Ziff Davis Inc (ZD) Q1 2025 Earnings Call Highlights: Strong Revenue Growth Amidst Segment Challenges

• Tech and Shopping: Revenue grew nearly 18%, adjusted EBITDA grew nearly 44%.
• Gaming and Entertainment: Revenue grew nearly 4%, adjusted EBITDA declined.
• Health and Wellness: Revenue grew over 7%, adjusted EBITDA grew over 12%.
• Connectivity: Revenue grew by 5%, with margins over 50%.
• Cybersecurity and Martech: Revenue declined nearly 11%.

Release Date: May 09, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ziff Davis Inc (ZD, Financial) reported Q1 2025 revenues and adjusted EBITDA ahead of internal estimates, indicating strong financial performance.
• Four out of five reportable segments experienced revenue growth, with the Tech and Shopping segment growing nearly 18% and adjusted EBITDA increasing by 44%.
• The company is actively engaging in share repurchases, having bought back 4.25 million shares over the last four quarters, representing roughly 10% of total shares outstanding.
• Ziff Davis Inc (ZD) is optimistic about future growth, reaffirming its full-year guidance with expected revenue growth of 5% and adjusted EBITDA growth of 6% at the midpoint.
• The Health and Wellness segment showed promising growth with revenues up over 7% and adjusted EBITDA increasing by over 12%, indicating a return to high-single-digit growth for the segment.

Negative Points

• The Cybersecurity and Martech segment experienced a revenue decline of nearly 11%, partly due to timing benefits from the previous year.
• Adjusted EBITDA for the Gaming and Entertainment segment declined due to revenue mix and expense timing, although a reversal is expected in Q2.
• Q1 2025 adjusted diluted EPS was negatively impacted by higher net interest expense and higher depreciation and amortization, primarily related to 2024 capital allocation activities.
• Subscription and licensing revenues declined by 2% in Q1 2025 compared to the prior period, indicating challenges in this revenue stream.
• The company is facing legal challenges, having filed a lawsuit against OpenAI to protect its intellectual property, which could lead to prolonged litigation.

Q & A Highlights

Q: Can you provide an update on the overall ad market and how it has been performing so far this year?
A: Vivek Shah, CEO: The ad market was strong in Q1, with over 12% growth. CNET contributed to this growth, along with other consumer tech businesses like IGN and Everyday Health. We see positive trends continuing, particularly in Tech and Shopping, Gaming and Entertainment, and Health and Wellness. However, if a recession occurs, it could change the outlook, but currently, we see no indications of that.

Q: What are the top priorities for improving growth in the Connectivity segment?
A: Vivek Shah, CEO: The focus is on the Wi-Fi part of the business, particularly Ekahau, which is tied to wireless access point sales. The market for wireless networks in enterprises and other sectors remains strong. While there was a dip due to hardware cycles, we expect growth to accelerate with the adoption of Wi-Fi 7.

Q: How are potential macroeconomic impacts, such as tariffs, expected to affect your business and customer base?
A: Vivek Shah, CEO: Direct impact from tariffs is low, but we assess indirect exposure. Health and Wellness is insulated as generics aren't part of our advertising base. Gaming and Entertainment is less affected due to its digital nature. Tech and Shopping could see some pressure, but consumer behavior might drive demand for discounts, benefiting RetailMeNot.

Q: Can you discuss the lawsuit against OpenAI and why you chose this route instead of licensing?
A: Vivek Shah, CEO: We attempted to resolve OpenAI's unauthorized use of our content through licensing but couldn't reach acceptable terms. Legal action was necessary to defend our intellectual property. The lawsuit aims to ensure fair compensation for our content and protect our rights.

Q: How is the generative AI search impacting your business, and what is your exposure to it?
A: Vivek Shah, CEO: About 35% of our revenues depend on traffic, with 40% of that from search. AI Overviews affect a small percentage of our traffic. It's unclear if AI Overviews are positive or negative for clicks. We track citation rates in AI Overviews, which is about a third of the time, indicating potential benefits.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.