Zedge, in case you missed it
provides one of the most popular content distribution platforms, worldwide, centered on self-expression. Today its platform enables consumers to personalize their mobile devices with free, high quality ringtones, wallpapers, home screen app icons and notification sounds. Currently, the Zedge smartphone app has been installed over 190 million times, has more than 33 million monthly active users and has averaged among the top 25 free applications in the Google Play store in the U.S. for the past six years.
Apparently, it’s quite popular. Currently, IDT owns 83% of Zedge. It plans to distribute one share of Zedge Class A common stock for every three shares of IDT Class A common stock and one share of Zedge Class B common stock for every three shares of IDT Class B common stock. The company expects the transaction will be tax free to shareholders. Why the transaction?
We are very excited to begin the process of spinning Zedge off to our stockholders,” said Howard Jonas, IDT’s Chairman. “We have incubated Zedge and aided its phenomenal growth to date, helping it to become a great social media success story. Zedge has now validated its business model and reached the point where it can best achieve its potential as an independent company with resources focused exclusively on additional growth and value creation.”
“This is a momentous milestone for us,” said Tom Arnoy, CEO and co-founder of Zedge. “I want to thank our users, employees, investors and business partners for supporting us and helping us achieve and maintain our leadership position. We look forward to continuing to deliver best of breed products and services in the world of digital self-expression and personalization.”
IDT has previously spun off Straight Path Communications(STRP), Genie Energy(GNE) and IDW Media Holdings(IDWM). Straight Path plunged in November amid concerns over the value of patents and whether the company would be able to retain its spectrum, but has rebounded significantly in the ensuing months. Genie has struggled as of late, like most energy stocks. IDT also announced plans last August to spin off its non-telecom holdings including “a Gibraltar-based bank, real estate holdings including its headquarters building and garage in Newark, NJ and an operations building in Piscataway, NJ as well as interests in other, mainly early stage, business initiatives. This entity will retain cash resources for investment in technology and other ventures.”
For the quarter ending 10/31/15, Zedge reported comprehensive income of $233,000 on $2,559,000 in revenue. For the full year ending 7/31/15, Zedge had similar results, with $854,000 in comprehensive income on $9,052,000 in revenue. Profitable, but small numbers for an independent public company, and without significant earnings growth, the company will find it difficult to sustain the $27 million valuation on the company’s final pre-independent raise . Given that Zedge is a small company with a single product, one wonders how long it will remain independent following the spinoff, which is expected to take place in the second quarter.
After the spinoff, Howard Jonas, who controls IDT, will have 65.7% of the voting power in Zedge. Who owns the rest of Zedge, that IDT does not own? 5.2% of Class B stock is owned by Zedge CEO Tom Arnoy. 11.2% is owned by an entity known as Shaman II, LP.
In 2003, Tom Arnoy, Kenneth Sundnes and Paul Shaw launched a consumer website that people could use to upload and download ringtones. Traffic to the website grew, primarily by word of mouth, drawing customers in from the emerging markets. In December 2006, IDT acquired 90% of the Company for $3.4 million. In 2009, IDT and Shaman II, LP formed Zedge, Inc. and invested $1.0 million. In 2010, IDT and Shaman II, L.P. invested an additional $1.7 million.
In late 2009, the Company introduced its Android app. The app provided ease-of-use by negating the need for the customer to first download a ringtone or wallpaper to their computer and then upload that content to their mobile phone.
In late 2011, Tom Arnoy was promoted to CEO and Jonathan Reich was retained as COO. The Company improved its underlying technology. Over a two-year period in 2011 and 2012, IDT and Shaman II, LP invested an additional $2.25 million.The Company launched its iOS app in 2013 followed by launch of its Windows Mobile app in 2014.
During 2014 and 2015, Zedge introduced app icons, social sharing features and marketing automation capabilities. In addition, it began localizing its app by not only expanding the number of languages it supported but also by launching localized versions of its Google Play listings. Today, Zedge is available in Chinese, English, French, German, Japanese, Korean, Norwegian, Portuguese and Spanish.
Existing shareholders will be investing another $3 million at a $27 million valuation prior to close. It is not clear who the partners of Shaman II are. There are some hints, however. In its 2008 10-K, IDT revealed
On September 23, 2008, we sold a 10% ownership interest, on a fully diluted basis, of Zedge Holdings, Inc. to Shaman II, L.P. for cash of $1.0 million. One of the limited partners in Shaman II, L.P. was a former employee of ours.
And on the Zedge website, Shaman II is described as
Shaman II, LP: Limited partnership formed for the purpose of investing in Zedge and is made up of limiteds with prior and or existing involvement in AOL, Sierra Wireless (through Airlink), iSkoot (Qualcomm), ePals and Clearspring, among other entities.
Of course, as Jonas has majority voting control, it does not much matter who the other shareholders are. IDT spinoffs have been a mixed bag. It is too early to tell which way this one is likely to go.
Disclosure: The author holds no shares of any stock mentioned
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