Zedge, Inc Is An Innovative Microcap You Need To Own

Zedge, Inc Gets Validated, We Say Duh! 

When our team stumbled across Zedge, Inc (NYSEAMERICAN: ZDGE) our collective first impression was duh! Why the heck hasn’t anyone else done that, it’s genius, they’re going to be rich! And what does Zedge, Inc do that is so wonderful? Zedge, Inc is a desk-top publishing application for mobile devices that lets users customize the appearance of their phone. Options range from wallpapers to ringtones with app icons, widgets, and notifications all part of the package. In today’s age of ever-increasing digitization, the advancement of smart-phone technology, and the 5G revolution we don’t see how this company can not make millions, even billions, it’s only a matter of time. 

Zedge, Inc Knocks It Out Of The Park 

Zedge, Inc had a fantastic quarter in which revenue grew by 100.8% YOY to $5.3 million and beat the consensus by $2 million. That’s $2 million or 60%, 60,000 basis points, and all due to increasing use of the app. The number of monthly active users grew to 35.4 million on triple-digit gains in both active subscribers and subscription revenue. Monthly active subscribers increased by 139% and drove a 151% increase in subscription revenue. The best part is that costs remained low relative to revenue despite increased ad-spend and drove operating income up nearly 300% to $2.3 million or 43.3% of sales. 

On the bottom line, the $0.17 in GAAP earnings beat the consensus by $0.13 and sets the company up well for future growth efforts. Even with the assumption of future investment, the company is still expecting growth to remain strong this year. The new guidance is calling for revenue to be up 75% to 80% for the year which is well above the previous estimates and likely not the end of this growth story.

"From a product perspective, our team completed the rollout of our new content management system, setting the foundation for the next phase of our growth strategy by enabling us to introduce new features and enhancements, including overhauling user accounts, and introducing social and community features as well as search and discovery. We expect these will improve customer engagement and retention, especially in well-developed markets, and accelerate adoption of Zedge Premium, our marketplace for artists,” says CEO Jonathon Reich. 

The Technical Outlook: Zedge, Inc Is Going Ballistic 

Shares of Zedge began moving higher well before the release of the Q2 earnings report and have only accelerated that move in the after-market action. The stock is trading up another 18% in the pre-market action suggesting even bigger gains could be in store for this company. Assuming that earnings will remain steady at the Q2 levels the forward EPS outlook has this stock trading at only 20X its earnings which is a paltry sum for a tech/growth stock of this caliber. In addition to the awesome growth and earnings potential this company is also protected by its fortress balance sheet. The company is sitting on ample cash, carries almost no debt, and has plenty of cash flow so no worries about dilutive capital raising activity or other value killers. 

We think that a retest of the recent highs near $14.80 is just the tip of the iceberg when it comes to this stock and its price. A clear break above the $14.80 would be very bullish and could take the stock up several multiples, especially if the coming quarters unfold as we think they will. Our first target after a break to new all-time highs is near the $18 level or about 40% upside from the premarket price action near $14.00.