Ziff Davis, Inc. (ZD) Earnings Call Transcript & Summary

All right. Good morning, everybody. So I'm Stephen Ju with the UBS U.S. Internet team. Sitting to my left is Mr. Bret Richter, who serves as the CFO of Ziff Davis. So Bret, welcome to Scottsdale.

Yes. Thanks for having us.

Yes. Thanks for joining us. So I guess starting way at the top, for those who might not be as familiar with Ziff Davis, could you just start by giving us a quick overview of the company and provide us with the current sort of state of the union, if you will.

Sure. Well, first and foremost, we always welcome new interested parties to anyone out there who's just learning. Ziff Davis is a company with a long rich history. We could date our brand and our brand name back a century to the old Ziff Davis. Our company was started a couple of decades ago in a business that was primarily providing eFax services and a little over a dozen years ago, started to diversify the business by investing in Internet-based digital media and software and subscription data assets. About 4 years ago, we spun off that legacy business, rebranded our business, Ziff Davis, and it was almost a rebirth at the end of 2021. Our business serves communities around the globe with digital media content, software and database services. We have structured our business into 5 divisions, which as of February of this year, and we'll talk more about it, are now 5 reportable segments. We have our tech and shopping business, which houses brands like PCMag, CNET, RetailMeNot, serving primarily consumer communities houses and facilitating e-commerce and partnering with brands to help market and sell their services. We have a gaming and entertainment business, which has 2 parts, IGN Entertainment, which is one of the largest gaming, if not the largest gaming -- online digital gaming community in the world and Humble Bundle, which again facilitates commerce between providers of games, software, books to that overlapping entertainment, digital entertainment gaming community. We have Everyday Health, which is our health and wellness business. Everyday Health serves the consumer marketplace, the professional and provider marketplace and the pregnancy and parenting marketplace, developing highly authoritative content, partnering with brands, primarily pharma to connect those communities. We have our connectivity business, which under the brands of Ookla and Ekahau serve the broadband community on a global basis. Subscription licensing data services primarily serving enterprises, governments, carriers and an increasingly broader set of participants in the broadband community. And then our cybersecurity and martech services, which, again, subscription and licensing business, serving marketing services communities, helping facilitate connectivity between brands and their customers and cybersecurity, both consumer privacy and small and medium enterprise cybersecurity services. What's common throughout all of our businesses is not only are they digital Internet-based, often global, but we have a very strong economic and profit motive. We -- while we are passionate about the communities we serve and ensure that our products and services meet the needs of those communities, we do so in a way that we try and there's a little bit of feedback coming through the mic. Hopefully, that's not too bad on mine. We do it in a way to strive for profit, cash flow and profitable growth. That financial discipline, that financial model runs through almost everything we do, including our M&A program. So as a total growth company, not only do we seek to manage our various businesses and assets to achieve growth within their various spheres of influence, but we recycle our cash flow into an M&A program that's been used over the last dozen years to build this company.

Got it. All right. So I think as you built out this portfolio of assets, I think you've publicly announced or at least acknowledge that you're working with external advisers to evaluate ways to unlock value. So I think this includes a potential spin-off of some of the assets. And certainly, I would imagine that inbound interest has definitely picked up following the now, like what you articulated as the 5-segment disclosure. So from your seat as the CFO, what are the key things that you're trying to solve for?

It's a great question. I can make this overly simple and say essentially, what we're solving for is what we believe a proper reflection of the intrinsic value of our businesses in the public share price where, again, very, very conscious of the pressure the stock has been under over the last couple of years. We're well aware of some of the concerns and dynamics that might have resulted in that pressure. But in our estimation feeling, there's a gap between the intrinsic value of our businesses and the per share price. One thing that we've done in the last several years to sort of react to that and view it as an opportunity is we've significantly increased the allocation of capital to our stock buyback program as opposed to our other opportunities for allocating capital. Capital allocation, again, is one of our kind of core philosophies and core principles. It starts with sort of a perspective that's only 4 things that we can do with our investable capital, which we generate through our free cash flow. And when we think about intrinsic value, one of the things that we anchor to and taking view of that is our ability to generate cash, and the company has consistently done that. So if we're generating cash, we can reinvest that cash in our businesses, which we believe we do. And there are times where maybe we've pulled back on investment in order to achieve our -- one of our many goals of sort of maintaining margin, maintaining our adjusted EBITDA and maintaining our adjusted earnings and maintaining our cash flow in a period where we've seen some top line pressure. But we do believe that we ensure that our businesses get the OpEx and CapEx they need to pursue the opportunities that they believe they have within the communities they serve. We can continue to enhance our balance sheet. That's sort of Pillar 2 in capital allocation. And we believe we've done that. We have a significant amount of cash on our balance sheet. We have what we believe to be a very manageable leverage level. We've set a sort of guideline principle for the company of never having over 3x gross debt. We're nowhere near that. So Pillar 2 is our balance sheet. Pillar 3 is return of capital to shareholders, whether it be our stock buyback principally historically, back prior to my participation in the company, the company paid a dividend. So again, this is a common theme the company has had in an extended period of time. And then Pillar 4, which we believe has been an extraordinary effective tool that we've used to build our businesses and establish the 5 divisions that I described before is M&A. And in the last couple of years, we've had a higher degree of capital allocation to our stock buyback program and our M&A program, and that reflects a lot of things, including just various dynamics in the M&A market at any given point in time. But the share price is still low. We believe there's intrinsic value. So our primary goal is to unlock that value.

Got you. Right. So there's an underlying sort of conglomerate discount, if you want to put it that way, for Ziff Davis here. So I guess -- and individually, each division should command a higher multiple versus the consolidated, right? So are there 1 or 2 segments that you feel like there's like the gap is just outrageous and intrinsic value versus what the public market's perception is. Is there anything you want to highlight as being particularly be just...

Well, I think the first thing I'd respond to in answering that question is we took a major step in February of this year of changing our public reporting, moving from 2 reportable segments to 5 reportable segments. Historically, our cyber and martech business, given the nature of its subscription and licensing revenue and had been a reportable segment, and you could look back several years going really to 2022 post the spin-off of Consensus Cloud Solutions, which occurred in the fall of 2021. And again, just this predates my time, but an example of the company using financial mechanisms to unlock value. We believe that spin-off unlocked a tremendous amount of value. At the time of the spin-off, Consensus was trading at almost $2 billion, and I don't believe that the broad community of observers of Ziff Davis had attributed that kind of value to Consensus Cloud Solutions at the time. But again, predates my participation in the company, but shows our historic approach. We look at various measures of how our stock may be valued keeping in mind that it's valued by the market. We don't trade the stock, others trade the stock, but you can look at implied multiples and whatnot. And when you look at the multiple, whether it be adjusted EBITDA, whether you look at cash flow, you can -- it's relatively low. In fact, we think very, very low. Within that, there's probably a blend because we have certain businesses that have been performing well, if not very well. And core principles, multiples, amongst other things, are a function of growth. So if you look at certain of our businesses like health and wellness and connectivity that have been exhibiting growth, particularly strong growth this year, you might imagine that those are implied higher multiples than some of our other businesses. So your question is a little hard to answer in that we don't know what multiple the public market is attributing to each of our businesses, whether they be of our 5 divisions or businesses within our 5 divisions. But what we were hoping was that by moving to 5 reportable segments and that by providing further insight into the financial characteristics of each of our divisions, both their historical financial performance, revenue growth, their margins, their mix of revenue. So each of our businesses, you can now see the split between advertising and performance marketing, subscription and licensing and to a small degree of other revenue in each understand the financial characteristics of each. Maybe certain of our outside constituents would start to take a view on a sum of the parts basis or a similar basis of what each of those parts might be worth. And to the extent a conglomerate discount exists, and we're certainly aware of the concept, whether that discount is too extreme, whether that discount is fair. And we had some of that. And over the course of the last 3 quarters or so, new conversations, new interest from various public market participants. But what also happened was we saw an influx of connections to us by private market participants questioning whether or not we would consider transacting on any of the assets. And our view is that to the extent a large enough gap exists, it's something that we should consider. Frankly, as fiduciaries, it's something we have to consider. So we wanted to do that in a formal way. We engaged advisers to respond to some specific interest, and we'll see where the path takes us.

Got you. Touched on health and wellness, right? That's now putting together double-digit revenue growth with high 30s EBITDA margins. So what does this business look like in a steady state? I imagine most of that is probably the Everyday Health asset that you just called out earlier.

It's a big -- it's certainly a part of it. I think maybe just widen the lens on every -- we -- the business overall is branded Everyday Health, and there's also a business within it called Everyday Health, which serves the consumer health community. Everyday Health is a wonderful position in the marketplace because it has the ability to connect primarily pharma advertisers with the communities they want to connect to. We connect through various of our underlying brands and services to consumer health, professional health and the pregnancy and parenting community. Our ability to generate impressions between the communities that are served by our digital properties and pharma advertisers as well as other advertisers, for instance, in our pregnancy and parenting community, there's a lot of baby strollers. So it is not -- but pharma health is a big part of it. So pharma commercialization is core to that community. We believe Everyday Health has a very special place in that ecosystem by being able to connect in so many -- so many different communities within health in so many different ways. Within Everyday Health, consumer health under our Everyday Health brand, but also we have applications that allow consumers to engage in their own health journeys and manage their own health outcomes, which is a rapidly accelerating and emerging aspect of the health community. Lose It! is a great example of that. And Lose It! is a digital subscription weight loss application that helps consumers manage their health journey. And again, subscription revenue versus revenue that relies on payments from the brands that we serve. Within our professional services, we reach providers. We reach providers in many ways. We reach providers with information that is specific research authoritative and relevant to the journey they're on, the information they seek. We provide services to those providers through our prime business, we educate them with continuing medical education. We actually connect providers to potential employers and hospitals in the communities they serve. And then our pregnancy and parenting community has 2 of the most recognizable brands in pregnancy, what to expect in babyacenter.com. And as anyone's been on that journey, it's seeking information with authoritative content is critical as you try to manage that aspect of life. So we believe that the -- what our Everyday Health Group is well positioned to continue to capitalize on very important trends in the health community, pharma's connectivity with consumers, pharma's connectivity with providers, authoritative research information as consumers try to more actively engage with their providers, get better educated and manage their own journeys.

I guess authoritative, that is the key, right? So I assume the traffic and impressions and everything else that you're serving, given the revenue growth is going up and to the right, that has been sustained.

I mean you can see the numbers. I think we did one small -- one of the things that is also relevant across all of our businesses is diversification. I think one of the -- maybe -- it's always hard for me to get into a third-party observer's mind. But I think one of the aspects is Ziff Davis that is underappreciated is the diversity by the way that we make revenue. Of course, it creates a degree of complexity and complexity can create a little bit of a barrier in terms of understanding certain of the dynamics of the business. But whether it be health, whether it be gaming, our ability to reach and generate impressions in so many different ways, both on our owned and owned properties through our partner sites to the key partners that our health and wellness business works with or the Mayo Clinic and the Cleveland Clinic, we can reach communities in so many different ways that it allows us to not rely on any single source or revenue stream to any significant degree.

And I think you mentioned IGN and CNET and these other sites. I mean, they were always the most authoritative sites for whether it was gaming content or consumer electronics, review content, et cetera.

It is -- it's another core principle of the company to the extent we can to have those leading brands in any of the spaces that we operate in. It was one of the principal drivers of our acquisition of CNET in 2024 and the ability for us to bring together our PC Mac community, not to mention our Mashable community, our Lifehacker community that serves that consumer technology space with CNET. We rebranded each of those, the CNET group on a go-to-market basis. And again, we just lapped the 1-year anniversary of that acquisition in September. We -- being a leading brand in the space, we think, ultimately is a winning factor.

Yes. Got you. Switching gears a little bit to the cybersecurity and the martech vertical segment. That returned to revenue growth in the third quarter. So what are the things that need to go right over the next 12 to 18 months for that segment to consistently deliver what we hope will be positive growth and margin expansion?

Sure. It's a great question. I think importantly, there's a number of different businesses and brands under cybersecurity and martech. And I joined the company in 2021, and it was the source of some of our revenue decline and organic pressure, partly because often when we do an acquisition, we take a view of shrink to grow, where we look at a -- we acquire a business that maybe has not been performing to an optimal level. Maybe it has not been run with that balance of growth and profit motive that we believe is ingrained in our DNA. Maybe there are certain revenue streams within those businesses that should be sunset and that's our shrink to grow and whatnot and maybe there's a change in the go-to-market overall. And we saw some of that in the cybersecurity and martech business. And since it's been a reportable segment going all the way back to 2021, you can see the improvement in the lower rate of decline that, that segment reported and in fact, returned to growth in the last quarter, thank you for pointing that out. Two principal parts of cybersecurity and martech, there's cybersecurity. Our VIPRE business serves endpoint, e-mail, security awareness training, cybersecurity solutions to small and medium enterprises around the globe. That's a good business and has been performing incrementally well over this period of time. The other part of our cybersecurity business is our consumer privacy business or our VPN business. That business has been performing strongly and much more strongly in 2025 than it had been going back into '21 and '22. A bunch of different dynamics in that business and how we connect to potential customers of our VPN services, whether it be the affiliate marketplace, whether we're selling through the App Store and how do we generate subscriptions. And I think it's an important point because one of the overlying -- and my guess is we're going to get to it, one of the overlying questions for Ziff Davis is search and traffic and whatnot. This is a subscription and licensing revenue business. We make that distinction in almost revenue recognition, subscription and revenue recognized over time. License is often revenue recognized point in time, and we have a different mix. But this is not an advertising revenue business. And in fact, 40-plus percent of our overall revenue is subscription and advertising. And I think that's an important aspect and maybe a misunderstood or underappreciated aspect of Ziff Davis. Our martech businesses help facilitate connectivity between brands and the communities that they're marketing to. We do that through e-mail. We do that through SEO, primarily and various products and services under that. It's been a mix of different performances of different businesses and brands within that segment over time. In 2024, e-mail was probably our strongest performer, helping brands get into e-mail boxes. This year, there's a little bit of change in some of the algorithms and getting into consumer mailbox, and we've seen some pressure in that business just as VPN has been performing better. But overall, with a very small but a little bit of smattering of M&A, we've been able to bring that business back to growth. And all along, and again, this goes back to core principles. I think the first question you asked me, margin, profit, cash flow.

Yes. Got you. you did bring up the subscription part of it, and that business is now expected to deliver, I guess, low to mid-single-digit growth this year. So can you talk about the drivers of that growth from a business perspective?

Yes. It's bringing -- it's that balance of allowing the brands that are performing well to get the capital they need to grow and expand and managing some of the challenges the other brands had. Also within subscription and marketing, we have a couple of brands that were almost in managed decline. And it's a really small part of our business. But to the extent we're not investing in these businesses, we're running them for cash flow and whatnot. There's no secret sauce. To the extent like an e-mail, there's an impact in a 12-month period, maybe we lap it, maybe we sort of tweak our business to reposition ourselves in the marketplace to overcome it. But I think the overall mix of revenue in that business has reached more of a steady state versus a high single-digit decline to a mid-single-digit decline to a low single-digit decline. And it's really just serving those communities.

Okay. Is there any sort of halo benefits that we might want to talk about because you have all of these consumer brands, you have inherent traffic because people are coming to look at that content. So is there -- have you -- I assume that you've optimized the different properties so that you are putting traffic through to your subscription properties and where there's a transaction to be had?

So it's certainly -- it's -- having been doing this for decades, I'm not sure I've ever seen any business fully optimized. There's always opportunity to be better. And again, that's incumbent upon us as leaders to pursue those. To the extent that our businesses can work together, they do. We communicate as a leadership team, we look for opportunities. Macro changes that affect multiple businesses are addressed on a company-wide basis. But often, we -- and in fact, we're set up this way in a highly decentralized way is our brands, our businesses are set up to pursue their opportunities sort of independently of sort of a corporate mandate. And we think that decentralizing principle is powerful and frankly, overall important to our overall enterprise. To that end, then it goes back maybe just connecting to one of your other questions. Each of our 5 divisions as a president. Each of our 5 divisions has finance leadership. Each of our 5 divisions has technologists. They are set up to operate independently. To the extent, though, and there's a lot of changes with AI, and there's a lot of changes in the search ecosystem, macro patterns we address globally.

Yes. So let's talk about how traffic patterns are switching around in the Internet. I think probably every 5 years, decade, we have to think about traffic switch and consumers choosing to go to different places to start their journey, right? So we've gone from Google to search, and now we have to think about another mode with ChatGPT and the LLM. So I think on the third quarter earnings call, you talked about, I think, 35% of the revenue is web traffic dependent and roughly half of that is coming from search. So I don't know that's 17%, 18% of total revenue. So should we expect that percentage to continue to come down over time? It seems like it should, but...

It's a hard question to answer for 2 reasons. One, I think there are multiple dynamics that underlie that. The first is we start with the business, as you noted, is not entirely search dependent. We are not a programmatic advertising business. We are not just monetizing impressions in the programmatic marketplace. In fact, 40-plus percent of our business is subscription and licensing, another handful of percentage is what we call other revenue, which are sort of discrete transactions, including in the case of our connectivity business, some hardware sales. And within our 50-plus percent of our revenue, what we call advertising and performance marketing is very much a mix in including -- we have a gift card business. We have affiliate commerce businesses. We generate revenue direct from brands and providers by connecting them to members of the health provider community through continuing medical education. And you appropriately cite the figures that we cited to try to scale the relationship of Ziff Davis' overall revenue to what has become an important but emerging dialogue in the digital media, the digital content marketplace. Ultimately, what that percentage is will depend not only on the performance of the portions of our business that are not exposed to that as well as the proportions of our business that, as you noted, do relate to search, but also our M&A program and how that business changes over time. connectivity of various questions that we've said today, to the extent we execute a transaction on one of our business, that percentage can change significantly depending on one way or another, depending on which business it is. So that's hard to measure. I think the important message from our point of by no means do we dismiss the unknown that's associated with changes in the search marketplace. And by the way, the search marketplace, as you rightfully point out, has been changing for decades. And in fact, one of the things that we deal with is not necessarily the AI portion, but just the constant change in the Google search algorithm, which seems to change much more rapidly in our current period of time than it has been historically, which can disrupt businesses positively or negatively at every given update. So what we want to emphasize is we believe this is the size of that exposure relative to our enterprise today. And it goes back to the extent that risk is manifest in the view of a multiple, what is the appropriate balance of that risk relative to our overall enterprise? And is that overall multiple the right multiple considering all the other factors.

Got it. You touched on this a little bit earlier in terms of capital allocation and the discipline there. You've been very active in the buybacks. You repurchased about 3.6 million shares year-to-date. And I think you've deployed about 80% of -- 85% of your free cash flow. Y-to-date Year-to-date. Yes. So you also closed 7 acquisitions.

Yes we did.

So pretty busy. So how are you weighing the incremental dollars, whether that goes to buybacks versus M&A? And I guess, heading into next year. And I guess in this environment, are you seeing an increased amount of assets, I guess, coming to market and I guess, anticipating getting more busy...

In the 4-plus years -- almost 4 years, I didn't quite crossover yet that I've been with Ziff Davis, there's never been sort of a dearth of opportunity. We use the metaphor of the funnel as it relates to M&A. The top of the funnel always seems to be full. The challenge in any M&A transaction is can you get through the bottom of the funnel. And while there's a lot of details that go into there, ultimately, it's just price between buyer and seller. And we're disciplined buyers. There's no more important success factor in M&A than price. And you could pay relatively high prices for relatively great assets. You could play lower prices for good assets. And we do both because really what we're trying to do is enhance the ability of our existing businesses to serve the communities that they're seeking to serve. We did 7 acquisitions this year. None of them are particularly large. Some of them are actually quite small, and therefore, we've actually deployed less than $70 million of capital into M&A in 2025 versus the more than $100 million of capital that we deployed for stock buybacks. It's a balance. It goes back to the first question or the second question, I think you asked me. What are we trying to achieve, increase in per share value.

Got it. All right. So I think we are almost out of time, but one last question here. We're sitting here 12 months from now, December of '26, and we're sitting back here at the conference. So what do you think we're going to be talking about in terms of what you've been able to accomplish over the trailing 12 months?

I wish I knew. But what I do know is what we are out seeking to do. What we're seeking to do is create value for our shareholders through a disciplined approach to serving the important communities we serve. To the extent that we can achieve that through transactional activity, whether it be deploying our own capital or highlighting value of certain of our assets, we will do that. But ultimately, we create value by creating value within our businesses, and that's what we're seeking to do, improve performance and allow our businesses to achieve their respective goals.

Got you. We'll leave it there. Bret, thank you very much for joining us.

Thank you for having me.

All right.