Zedge Exceeds Expectations And Shares Edge Higher
Metaverse stock Zedge (NYSEAMERICAN: ZDGE) has been working diligently on expanding its offering, boosting revenue, and driving earnings power and those efforts have begun to pay off. The Q2 results not only came in strong but exceeded the expectations by more than 1100 basis points and are, we think, about to spark a rise in share prices that will be supported by the institutions and the analysts. The institutions have been buying the stock all the way down from the high set in June 2021 and that activity picked up in the first quarter of 2022. The only reason the institutions would do such a thing is if they thought the stock was undervalued and/or had a bright future ahead of it. Based on the Q2 results and the low P/E of 12.4X earnings it looks like both are true.
The net of institutional buying in 2021 and the first 10 weeks of 2022 is worth about 5.5% of the market cap with shares trading near $6.00. This puts total ownership in the range of 23% and rising and insiders hold quite a few shares as well. Insiders hold more than 22% of the company and none of them have sold in almost two quarters. The last sales were in Q3 and were worth about 1.6% of today’s market cap. As for the analysts, there is only one analyst's rating on Zedge worth noting but it is bullish. Maxim Group came out after the release of Q2 earnings to reiterate a Buy rating and lower the price target to $16 or about 170% above the recent price action.
Zedge Had A Blow Out Q2 Despite Hurdles
Zedge had a blowout quarter with only one bad detail to mar the report. The company was forced to migrate some of its data to a different platform due to an eminent acquisition-related shutdown of the original service. That cut into the bottom line and pushed of some other plans the company is working on now. That said, the $6.96 million in revenue is up 30.2% from last year, 14.75% sequentially, and beat the consensus by 1140 basis points. The gains were driven by a 7.2% increase in subscribers and a 17.8% increase in subscription revenue. The Premium service, a key growth driver, advanced by 105% over last year.
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Moving gown the report, the company experienced about 300 basis points of margin contraction but not enough to offset the topline strength. The operating margins came in at a strong 44.9% despite the contraction and drove a 33.1% increase in net income and a 31.3% increase in cash flow. On the bottom line, the GAAP earnings of $0.16 are down a penny from last year but beat by $0.04. The company did not give any guidance but it is clear the business is experiencing some momentum. The YTD results are already worth slightly more than 50% of the full-year consensus and are well on track to beat that consensus, even if there is a slight pullback of business in the second half and we are expecting another acceleration.
The Technical Outlook: Zedge Is In A Downtrend
Zedge is in a downtrend and may continue to trend lower despite the good results. Market conditions are not in favor of risk-on assets such as this but that is ultimately an opportunity. The stock is deeply undervalued for its growth and earnings ability and will bounce back, if not now then later in the year when market conditions improve. Looking at the charts, the market looks ready to move higher but there is risk in the move. There is resistance at the 30-day EMA that could easily cap gains and lead to another lower low. If, however, price action can get above the 30-day moving average a reversal will be in play. At that time, the question will be, is this a reversal from down to sideways or from down to up?
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Zedge (ZDGE) | $2.58 | +1.2% | N/A | -3.97 | N/A | N/A |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
