Investment Case Update: May 23, 2025
Market Capitalization: $1.3B
Enterprise Value: $1.7B
Price: $30.89 (5/23/25)
What the Company Does
Ziff Davis is a digital media and internet investment company targeting the technology, shopping, entertainment, and health verticals. Between 2012 and 2023, management invested over $3 billion in 80 companies globally through a value-oriented M&A process. The company’s Digital Media segment operates a portfolio of web properties and apps including CNET, PCMag, Mashable, RetailMeNot, and IGN, which provide product reviews, discounts, news and commentary related to specific vertical markets. ZD then sells advertisements to marketers wishing to target the audiences of these owned-and-operated platforms, as well as for third-party sites and email marketing efforts. ZD’s Cybersecurity & Martech segment offers subscription-based software-as-a-service (SaaS) solutions to businesses (~2/3 of business) and consumers.
Why We Own It
ZD trades at an all-time low valuation, despite a robust balance sheet and improving growth prospects. Management has an established record of profitable growth, boosting revenues between the end of 2016 and the end of 2021 at a compound annual growth rate of nearly 14% while maintaining Adjusted EBITDA margins north of 40% over this period (vs. 35% in FY24), before spinning off its cloud fax business in October 2021 (now Consensus Cloud Solutions (ticker: CCSI)). Although revenue declined modestly between 2022-2023 on advertising headwinds and an unusually low amount of acquisitions, management expects growth to accelerate in 2025, with guidance for revenue and Adjusted EBITDA Y/Y growth of 5.0% and 6.0%, respectively (vs. 2.8% and 2.3% growth in 2024, respectively). Additionally, ZD’s vertical content focus allows for more targeted advertising, which typically fosters stickier client relationships than programmatic advertising due to superior returns on ad spend, as evidenced by ZD’s advertising net revenue retention of 92.0% in 2024.
Despite robust profitability, ample liquidity and a seasoned management team, shares are trading at a forward (FY26) EV/EBITDA multiple of ~3.2x, an all-time low multiple, and a ~58% discount to the stock’s longer-term median of 7.7x. The stock also trades at a discount to many less diversified peers.
How Management Allocates Capital
Management’s top priority has been M&A, as the company deployed on average >$300MM per year on acquisitions from 2012 (when the current CFO joined) through the end of 2021. After a lull in deals between 2022-2023, management recently highlighted a “very robust” M&A pipeline covering all 5 of its segments, and also reiterated its expectations for M&A to contribute to roughly half of ZD’s long-term revenue and EBITDA growth. However, management is a stickler for acquiring companies at a reasonable price, looking for IRRs in excess of 20%, and maintaining financial flexibility, with a self-imposed gross leverage cap of 3x in order to make a deal. After M&A, management is focused on buying back its own stock at current prices, as it has repurchased $210.6MM worth of stock (~16.2% of market cap) over the last four quarters and retains an authorization to buy back 6.2MM shares (14.5% of shares outstanding) as of 3Q24.