Ziff Davis Q3 Earnings Call Highlights

Key Points

• Q3 revenue and profitability declined: Revenue fell 5.6% year over year to $289.3 million, while adjusted EBITDA dropped to $82.2 million and its margin narrowed to 28.4%. Adjusted EPS was nearly flat at $1.39, supported by share repurchases.
• Search referrals remain a major headwind: Organic Google referrals fell about 37% year over year, and the CEO said Ziff Davis is planning for continued declines. Its content appeared in Google AI responses nearly 10 times as often as it received Google Search clicks, but monetizing that visibility remains a challenge.
• Management expects a sequential improvement in Q4: Revenue is forecast to rise by a double-digit percentage from Q3, though fall by a low- to mid-single-digit percentage year over year; the adjusted EBITDA margin is expected to reach the low- to mid-30% range. The company also repurchased $92 million of shares in Q3 and reported $1.4 billion in cash and cash equivalents.

Ziff Davis NASDAQ: ZD reported lower third-quarter revenue and adjusted earnings as declining Google search referrals and weaker advertising weighed on its businesses, though executives said results were broadly in line with their expectations.

Revenue from continuing operations fell to $289.3 million from $306.5 million a year earlier. Adjusted EBITDA declined to $82.2 million from $97.8 million, and the adjusted EBITDA margin narrowed to 28.4% from 31.9%. Adjusted diluted earnings per share slipped to $1.39 from $1.40, with share repurchases helping support the per-share figure.

CEO Vivek Shah said revenue and adjusted EBITDA increased from the second quarter, while the adjusted EBITDA margin improved by 160 basis points sequentially. The company expects further sequential growth in revenue and margin in the fourth quarter.

Search traffic declines as AI citations rise

Organic Google referrals to Ziff Davis properties fell approximately 37% year over year in the third quarter, Shah said, following a roughly 23% decline in the same quarter last year. He said the company is operating on the assumption that referrals will continue to fall rather than planning for a search recovery.

Shah said the revenue decline was much smaller than the drop in search traffic because the portfolio also includes subscription, app and newsletter businesses. He pointed to social commerce, video, licensing and direct audiences as ways the company is offsetting pressure on search-dependent properties.

Across its digital media sites, Ziff Davis content appeared roughly 2.7 billion times in Google AI Overviews and AI Mode responses during the quarter, according to a Google statistic cited by Shah. He said that was nearly 10 times the clicks those sites received from Google Search.

Shah said the company remains open to licensing deals to monetize the use of its content in AI systems and expects its litigation with OpenAI to bring clarity to the issue. He also said marketers are increasingly considering AI visibility when choosing media partners, though a gap remains between usage and monetization.

Segment performance and cost controls

Revenue declined across all four operating segments. Tech and shopping revenue fell just under 4% year over year, an improvement from a 5% decline in the second quarter. Shah said the decline has narrowed for three consecutive quarters and he expects the trend to continue in the fourth quarter.

Gaming and entertainment revenue fell about 2%, as growth at the Humble Bundle storefront offset lower advertising revenue at IGN. Shah said the gaming advertising market has been weak amid a light slate of releases, but he expects more game launches to support advertising demand in 2027.

Health and wellness revenue dropped 9.5%, primarily because of lower advertising aimed at healthcare professionals at MedPage Today. Shah said consumer pharmaceutical advertising strengthened, including promotion of GLP-1 treatments. The company also added Harvard Health Publishing to its healthcare media network under a long-term exclusive contract.

Cybersecurity and marketing technology revenue declined 4.6%, primarily because of weakness in search engine optimization tools and email marketing. Shah said the IPVanish consumer cybersecurity business continued to grow, as did email delivery platform SMTP.com and customer acquisition business Semantic Labs.

On costs, Shah said more than 90% of pull requests across product and engineering teams are written by AI, helping lower the cost of delivering features. He estimated that company headcount will be down 10% by year-end, while noting that AI is not the sole reason for the reduction. CFO Bret Richter said targeted spending cuts and operating efficiencies also contributed to the sequential margin improvement.

Buybacks, cash flow and outlook

Ziff Davis repurchased 1.7 million shares for $92 million during the third quarter. Year to date, it bought back 5.5 million shares, reducing its share count by nearly 14%, Richter said. Approximately 6 million shares remain available under the board’s repurchase authorization.

The company ended the quarter with $1.4 billion in cash and cash equivalents and about $100 million in long-term investments. Richter said cash and cash equivalents exceeded outstanding debt by $535 million as of Sept. 30. The company subsequently paid approximately $150 million, including accrued interest, to satisfy maturing convertible notes.

Free cash flow was negative $100.1 million in the third quarter, compared with positive $108.2 million a year earlier; the prior-year figure included the Connectivity business, which Ziff Davis sold in the second quarter. Richter said taxes, professional fees and other items associated with the sale reduced third-quarter free cash flow by approximately $90 million.

For the fourth quarter, Richter said the company expects revenue to rise by a double-digit percentage sequentially but decline by a low- to mid-single-digit percentage year over year. It expects an adjusted EBITDA margin in the low to mid-30% range, up sequentially but down from a year earlier, and adjusted diluted earnings per share to increase slightly year over year.

About Ziff Davis (NASDAQ:ZD)

Ziff Davis, Inc is a digital media and technology company that operates a portfolio of online brands serving consumers, technology professionals, businesses and advertisers. Its properties cover technology, gaming and entertainment, shopping, health and wellness, and related digital services.

The company's brands include PCMag, Mashable, IGN, Humble Bundle, RetailMeNot, Spiceworks, Ookla and its Speedtest and Downdetector services, as well as health and wellness publications and platforms operated through its Everyday Health Group.

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