ZIFF DAVIS, INC. (ZD Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Q1 Results: Revenues and adjusted EBITDA ahead of internal estimates; Q2 expected to show accelerating growth. Reaffirmed full-year guidance (5% revenue growth, 6% adjusted EBITDA growth midpoint).
• M&A Activity: Active buyer of shares, with two acquisitions in Q1, one in early Q2, and another signed last week. Four of five segments grew in Q1.
• Segment Details: Tech and Shopping saw strong growth via organic and M&A; Gaming and Entertainment focused on improving game offerings; Health and wellness showed resurgence; Connectivity poised for growth reacceleration; Cybersecurity and Martech had decline due to timing but expected to improve.
• CES Success: Unveiled new tech media portfolio branding (CNET Group) and partnered with CTA for Best of CES Awards.
• Lawsuit Against OpenAI: Filed to protect journalism and intellectual property, advocating for fair digital ecosystem and respect for IP rights.

Segment Performance

• Tech and Shopping: Revenues grew nearly 18% with adjusted EBITDA growing nearly 44%. CES was a success, and they simplified B2B offerings.
• Gaming and Entertainment: Revenues grew by nearly 4% (7% ad revenue growth, slight subscription revenue decline). Adjusted EBITDA declined in Q1 but expected to reverse in Q2. Focus on improving game offerings and leveraging Nintendo Switch 2 launch.
• Health and wellness: Revenues grew over 7% and adjusted EBITDA grew by over 12%. View last year as an aberration, with subscription now 15% of segment revenues.
• Connectivity: Revenues grew by 5%, core subscription and licensing grew by 7% (Speedtest and Downdetector strong). Anticipate growth reacceleration with Wi-Fi 7 adoption.
• Cybersecurity and Martech: Declined nearly 11% partly due to timing of prior year revenues. VPN business stabilized, expecting growth in second half.

Guidance

• Reaffirmed fiscal year 2025 guidance range presented in February 2025. Q1 results largely met/exceeded expectations.
• Expect Q2 2025 growth to improve compared to Q1. Adjusted EBITDA margins expected to be similar to prior year or slightly below due to investments in businesses and acquisition dilutive margins.
• Maintained full-year guidance with revenue growth 5% and adjusted EBITDA growth 6% at midpoint, noting macroeconomic uncertainties but no notable negative impacts yet.

Risks

• Macroeconomic Uncertainties: Volatility and instability in macroeconomic environment pose risks, though no measurable negative impacts seen year to date.
• Tariff Impacts: Indirect exposure via impact on advertisers' expense bases and potential effects on advertising demand, pipeline, and traffic, though direct impact is low.
• Litigation Uncertainties: Uncertainty surrounding the lawsuit against OpenAI, as litigation outcomes are unpredictable.

Question and Answer

• Q: Update on ad market and Connectivity reacceleration A: Vivek Shah noted Q1 ad business strong (over 12% growth), with key verticals (Tech and Shopping, Gaming and Entertainment, Health and Wellness) performing well. For Connectivity, focus on Wi-Fi 7 adoption and Ekahau's role in wireless access point sales.
• Q: Impact of tariffs on customer base A: Vivek Shah stated direct tariff impact is low, but indirect exposure via advertisers' expense bases; insulated in Health and Wellness (generics not in ad base), Gaming and Entertainment (digital products), with Tech and Shopping having some exposure but no immediate signs of impact.
• Q: Pharma upfront and OpenAI lawsuit A: Vivek Shah said Pharma upfront was strong, with optimism for provider side. On lawsuit, attempted good faith resolution with OpenAI failed, so legal action taken to defend intellectual property.
• Q: GenAI and programmatic A: Vivek Shah noted ~35% of revenues depend on traffic, ~65% not traffic-dependent; AIOs impact about 3% of business. Programmatic business is small (~3% of revenue), as they focus on endemic, custom campaigns.
• Q: M&A market and OpenAI A: Bret Richter said M&A active, with opportunities in digital media; Vivek Shah added evaluations in digital media attractive, and recent legal developments in similar cases give some confidence in the OpenAI lawsuit.
• Q: Tech & Shopping organic trend and AIO A: Vivek Shah said Tech and Shopping has positive trends with CNET and PCMag growth, but B2B offsets. On AIO, hard to determine conversion benefit, but Moz and STAT have expertise to track it.