Ziff Davis Q3 2025 Earnings Call: Contradictions Emerge in Valuation, AI Impact, and Divestiture Plans

Date of Call: None provided

Financials Results

• Revenue: $363.7M, up nearly 3% YOY (vs $353.6M in Q3 2024)
• EPS: Adjusted diluted EPS $1.76, up >7% YOY (vs $1.64 in Q3 2024)

Guidance:

• Reaffirmed fiscal year 2025 guidance range for revenues, adjusted EBITDA, and adjusted diluted EPS.
• Expect total revenues and adjusted diluted EPS to fall in the lower half of the guidance range; adjusted EBITDA expected nearer the lower end.
• Q4 is seasonally the largest revenue quarter and could benefit from timing and product launches.
• Will continue share repurchases and pursue accretive M&A while evaluating opportunities to unlock shareholder value.

Business Commentary:

* Revenue Growth and Strategic Evaluation: - Ziff Davis reported a nearly 3% increase in revenues for Q3 2025, marking a fifth consecutive quarter of revenue growth. - The company is exploring potential opportunities to unlock value for shareholders by engaging outside advisors to evaluate potential transactions. - This action is based on the perception of a discount in Ziff Davis' current market cap relative to its intrinsic value, highlighted by the enhanced segment-level reporting.

• Segment Performance and Strategic Focus:
• Three of Ziff Davis' five reportable segments grew revenues in Q3, including a return to growth for the cybersecurity and martech segment.
• The tech and shopping segment reported a 2% revenue decrease, primarily due to the wind down of game publishing activities.

• The health and wellness segment experienced 13% year-over-year revenue growth and 18% year-over-year adjusted EBITDA growth.

• Share Repurchases and Cash Flow Management:

• Ziff Davis increased share buybacks, reducing adjusted weighted average fully diluted shares by nearly 3.3 million, or 7.5%.
• The company reported free cash flow of $108.2 million for Q3 2025, a 35% increase from the prior year.
• The strong cash flow position supports ongoing share repurchases and the consideration of potential value-accretive transactions.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted engaging advisors to evaluate transactions to 'unlock value', reported fifth consecutive quarter of revenue growth (nearly 3%), adjusted diluted EPS up >7%, strong free cash flow ($108.2M Q3; $261.2M trailing 12 months), and active buybacks (3.6M shares repurchased YTD), signaling confidence in the business and capital allocation.

Q&A:

• Question from Robert Coolbrith (Evercore ISI): Thoughts on where valuation disconnects are most acute and what has changed that makes this the right time to entertain interest?
  Response: Broke out five segments which attracted inbound interest; engaged advisors due to volume of interest and believe divisions are broadly undervalued, so exploring options to maximize shareholder value.

• Question from Cory Carpenter (JPMorgan): What is on the table, are any properties off-limits, could the whole company be considered, and what are you seeing on AIO reviews/search traffic?
  Response: Nothing is off the table; selective divestitures likely more value-accretive but open to credible whole-company interest; AIO prevalence stable and search exposure is ~17.5% revenue, though search ranking volatility is being monitored.

• Question from Sean Patill (SIG): Do you prefer selling pieces or the whole, and how would proceeds be used (buybacks vs M&A)?
  Response: Preference is whatever maximizes per-share value; will consider sales, spinoffs, and investments and will balance opportunistic M&A with continued share buybacks.

• Question from Ross Sandler (Barclays): If Google referral headwinds may be peaking, why is now the right time to pursue strategic options; and can you frame implied Q4 advertising growth?
  Response: Many segments (e.g., health & wellness up 13%) are resilient and several segments aren’t Google-dependent; market is recognizing differing dynamics; expect to lap the CNET acquisition and that subscription growth should outpace advertising in Q4, with ad growth likely low-single-digit.

• Question from Rishi Jaluria (RBC): Opportunity to be aggressive acquirer/consolidator of smaller, dislocated properties?
  Response: Actively acquisitive—$67–70M deployed YTD—and will continue to buy attractive targets while simultaneously repurchasing stock given perceived undervaluation; will balance M&A and buybacks.

• Question from Ygal Arounian (City): Will you expand into new verticals/AI licensing models and update on Cloudflare blocking/licensing efforts?
  Response: Prefer acquiring leadership brands to define demand; actively pursuing AI licensing under fair-value terms, joined RSL, blocking AI bots at CDN layer to protect content and ensure quality.

• Question from Chris Hantaric (UBS): If a spinoff occurs, would you shift to targeting emerging leaders/higher-growth assets?
  Response: No change in core philosophy: focus remains on free cash flow and cash-on-cash returns; will consider higher-growth assets only if they meet the firm's FCF/return criteria.

Contradiction Point 1

Valuation and Strategic Review

It involves the company's approach to addressing the perceived disconnect between market valuation and intrinsic value, which can impact investor confidence and strategic direction.

Where is the valuation disconnect versus intrinsic value most acute? Is this a unique moment to consider increased interest? - Robert Coolbrith (Evercore ISI)

2025Q3: The valuation disconnect is likely the widest it has been, and there is significant interest from both strategic and private equity investors. Ziff Davis has engaged advisors to explore potential opportunities to unlock value. We believe every one of our divisions should command a higher multiple than the current Ziff Davis multiple. - Vivek Shah(CEO)

What are you hoping to communicate about intrinsic value versus current market valuation through increased segment disclosures? - Shyam Patil (Susquehanna)

2025Q2: Vivek Shah: We hope investors appreciate the diverse growth dynamics of our segments. 4 segments grew nearly 13%, with 3 segments growing double digits. Our Health & Wellness (growing double digits) and Connectivity (AI-driven) segments are robust. Gaming & Entertainment is at the center of the fastest-growing entertainment category, and the Software unit shows organic growth. We hope this disclosure helps investors see the intrinsic value. - Vivek Shah(CEO)

Contradiction Point 2

AI-driven Search Trends and Impact on Business

It involves the company's perspective on the impact of AI-driven search trends on their business, which is crucial for understanding their strategic positioning and future growth prospects.

If we're at the peak of Google referral traffic, why is now the best time to list the company for sale? Has the display growth outlook changed significantly? - Ross Sandler (Barclays)

2025Q3: The narrative around AIO reviews is not relevant to our businesses. Our health and wellness segment has shown strong performance, and our connectivity and cybersecurity businesses are unaffected by Google dynamics. There is an opportunity for Ziff Davis to unlock value due to the disconnect between market perception and our performance. - Vivek Shah(CEO)

How are you positioned on AI-driven search trends and AI overviews? What's your approach to LLMs? - Ygal Arounian (Citi)

2025Q2: Vivek Shah: 35% of our total revenue from ads on O&O web traffic, 40% from search. We are not SEO-focused. We monetize non-traffic through events and partnerships. We are suing OpenAI to protect IP. We block unauthorized AI bot access and explore partnerships. - Vivek Shah(CEO)

Contradiction Point 3

Divestiture and Strategic Review

It involves the company's strategic direction and potential divestitures, which could significantly impact its portfolio and financial performance.

What is under consideration in the strategic review? What assets are considered core or non-core in the divestiture review? Would the company consider a full sale if interested buyers emerge? - Cory Carpenter (JPMorgan)

2025Q3: We believe every one of our divisions should command a higher multiple than the current Ziff Davis multiple. - Vivek Shah(CEO)

If there's a spinoff, would you target a different growth profile with higher potential? - Chris Hantaric (UBS)

2025Q1: We're not signaling a change in our formula, we'll consider opportunities that fit within our approach, focusing on free cash flow yield. - Vivek Shah(CEO)

Contradiction Point 4

Strategic Review and Potential Divestments

It involves the company's strategic review and potential divestments, impacting investor expectations and the perceived direction of the company.

What is included in the strategic review? Which properties are considered core or off-limits for divestiture? Would you consider selling the entire company if there's interest? - Cory Carpenter(JPMorgan)

2025Q3: We are open to exploring opportunities for select units. We would consider interest in the broader company if credible, but transactions for specific units are likely to be more value-accretive. - Vivek Shah(CEO)

Is M&A prioritized over stock buybacks? How does generative AI impact M&A targets? - Ygal Arounian(Citi)

2024Q4: We have several M&A opportunities we're looking at as we speak. We have a long list of potential targets and we are quite active. - Bret Richter(CFO)