In part I of our ZDGE bullish report, we highlighted the tremendous untapped value that resides within ZDGE. The gist of the first part of our report is that ZDGE trades at absurdly low valuations with GROWING revenue, with a set of very shareholder-friendly management. The reason for the abysmal share price performance is an acquisition that ZDGE made in 2022, a photographic game called Gurushots. We highlighted in part one how net income and operating income have been severely depressed due to Gurushots- exorbidant G&A expenses to Gurushots employees coupled with low revenues is always a recipe for bottomline underperformance.
The diagram below should be a testament to how much of ZDGE’s core business’ earnings resilience is being masked by Gurushots:
However, this isn’t a bad thing. We highlighted in part I that because Gurushots is such a drag on ZDGE’s overall bottom line, even a slight improvement in Gurushots’ operating structure should contribute to a material improvement in the holdco ZDGE’s bottom line- mainly via cost cutting and revenue expansion. Thankfully, management has taken notice of these issues, and has announced a cost-cutting initiative, like reducing headcount by 22%, mostly impacting Gurushots. Sure. The PR also talks about ‘Gurushots 2.0’- an initiative to completely reimagine gameplay and monetisation policies to help Gurushots to add value to Zedge, rather than subtract it. Sure, they know exactly how to reduce costs and ‘leanify’ Gurushots- but what about the revenue growth part ? What about inducing exploding growth to Gurushots ?
To answer these questions, we commissioned our own in-house research to see what went wrong with Gurushots via mass surveys and conversations with industry experts. We then shared our findings with ZDGE’s CEO and Gurushots’ Product-head, and gained a lot more insight into how Gurushots 2.0 is going to be executed.
Since our advice to management, as well as our full interaction with them is embedded in a writeup that is too long for this substack, we have attached the PDF to this post. Please download it to read.
Disclaimer:
The authors of this publication do not give any buy or sell recommendations and do not ensure any correctness to our claims or findings. Under no circumstances would you hold the authors liable for any investment losses. One should assume that any sentence or statement in our posts can be inaccurate and factually incorrect and should not influence anyone’s investing.
Sincerely,
Ragnarok Research
The game took a huge downturn when they introduced the turbo. We boycotted, wrote feedback. They didn't listen and I would estimate they lost at least 35% of their players. Then they introduced the coins, which caused another uproar...People leaving in droves. They have demonstrated they DO NOT CARE what their customers think and in an industry that is completely reliant on their playerbase, this is an imbecilic move. One only has to look at the complainers consortium page on Facebook to see the issues that lie within the game. Also, if they are down 33% year over year, wouldn't it be indicative that if they were to put things back the way they were just over a year ago, they would be back on track to growth. It's pretty simple, in my opinion. At the end of the day, however, it's just really sad that what was once considered the best photography game online, turned into a money grabbing, greedy machine that turned thousands of devoted players away.
Thank you for this write up. Talking to management about this. I am a medium sized Zedge shareholder and I appreciate another strong shareholder that care about this business and sees the value, potential of the company.