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Edited Transcript of ZDGE.Z earnings conference call or presentation 24-Oct-19 8:30pm GMT

Q4 2019 Zedge Inc Earnings Call

NEW YORK Dec 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Zedge Inc earnings conference call or presentation Thursday, October 24, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jonathan Reich

Zedge, Inc. - President, CFO & COO

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Conference Call Participants

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* Bryan Suchanyc

Cross Management Corporation - Founding Partner & CFO

* Joseph M. Boskovich

Old West Investment Management, LLC - Co-Founder & Partner

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Presentation

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Operator [1]

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Good afternoon, and welcome to Zedge's Fourth Quarter and Full Fiscal 2019 Earnings Conference Call. (Operator Instructions)

In today's presentation, Jonathan Reich, Zedge's Chief Financial Officer and Chief Operating Officer, will discuss Zedge's financial and operational results for the 3-month period and full fiscal year that ended July 31, 2019. Any forward-looking statements made during this conference call either in the prepared remarks or in the question-and-answer session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those which the company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in the reports that Zedge files periodically with the U.S. Securities and Exchange Commission. Zedge assumes no obligation either to update or -- any forward-looking statements that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. Please note that the Zedge earnings release is available on the Investor Relations page of the Zedge website. The earnings release has also been filed on a Form 8-K with the SEC.

I would now like to turn the conference over to Mr. Jonathan Reich. Please go ahead, sir.

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [2]

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Thank you, operator, and thank you all for joining us today. I am Jonathan Reich, Chief Financial Officer of Zedge. Welcome to Zedge's Fourth Quarter and Full Fiscal Year 2019 Earnings Conference Call, recapping the 3 and 12 months ended July 31, 2019. For a comprehensive and detailed discussion of our results, please read our earnings release issued earlier today and our Form 10-K, which we expect to file with the SEC by the end of October. Following my comments, I will open the call to any questions you may have.

Since Michael Jones assumed his role as interim CEO in September, he has directed our management team to review all aspects of our business, product focus, monetization, expense controls and operations, and identify opportunities that will drive growth and achieve profitability.

Our goal is for the company to become cash flow positive in fiscal year 2020 while simultaneously investing in long-term growth. While we have been battling headwinds in our business, including the geographic mix of our customer base and the declining revenue for some time, I am encouraged by what the team has been focused on and expect that we will benefit from their efforts.

Specifically, we have identified several possible paths to better monetization of our user base. As you know, the demographic shift in our user base toward users in emerging markets has had a negative impact on our revenue and other KPIs. Our team is progressing with several promising ideas that are now generating additional revenue from both well-developed and emerging markets. Furthermore, we are in the early stages of implementing some new mechanisms to improve revenue generation from premium content. Finally, recent initiatives have improved the conversion of freemium users into paying subscribers, growing to around 170,000 today from launch in early 2019.

This speaks to the power of our platform and our ability to convert freemium users into paying customers by offering relevant services to them. To this end, we have a broad set of initiatives planned to continue fueling this growth opportunity.

On the expense side, we are bringing certain third-party tools in-house to simplify operations and lower costs. Additionally, we continue to discover ways to lower our cloud infrastructure costs. Some of the benefits from these steps are only going to be recognized later in the year when contracts with third-party providers come to term. On the product side, we are preparing for the imminent release of Shortz, a standalone entertainment app offering serialized short-form fiction delivered in a text message format. Every time the user clicks on their screen, he or she will see the next message in the fictional dialogue. This is a potentially monumental launch for us because it extends our presence into the world of entertainment. We're excited by this young and evolving genre. It brings a whole slew of possibilities with it, including converting these stories into micro podcasts or short-form video as well as many opportunities for a subscription-based revenue model and exploitation of ancillary production rates.

Shortz will be equally viable across both iTunes and Google Play, an important first for us. We expect to drive traffic to the app by marketing to our existing users, capitalizing on in-app and organic search traffic, both across the web and in the app stores. In short, it gives us an opportunity to unlock value from our existing installed base, while reaching out to new potential users for all of our offerings.

I would now like to provide an overview of the quarter's financial results. Monthly active users, or MAU, that is the number of unique users that opened our app during the last 30 days of the quarter decreased by 2.8% to 33.8 million during July 2019 from 34.8 million in the corresponding period a year ago and by 0.6% on a sequential quarter-over-quarter basis. The year-over-year change in MAU reflects growth of 8.2% in emerging markets, coupled with a decline of 18.3% in well-developed regions.

Total revenue in the fourth quarter was $1.95 million, a year-over-year decline of 24.4% and a sequential quarter-over-quarter increase of 2%. Although MAU grew both year-over-year and sequentially in emerging markets, it declined in well-developed markets, which command higher advertising rates, negatively impacting revenue expansion.

Revenue in fiscal year 2019 decreased 18.6% to $8.8 million compared to $10.8 million in fiscal 2018, primarily as a result of the decline in MAU in well-developed economies, where feature enhancements we introduced didn't yield the results anticipated. We experienced robust revenue growth since introducing a subscription-based version of our Android app in late January 2019. These users are exceptionally important to us because they not only add cash to our coffers by prepaying for the subscriptions, but they also generate higher margin revenue when compared to freemium users.

In Q4, overall average revenue per monthly active user generated from our apps, or ARPMAU, decreased by 18.3% to $0.0189 when compared to the same period a year earlier, but increased 14% sequentially. As stated earlier, the majority of the year-over-year decrease is attributable to the shift in our geographic user mix, coupled with lower advertising rates in the emerging markets, while the sequential improvement is a result of higher revenue in Q4 attributed to paid subscriptions, even though MAU declined sequentially.

Zedge Premium GTV, or gross transaction value, that is the total sales volume transacting through the platform, increased to $167,000 from $25,000 a year ago and by 5.6% from $159,000 last quarter.

We continue to believe in the value that Zedge offers to artists looking to market and sell their digital art, although it is taking us longer to scale this portion of the business than originally anticipated. We have found that our efforts to generate print-on-demand sales haven't panned out as projected.

However, we recently started experimenting on iOS by only offering certain digital content, like the video wallpapers, for a hard price, and have early indications that this generates more revenue than when compared to offering this content with a rewarded table. As such, we are undertaking a set of pricing experiments to better monetize premium content. Direct cost and revenue declined to $348,000, a year-over-year and sequential decrease of 15.5% and 1.4%, respectively. Much of this decrease relates to the investment we made in migrating to a cloud-based infrastructure. We expect continued improvements in cost to revenue in fiscal 2020 from the cost-cutting initiatives discussed earlier. However, due to existing contracts, those savings aren't likely to kick in until the second half of the fiscal year.

SG&A in the fourth quarter increased 16.8% to $2.1 million when compared to the year-ago quarter and decreased 6.7% when compared to the prior sequential quarter. The year-over-year increase primarily relates to the 30% fee that Google Play charges when users subscribe to our service, severance related to the layoffs implemented in Q4, a onetime increase in directors' compensation and noncash compensation related to restricted stock vested. A onetime adjustment relating to the reversal of accrued audit fees in the fourth quarter of fiscal 2018 also contributed to the percentage increase in SG&A in the current quarter.

The sequential decline was driven by lower compensation costs associated with the workforce reduction implemented in Q4 as well as more vacation days taken in Q4 than Q3, partially offset by a onetime increase in Board of Directors compensation and noncash compensation related to restricted stock vesting.

SG&A expenses decreased 7.1% in fiscal 2019 to $8.9 million from $9.6 million in fiscal 2018, primarily attributable to the $440,000 expense incurred in connection with the Freeform acquihire in fiscal 2018 and severance costs of $372,000 associated with the workforce reduction implemented in fiscal 2018. The strong U.S. dollar also contributed, in part, to lower SG&A expenses when compared to fiscal 2018, given that the majority of our employees are based in Norway and Lithuania.

Higher marketing expenses for subscriptions, the 30% fee that Google charges when a freemium user converts into a paying subscriber as well as the costs and expenses related to the development of Zedge Premium in fiscal 2019, partially offset the SG&A expense reduction mentioned earlier. We are striving to deliver continued SG&A improvements in fiscal 2020, even with the expected increase in marketing expense relating to the 30% Google Play fee.

As highlighted previously, we have a comprehensive expense review underway and have identified areas that will contribute to lowering these expenses. Loss from operations in the fourth quarter was $939,000 compared to operating income of $5,000 in the same period a year earlier. On a sequential basis, loss from operations decreased $182,000 in Q4, primarily due to lower SG&A expenses. Our loss per share was $0.12 compared to earnings of $0.02 in the year-ago quarter and essentially unchanged from the most recent sequential quarter.

At July 31, we recorded $1.6 million in cash and cash equivalents compared to $3.4 million a year earlier and $2.3 million at the end of the sequential quarter. Zedge has no outstanding debt. We also have access to a revolving credit facility of up to $2.5 million from Western Alliance Bank, if needed. I expect that we will seek to raise some growth capital in fiscal 2020. Our conservative fiscal 2020 budget has Zedge becoming cash flow positive, even while investing in long-term growth initiatives like Shortz. The goal of the potential capital raise would be to have cash on hand to fuel the growth of Shortz and/or other new initiatives based on early success. We believe that we can focus on developing new products while rationalizing the flagship business and becoming cash flow positive in fiscal 2020, even in light of the setback we experienced in late September when Google temporarily removed our app from the Google Play store as a result of buggy code and a standard technology integration with one of our third-party advertising partners.

Upon receiving notice of the suspension, we acted promptly to correct the problem, and were back in the store around 72 hours later. During this time, Google sent a notification to all users that had a problematic version of the app on their phone, recommending that they uninstall it. We did our best to mitigate this by promptly letting users know that upgrading the latest version of the app would address the issue. Based on preliminary data, it looks like MAU will decline by 15% to 18% and level out in the 27 million to 29 million range. With the majority of the uninstalls being in emerging markets.

This incidence resulted in an immediate loss of approximately $100,000 in revenue. However, our overall revenue run rate has recovered to what it was prior to the suspension as a result of improved ad optimizations, our focus on delivering more revenue from customers in emerging markets and continued improvements in converting freemium users into paying subscribers. It is too early to measure what long term consequences, if any, will result from this incident.

Finally, we are also in the early stages of working together with the third-party developer that caused the problem to address the financial impact from their code, although it is premature to comment about where this will end.

I would like to compliment our employees for pulling together quickly and promptly, mitigating the problem, especially during the middle of a trying weekend. I also want to point out that over the 10 years of being in Google Play, we have not experienced any other similar incident. Nevertheless, we will continue looking for ways to better protect ourselves from this sort of situation in the future. Returning to the potential capital raise, I would like to reiterate that we expect to become cash flow positive in fiscal 2020, in spite of this incident, even with our focus on developing new products and rationalizing the flagship portion of the business. Although fiscal 2019 was a difficult year for Zedge, I sense transformation in the air. Despite or perhaps because of the challenges we are facing, I see a positive shift in the mindset of our employees as they focus more than ever on our future evolution.

The launch of Shortz and our subscription model are indicative of the type of initiatives that we expect from our expanding pipeline. Our team is serving up a host of innovative ideas to increase revenue, reduce costs, organize teams for maximum productivity and achieve profitability. I am pleased by this and expect that we will see positive impact from these efforts as the year unfolds. Michael is challenging us to be innovative, take calculated risks and pursue new initiatives that extend our value beyond the world of mobile phone personalization, all while remaining committed to meeting his clear directive of becoming cash flow positive in fiscal 2020. This concludes my remarks. Now I will be happy to take your questions.

Operator, back to you for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from the line of Bryan Suchanyc from Cross Management.

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Bryan Suchanyc, Cross Management Corporation - Founding Partner & CFO [2]

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Yes. Jonathan, you reiterated a couple of times, which really piqued my interest because kind of over the last couple of years, you've been having a cash burn. And you mentioned several times about cash flow positive for the current fiscal year. If you could just add a little bit more color on what do you see really driving that, going from where we are, you've cut expenses, you've done all these things, we're trying different ideas. What do you think is going to put us over that hump, so we can actually generate cash?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [3]

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Bryan, it's Jonathan. Thanks for the question. So I think that there are a couple of things that go into that equation Number one, we are looking at ways to unlock new revenue opportunities. And as I mentioned on the call or in the comments, even in -- or despite the mishap with Google, we are actually tracking where we were on a revenue basis prior to the issue. And we have several other initiatives underway to increase revenue, revenue from areas of the world, which have not monetized as well, ongoing opportunity in terms of growing subscriptions. As reported, we, in mid-October, were at 170,000 paying subscribers, and those numbers continue to grow and improve.

And then on the expense side, really making sure that we are minimizing expenses in areas where we can take things in-house and where we can better manage our business and justify that the investments that we're making in, whether it's infrastructure or tool sets or any of the other expense items, are things which are justifiable, and will help us in terms of achieving our goal of being cash flow positive in fiscal year 2020. It is no question of doubt for us a very, very central focus. And we will continue along that path so that we can have a company which is profitable and is sustainable for the long term.

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Bryan Suchanyc, Cross Management Corporation - Founding Partner & CFO [4]

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I appreciate that. And one last question. We kind of lost our foothold in the iOS market a few years back, never really seemed to get back in there again. And you did mention something on the call about the iOS market. Maybe you can add a little bit more to that, a little bit more detail? And how you think we can grow the market share?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [5]

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Sure, Bryan. That's a great question. I think that you will understand that mobile phone personalization is a core part of the Android operating system. And by contrast, Apple has never embraced that capability as being an easy, seamless experience for their users. Whether it's a matter of adding a ringtone to your phone or changing a wallpaper, it's complex, cumbersome and complicated. Having said all of that, when looking at new opportunities, what we have been very, very discerning about is making sure that whatever opportunities we invest in are opportunities that are equally viable across both Android and iOS.

By way of example, Shortz, equally viable. The product interface, the content, the monetization model is one which will exist equally across both platforms. And that taken in conjunction with the fact that we still are popular iOS app. We're in the top 10 most popular entertainment apps in the iOS store in the U.S. for free entertainment apps and the like. We think that, that will help us in terms of providing prospective customers with an opportunity to engage with a Zedge product that is viable and relevant to that. We think that if things pan out well, it can be a great growth opportunity because this is a market where you just take a look, over 90% of our users today are Android. If we can begin to unlock value from iOS, we think that it will pay for itself in spades.

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Bryan Suchanyc, Cross Management Corporation - Founding Partner & CFO [6]

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And then the last thing, the chat, the Shortz stories. If you can add a little bit more detail, how do you monetize that?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [7]

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Yes. It's a great question. So there is the immediate monetization opportunity and then there are, let us say, some options -- there's some optionality on top of that. In terms of the immediate opportunity, we envision that we will offer a subscription-based service. We will offer users the ability to subscribe by week, by month or by year. And if we can use our existing subscription-based service from Zedge, wallpapers and ring tones as an indicator, we think that we can see some solid traction there. And then the optionality piece is, this content is content where it has applicability in other verticals, other venues, if you will. One can imagine that one of these stories does really well. Well, we can then offer that for ancillary production, either for television, for Hollywood, for print, potentially in the game space and the like. And that is incremental revenue that we would benefit from.

But we're not betting the house on that. We're really trying to offer this and go out to the market with a pretty straightforward value proposition to users, one which provides them with an entertainment capability that's snackable, that they consume quickly, they can get their dopamine hit, they're happy paying a subscription for that. And in the event that any of that content goes viral, well, then we have the ability of going out and pursuing other monetization opportunities as we see fit. And I'll just close by saying, we -- I'll just close by saying that we also do not -- have not built this around the notion of, hey, this has to be a grand slam in order for it to be valuable to the growth of our company. This is a business where if we begin to feel some solid singles, it will move the revenue needle for us and help unlock value from our customer base.

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Operator [8]

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(Operator Instructions) We'll move on to Joe Boskovich with Old West Investment.

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Joseph M. Boskovich, Old West Investment Management, LLC - Co-Founder & Partner [9]

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Yes. Jonathan, Bryan asked most of my questions. But I guess to further elaborate on the Shortz, why does the Zedge team feel that there's a great opportunity in that segment? And maybe describe what you mean by that a little bit more? What exactly is that segment?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [10]

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Joe, thanks for the question. So we view this genre as an emerging genre, one which aligns well with our existing user base. And there are so many different things that we feel can unlock value here. First of all, we think that this is an entertaining form of content which is very, very well positioned for any mobile phone user. We all know that the consumption of gaming or video content or entertainment content more generally on mobile phones is something which is over-indexed in which our particular demographic has also been over-indexed for. But in addition to that, there are a set of features, which we're building into this, which we think lends to -- lend themselves to creating this ongoing desire that needs to be met for consumers that begin engaging with this content. This is content where short-form serialized, meaning that every chapter will end on a cliffhanger. There will be some reason that you will want to read the next chapter, that you will come back and that you will engage with the app more regularly. And on top of all of that, we believe that a key advantage that we come to the table with that many app developers do not have is an embedded customer base.

And the ability to essentially market this to our embedded customer base in order to drive installs and subscriptions is something which we view as really having a lot of value and one which we would like to take advantage of. And I should mention that, that's not limited strictly to users that are engaging with the Zedge app. At any given point in time, remember, we still see a lot of folks out there that are searching for Zedge or searching for content. The Zedge brand name is something which has value associated with it. And when -- our hypothesis is when users begin to see, oh, wow, Zedge released something new, let me try that out. That, again, is an advantage that a startup app that has no following will have to pay for by going out and doing paid user acquisition as opposed to being able to take advantage of the organic channels that we have available to us.

To sum up though, with respect to why we're excited about this genre, I think that most consumers that engage with entertainment content on their phone, do so with the flexibility of knowing that they can get something that's a quick hit, but also lends itself to a longer-term type of experience. This genre very squarely fits into that, and it's emerging. It also allows potentially for us to go out and offer this in other types of meetings, whether it be podcasting or potentially video down the road, depending on how it goes. So it has a lot of optionality. And from a cost perspective, it's a lot less expensive to produce than, if by way of example, we went out and said, "Hey, we're going to begin offering video, short-form or long form, which is typically much more expensive to go out and produce." Does that answer your question?

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Joseph M. Boskovich, Old West Investment Management, LLC - Co-Founder & Partner [11]

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Yes. Yes. Nice. That's great. And then I guess -- so this will -- there will be two separate apps, right? So Zedge, and then you'll feed this -- is the new app, is it called Shortz ? What is it -- what would that be called?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [12]

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Yes. It will be called Shortz. I think the team is finalizing that, but it will be Shortz or Shortz stories or something, but Shortz by Zedge. So we will still take advantage of the Zedge branding, but highlight the Shortz piece, which is really what this is about.

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Joseph M. Boskovich, Old West Investment Management, LLC - Co-Founder & Partner [13]

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Great. Well, exciting. When will this new feature launch?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [14]

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Sure. So it's not a new feature, it's going to be stand-alone apps, both in Android and iOS. I expect that we will have an MVP, a minimally viable product, launched in the market, most probably, end of November, beginning of December.

As of now, we will most probably first roll out Android and then shortly thereafter roll out an iOS app. And I would say, Phase 1 is really -- we want to be very light in terms of -- we're not looking to go and build a Rome, day 1. We want to make sure that we are understanding how users are interacting with the app, whether they enjoy the content, whether they enjoy the experience. And then based upon empirical data, iterate and continue to improve from there.

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Joseph M. Boskovich, Old West Investment Management, LLC - Co-Founder & Partner [15]

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Great. Great. And then, I guess, in the core business, that's -- it's pretty exciting, the subscription growth that you had. Do you -- so you see that subscription growth continuing based on trends you're currently seeing?

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [16]

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We are seeing that. And we are just in the midst of beginning to test some new offers. So we're talking about potentially bundling third-party services together where you can offer this bundle for one-and-one-equals-three type of economics, whereby whatever these products are, if you were to buy them independently, and you were to subscribe to Zedge independently, that would cost you more than buying the package. And we are also doing all sorts of tests in terms of what the marketing message is, images, localization, localized pricing and the like. And there's going to be a lot of iterations of that over the upcoming months in order to really continue to grow that portion of the business. As I said earlier, subscribers to us are really valuable for a host of reasons, certainly because they prepay us, and the margin that we make from a subscriber is a much better margin than what we make typically from an advertising freemium-based customer.

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Operator [17]

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(Operator Instructions)

We'll move next to the line of [Jeff Benton], private investor.

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Unidentified Participant, [18]

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I have a couple of questions about Shortz. Is -- can you just speak a little bit about the market, who else is -- are there -- who are you competing against? Has anybody tried this process before? What do you think your advantages are in this space? Because it seems like you're hanging a lot of your hat, in terms of getting to cash flow positive and earnings positive, on that.

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [19]

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Sure, Jeff. Let me answer your question as follows: I think it's a perfectly valid question. And let me start by saying that in terms of our budgeting process, we have not attributed revenue in fiscal year 2020 to Shortz, we have assumed dollar costs. So I just wanted to be clear about that upfront. And that's why I've said earlier, our fiscal 2020 budget has been built conservatively. So just for the spirit of full disclosure, we're not banking on Shortz to be this revenue contributor in fiscal year 2020. There are several apps in the marketplace today that are offering this type of content or content experience. And I don't know if you're familiar with the private company by the name of Wattpad, they have an app in the marketplace called Tap, there's a company by the name of Hooked, there's another company by the name of Yarn.

Fundamentally, we believe that we've got several advantages. Certainly, we've got an embedded customer base. And we believe that, that's going to be very valuable in terms of really getting this product right and then driving subscriptions and a user base accordingly. Secondly, we've been very selective in terms of working with the right content creators. This is a new content genre, and we've been very selective in terms of making sure that we're doing our best to bring on creators that really have an understanding of the genre, understanding of the demographic, and so on and so forth. Third is, as we've indicated earlier, we've got a global footprint. And that has been really great in terms of driving monthly active users. But on the flip side, we have not monetized our users in the emerging markets as well as we otherwise would have liked to. And that's a function of advertising rates being lower in those countries.

We believe that if we begin to offer other entertainment type of experiences to those customers that, that may open up a revenue stream, which is valuable to us. But again, I want to reiterate, we have not built in any revenue contribution from Shortz in our fiscal 2020 budget. Does that help answer your question?

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Unidentified Participant, [20]

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That does. So I guess, I've been -- I'm looking at quarterly revenue decreases and stuff like that. I'm trying to figure out how you're -- where you're going to get this all turned around. I thought maybe Shortz was part of that process, but...

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [21]

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Yes. Sure. So there are several things going on as we speak. By way of example, take a look at the emerging markets. We have recently started testing some ways by which we can better monetize those emerging markets, and early indication is that we will unlock value in those markets, which we have not been able to do up until now. Number two, the subscription-based service, as indicated, we started January with 0 subscribers, mid-October, we're already at 170,000 paying subscribers, and there is ongoing investments in that, both in terms of marketing, bundling, discounting, localization and so on and so forth. Number three is our bread and butter, which is advertising. We've been improving in terms of the average revenue per monthly active user and with some new optimizations in our ad tech stack, we're beginning to see the fruits of that labor accordingly. So when you take all of those together, we believe that will contribute in addition to really making sure that we're doing a much better job in terms of potential expenses that we can cut back on.

Recall as well that we have been building out our presence in Lithuania over the course of the last year or so. Cost of labor there is less than it is in Norway, and we're now beginning to see the benefit of that accordingly. Of course, our employee base, both in Norway and in Lithuania is very, very important to us, but we needed to find a mechanism by which we could continue to invest in the company, find employees that were readily available, which was a little bit more complicated in Norway, and at a rate which was attractive and affordable. Nonetheless, the employee base in both countries is critical to us, and we are benefiting from having opened up our innovation center in Lithuania, strictly from a cost perspective.

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Operator [22]

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(Operator Instructions)

And we do have a follow up, we'll take another question from the line of Joe Boskovich.

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Joseph M. Boskovich, Old West Investment Management, LLC - Co-Founder & Partner [23]

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Yes, Jonathan. One more question. So I'm just trying to think about the Zedge ecosystem the right way. So we have the core offering, one Zedge originally spun off, which was the wallpaper and ringtones. And it seems like there's kind of 3 breakout businesses within Zedge, right? You have Zedge Premium, which is the marketplace for artists to monetize; then you have the subscription; and now you kind of have this third breakout business in Shortz. So Shortz sounds exciting, and I'm hopeful for that. Subscription, if I'm not mistaken, this is the second quarter you've reported subscription, it seems like the growth there is phenomenal with that 116% growth. Now in terms of the other, I guess, breakout business, Zedge Premium. I was looking back at my notes, it looks like you had $41,000 in revenue in Q1, and then that grew 300% to $117,000, then you grew 35% the next quarter to $159,000, and then

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[5.6%] growth. What is your -- what is the plan for, I guess, further growing the gross transaction value at Zedge Premium? Because I mean, obviously, it still appears that that's a growth business, but the growth has cooled a little bit from that 300% growth early on.

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Jonathan Reich, Zedge, Inc. - President, CFO & COO [24]

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Sure, Joe. So a really good question, and I want to start by saying that Zedge Premium to us is very, very important and critical to our business. Before answering your question, I want to highlight something which investors would not know of. Shortz, we had moved forward to roll out our marketplace, we had to build from scratch a set of infrastructure and its higher back end reporting system, a content management system, a publishing platform or self-publishing platform, analytics, business intelligence tools and so on and so forth. And that core foundation is really key to our ability to get Shortz out into the marketplace pretty quickly. And just by frame of reference, we only started to do work on Shortz after I guess, mid-August, so we're talking that in a -- within a period of 3 months, more or less, we will have started from scratch to having a MVP in the marketplace with both the iOS and Android. And that has been built off of this foundation that has been used to propel our Premium business. Now going back specifically to your question about, well, what are we doing in order to drive GTV and continue to grow the Premium business?

So we have several things that are going on. Number one is we have a set of initiatives to understand and better monetize within the marketplace today. As you know, there's a heavy weighting towards using rewarded video. So watch a video and in exchange for that, there will be a piece of content that you can acquire. Being that advertising has a very low rate on a unit basis, so that's what CPMs are about, cost per thousand. That's the way advertising is sold. We feel that it's important for us to find other ways, think about such tokens and the like, in which we can test hard pricing of the content that's in there. And there are a set of tests that we have undertaken and that are unfolding in order to achieve that goal.

Number two is continuing to market to the creative community that will benefit from Zedge Premium. We've had many interesting learnings over the course of the past year. And I would say, at its core, what we have found is the unknown and very experimental artist that has some really cool content but it's not a brand name, those are the guys that are really scaling well within Zedge Premium. And what we want to do is make sure that we can bring artists into the platform with a revenue proposition that will scale for them over time. And that's why we feel that a lot of the work needs to be around monetization first. And then once we've closed or once we have it further improved at, then we can go out and be in a marketing campaign.

And then finally, I would say we do have a limited amount of resources. We had made a firm decision that we wanted to pursue something that was not strictly limited to advertising. We wanted to diversify our revenue base with new monetization layers, and that's essentially resulted in us appealing with some resources in the short-term from our marketplace initiative in order to prioritize Shortz. Although in fiscal year 2020, as we solve or better solve a monetization item, then I think that we're going to begin to see further growth there into the fiscal year.

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Operator [25]

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(Operator Instructions)

I'm seeing no signals from the audience. Ladies and gentlemen, on behalf of the Zedge leadership team, I'd like to thank you all for joining us today. This does conclude today's meeting. You may now disconnect your lines, and we hope that you enjoy the rest of your day.