icons, social sharing features, and marketing automation capabilities, and expanded the number
of languages supported.
In
2016, IDT Corporation spun off our stock to its stockholders, and our Class B Common Stock was listed on the NYSE American with the ticker
symbol “ZDGE”.
In
March 2018, we completed the launch of Zedge Premium, a section of our marketplace where artists can launch a virtual store and market,
distribute, and sell their digital content, including wallpapers, video wallpapers, ringtones, and notification sounds to our users.
In
January 2019, we started offering freemium Zedge App Android users the ability to convert into paying subscribers in exchange for removing
unsolicited advertisements from our Zedge App. As of July 31, 2022, we had approximately 692,000 active subscribers. In fiscal 2023,
we expect to launch subscriptions on iOS.
In
August 2020, Jonathan Reich was promoted to Chief Executive Officer, and Yi Tsai was promoted to Chief Financial Officer.
On
August 1, 2021, we acquired Emojipedia, the world’s leading authority dedicated to providing up-to-date and well-researched emoji
definitions, information, and news as well as World Emoji Day and the annual World Emoji Awards, and Emojitracker, which provides real
time visualization of all emoji symbols used on Twitter.
On
December 14, 2021, we launched ‘NFTs Made Easy’ an NFT offering for artists and consumers that provides ease of use and negates
the need for cryptocurrency experience and know-how. An artist only needs to upload their content as they normally would in the Zedge
Premium Creator’s Portal, check the NFT option, and Zedge handles the rest seamlessly, from minting to gas fees. Additionally, consumers
can buy the NFTs simply by using Zedge Credits purchased in their local currency.
On April 12, 2022, we acquired GuruShots, a recognized category leader
that fuses photography with mobile gaming. GuruShots, headquartered in Israel, offers a platform spanning iOS, Android, and the web that
gamifies photography by providing a fun, educational, and structured way for amateur photographers - essentially anyone with a mobile
phone - to compete in a wide variety of contests showcasing their photos while gaining recognition with votes, badges, and awards. On
a monthly basis, GuruShots users currently cast close to 4.5 billion “perceived votes” in more than 300 competitions. GuruShots
currently generates revenue from selling digital resources that, if used skillfully, can provide additional visibility to competitors’
photographs, a critical factor in securing votes for competitive ranking.
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Our
Technology
Our
eco-system is powered by a scalable distributed platform that is comprised of both open source and proprietary technologies centered
on content management and discovery, web and app development, data mining and analytics, deep learning, mobile content/device compatibility,
advertising, and reporting. We have built a robust platform that allows us to ideate, test, and launch where warranted by the outcome
and we have embraced machine learning throughout our technology stack in order to improve content recommendations and relevancy. From
an end user’s perspective, our platform minimizes response latency while maximizing content relevancy and discoverability. We optimize
our platform by utilizing systems, algorithms, and heuristics that organize our content based on real user data and that renders the
content in a relevant fashion. With GuruShots, we have added open source and proprietary technologies around gamification, including
ranking algorithms that ensure fair exposure to all content in a competition, and real-time voting/ranking functionality at scale. Our
infrastructure provides a fully redundant production environment in a cloud-hosted, virtual-server environment.
Intellectual
Property
Our
trademarks, copyrights, domain names, proprietary technology, know-how, and other intellectual property are vital to our success. We
seek to protect our intellectual property rights by relying on federal, state, and common law rights in the United States and other countries,
as well as contractual restrictions. We enter into confidentiality and nondisclosure agreements with our employees and business partners.
The agreements we enter into with our employees also provide that all software, inventions, developments, works of authorship, and trade
secrets created by them during the course of their employment are our property.
We
have been granted trademark protection for “Zedge” in the United States, European Union, United Kingdom, India, and Canada,
“Tonesync” in the European Union and the United Kingdom, “We Make Phones Personal,” and “Zedge, Everything
You” in the United States and a stylized “D” logo in the European Union and the United Kingdom. We also have applied
for trademark protection for “Tattoo your phone,” and “NFTs Made Easy” in the United States, a stylized “D”
logo in the United States, Canada and India, and have obtained a copyright registration for our flagship app, Zedge. In addition, we
have registered, amongst others, the following domain names: www.zedge.net and www.zedge.com.
On
August 1, 2021, we acquired Emojipedia. As part of this acquisition, we acquired trademark registrations for “Emojipedia”
in the United States, the European Union, the United Kingdom, and Australia, and trademark registrations for “World Emoji Day”
in the United States and the United Kingdom. We also acquired the following domain name registrations: www.emojipedia.com and www.emojipedia.org.
On
April 12, 2022, we acquired GuruShots Ltd. As part of this acquisition, we acquired, all intellectual property rights associated with,
and encompassed within the GuruShots mobile and web-based applications, including the following domain name: GuruShots.com. In addition,
we have applied for trademark protection for “GuruShots” in the United States, and have filed copyright applications for
the GuruShots mobile and web-based applications.
Human
Capital
Our
headcount totaled 93 as of July 31, 2022, including 32 added from the GuruShots acquisition.
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Facilities
As
a result of the COVID-19 pandemic, we ceased having a physical office in the United States in 2020. Yet, we still address commercial
operations including accounting and finance, and business development from the New York area. In 2021, our Norwegian operations moved
into a smaller Trondheim, Norway facility, with approximately 3,800 square feet of space, accommodates our product, design, and technology
teams, and is under lease through March 2024. In May of 2022, we entered into a one-year sublease agreement for approximately 2,300 square
feet of space for our team in Vilnius, Lithuania. We lease 1,550 square feet of space in Tel Aviv, Israel that accommodates the GuruShots
team. That lease is due to expire in October 2024. Our servers are hosted in leased data centers in different geographic locations in
the United States.