Zedge Stuns Market With Return To Growth

Mobile App Publisher Zedge, Inc Pops On Strong Results 

After several quarters of flattish revenue Zedge, Inc (NYSEAMERICAN: ZDGE) has returned to growth. The Q1 revenue was so strong, in fact, it may alter the outlook for the entire year and the company was expected to gain momentum as the year wore on. What this means for investors is a sharp uptick in share prices that indicates the downtrend that began in June is now over. With obvious momentum building in the business now, we see this stock making a full reversal and eventually reclaiming the all-time highs. 

Zedge Smokes Consensus, Shares Move Up 

Zedge finally had the quarter we’ve been waiting the last two quarters to see. The company’s revenue accelerated to $6.03 million from the $5.25 million range in which it had been stuck. This is good for a gain of 60.4% over last year and beat the Marketbeat.com consensus estimate by more than 1450 basis points. The gains were made on strength in both core and emerging businesses with a notable return to sequential growth in MAU’s. Subscriptions increased by 25% in regard to users which drove a 48% increase in subscription revenue. The average revenue per MAU increased by 46% and premium sales, a new and emerging business, grew by 58%. 

Moving down the report, the company was able to leverage the revenue gains to great success increasing the operating margin by 1380 bps to 42.9%. This drove net income to $2.1 million with a subsequent 81.2% increase in cash flow from operations. On the bottom line, the company reported $0.14 in GAAP earnings is up $0.06 from last year and beat by $0.04. 

The company declined to give any guidance this quarter but indicated an update would come at the end of the second quarter. Based on the 1st quarter results, we expect the company to raise its guidance for the year and drive additional gains in the stock. There are only two active analysts ratings right now but they are bullish and expecting a 24% increase in revenue for the year.

Zedge Is Well Capitalized For Growth 

Zedge, remarkably for such a small tech company, is well capitalized with very little to no debt. The company is carrying about $27 million in cash which is up both sequentially and from last year with ample free cash flow. The company can easily invest in new products lines and opportunities as well as acquisitions to complement the existing businesses. One of the growth avenues we’re excited about is the push into NFT’s. The company is going to offer a platform to select artists starting this month that will allow them to create and sell NFTs. 

The Technical Outlook: Zedge Is Bottoming 

Shares of Zedge, Inc were up as much as 10% in early premarket trading and appears to be ready to reverse. The move confirms support at the key $8.25 level and is supported by the indicators. Assuming the market follows through on this move, we see the stock moving above the short-term EMA and entering a new sideways trading range if not beginning a new uptrend. There may be resistance at the $11.60 level, the question is whether it will keep price action range-bound or if the bulls can push the stock up and above. If $11.60 can be surpassed, the next target for resistance is near $14.00. 

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