Zedge revenue hit by uncertainty around TikTok, stock slides

Micro-cap Zedge, known for its emoji encyclopedia, ringtones, and mobile wallpapers, saw its stock tumble more than 5% yesterday, March 12. The company reported a 10% year-over-year decline in quarterly revenue, attributing the drop primarily to uncertainty surrounding TikTok’s future in the U.S.

Zedge fell over 5% on the New York Stock Exchange yesterday to close at $2.14 per share. The losses accelerated late in the regular session and continued in after-hours trading, the stock dropping another 6%.

Yesterday evening, the company released its financial results for its fiscal-2025 second quarter, ended January 31. Revenue dropped 10.2% year over year to $7 million.

The main reason, according to CEO Jonathan Reich, was uncertainty over TikTok’s future in the U.S. In 2024, TikTok was a leading advertiser on specialized platforms, but due to the threat of a ban in the U.S., it sharply cut its ad spending.

Ad sales, where users watch an ad to get access to paid content, are Zedge’s primary revenue stream, accounting for 67% of its second-quarter top line. When TikTok reduced its ad spend, it created a gap in the market, weakening demand and lowering CPM (cost per mille, also known as cost per thousand or CPT) across the entire industry, Reich explained.

Nevertheless, he remains “cautiously optimistic” that these challenges were temporary. “While there is still risk that TikTok could be banned in the U.S., we are currently seeing a rebound in advertising due to TikTok's reentry into the market driving competition and higher CPMs,” Reich said.

Zedge runs a mobile personalization app offering wallpapers, ringtones, and notification sounds, which users can purchase on Zedge Marketplace. The company also owns Emojipedia, an online emoji encyclopedia, and operates GuruShots, a photo challenges and contests platform.

Zedge generates revenue from three main sources: advertising, digital goods and services, and subscriptions. Users can access paid content either by purchasing it with the company’s proprietary NFTs or by watching ads.

In January, the company announced a restructuring plan that included cutting 14% of its workforce — primarily from the GuruShots team — to save up to $1.7 million. Zedge was dissatisfied with the unit’s performance and decided to revamp the game, explore new monetization strategies, and try to expand its audience.

A few days later, Zedge announced a second round of layoffs, affecting 22% of its workforce, with an expected cost reduction of approximately $4 million. The impact of these cuts will be reflected in the company’s fiscal third quarter, according to Reich’s latest comments.

According to MarketWatch, the lone analyst currently covering Zedge rates it as a “buy” with a target price of $4, implying upside of nearly 87% versus the last closing price.