The Arena Group's Q3 2025: Contradictions Highlighted on Traffic, Variable Costs, and M&A Strategy

Date of Call: None provided

Financials Results

• Revenue: $29.8M, down 11.3% YOY (vs $33.6M in Q3 2024)
• EPS: $0.64 per share (TTM), derived from $30.5M trailing income / 47.6M shares; Q3 net income $6.9M vs $4.0M LY
• Gross Margin: Above 50% (held >50% despite traffic volatility; consistent with prior quarters)
• Operating Margin: Net margin 23.2% (vs 11.9% in Q3 2024); EBITDA margin 39.9% (vs 33.3% in Q3 2024)

Business Commentary:

• Consistent Profitability and Strong Financial Performance:
• The Arena Group reported net income of $6.9 million for Q3, up from $4.0 million a year ago, and adjusted EBITDA increased to $11.9 million compared to $11.2 million last year.
• The company maintained gross margins above 50% and improved net margin to 23.2% and EBITDA margin to 39.9%, outpacing sector norms.

• This resilience was driven by the scalability and variable cost structure of their entrepreneurial publishing model, which allowed for flexibility amidst traffic volatility.

• Algorithm Updates and Traffic Stabilization:

• The company faced significant traffic volatility from algorithmic changes, impacting categories like lifestyle and sports; however, they achieved stabilization and recovery in e-commerce-related content.

• The stabilization was due to a structured plan to optimize content signals, site experience, and technical SEO, adapting to the industry's algorithmic challenges.

• Acquisitions and M&A Strategy:

• The Arena Group acquired the digital assets and IP of ShopHQ and Lindy's Sports for a total of $2 million, expanding e-commerce and sports portfolios.

• The acquisitions align with the company's disciplined M&A strategy, targeting at least one high-value, profit-driving acquisition per quarter, enhancing brand ecosystems and IP.

• Cash Generation and Debt Reduction:

• The company generated $12.1 million of cash from operations during the third quarter and fully repaid its revolving credit facility, reducing leverage by over $10 million year-to-date.
• This improvement in liquidity was a result of consistent profits and strong cash flow generation, reflecting the company's focus on optimizing its capital structure and balance sheet.

Sentiment Analysis:

Overall Tone: Positive

• "Q3 was another profitable quarter"; management highlighted margins that "surpassed industry averages"; net margin improved to 23.2% and EBITDA margin to 39.9% (vs 11.9% and 33.3% LY); "We generated $12.1 million of cash from operations" and reduced leverage >$10M, with $12.5M cash balance — emphasizing profitability, cash generation and balance-sheet improvement.

Q&A:

• Question from Mark Argento (Lake Street Capital Markets): You talked about a more stable environment as you move into Q4 after Google's algorithm changes — are you working off a lower base or returning toward prior trends? Walk us through the changes, how you've managed through them, whether you've taken share relative to competitors, and confirm that your variable cost/content model allows you to weather volatility; also update on refinance timing.
  Response: Traffic has stabilized (news off from Q2 peak but recovering); e-commerce content is expected to be stronger in Q4 vs Q4'24, the variable, revenue-linked cost model preserves margins, and refinancing is a priority but banks want more quarters of profitability before large deals.

• Question from Kevin Rendino (BC Partners): On the ShopHQ acquisition: how will you run the business, what is the model (inventory vs drop-ship), how will it flow through your model, will you take commissions, and what expenses/personnel are required?
  Response: ShopHQ is an asset-light, drop-shipping model leveraging a large email/data asset and video/social commerce; Arena takes a share of gross revenue from partners, has <10 personnel retained, largely variable costs, and expects the asset to be cash-accretive in 2026.

• Question from John Fichthorn (Dialectic Capital): How does the refinance impact the share repurchase program (didn't buy back last quarter); what's your M&A hurdle/rationale (you said one per quarter) and returns expectation; should we assume sequential top-line growth next quarter?
  Response: Buybacks are deferred until capital capacity and visibility improve (recent capital used for acquisitions and paying down the revolver); M&A targets must be asset-light, profit-accretive with ~12-month payback; management expects directional sequential revenue growth next quarter but will not give specific numeric guidance.

• Question from Jonathan Old (Long Meadow Investors): Update on TravelHost performance and, given your cadence of ~1 deal/quarter at ~$1M, what does a typical deal look like at maturity in 3–5 years and how large is your M&A pipeline?
  Response: TravelHost is approximately breakeven after relaunch and expected to generate profits in 2026; the M&A pipeline is robust (handful of new opportunities weekly), and Arena focuses on low-capex, quick-payback acquisitions that scale via its platform.

Contradiction Point 1

Traffic and Algorithm Changes Impact

It involves the company's response to Google's algorithmic changes and their impact on traffic, which directly affects revenue and investor expectations.

How did the company navigate Google's algorithmic changes and what are Q4 expectations? - Mark Argento(Lake Street Capital Markets)

20251114-2025 Q3: We managed through that by focusing on content signals and technical SEO. E-commerce content performed well and is expected to be stronger in Q4. News-related content stabilized from a lower base. There is optimism for additional lift in traffic. - Paul Edmondson(CEO)

How have the algorithmic changes affected your traffic, and do you expect a return to previous levels or growth beyond? - Mark Argento(Lake Street Capital Markets)

2025Q3: The algorithmic changes are not uncommon in digital publishing. E-commerce content has been performing well, and we expect it to be stronger in Q4 than last year. News-related content is stabilizing from bottom levels, and we are optimistic about additional lift. - Paul Edmondson(CEO)

Contradiction Point 2

Variable Cost Model and Expense Management

It involves the company's approach to managing costs and expenses, which are critical for profitability and cash flow management.

Can you explain how the variable cost model helped the company manage volatility? - Mark Argento(Lake Street Capital Markets)

20251114-2025 Q3: Our cost structure allows us to perform at various traffic levels. Cost of content is tied directly to revenues, enabling us to drive profit and cash flow in challenging environments. - Geoffrey Wait(CFO)

How does the variable cost model help manage volatility and what are input costs? - Mark Argento(Lake Street Capital Markets)

2025Q3: Our cost structure allows us to perform at various traffic levels. Cost of content is tied directly to revenues and allows us to drive profit and cash flow in challenging environments. There is no structural reason that our growth rate should slow. - Geoffrey Wait(CFO)

Contradiction Point 3

M&A Strategy and Pipeline

It involves the company's approach to mergers and acquisitions, which can impact growth, revenue, and strategic positioning.

How many M&A deals are in the pipeline at any time? - Jonathan Old(Long Meadow Investors)

20251114-2025 Q3: We evaluate about a handful of new opportunities each week. There is a robust pipeline of digital media and product companies. The focus is on quick decision-making and capital efficiency. - Paul Edmondson(CEO)

What is the typical M&A deal structure, and what acquisition opportunities exist moving forward? - Jonathan Old(Long Meadow Investors)

2025Q3: We evaluate deals quickly, focusing on getting our capital back within 12 months. Many opportunities exist in the market, with a strong pipeline of new media brands and digital assets. - Paul Edmondson(CEO)

Contradiction Point 4

Traffic and Revenue Stability

It highlights a contrast in statements regarding the stability and performance of traffic and revenue in the face of industry challenges.

How did the company handle Google's algorithmic changes, and what are Q4 expectations? - Mark Argento (Lake Street Capital Markets)

20251114-2025 Q3: The company managed by focusing on content signals and technical SEO. E-commerce content performed well and is expected to be stronger in Q4. News-related content stabilized from a lower base. - Paul Edmondson(CEO)

How will you offset declining page views through investments in the Creator Network and other strategies? - Daniel Paul Day (B. Riley)

2023Q3: We anticipate further migration to social platforms, but we are well-positioned to benefit from this trend. While we've seen a decline at The Spun and HubPages, other properties like TheStreet, FanNation, and SI Swimsuit have shown strong growth. - Ross Levinsohn(CEO)

Contradiction Point 5

Variable Cost Model and Revenue Correlation

It demonstrates differing statements on the direct correlation of costs with revenue and the company's ability to manage volatility.

Can you explain how the variable cost model helped the company manage volatility? - Mark Argento (Lake Street Capital Markets)

20251114-2025 Q3: The company's cost structure allows it to perform well at various traffic levels. Cost of content is directly tied to revenue, enabling consistent profit and cash generation even with traffic volatility. - Geoffrey Wait(CFO)

Will Blackwell's Q4 revenue be additive, and what is the expected gross margin exit rate? - Stacy Rasgon (Bernstein Research)

2023Q3: Our model is variable for cost, but we have fixed costs for some of our platforms and some of our technology. - Douglas Smith(CFO)