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 as well
as pAInt, a generative AI wallpaper maker, GuruShots, a skill-based photo challenge game, and Emojipedia, the #1 trusted source for ‘all
things emoji’. Our vision is to enable and 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.
According to Linktree, over 200 million identify as creators, people who use their influence, skill, and creativity to amass an audience
and monetize it. Furthermore, TechCrunch reports that 12% of full-time creators earn more than $50,000 per year, while Influencer Hub
reports 10% of influencers earn more than $100,000 per year. We view the Creator Economy as an 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,” offers 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, 2023, our Zedge App has been installed nearly 621 million times since inception and, over the past two
fiscal years, has had between 30.8 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,’
the section of our marketplace where we offer premium content (i.e., for purchase). In turn, our users utilize the content to personalize
their phones and express their individuality.
In fiscal 2023, we introduced pAInt, a generative
AI wallpaper maker in the Zedge App. A generative AI wallpaper maker is an implementation of artificial intelligence software that can
create images from text descriptions. To interface with a generative AI image maker, a user enters a text description of the image they
want to create, and the software generates an image based on that description. In addition, we upgraded Zedge+, our paid subscription
offering by bundling together an ad-free experience with value adds making the offering more compelling.
In fiscal 2022 we introduced several new customer
facing product features and social and community features, all meant to improve customer engagement, MAU, and revenue growth over the
long term.
The Zedge Marketplace’s monetization stack
consists of advertising revenue generated when users view advertisements when using the Zedge App (and the related functionality under
the zedge.net website), the in-app (or web-based) 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.
In April 2023, we introduced a subscription tier in the iOS version of the app. As of July 31, 2023, we had 638,000 active paying subscribers.
In late 2021 we introduced NFT functionality
to a limited number of Zedge Premium creators via ‘NFTs Made Easy’. All NFT Made Easy transactions are made using Zedge Credits.
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We often refer to our freemium ringtones and
wallpapers, our subscription offering, the functionality for creators to market their products and ancillary offering and features, both
in our Zedge App and website as our Zedge Marketplace.
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 750,000 thousand
photographs and casting close to 4 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 seven years, the monthly average paying player spend
has increased in excess of 11.6% annually to more than $51.3 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:
● New
Gameplay Experiences . Introducing a new hybrid-casual gameplay experience that enables
users to compete in short-duration photo and image competitions that are limited in size.
● 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.
● 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. In July 2023, Emojipedia received approximately
45 million monthly page views and has approximately 9.7 million monthly active users as of July 31, 2023 of which approximately 50.3%
are located in well-developed markets. It is the top resource for all things emoji, offering insights into data and cultural trends.
As a member of the Unicode Consortium, the standards body responsible for approving new emojis, Emojipedia works alongside major emoji
creators including Apple, Google, Meta, and X, formerly known as 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 provide tools that enable easy
and high-quality digital content creation, connect the creators together with friendly competitions and expose the content to communities
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 content creation, gaming and marketplaces by empowering consumers with easy-to-use content creation utilities
whose output can be used to engage across a multitude of online and mobile platforms including social networks, messaging, and gaming
as well as for commerce purposes. 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 Marketplace 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 Zedge Marketplace’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 strategy is 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;
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○ 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.
● 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.
● Continue
to invest in 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. For
example, we are in the midst of a soft launch of a new mobile game, AI Art Master, which
enables players to create generative AI images and compete in themed based competitions with
these images, as well as gamifying the Zedge App.
● Better
utilize data to improve user acquisition and customer engagement . We plan to better utilize
data to improve the user experience, 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.
● Build
our marketplace into a compelling 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 . We plan to build a full-stack
marketing team, increase our paid user acquisition investment, build and/or buy data analytic tools that provide valuable insights
into our marketing initiatives, focus on the evolving field of search engine optimization, and app store optimization.
●
Diversify our revenue stack . Historically, the majority of our
revenue has been derived from advertising. We plan to diversify our revenue by advancing our existing subscription offering as well
as introducing new subscription offers, introducing advertising into GuruShots and evolving our in-app economy. Furthermore, we expect
to test a print on demand offering. 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 Marketplace 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, 2023,
the Zedge App had 30.9 million MAU, of which approximately 22% were in well-developed markets
and 78% 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
the Zedge Marketplace 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 Marketplace’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 . The Zedge App has a global customer
base of approximately 30.9 million MAU as of July 31, 2023, 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), as well as create bespoke
wallpapers with pAInt, our generative AI wallpaper maker. We believe that the Zedge Marketplace
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.
● Extensive
Experience 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 make our strategy a reality. 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.
● Scalable
and Reliable 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, generative AI image creation, games and
emojis . There are many other marketplaces and platforms that offer mobile personalization
content, generative AI creation tools, 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 and creation features, which avails customers
with a wide array 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 consumers’ 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.
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.
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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, 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, 2023, we had approximately 638,000 active subscribers. In April 2023, we introduced a subscription tier in the iOS
version of the app.
In August 2020, Jonathan Reich was promoted to
Chief Executive Officer, and Yi Tsai was promoted to Chief Financial Officer.
In August 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.
In December 2021, we introduced NFT functionality
to a limited number of Zedge Premium creators via ‘NFTs Made Easy’. All NFT Made Easy transactions are made using Zedge Credits.
In April 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 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.
In December 2022, we introduced ‘pAInt’
our generative AI wallpaper maker within the Zedge App. pAInt enables users to create high quality images by typing a brief description
of what they are interested in and tuning with different style types. In parallel with the introduction of pAInt we also rolled out another
in-app currency used for creating wallpapers.
Our Technology
Our eco-system is powered by a scalable distributed
platform that comprises both open source and proprietary technologies centered on content management and discovery, web and app development,
data science and analytics, deep learning, mobile content/device compatibility, advertising/marketing tech, and reporting. We have built
a robust platform that allows us to ideate, test, analyze, and launch where warranted by the outcome and we have embraced machine learning,
including AI, throughout our technology stack in order to improve content creation, recommendations and relevancy. From an end user’s
perspective, our platform minimizes response latency while factoring in cost and focuses on key areas including content creation, 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, and a personal competition recommendations system based on users’ photos and historical activity. Our infrastructure
provides a fully redundant production environment in a cloud-hosted, virtual-server environment.
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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, “We Make Phones Personal,” and “Zedge,
Everything You,” “Tattoo Your Phone,” “Shortz – Chat Stories By Zedge,” and “NFTs Made Easy” in
United States and a stylized “D” logo in the European Union, United Kingdom and United States. We also have applied for
trademark protection for “AI Art Battles (& Design),” “pAInt,” and “Zedge pAInt” in the United
States, a stylized “D” logo in 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 obtained trademark registrations for “GuruShots”
in the United States, applied for trademark protection for “GuruShots in Canada, India, the European Union and the United Kingdom,
and have obtained copyright registrations for the GuruShots mobile and web-based applications.
Human Capital
Our headcount totaled 94 as of July 31, 2023,
including 29 added from the GuruShots acquisition.
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
4,900 square feet of space, accommodates our product, design, and technology teams, and is under lease through March 2027. 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
1,600 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.