Stock Analysis

Zedge, Inc. Just Reported A Surprise Profit And Analysts Updated Their Estimates

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NYSEAM:ZDGE
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The investors in Zedge, Inc.'s (NYSEMKT:ZDGE) will be rubbing their hands together with glee today, after the share price leapt 31% to US$5.35 in the week following its first-quarter results. In addition to smashing expectations with revenues of US$3.8m, Zedge delivered a surprise statutory profit of US$0.08 per share, a notable improvement compared to analyst expectations of a loss. Earnings are an important time for investors, as they can track a company's performance, look at what the analyst is forecasting for next year, and see if there's been a change in sentiment towards the company. So we collected the latest post-earnings statutory consensus estimate to see what could be in store for next year.

Check out our latest analysis for Zedge

earnings-and-revenue-growth
AMEX:ZDGE Earnings and Revenue Growth December 17th 2020

Taking into account the latest results, the most recent consensus for Zedge from lone analyst is for revenues of US$12.8m in 2021 which, if met, would be a notable 15% increase on its sales over the past 12 months. Statutory earnings per share are predicted to expand 17% to US$0.13. Before this earnings announcement, the analyst had been modelling revenues of US$11.3m and losses of US$0.03 per share in 2021. So we can see that the latest results have sparked a pretty clear upgrade to expectations, with higher revenues expected to lead to profit sooner than previously forecast.

It will come as no surprise to learn that the analyst has increased their price target for Zedge 60% to US$8.00on the back of these upgrades.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. One thing stands out from these estimates, which is that Zedge is forecast to grow faster in the future than it has in the past, with revenues expected to grow 15%. If achieved, this would be a much better result than the 2.8% annual decline over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 17% next year. So it looks like Zedge is expected to grow at about the same rate as the wider industry.

The Bottom Line

The most important thing to take away is that there's been a clear step-change in belief around the business' prospects, with the analyst now expecting Zedge to become profitable next year. There was also an upgrade to revenue estimates, although as we saw earlier, forecast growth is only expected to be about the same as the wider industry. We note an upgrade to the price target, suggesting that the analyst believes the intrinsic value of the business is likely to improve over time.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At least one analyst has provided forecasts out to 2022, which can be seen for free on our platform here.

Plus, you should also learn about the 3 warning signs we've spotted with Zedge .

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What are the risks and opportunities for Zedge?

Zedge, Inc. builds digital marketplaces and competitive games around content that people use to express themselves.

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Rewards

  • Trading at 20.4% below our estimate of its fair value

  • Revenue is forecast to grow 30.35% per year

Risks

  • Earnings are forecast to decline by an average of 76.5% per year for the next 3 years

  • Does not have a meaningful market cap ($39M)

  • Shareholders have been diluted in the past year

  • Profit margins (27.3%) are lower than last year (42.4%)

  • Large one-off items impacting financial results

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