Executive Summary / Key Takeaways

• Ziff Davis is executing a strategic pivot back to growth, leveraging a diversified portfolio of established digital media and cloud-based service brands across technology, shopping, gaming, health, connectivity, cybersecurity, and martech verticals.
• The company is actively deploying capital through disciplined, accretive M&A and share repurchases, aiming to compound adjusted EPS and free cash flow, viewing its shares as undervalued relative to intrinsic business value.
• Recent Q1 2025 results showed revenue growth driven by Technology & Shopping and Health & Wellness, although overall operating cash flow was impacted by seasonal working capital usage in the TDS Gift Cards business.
• Technological differentiation, including AI integration in products and proprietary data platforms, serves as a key competitive moat, enhancing user experience, operational efficiency, and defending intellectual property value in the evolving digital landscape.
• Management reaffirmed full-year 2025 guidance of 5% revenue and 6% adjusted EBITDA growth at the midpoint, anticipating accelerating growth in Q2 and the second half of the year as recent acquisitions are integrated and segment-specific initiatives gain traction.

The Diversified Engine: Ziff Davis's Strategic Foundation

Ziff Davis, Inc. (NASDAQ: ZD) operates as a vertically focused digital media and internet company, strategically positioned across diverse and valuable digital categories including technology, shopping, gaming and entertainment, health and wellness, connectivity, cybersecurity, and martech. Its business model is multifaceted, encompassing content creation, tools, and services for both consumers and businesses, alongside internet-delivered cloud-based services like cybersecurity, privacy, and marketing technology. This inherent diversification across revenue models—advertising, performance marketing, subscriptions, and licensing—and end-markets (consumers, SMBs, enterprises) forms the bedrock of its strategy, aiming to mitigate reliance on any single trend or sector.

The company's history reflects a dynamic approach to capital allocation. Following its incorporation in 2014 and the significant 2021 spin-off of its cloud fax business (Consensus), Ziff Davis navigated a period of M&A market cooling in 2022 and 2023, opting for patience and accumulating capital rather than forcing transactions. This period saw challenges in certain segments, notably B2B tech and parts of Cybersecurity/Martech. However, 2024 marked a decisive return to growth, fueled by increased M&A activity, including the notable acquisitions of TDS Gift Cards, Gamer Network, and CNET, alongside an accelerated share repurchase program. This strategic deployment of capital, leveraging a strong balance sheet, is central to the company's ambition to compound adjusted EPS and free cash flow.

At the core of Ziff Davis's competitive positioning lies its portfolio of established, durable brands and its proprietary technology. The company believes it owns top-tier brands that have demonstrated resilience and adaptability across decades of technological evolution. This brand strength is complemented by technological capabilities that enhance its offerings and operational efficiency. For instance, its cloud-based service platforms underpin its cybersecurity and martech solutions, while integrated AI features are being rolled out across various products.

In the competitive landscape, Ziff Davis faces rivals across its diverse segments. In digital media, competitors like IAC Inc. (IAC), Future plc (FUTR), and The New York Times Company (NYT) vie for audience attention and advertiser spend. In cybersecurity and martech, companies like Gen Digital Inc. (GENO) offer competing cloud-based services. While some peers like IAC and Future have demonstrated stronger recent revenue growth and others like NYT and GENO exhibit higher margins and efficiency in specific areas, Ziff Davis differentiates itself through its vertical focus and the depth of its endemic content and services. Its advertising business, for example, is intentionally less reliant on programmatic channels (representing only around 3% of total revenue), focusing instead on highly endemic, direct programs leveraging its leadership positions in specific verticals. This approach, while potentially limiting broad reach compared to horizontal players, aims for higher value and "must-buy" status among targeted advertisers.

Technologically, Ziff Davis is actively integrating AI and leveraging its data assets to enhance its product suite and competitive standing. The company's cloud-based infrastructure provides a foundation for its subscription services in cybersecurity and connectivity. Recent technological advancements include:

• AI Integration in Products: Incorporating AI into consumer and business applications, such as Lose It!'s voice food logging (simplifying daily inputs and aiming to improve retention), Downdetector's GenAI-powered situation reports (delivering concise, prioritized insights), and Health eCareers' AI Job Fit Analyzer (designed to help job seekers assess role compatibility, reportedly leading to increased engagement and applications).
• Proprietary Data Platforms: Leveraging platforms like Ookla's Speedtest and Downdetector to collect and correlate vast amounts of data on internet connectivity and network performance, providing valuable insights for its Connectivity segment's subscription and licensing services.
• Intellectual Property as a Valuable Asset: The company views its high-quality, authoritative content as critical for training AI models and ensuring accuracy in AI-driven search results. Its lawsuit against OpenAI underscores its conviction in the value of its intellectual property and its stance that licensing is required for training on its content, not just for retrieval-augmented generation (RAG).

The "so what" for investors is that these technological efforts are designed to strengthen Ziff Davis's competitive moat by improving product stickiness, operational efficiency, and creating new revenue opportunities, while also defending the value of its core content assets in an evolving digital ecosystem. While some competitors may currently exhibit greater scale or efficiency in specific technologies (e.g., GENO's advanced AI in threat detection or NYT's digital content delivery efficiency), Ziff Davis's targeted application of technology within its specific verticals aims to drive differentiated value for its users and clients.

Performance Reflecting Strategy and Market Dynamics

Ziff Davis's recent financial performance provides insight into the execution of its strategy amidst prevailing market conditions. For the three months ended March 31, 2025, the company reported total revenues of $328.6 million, an increase from $314.5 million in the prior-year period. This growth was primarily fueled by a $19.2 million increase in advertising and performance marketing revenue, notably driven by strength in the Technology & Shopping and Health & Wellness segments. Technology & Shopping revenues grew 17.9% year-over-year to $81.7 million, benefiting from recent acquisitions and organic growth in consumer tech. Health & Wellness revenues increased 7.3% to $85.8 million, showing a promising return to growth driven by advertising and subscription increases.

However, the Cybersecurity & Martech segment experienced a revenue decline of 10.8% to $67.3 million, primarily attributed to a decrease in subscription and licensing revenue within the cybersecurity business and timing benefits that occurred in Q1 2024. Gaming & Entertainment saw modest revenue growth of 3.8% to $38.0 million, with ad growth partially offset by a slight decline in subscription revenue, impacted by a weaker game lineup on the Humble platform. Connectivity revenues grew 5.0% to $55.8 million, driven by a 7% increase in core subscription and licensing revenue from Speedtest and Downdetector, despite declines in advertising and other revenues.

Operating income varied across segments. Technology & Shopping reported an operating loss of $4.0 million, albeit a decrease from the $6.6 million loss in Q1 2024, reflecting the impact of acquisitions on costs (salaries, depreciation, amortization) alongside revenue growth. Gaming & Entertainment operating income decreased to $8.8 million from $10.5 million, impacted by revenue mix and expense timing. Health & Wellness operating income saw significant growth, increasing to $17.0 million from $8.6 million. Connectivity maintained strong operating income at $19.5 million, consistent with the prior year, showcasing its industry-leading margins (over 50%). Cybersecurity & Martech operating income declined to $11.3 million from $19.4 million, reflecting the revenue decrease.

Consolidated operating costs and expenses increased to $293.5 million from $278.6 million, driven by increases in sales and marketing (higher employee costs, partner payments), depreciation and amortization (capitalized software, acquired intangibles), and direct costs (professional/third-party services), partially offset by decreases in R&D and G&A. Interest expense, net, saw a significant increase to $6.1 million from $1.8 million, primarily due to lower interest income on investments.

From a liquidity perspective, net cash provided by operating activities decreased substantially to $20.6 million in Q1 2025 from $75.6 million in Q1 2024. This significant decrease was primarily due to working capital usage, particularly an $84.0 million negative impact from the TDS Gift Cards business, which experiences seasonally low activity and free cash flow in the first quarter. Net cash used in investing activities decreased to $64.8 million from $71.5 million, reflecting lower cash used for acquisitions and capital expenditures. Net cash used in financing activities increased to $35.0 million from $6.3 million, primarily due to increased share repurchases ($30.9 million in Q1 2025 vs. none in Q1 2024 under the main program, although shares were purchased to satisfy tax obligations in both periods).

As of March 31, 2025, Ziff Davis held $431.0 million in cash and cash equivalents and $167.2 million in long-term investments. The company's balance sheet remains robust, with $348.9 million available under its revolving credit facility. Management expressed confidence that existing cash, operating cash flow, and revolver availability are sufficient to meet anticipated needs for working capital, capital expenditures, and share repurchases for at least the next 12 months. The company's material cash requirements include long-term debt ($864.8 million outstanding as of March 31, 2025, with maturities staggered through 2030), interest payments, lease obligations ($10.2 million due in the next 12 months), and acquisition holdbacks.

The "so what" of this performance is that while Q1 2025 showed positive top-line growth driven by key segments and recent M&A, profitability and operating cash flow were impacted by segment-specific challenges (Cybersecurity/Martech) and seasonal working capital dynamics (TDS). The increase in share repurchases highlights the company's commitment to returning capital and leveraging its balance sheet strength, even as it continues to pursue M&A opportunities.

Outlook and the Path Forward

Looking ahead, Ziff Davis has reaffirmed its full-year 2025 guidance, targeting revenue growth of 5% and adjusted EBITDA growth of 6% at the midpoint. This outlook signals management's expectation for accelerating growth throughout the year, particularly in the second half. The company anticipates growth to improve in Q2 2025 compared to Q1, with Q2 adjusted EBITDA margins expected to be similar to or slightly below the prior year due to planned investments and the initial dilutive impact of integrating recent acquisitions.

Key assumptions underpinning this guidance include expected growth in the Cybersecurity & Martech segment in the second half of the year, supported by sequential revenue trends and recent acquisitions. The advertising markets across Technology & Shopping, Gaming & Entertainment, and Health & Wellness are viewed with cautious optimism, following a strong Q1. Subscription and licensing businesses are expected to remain stable or grow nicely. Management is confident in its ability to exceed its adjusted EBITDA growth rate year over year.

The strategic initiatives supporting this outlook include the continued integration and planned margin expansion within acquired businesses like CNET, the "shrink-to-grow" approach in the B2B tech business focusing on profitability, efforts to improve merchandising and secure better IP for the Humble platform, and leveraging market trends like Wi-Fi 7 adoption for Ekahau's growth. The ongoing M&A cadence, with two acquisitions completed in Q1 2025 and an active pipeline, is expected to contribute to inorganic growth throughout the year.

However, this outlook is not without risks. Macroeconomic uncertainty, including potential recessionary risks and the impact of evolving tariffs, remains a factor, although the company has not experienced measurable negative impacts year-to-date. Interest rate risk on variable debt and the potential for higher refinancing costs on fixed-rate debt are considerations. Foreign currency fluctuations can impact reported results. Litigation, such as the lawsuit against OpenAI, and potential indirect tax assessments pose financial and operational risks, although the company does not currently anticipate a material adverse effect from ongoing legal proceedings based on current knowledge. Goodwill impairment risk exists, particularly for reporting units with limited headroom after prior impairments, and could be triggered by sustained low stock price or changes in market conditions.

The "so what" for investors is that Ziff Davis is projecting an acceleration in its financial performance, moving past the Q1 seasonal and segment-specific headwinds. The reaffirmed guidance, despite a mixed Q1 cash flow performance, suggests management's confidence in the underlying business trends and the expected contributions from strategic initiatives and recent acquisitions. Successful execution on integration, driving organic growth acceleration in key segments, and effectively managing operational costs will be critical to achieving these targets and validating the investment thesis centered on diversified growth and capital deployment.

Conclusion

Ziff Davis is actively pursuing a strategy centered on leveraging its diversified portfolio of established brands and technological capabilities to drive growth and enhance shareholder value through disciplined capital allocation. The Q1 2025 results, while showing top-line expansion driven by key segments and M&A, also highlighted the impact of seasonal working capital dynamics and ongoing segment-specific challenges.

The company's commitment to strategic M&A and share repurchases, underpinned by a strong balance sheet, remains a core tenet of its value creation approach. As Ziff Davis moves through 2025, the focus will be on realizing the anticipated acceleration in growth, particularly in the second half, through successful integration of recent acquisitions, execution on segment-level initiatives, and capitalizing on opportunities in advertising and subscription markets. The role of technology, from AI integration in products to the defense of intellectual property in the face of AI model training, is increasingly vital to its competitive positioning and long-term potential. While macroeconomic uncertainties and specific operational risks warrant monitoring, the reaffirmed full-year guidance and management's confidence in the trajectory ahead underscore the narrative of a company strategically deploying its resources to compound value in a dynamic digital landscape.