Zedge, Inc. Q3 FY2026 earnings call

• Core Business Resilience and Monetization

  • The core Zedge Marketplace delivered a gap profitable quarter, with continued strong underlying monetization trends, marking nine consecutive quarters of YoY subscription growth.
  • While overall monthly active users declined, user quality, engagement, and revenue per user improved significantly, driven by ongoing investments in acquiring and retaining higher-value users.
  • The 25% quarterly dividend increase to $0.02 per share reflects management confidence in ongoing free cash flow generation.
  • The company holds $19.7 million in cash and cash equivalents with no debt, supporting concurrent capital allocation across dividends, share repurchases, and growth investments without balance sheet pressure.

• DataSeed Business Milestones

  • Achieved a key validation milestone by fulfilling the segment's first six-figure order from an existing leading technology customer, delivered on spec within tight timelines.
  • The business leverages Zedge's existing experience in consumer mobile app and crowdsourced content creation to provide compliant, ethically sourced multimodal AI datasets, a unique value proposition in the enterprise market.
  • The prospect pipeline is growing, and successful project delivery is building credibility to support larger, more consistent deal flow over time.

• Tape Deck (Independent Music Marketplace)

  • Expanded the music catalog with three high-profile distribution deals: Sync Music (roster includes Jason Derulo and T.I.), Tough Gong Distribution (founded by Bob and Rita Marley), and BWL Entertainment (manages the Betty Wright estate), aligning with the segment's mission to serve independent artists.

• Disciplined Product Innovation Pipeline

  • Released two additional alpha products this quarter, bringing the total to four live alphas, and remains on track to hit the full fiscal year target of six alpha launches (zero to six in less than 12 months).
  • The innovation framework uses pre-validation, fast builds, clear KPIs, and disciplined gating: scale successful products and exit underperforming ones quickly to limit balance sheet risk, with re-usable development work shortening time to market for subsequent launches.

1. Zedge Marketplace: Total revenue continued to perform well year-over-year. Subscription revenue grew 31.9% YoY, with active subscriptions reaching nearly 1.3 million (up 40.6% YoY). Zedge Premium GTV increased 16.6% YoY. Advertising revenue declined 4% YoY, driven entirely by an expected drag from Emojipedia and a $450,000 one-time ad partner bonus in the year-ago quarter; core Zedge Marketplace advertising revenue was essentially flat. iOS revenue grew 35% YoY and now contributes 6.5% of total Zedge marketplace revenue, up from 5.1% YoY. Quarterly average revenue per monthly active user rose 21.2% to 11.9 cents, a company record. Deferred revenue (mostly subscription-related) reached $6.2 million, up 26% YoY.
2. DataSeed (B2B AI dataset segment): Delivered its first six-figure order this quarter. Revenue is currently lumpy as the offering matures, with the majority of digital goods and services revenue still coming from GuruShots.
3. Tape Deck (independent music marketplace): No specific quarterly revenue was shared, but the segment signed new distribution deals for high-profile independent artist catalogs this quarter. Overall total company revenue for Q3 2026 was $8.0 million, up 3.0% YoY. GAAP operating income was $1.1 million, up from $0.2 million YoY. GAAP net income was $0.9 million, up from $0.2 million YoY. Free cash flow was $1.2 million, up 55% YoY.

Management did not release specific numerical financial guidance for the full fiscal year 2026. The stated core priorities for the remainder of fiscal 2026 are:

• Continue strengthening monetization in the Zedge marketplace
• Build the DataSeed business deliberately and execute on identified opportunities
• Advance the product innovation pipeline in a disciplined, capital-efficient manner

• Forward-looking statements are inherently subject to risks and uncertainties that could cause actual future results to differ materially from forecasts, with additional details available in the company's periodic SEC filings.
  • Emojipedia faces structural headwinds from Google's changes to its search results page, and is currently managed for profitability and cash generation rather than growth.
  • DataSeed revenue is expected to remain lumpy during the segment's maturation, with no certainty around the timing or magnitude of future deal flow.
  • Most new alpha product launches are not expected to succeed; the company's framework is designed to exit failures quickly to limit capital risk, but there is no guarantee any new product will achieve scalable success.

Q: How is DataSeed being built deliberately, and what is the update on sales and product initiatives including inbound/outbound lead generation and an off-the-shelf catalog? / A: Management is focused on building DataSeed by prioritizing relationships with aggregators (which deliver higher quality leads than general marketplaces) and concentrating on outbound sales, including in-person participation at industry AI/computer vision conferences to build visibility and relationships. Product development is focused on technology to improve content quality vetting and metadata compliance to meet customer requirements. Management has deprioritized off-the-shelf datasets because customer demand is concentrated in custom, newly created datasets for AI model pre- and post-training, which aligns with DataSeed's core managed crowd capability.

Q: Can you share more color on DataSeed's deal pipeline, and what should we expect for future deal frequency? / A: While the company cannot yet project certain revenue, the pipeline has grown across all dataset modalities, and the business has successfully delivered both proof of concepts and larger commercial orders. DataSeed's unique value proposition of built-in regulatory compliance for privacy, model releases, and biometrics (leveraging Zedge's existing mobile app expertise) is attracting customer interest, and the offering's maturity has improved significantly over the past two to three quarters.

Q: What is the structure of the new Tape Deck distribution deals, and what are the segment's current priorities? / A: Current priorities are expanding the catalog and building technology improvements to make the platform more attractive to independent artists. The deals are with independent labels that support TapeDeck's core mission: artists earn a minimum of 1 cent per stream directly from fans, with far more transparency on earnings than major streaming platforms, which lets hyper fans support artists directly.

Q: What traction have you seen from the launched alpha products, and how is the innovation process working? / A: All ideas go through pre-launch market validation, and most never move to development. One launched product (SimCat) failed to meet pre-set KPIs and was wound down. Of the three remaining live alphas, one is trending toward meeting performance thresholds, while the other two are too early to assess. Management expects most products to fail, and the gating process ensures the company only invests further in products that can scale, keeping capital use responsible.