Business Overview: Ziff Davis, Inc. (ZD) is a vertically focused digital media and internet company with a diverse portfolio of brands spanning technology, shopping, gaming, entertainment, connectivity, health and wellness, cybersecurity, and marketing technology. The company's rich history and strategic acquisitions have transformed it into a leading player in the rapidly evolving digital landscape.
Ziff Davis was incorporated in 2014 as a Delaware corporation, creating a holding company structure. The company's origins can be traced back to 1927 when it was founded as the Ziff-Davis Publishing Company. Over the decades, Ziff Davis has undergone significant transformations, evolving from a print media powerhouse to a digital-first, diversified technology and media conglomerate.
In the early 2000s, Ziff Davis made a strategic pivot towards the digital world, recognizing the shifting consumer preferences and the growing importance of online platforms. This transformation allowed the company to capitalize on the growing shift of advertising and consumer activity to the internet. However, Ziff Davis also faced challenges during this period, including the impact of the dot-com bust in the early 2000s.
In 2012, Ziff Davis was acquired by j2 Global, Inc., a publicly traded digital media and cloud services provider. Under j2 Global's ownership, Ziff Davis continued to grow its digital media business through both organic initiatives and strategic acquisitions. Key acquisitions during this time included the purchases of IGN Entertainment in 2013 and Ookla, the company behind the popular Speedtest platform, in 2016.
In 2021, Ziff Davis underwent a corporate restructuring, separating its cloud fax business into an independent publicly traded company called Consensus Cloud Solutions, Inc. This move allowed Ziff Davis to focus more resources on its core digital media and internet business. The separation was part of the company's ongoing strategy to streamline its operations and enhance shareholder value.
Throughout its history, Ziff Davis has faced various challenges, including adapting to technological changes, navigating industry consolidation, and managing the impacts of economic downturns. However, the company's ability to evolve its business model and make strategic acquisitions has allowed it to maintain a leading position in the digital media and internet sectors.
Ziff Davis' two primary business segments, Digital Media and Cybersecurity and Martech, provide a well-rounded approach to its operations. The Digital Media segment specializes in technology, shopping, gaming, entertainment, connectivity, and healthcare, offering content, tools, and services to both consumers and businesses. The Cybersecurity and Martech segment, on the other hand, provides cloud-based subscription and license services to customers, focusing on cybersecurity, privacy, and marketing technology solutions.
Financial Performance: Ziff Davis has demonstrated strong financial performance over the years, with a track record of revenue growth and profitability. In the most recent fiscal year (2023), the company reported revenue of $1.36 billion and net income of $41.5 million. The company's operating cash flow (OCF) for 2023 was $319.96 million, while free cash flow (FCF) stood at $211.23 million.
For the most recent quarter (Q3 2024), Ziff Davis reported revenue of $353.58 million, representing a 3.7% increase compared to Q3 2023. However, the company recorded a net loss of $48.58 million in Q3 2024, primarily due to a $85.3 million goodwill impairment. Operating cash flow for Q3 2024 was -$124.10 million, and free cash flow was -$149.94 million. Despite these quarterly figures, the company's year-to-date free cash flow for 2024 reached approximately $153 million, including over $80 million in Q3 2024, which represents a 76% increase compared to Q3 2023.
The company's financial ratios paint a picture of a well-capitalized and efficiently run organization. Ziff Davis' current ratio stands at 1.42, indicating a strong liquidity position, while its debt-to-equity ratio of 0.49 suggests a prudent approach to leverage. The company's return on assets and return on equity metrics of 1.82% and 3.36%, respectively, showcase its ability to generate returns on its asset base and equity capital.
Liquidity: Ziff Davis maintains a strong liquidity position, as evidenced by its current ratio of 1.42. This indicates that the company has sufficient current assets to cover its short-term liabilities. As of Q3 2024, Ziff Davis had $386.12 million in cash and cash equivalents, providing a solid financial foundation to support its operations, fund strategic initiatives, and navigate potential economic uncertainties. Additionally, the company has an available credit line of $350 million, which remained undrawn as of Q3 2024, further enhancing its financial flexibility.
Segment Performance: Ziff Davis' Digital Media segment has been the primary driver of the company's growth, contributing the majority of its overall revenue. In Q3 2024, the Digital Media segment generated $283.6 million in revenue, representing a 5.8% year-over-year increase. The segment's operating income was $24.7 million, nearly doubling from $12.9 million in Q3 2023, demonstrating the strength of its business model and operational efficiency.
The Digital Media segment's performance is driven by advertising and performance marketing revenues, subscription and licensing revenues, and other miscellaneous revenues. In Q3 2024, the net advertising and performance marketing revenue retention rate was 91.8%, with an average quarterly revenue per advertising and performance marketing customer of $111,700.
The Cybersecurity and Martech segment, while smaller in size compared to Digital Media, has also been a strategic focus for the company. In Q3 2024, this segment generated $70.0 million in revenue, a 4.1% year-over-year decrease, and $14.9 million in operating income, up from $12.5 million in Q3 2023. The segment had 1.25 million customers in Q3 2024, with an average quarterly revenue per customer of $56,000.
Acquisitions and Strategic Initiatives: Ziff Davis has been an active acquirer, using its strong balance sheet and cash flow to expand its portfolio and broaden its capabilities. Notable acquisitions include the purchase of CNET Media in 2024, which further strengthened the company's presence in the technology media space, and the acquisition of TDS Gift Cards in 2024, which enhanced its digital gifting and branded payments platform.
In addition to its acquisition strategy, Ziff Davis has also invested in organic growth initiatives, such as the development of AI-powered products across its key verticals. The company has leveraged generative AI to enhance its Ekahau Wi-Fi planning tools, its Viper cybersecurity incident response workflow, and its Health eCareers job-matching platform, demonstrating its commitment to innovation and staying ahead of industry trends.
Risks and Challenges: While Ziff Davis has navigated the digital transformation successfully, the company faces several risks and challenges that require ongoing attention. The highly competitive nature of the digital media and cybersecurity industries, along with the rapid pace of technological change, necessitates Ziff Davis' ability to adapt and innovate rapidly.
Additionally, the company's reliance on advertising and performance marketing revenues in its Digital Media segment exposes it to potential economic fluctuations and changing consumer preferences. The Cybersecurity and Martech segment also faces the challenge of maintaining its growth trajectory and expanding its customer base in a crowded market.
Outlook and Guidance: Ziff Davis has provided guidance for the current fiscal year, reaffirming its commitment to sustainable growth. For Q4 2024, the company expects high single-digit growth in revenue and adjusted EBITDA, as well as double-digit adjusted EPS growth. The company has re-affirmed its full-year 2024 guidance range originally presented in February 2024, expressing excitement about the prospect of a solid growth year, especially with very strong adjusted EPS growth.
The company's Q3 2024 results reflect significant year-over-year improvement, with revenue growing 3.7%, adjusted EBITDA growing 9.6%, and adjusted diluted EPS growing 9.3%. Ziff Davis' trailing 12-month advertising and performance marketing revenue was nearly flat compared to the prior year, while subscription and licensing revenue grew 1.8% year-over-year and 2.7% over the last 12 months. The company's Q3 2024 organic revenue declined less than 2%, marking a 3 percentage point improvement compared to Q2 2024.
Industry Trends: The digital media and internet industry has experienced robust growth, with a compound annual growth rate (CAGR) of approximately 10-15% over the past five years. This growth has been primarily driven by the ongoing shift towards digital advertising and subscription-based business models, trends that Ziff Davis is well-positioned to capitalize on with its diversified portfolio of digital media and cybersecurity offerings.
Conclusion: Ziff Davis has established itself as a digital media and cybersecurity powerhouse, leveraging its diverse portfolio of brands and strategic initiatives to navigate the evolving tech landscape. With a strong financial foundation, a track record of successful acquisitions, and a focus on innovation, the company is well-positioned to continue delivering value to its shareholders. As Ziff Davis navigates the challenges and opportunities ahead, investors will be closely watching its ability to sustain its growth momentum and maintain its position as a leading player in the dynamic digital ecosystem.