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, which
we refer to as our “Zedge App,” 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,’
which Goldman Sachs estimates is worth $250 billion globally. 1 According to Linktree, over 200 million individuals identify
as creators, people who use their influence, skill, and creativity to amass an audience and monetize it. 2 Furthermore, Influencer
Marketing Hub reports that out of 2,000 surveyed creators, 44.9% identify as full-time creators, 3 and Exploding Topics reports
that 10% of influencers earn more than $100,000 per year. 4 We view the Creator Economy as an opportunity for Zedge to expand
our business, especially as we execute by connecting our gamers with our marketplace.
Our Zedge App (which is named “Zedge Wallpapers” in the
App Store) 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, 2024, our Zedge App had been installed nearly 674 million times
since inception and, over the past two fiscal years, has had between 26.1 million and 32.2 million monthly active users (“MAU”),
ending with 26.1 million MAU as of July 31, 2024. MAU is a key performance indicator (“KPI”) for our Zedge App 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, via ‘Zedge Premium,’ the section of our marketplace
where we offer premium content 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.
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.
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 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, 2024, we had approximately 669,0000 active subscribers.
1 https://www.latimes.com/business/story/2024-01-08/creator-influencer-economy-2024-predictions-social-media-stars
2 https://linktr.ee/creator-report
3 https://influencermarketinghub.com/creator-earnings-benchmark-report
4 https://explodingtopics.com/blog/creator-economy-stats#
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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 670,000 photographs and
casting close to 3.2 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.
GuruShots utilizes a ‘Free-to-Play’
business model and generates revenue through in-app purchases of virtual currency. Players can use this currency to unlock competitions
or gain an edge by purchasing resources and participating in additional gameplay. Over the past seven years, the monthly average paying
player spend has increased in excess of 9.9% annually to more than $50.9 per player.
In fiscal 2024, we revamped GuruShots’ customer
onboarding experience by guiding new players through simplified photo competitions of limited size and duration. The upgrade was designed
to enhance the gaming experience for new players by increasing their potential for winning and providing immediate gratification. The
new onboarding has shown improvements in engagement, retention, and revenue from new users. In addition, we migrated to a coin-based economy
with multiple currencies in order to enable more players to earn and spend their currency on in-game resources.
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, among others, the creative assets,
offer acquisition channel and platform (i.e., iOS, Android, and web), 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.
Since the start of fiscal 2025, Cost per Install (CPI) have trended
down considerably leading us to believe that our efforts are yielding fruit. It’s too early to say with conviction whether this
trend is sustainable as we scale user acquisition and whether these users will provide sufficient long-term ROI; however, we believe that
these early results are encouraging.
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 GuruShots players to become Zedge Premium artists and sell their photos to our audience
of 25+ million MAU (as of July 31, 2024) as standard digital images. In addition, we are benefitting from the experience that the GuruShots
team possesses in 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. One example is our hybrid casual title, ‘AI Art Master,’ which has been in soft-launch in the
Philippines, Poland, and India, that enables players to create generative AI images and compete in themed-based competitions with these
images. Based on analyzing user data and performing extensive user testing, we will determine whether to refine the user experience and
scale or cease development of this title.
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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 2024, Emojipedia received approximately 37.6
million monthly page views and has approximately 9.6 million monthly active users as of July 31, 2024 of which approximately 46.7% 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.
We believe that Emojipedia provides growth potential
to the Zedge App, and it was immediately accretive to earnings post acquisition in August 2021. In the past year, we have made many changes
to Emojipedia including overhauling its backend, redesigning the Emojipedia website, and introducing new entertainment-focused features
to the site. We will continue to enhance this offering and are exploring additional new features which use artificial intelligence, some
of which will be released before the end of the calendar year.
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 and
supporting 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 25+ 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:
● Invest
in growing our user base and improving profitably . We expect to continue devoting resources to growing our user base profitably by:
○
analyzing user demographics to identify key segments that yield the highest profitability and quickest return on ad spend (ROAS);
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○
testing to determine which user segments are most responsive to new offerings and crafting targeted marketing strategies based on those insights;
○
studying our users’ needs and enhancing our products to align with the preferences of our most profitable segments;
○
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
○
exploring crossover marketing opportunities between user segments to maximize reach and engagement;
○
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, subscription models, e-commerce, and new advertising products, implementations, and optimizations.
For example, in fiscal 2024 we revamped our subscription offering and have experienced growth as a result of this overhaul. 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 launched pAInt, our generative AI wallpaper maker
in late 2022 in order to avail our consumers with the ability of becoming creators.
● 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. We have benefitted from the investment we have made in our data and business analytics
teams enabling us to make data driven decisions in shortened timeframes and also expand the number of A/B tests that we use to compare
various product changes.
● 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 use our full-stack marketing team to scale user acquisition--both
paid and organic--invest in building and/or buying data analytic tools that provide valuable insights into our marketing initiatives and
focus on the evolving fields of search engine optimization and app store optimization. We have also invested resources to improve product
marketing with the goal of driving engagement and retention. Finally, we have utilized AI to quickly and efficiently create many different
creatives in order to attract new customers.
● Diversify
our revenue stack . Historically, the majority of our revenue has been derived from advertising. We plan to continue diversifying
our revenue streams by advancing our existing subscription offering, optimizing the newly introduced coin-based economy in GuruShots,
and introducing advertising into GuruShots. Furthermore, we expect to continue testing our 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.
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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, 2024, the Zedge App had 26.1 million MAU, of which
approximately 21.1% were in well-developed markets and 78.9% 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 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.
● Leading
global provider of mobile personalization content . The Zedge App has a global customer base of approximately 26 million MAU as of
July 31, 2024, 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 15 million reviews in Google Play where it boasts a 4.7 star rating out of a maximum
of 5 stars. GuruShots has a 4.4-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 and licensed content to meet the needs of our users.
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● 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.
Competition
We face competition in all aspects of our business
and especially from other digital marketplaces and gaming companies. In running our business, we compete 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 ecosystem 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 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 ecosystem 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.
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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 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 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 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 more than 3 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.
Our Technology
Our ecosystem 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. We enhanced our users’ content creation
options with generative AI models, we embraced machine learning, including AI and LLM throughout our technology stack in order to improve
content 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. We focus
on delivering the highest quality content to users while minimizing our infrastructure costs on used bandwidth. 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.
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.
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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, the United States, and Canada. We also have
applied for trademark protection for “pAInt,” and “Zedge pAInt” in the United States, a stylized “D”
logo in 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 99 as of July 31, 2024.
Facilities
We do not maintain office space in the United States in light of having
a small domestic team. We address certain aspects of our commercial operations, including accounting and finance, and business development
from the New York area. We maintain leased facilities in Trondheim, Norway and Vilnius, Lithuania that accommodate our product, design,
monetization, marketing and technology teams, and in Tel Aviv, Israel that accommodates members of both the GuruShots and Zedge teams.
Our servers are hosted in leased data centers in different geographic locations in the United States.