Ziff Davis, Inc. (ZD)

Executive Summary / Key Takeaways

• Ziff Davis trades at what management calls "the widest valuation disconnect it's ever been," with a strategic review underway to unlock value through potential divestitures, a process that previously created nearly $2 billion in value via the 2021 Consensus spinoff.

• The company's evolution from a cloud services holding company into a five-segment digital media and technology platform reveals hidden value: Health & Wellness delivers 13% revenue growth with 18% adjusted EBITDA growth, while Connectivity maintains 50%+ margins and the cybersecurity business returns to growth after a two-year reset.

• Strong cash generation—$108 million in quarterly free cash flow and 0.7x net leverage—provides firepower for the strategic review and demonstrates the underlying durability of the business model despite near-term headwinds in gaming and search volatility.

• The Technology & Shopping segment's transformation, led by the CNET acquisition and a "shrink-to-grow" B2B retooling, positions it to become the company's strongest bottom-line grower in 2025, even as game publishing winds down and creates temporary revenue drag.

• Two critical variables will determine success: execution of the strategic review to realize sum-of-the-parts value, and management's ability to navigate AI disruption and search algorithm volatility while protecting intellectual property through the OpenAI lawsuit and licensing initiatives.

Setting the Scene: The Digital Media Platform Nobody Recognizes

Ziff Davis, incorporated in Delaware in 2014, has spent a decade building something the market still doesn't understand: a diversified digital media and technology platform that generates $1.4 billion in annual revenue across five distinct segments, each with its own growth trajectory and margin profile. The company makes money through three primary engines: advertising and performance marketing (roughly 60% of revenue), subscription and licensing software (30%), and other services including content licensing. This mix matters because it provides resilience that pure-play digital media companies lack when ad markets soften.

The industry structure reveals why this diversification creates value. Digital media faces headwinds from AI-driven search disruption, social video dominance, and programmatic ad commoditization. Yet Ziff Davis operates in endemic categories—technology reviews, gaming content, health and wellness, network connectivity testing, and cybersecurity—where specialized content and tools command premium pricing. Unlike IAC (IAC)'s broad lifestyle focus or BuzzFeed (BZFD)'s viral content model, Ziff Davis builds deep vertical expertise that translates into higher-margin, direct-purchase advertising and sticky software subscriptions.

Competitive positioning varies by segment. In Health & Wellness, the company competes with IAC's Dotdash Meredith properties but delivers superior growth through pharma commercialization programs and the Lose It! app's subscription model. In cybersecurity, Ziff Davis trails Gen Digital (GEN)'s scale but counters with modular, affordable subscriptions that cross-sell to its media audience. The Connectivity segment's Ookla Speedtest brand holds a dominant position in network performance testing, generating 50%+ EBITDA margins that rival enterprise software companies. This segment-level strength explains why management believes "every one of our divisions should command a multiple higher than the current Ziff Davis multiple."

History with a Purpose: Building the Invisible Platform

Ziff Davis's transformation began in earnest in 2021 when the company spun off its cloud fax business, Consensus, which subsequently achieved a nearly $2 billion enterprise value. This move established a template: management actively reshapes the portfolio to unlock value. The 2024 segment reorganization—from two reportable segments to five—wasn't cosmetic; it revealed the intrinsic value of businesses previously buried in aggregation, creating the transparency that attracted strategic and private equity investors.

The 2024 debt refinancing exemplifies capital allocation discipline. By exchanging $400.9 million of 1.75% convertible notes for new 3.62% notes due 2028, Ziff Davis reduced outstanding debt by $138 million while extending maturities. This lowered financial risk just as the company accelerated M&A, spending over $225 million on acquisitions including CNET Media and TDS Gift Cards. The concurrent share repurchase of 3.5 million shares—reducing Q3 2025 diluted shares by 7.5% year-over-year—demonstrates a balanced approach to capital deployment that prioritizes per-share value creation.

Management's 2023 investment in OpenEvidence, followed by its 2025 sale for $29.7 million, shows a willingness to experiment with AI while maintaining discipline. The $25 million minority stake was sized to learn without betting the company, and the profitable exit after OpenAI's technology valuation surge validated the approach. This pattern—measured experimentation, rapid portfolio adjustment, and relentless capital recycling—defines the Ziff Davis playbook.

Technology & Strategic Differentiation: AI as Both Weapon and Shield

Ziff Davis has weaponized its content library and first-party data through proprietary AI platforms that create tangible competitive advantages. HALO, launched in Q3 2025 for Health & Wellness, activates deep first-party data to identify high-intent pharma audiences, maximizing campaign ROI in ways that generic programmatic buying cannot match. IMAGINE, the Gaming & Entertainment cognitive AI platform, combines cultural intelligence with predictive audience modeling, creating a private beta that already shows promise for early 2026 commercial rollout.

These platforms transform content from a commodity into a data asset. When AI can automatically process 80% of user-submitted coupon codes in the Shopping business or deflect 50% of customer service chats at RetailMeNot, operating leverage improves while competitors face rising content creation costs. The Lose It! app's AI-powered voice and photo meal logging drives 3.5x faster logging, 2x more food tracking, and 6% more weight loss—metrics that translate directly into subscription retention and pricing power.

The company's dual approach to AI intellectual property—suing OpenAI for copyright infringement while pursuing licensing partnerships—reveals strategic sophistication. By blocking AI bots at the CDN level with Cloudflare (NET) and joining Real Simple Licensing, Ziff Davis signals that its content has value that must be compensated. For investors, this establishes a precedent: either Ziff Davis gets paid for its IP, or it prevents unauthorized use that could erode its competitive moat. The lawsuit is not a defensive crouch; it's an offensive move to define the rules of AI content licensing.

Financial Performance & Segment Dynamics: The Growth Engine Beneath the Surface

Third quarter 2025 results show a company at an inflection point. The 2.9% consolidated revenue growth marks the fifth consecutive quarter of expansion, but the segment-level story reveals where value is being created and destroyed. Health & Wellness accelerated to 13% revenue growth with 18% adjusted EBITDA growth—both Q3 records—driven by balanced expansion across subscriptions and pharma commercialization. This segment now represents 28% of quarterly revenue and is on track to become the company's most reliable growth engine.

Technology & Shopping presents a more complex narrative. The 2.2% Q3 revenue decline masks a powerful transformation: game publishing revenues fell $6.9 million year-over-year as management intentionally winds down that business, while CNET's licensing, video capabilities, and Best Buy (BBY) partnership drove underlying growth. The segment's 44% adjusted EBITDA growth in Q1 and 5% in Q2, followed by the Q3 dip, reflects a deliberate "shrink-to-grow" strategy in B2B that simplifies product offerings and reduces expenses. This positions the segment for sustainable double-digit bottom-line expansion in 2025, even as top-line comparisons remain noisy.

Connectivity's 2.2% Q3 growth underwhelms until you understand the context. The segment is lapping a 2024 reorganization that combined Ookla and Ekahau to prioritize long-term subscription growth over non-core revenue. The Q2 performance—14% revenue growth with 12% adjusted EBITDA growth and 50% margins—shows what this segment can deliver when execution clicks. The September launch of Speedtest Certified, a localized Wi-Fi certification program, generated strong global demand and demonstrates the product innovation pipeline. With Wi-Fi 7 adoption expected to drive Ekahau demand in 2026, the segment's temporary slowdown represents investment, not deterioration.

Gaming & Entertainment's 4.3% Q3 revenue decline reflects a soft product launch environment and advertising headwinds, yet Humble Bundle delivered its best quarter of the year with subscription revenues up 5%. The IGN Live event reaching 300 million fans—up 91% year-over-year—shows audience engagement remains robust. Management's cautious optimism about the June 2025 Nintendo Switch 2 (NTDOY) launch as a video game ad market tailwind suggests the segment is positioned for a Q4 rebound and stronger 2026.

Cybersecurity & Martech's return to 2% growth in Q3 marks a critical inflection after a 3.4% year-to-date decline. The VPN business has stabilized, and the Semantic Labs acquisition adds a performance-based customer acquisition platform. The $17.6 million goodwill impairment signals management is clearing the decks of legacy issues, while the segment's 5% adjusted EBITDA growth in Q2 demonstrates underlying profitability. If the segment sustains growth through Q4, Ziff Davis will have all five segments growing simultaneously for the first time in years—a milestone that would validate the portfolio strategy.

Outlook, Guidance, and Execution Risk

Management's revised guidance for fiscal 2025—expecting revenue and adjusted EPS in the lower half of the range, with adjusted EBITDA near the lower end—reflects Q3's mixed performance rather than structural deterioration. The key insight is that this guidance still implies mid-single-digit advertising growth and low-to-mid-single-digit subscription growth, with the fourth quarter typically being seasonally strongest. The company is lapping the CNET acquisition in Q4, which will shift from tailwind to neutral comparison, while search volatility and soft gaming launches create temporary headwinds.

The strategic review, initiated in Q3 with outside advisors, represents the most significant catalyst. Management explicitly encourages sum-of-the-parts analysis, believing each division should command a higher multiple than the current 4.44x EV/EBITDA and 1.28x EV/Revenue. The process follows the successful Consensus playbook, and the company is open to sales, investments, or spinoffs of entire divisions. This transforms Ziff Davis from a passive value story into an active value unlock, with management's incentives aligned to maximize per-share price rather than empire build.

Execution risk centers on the Technology & Shopping transformation and the Cybersecurity & Martech recovery. The B2B retooling must deliver promised margin expansion, while the VPN business needs to sustain its growth trajectory. The Connectivity segment's Q4 revenue acceleration is critical to proving the reorganization worked. These are manageable risks given the segments' track records, but missteps would delay the return to double-digit consolidated growth.

Risks and Asymmetries: What Could Break the Thesis

Generative AI poses a material risk that cuts two ways. If Google (GOOGL)'s AI overviews reduce traffic to Ziff Davis's content properties, advertising revenue could face structural pressure. Management acknowledges "search volatility" from frequent algorithm changes creates "chops and bumps," and the company is cited in only about one-third of relevant AI overviews. While Health & Wellness's 13% growth suggests content quality can overcome algorithm changes, a fundamental shift in how users discover information would require costly adaptation.

The OpenAI lawsuit, while strategically important, carries execution risk. Legal costs could mount, and an unfavorable outcome might limit Ziff Davis's ability to protect its IP from unauthorized scraping. Conversely, a settlement or licensing deal could establish a valuable precedent and new revenue stream. The asymmetry is significant: downside is limited to legal fees, while upside could include both compensation and a framework for licensing content to AI companies at scale.

Goodwill impairment risk remains in Cybersecurity & Martech, where the $17.6 million Q3 charge suggests management is taking a hard look at carrying values. If the segment's recovery falters, further write-downs could pressure earnings, though cash flows would remain unaffected. The segment's 2023-2024 revenue declines and recent impairment indicate the turnaround is not yet proven.

The strategic review itself creates uncertainty. While the process could unlock value, it might also distract management or result in suboptimal asset sales if market conditions deteriorate. The company has emphasized it will only pursue transactions that are "far more value accretive" than the current structure, but the mere exploration of options could create volatility.

Valuation Context: The Gap Between Price and Value

At $36.01 per share, Ziff Davis trades at multiples that imply minimal growth expectations. The company generates $108 million in quarterly free cash flow, maintains 86% gross margins, and carries just 0.7x net leverage, which underscores the disconnect.

The peer comparison illuminates the gap. IAC trades at 10.95x EV/EBITDA but generates negative operating margins and -6% profit margins, while Ziff Davis delivers 12.65% operating margins and 7.62% net margins. Gen Digital commands 12.93x EV/EBITDA with superior growth but lacks the media diversification that stabilizes Ziff Davis through cycles. BuzzFeed trades at 0.55x EV/Revenue, reflecting its distressed state, while Ziff Davis's 1.28x multiple suggests the market lumps it with struggling digital media despite proven cash generation.

The balance sheet supports significant value creation options. With $348.8 million available under its credit facility and 0.5x net leverage including financial investments, Ziff Davis can fund acquisitions, repurchase shares, or pursue strategic separations without financial strain. The 7.5% share count reduction in Q3 demonstrates management's willingness to act aggressively when valuations are attractive.

Conclusion: The Catalyst Is the Strategy

Ziff Davis has evolved from a rollup of cloud services into a portfolio of niche-leading digital media and technology businesses that collectively generate mid-teens operating margins and consistent free cash flow. The market's failure to recognize this transformation—evidenced by valuation multiples that lag inferior peers—has prompted management to actively unlock value through a strategic review that could replicate the Consensus success.

The investment thesis hinges on two variables: the strategic review's outcome and the underlying segments' execution. Health & Wellness's momentum, Connectivity's margin leadership, and Technology & Shopping's transformation provide a foundation of value that should command a premium. The strategic review provides the catalyst to realize that premium, whether through separations, sales, or continued optimization.

For investors, the asymmetry is compelling. Downside is cushioned by $108 million in quarterly free cash flow, minimal debt, and a 14x P/E multiple that prices in little growth. Upside could be step-change if the strategic review unlocks sum-of-the-parts value or if the AI licensing strategy establishes new revenue streams. The company has proven it can build, buy, and optimize digital assets; now it must prove it can unlock their value. The strategic review suggests that process is already underway.