Zedge's Q1 2026 Earnings Call: Contradictions Emerge on GuruShots Strategy, SG&A Outlook, and Revenue Recognition

Date of Call: October 2025

Financials Results

• Revenue: $7.6M, up 5.8% YOY
• EPS: $0.06 per share, compared to negative $0.02 last year
• Operating Margin: GAAP income from operations was $0.9M compared to a loss of $0.5M last year

Business Commentary:

* Revenue and Subscription Growth: - Zedge reported total revenue of $7.6 million for Q1 2026, up 5.8% year-over-year. - The growth was primarily driven by strong advertising CPMs and subscription revenues, despite declines in Emojipedia and GuruShots.

• Subscription Performance:
• Zedge Plus subscription revenue increased 29% year-over-year, and the net active subscriber base grew 54%, reaching nearly 1.1 million subscribers.

• This growth was supported by optimizations in subscription plans and a shift toward higher-value users.

• DataSeeds and Enterprise Opportunities:

• Zedge is seeing traction with its DataSeeds offering, with a recent order from an AI sector customer that was approximately 25x the value of the original order.

• The company's DataSeeds Production Cloud provides a unique capability for producing custom, rights-cleared datasets, aligning with the growing demand for high-quality training data for AI models.

• Free Cash Flow and Restructuring Impact:

• Free cash flow for the quarter was $0.6 million, negatively impacted by approximately $350,000 due to tax withholding payments related to restructuring.

• Despite this, Zedge expects strong cash generation for the remainder of fiscal 2026, supported by a leaner cost structure and efficient operating model.

• Marketplace and Advertising Trends:

• Zedge's Marketplace revenue grew nicely, driven by strong advertising CPMs, while offsetting declines at Emojipedia and GuruShots.
• The company's advertising revenue was up 6%, indicating continued strength in monetization efficiency despite some segment-specific challenges.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'The early results of this quarter reinforce that our approach is sound and that our operating model is gaining strength.' CFO noted revenue growth and profitability improvements. CEO expressed confidence in fiscal 2026 being 'a year defined by growth, innovation and expanding operating leverage.'

Q&A:

• Question from Derek Greenberg (Maxim Group): Could you help us understand how the DataSeeds offering gets recognized as revenue in terms of line item and timing?
  Response: Revenue is recognized upon delivery and acceptance; currently grouped under 'physical goods and services' with GuruShots, as DataSeeds revenue is still insignificant.

• Question from Derek Greenberg (Maxim Group): What is the typical sales process and conversion visibility for DataSeeds opportunities?
  Response: Still early; pipeline is robust but operational details like contract negotiation vary. Clarity on order-to-delivery timelines and deal sizes expected in a couple of quarters.

• Question from Derek Greenberg (Maxim Group): How is GuruShots tied to DataSeeds, and what is the operating loss for GuruShots?
  Response: GuruShots provides content for DataSeeds via catalog and competitions; legacy GuruShots business incurs ~$150k monthly loss, with DataSeeds contributing additional losses as it ramps.

• Question from Derek Greenberg (Maxim Group): What is the outlook for Emojipedia, and do you expect further declines or stabilization?
  Response: Need another quarter to assess impact of Google's AI features; hope internal actions to protect property will slow/stop declines, and monitoring industry compensation mechanisms.

• Question from Derek Greenberg (Maxim Group): Can you quantify the restructuring cost impact on free cash flow and discuss reinvestment?
  Response: Restructuring costs included $330k tax withholding paid in October, impacting Q1 free cash flow; savings are being reinvested in DataSeeds, Tapedeck, and innovation pipeline in a measured manner.

• Question from Derek Greenberg (Maxim Group): How much remains in the share buyback program?
  Response: $600,000 remains available under the current buyback authorization.

Contradiction Point 1

GuruShots Strategic Direction and Product Focus

This is a substantial contradiction regarding core company strategy. The CEO's statements shift from having a clear, customer-focused strategy (leveraging the MAU base for a gaming product) to explicitly stating the strategic direction for a major product is still undetermined, indicating a lack of resolved vision for a key asset.

How is GuruShots related to DataSeeds? - Derek Greenberg (Maxim Group)

20251212-2026 Q1: A decision on GuruShots 2.0 direction (photo competition vs. gaming focus) has not been made yet. - Jonathan Reich(CEO)

For AI Art Master, given the game isn't yet available in the U.S., what marketing strategies are you using to accelerate growth and adoption? - Allen Klee (Maxim Group)

2024Q1: Marketing for AI Art Master includes... marketing to Zedge's ~30 million MAU base (who are over-indexed for casual games)... - Jonathan Reich(CEO)

Contradiction Point 2

SG&A Expense Outlook and Use of Restructuring Savings

This involves a change in financial forecast guidance. The CFO introduces a new, specific expectation for a decline in SG&A expenses in the forward-looking Q1 call, directly contradicting the previous quarter's Q4 call where no such expectation was given, creating inconsistency in operational spending guidance.

Can you quantify the impact of restructuring costs on free cash flow and discuss plans to reinvest savings into new products? - Derek Greenberg (Maxim Group)

20251212-2026 Q1: The SG&A increase in Q4 was due to using restructuring savings to fund PUA and consulting fees for new initiatives. Going forward, SG&A is expected to decline as these higher spending areas are reduced. - Yi Tsai(CFO)

Your SG&A was flat year-over-year but higher sequentially, and you outlined key spending areas. Is this quarter’s SG&A a reasonable run rate going forward? - Allen Klee (Maxim Group LLC, Research Division)

2025Q4: The SG&A increase in Q4 was due to using restructuring savings to fund PUA and consulting fees for new initiatives. - Yi Tsai(CFO)

Contradiction Point 3

GuruShots Business Performance and Stabilization

This centers on a material change in the operational and financial status of a major business unit. The narrative shifts from actively restructuring and improving the GuruShots business to achieve profitability in Q3, to Q1 describing the "legacy" business as stabilized but still loss-making with a new 2.0 version needed to reach breakeven, suggesting earlier-than-communicated challenges.

What is GuruShots' operating loss on an income basis? - Derek Greenberg (Maxim Group)

20251212-2026 Q1: The legacy GuruShots business is incurring losses but has stabilized at around $150,000 per month. The goal is to evolve GuruShots 2.0 to reach a breakeven point. - Yi Tsai(CFO)

Can you clarify whether year-over-year bottom-line improvements could become visible next quarter, considering cost structure changes and seasonal factors, and also confirm the restructuring/retention costs expected in fiscal Q4? - Allen Robert Klee (Maxim Group LLC, Research Division)

2025Q3: The focus remains on growing the business (top line) while benefiting from improved cash flow due to restructuring and reduced GuruShots spend. - Jonathan Reich(CEO) & Yi Tsai(CFO)

Contradiction Point 4

DataSeeds Market Readiness and Customer Engagement

This reflects a significant change in the market strategy and timeline for a key new initiative. The characterization of the DataSeeds B2B marketplace shifts from being an active "seeding" process with a clear value proposition in Q3, to a description in Q1 emphasizing that it is still "very early," requiring more clarity on fundamental aspects, which contrasts with the earlier, more advanced portrayal.

Is there a conversion framework or sales process for DataSeeds? What is the typical pipeline conversion time? - Derek Greenberg (Maxim Group)

20251212-2026 Q1: The process involves contract negotiation and operational steps beyond content production. It is still very early, and more clarity is needed over the next couple of quarters regarding order magnitude, content type, and time frames. The pipeline is robust, with dozens of prospective customers. - Jonathan Reich(CEO)

What will the audio AI product look like (e.g., similar to a ringtone)? When do you expect it to launch? - Allen Robert Klee (Maxim Group LLC, Research Division)

2025Q3: The company is actively building relationships with prospective B2B customers... The rollout involves 'seeding the market' to meet bespoke content needs for AI model training and fine-tuning. The advantage is the ability to quickly generate unique content... - Jonathan Reich(CEO)

Contradiction Point 5

Deferred Revenue Recognition Policy

This highlights a substantive change in accounting policy, which is critical for financial consistency and investor modeling. The explanation for how revenue is recognized shifts from a systematic, formulaic amortization process (for lifetime subscriptions) in Q4 to a contract-based model tied to product delivery/acceptance (for DataSeeds) in Q1, indicating a lack of a unified and transparent revenue recognition framework.

How is revenue from the DataSeeds offering recognized—under which line item and quarterly or over time? - Derek Greenberg (Maxim Group)

20251212-2026 Q1: Revenue is recognized when the product is delivered and accepted, which could be in the close quarter. - Yi Tsai(CFO)

How should we assess the growth of deferred revenue and its potential for future revenue with near 100% margin, along with the amount and timing of its recognition? - Allen Klee (Maxim Group LLC, Research Division)

2025Q4: Deferred revenue from lifetime subscriptions is amortized over 30 months. The amount recognized as revenue each period is based on the subscription sales, not the deferred balance. - Yi Tsai(CFO)