Ziff Davis (ZD)

Digital media company Ziff Davis (NASDAQ:ZD) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 4.5% year on year to $328.6 million. The company’s full-year revenue guidance of $1.47 billion at the midpoint came in 0.9% above analysts’ estimates. Its non-GAAP profit of $1.14 per share was 8.5% below analysts’ consensus estimates.

Company Overview

Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ:ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.

AI-driven content creation, personalized media experiences, and digital advertising are evolving, which could benefit companies investing in these themes. For example, companies with a portfolio of licensed visual content or platforms facilitating direct monetization models could see increased demand for years. On the other hand, headwinds include growing regulatory scrutiny on AI-generated content, with many publishers balking at anything that gets no human oversight. Additional areas to navigate include the phasing out of third-party cookies, which could make traditional ways of tracking the online behavior of consumers (a secret sauce in digital marketing) much less effective.

Ziff Davis competes with diversified internet and digital media companies like IAC, Future PLC, Red Ventures, and Penske Media. In specific verticals, it faces competition from companies like RVO Health, TechTarget, and Doximity. Its cybersecurity and marketing technology businesses compete with providers such as Palo Alto Networks, CrowdStrike, SEMRush, and MailChimp.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $1.42 billion in revenue over the past 12 months, Ziff Davis is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels.

As you can see below, Ziff Davis struggled to increase demand as its $1.42 billion of sales for the trailing 12 months was close to its revenue five years ago. This shows demand was soft, a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Ziff Davis’s annualized revenue growth of 1.2% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Ziff Davis reported modest year-on-year revenue growth of 4.5% but beat Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 3.7% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Ziff Davis has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average operating margin of 12.6%.

Looking at the trend in its profitability, Ziff Davis’s operating margin decreased by 10.6 percentage points over the last five years. Even though its historical margin was healthy, shareholders will want to see Ziff Davis become more profitable in the future.

This quarter, Ziff Davis generated an operating profit margin of 10.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Ziff Davis, its EPS declined by 2.6% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

Diving into the nuances of Ziff Davis’s earnings can give us a better understanding of its performance. As we mentioned earlier, Ziff Davis’s operating margin was flat this quarter but declined by 10.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Ziff Davis reported EPS at $1.14, down from $1.27 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Ziff Davis’s full-year EPS of $6.20 to grow 15.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Ziff Davis has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 20.7% over the last five years.

Taking a step back, we can see that Ziff Davis’s margin dropped by 17.6 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Ziff Davis burned through $5.01 million of cash in Q1, equivalent to a negative 1.5% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Ziff Davis historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.1%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Ziff Davis’s ROIC decreased by 3.1 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Ziff Davis reported $431 million of cash and $864.8 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $493.5 million of EBITDA over the last 12 months, we view Ziff Davis’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $6.09 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Ziff Davis narrowly top analysts’ revenue and EBITDA expectations this quarter. We were also glad its full-year revenue and EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its EPS missed significantly. Overall, this quarter could was solid. The stock traded up 3.1% to $33.35 immediately after reporting.

Updated: May 22, 2025 at 11:59 PM EDT

Before making an investment decision, investors should account for Ziff Davis’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of Ziff Davis, we’re out. For starters, its revenue growth was weak over the last five years. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Ziff Davis’s P/E ratio based on the next 12 months is 4.3x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $41.33 on the company (compared to the current share price of $32).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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