ZIFF DAVIS, INC. (ZD Q3 FY2024 earnings call

• Q3 2024 results showed total revenue growth of 3.7% and adjusted EBITDA growth of 9.6%. Digital media segment had best adjusted EBITDA growth since Q3 2021 with all verticals growing. • Acquired CNET, Gamer Network, and made a small identity resolution tuck-in in martech. Allocated $100 million to repurchase 2 million common shares in Q3, with year-to-date repurchases at 3.5 million shares. • Launched several AI-driven products: Ekahau AI Pro online on Wi-Fi Day, Viper AI Advisor in cybersecurity, and AI Job Fit Analyzer in health and wellness. • ESG efforts: Moved up 15 points in S&P CSA to 95th percentile, received silver medal in EcoVadis assessment, and submitted CDP Climate Questionnaire for second year. • Focus on adjusted EPS and free cash flow as critical metrics, with free cash flow over adjusted EBITDA yield moving toward target levels.

Digital media segment grew nearly 6% in revenue and over 14% in adjusted EBITDA in Q3. All digital media verticals grew, with consumer tech and gaming contributing to advertising and performance marketing growth. Cybersecurity and Martech segments revenues declined by a little over 4%, but adjusted EBITDA was flat. Advertising and performance marketing revenue increased 5.8% year-over-year, with consumer tech and gaming being key contributors. Subscription and licensing revenue grew 1.8% year-over-year. Other revenues declined year-over-year primarily due to lower Ekahau Sidekick sales offset by higher Humble Bundle Game Publishing revenue.

• Re-firmed fiscal year 2024 guidance range. • Expect high single-digit growth in revenue and adjusted EBITDA, and double-digit adjusted EPS growth in Q4. • Look forward to a solid growth year with strong adjusted EPS growth.

• Risks disclosed in SEC filings including factors from 10-K, 10-Q, proxy statements, and 8-K filings. • Impact of Google's search product changes with AI overviews; less than 10% of top queries include AI overview. • Challenges in cyber and martech segments affecting organic and total growth but not EBITDA; softness in Moz SEO business due to MozCon timing and soft new customer acquisition. • Softness in B2B technology business and certain factors in health and shopping businesses as mentioned in prior calls.

Q: What drives the step up in 4Q revenue?

A: Focus on continuing execution across the board, full quarter of CNET, seasonality in shopping businesses, and continuation of positive trends in certain businesses. Regarding organic growth, no specific comment beyond general trends.

Q: Thoughts on Gen AI and search queries?

A: Less than 10% of top queries include AI overview. High domain quality brands with domain authority over 90 will continue to do well. Traffic is diversified from search, direct, social, app, and email.

Q: EBITDA to free cash flow conversion?

A: Conversion above 60% in the quarter. Free cash flow conversion targets mid-50s excluding unique items. Factors include debt payment timing, tax payments, working capital, and performance within ranges.

Q: Insights from the AI publisher data study?

A: Key learning is premium publisher content is important for LLM training. Disagreement exists on fair use vs. need for licensing. Implications for AI licensing deals as we believe training requires licensing.

Q: Moz group softness and mitigation?

A: Softness due to MozCon timing, SMB orientation, and confusion around search. Steps include improving UX, investing in paid marketing, and focusing on margin expansion with plans to drive growth.

Q: M&A environment and attractive areas?

A: M&A environment normalized. Attractive areas include tech and shopping (with CNET and Gift Card acquisitions), gaming (fragmented space), connectivity, health and wellness, and email marketing in cyber and martech.

Q: Holiday season outlook?

A: Early to tell, but hopeful for a solid season with expanding shopping window and early activity like RetailMeNot's National Cash Back Day.

Q: Use of Gen AI internally?

A: No emphasis on Gen AI for content creation. Bullish on AI for coding. Focus on using AI to improve product and user experience, such as in LUCID app for food logging.

Q: Weakness in food and beverage in health business?

A: No significant impact as it's not a big part of the ad formula in health and wellness; headwinds on provider side due to large pharma cutting back.