ZD Q1 Earnings Call: Ad Markets Drive Growth, Profit Falls Short of Expectations

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.

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StockStory’s Take

Ziff Davis's first quarter highlighted the impact of shifting revenue streams and disciplined cost control across its diversified digital portfolio. CEO Vivek Shah attributed revenue gains to strong growth in Tech and Shopping, fueled by both organic expansion and recent acquisitions, as well as solid advertising performance in Gaming and Entertainment and Health and Wellness. Shah noted that four out of five business segments delivered growth, pointing to margin expansion in CNET and a strategic focus on higher-margin B2B offerings. He acknowledged that the Cybersecurity and Martech segment declined due to timing effects, but emphasized continued momentum in advertising markets and a stable subscription base, stating, “Our advertising markets—Tech and Shopping, Health and Wellness, Gaming and Entertainment—were strong in Q1 and hold promise for the year.”

Looking ahead, Ziff Davis management reaffirmed its full-year outlook, citing confidence in advertising demand, ongoing M&A activity, and expected recovery in segments that underperformed. Shah emphasized that the company is poised for growth acceleration, particularly in Connectivity, with anticipated benefits from Wi-Fi 7 adoption and stabilization in the VPN business. He also highlighted the importance of diversification, ongoing cost management, and capital allocation strategies, including share repurchases and acquisitions. However, Shah flagged macroeconomic uncertainty and potential tariff impacts as areas of caution, noting, “We remain cautiously optimistic. Obviously, there’s a meaningful amount of uncertainty in the world right now.”

Key Insights from Management’s Remarks

Management pointed to broad-based advertising growth, successful cost reductions, and active capital allocation as primary contributors to quarterly performance. Margins remained stable despite a mixed segment performance and increased investments.

• Tech and Shopping momentum: The segment grew nearly 18%, benefiting from organic gains, M&A, and a focus on margin expansion, particularly at CNET and through a “shrink-to-grow” strategy in B2B that prioritized profitable contracts over unprofitable revenue.
• Advertising strength across verticals: Tech and Shopping, Gaming and Entertainment, and Health and Wellness all saw robust ad revenue growth, supported by category leadership and direct client relationships; subscription and licensing revenues remained stable in key areas.
• Connectivity segment poised for rebound: While Connectivity grew 5%, management expects further acceleration with increased demand for wireless networking tools like Ekahau, driven by Wi-Fi 7 deployments and strong results from Speedtest and Downdetector.
• Cybersecurity and Martech softness: This segment declined due to prior-year timing benefits but is expected to recover in the second half, aided by a stabilizing VPN business and new acquisitions.
• Active M&A and capital deployment: Ziff Davis closed two acquisitions in Q1 and continues to see compelling opportunities across all segments. The company also repurchased 750,000 shares during the quarter and plans to maintain an active pace of buybacks, citing undervaluation of its stock.

Drivers of Future Performance

Management projects growth driven by continued advertising demand, product innovation, and acquisition integration, while noting that macroeconomic and regulatory risks could affect outcomes.

• Advertising and market trends: Management expects advertising growth to remain steady, with particular optimism around the Health and Wellness segment following strong annual upfront commitments in pharmaceutical advertising. They also anticipate a positive impact from upcoming gaming releases on ad budgets.
• Connectivity and technology adoption: The rollout of Wi-Fi 7 is expected to boost demand in the Connectivity segment, especially for Ekahau’s wireless tools. Management believes this will drive a reacceleration in the segment and maintain industry-leading margins above 50%.
• Capital allocation and M&A activity: Ziff Davis plans to continue balancing acquisitions and share repurchases, leveraging its robust balance sheet. Management cautions that macroeconomic volatility, tariffs, and regulatory changes could impact advertising budgets and acquisition opportunities.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will monitor (1) the pace of recovery in the Cybersecurity and Martech segment, particularly organic VPN growth; (2) the impact of Wi-Fi 7 adoption on Connectivity’s top line and margins; and (3) continued execution of M&A integration and share repurchases. We will also track advertising market dynamics and any regulatory or macroeconomic shifts that could influence segment performance.

Ziff Davis currently trades at a forward P/E ratio of 4.7×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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