Cheap, Cash-Flowing, and Ignored: The Case for Ziff Davis
Online media company trading at 7x FCF
Ziff Davis (NASDAQ: ZD) is an online media company that owns a diverse portfolio of well-known digital properties, including CNET, PCMag, Lifehacker, and Ookla Speedtest. The company’s bread and butter is acquiring and operating media brands across technology, gaming, and lifestyle verticals. Its most recent major acquisition was CNET in 2023, a move that reinforced its position as a key player in digital publishing. Ziff Davis makes money through a mix of advertising, subscription services, and affiliate marketing.
Stock Price Performance
Back in 2022, ZD shares traded around $80, but the stock has been on a slippery slope since the launch of ChatGPT. As AI tools have become mainstream, investor sentiment toward online media companies has soured. Earlier this year, the stock hit a low of around $30 before rebounding to $38. Currently Ziff Davis has a market capitalization around $1.5 billion.
Why It’s Cheap
The narrative driving the decline in Ziff Davis stock has been largely centered around two headwinds: AI disruption and a sluggish ad market. The fear is that AI tools like ChatGPT and Google’s Gemini can directly answer user questions, bypassing traditional content sites like CNET or Lifehacker. If a user can get a quick answer from an AI, they might not bother clicking through to a website. That’s a real concern for publishers that rely heavily on search-driven traffic. However, I’m not entirely convinced that this doomsday scenario applies across the board. While AI might eat into informational search queries, I think it’s a different story for content like product reviews, long-form features, or hobbyist articles about gaming or tech. I would think these are the kinds of content readers would still enjoy engaging with directly.
Interestingly, Ziff Davis management has pointed out that a relatively small share of their traffic comes from search engines, meaning they may be more insulated from the AI threat than the market assumes. On top of that, there’s a bit of poetic irony here, AI models like ChatGPT were trained, in part, on data from publishers like Ziff Davis. The company has taken steps to block AI crawlers from its sites and is currently involved in a lawsuit against OpenAI, which could eventually lead to compensation for the use of its content in AI training datasets.
Beyond AI, there’s also been a general malaise in the advertising sector since the inflation shock of 2022. I’ve followed other ad-driven businesses, such as Omnicom and Saga Communications, and the whole industry has faced choppy waters. Consumer sentiment remains bifurcated, some companies are thriving while others are still struggling to regain their footing. Once consumer sentiment rebounds and ad budgets loosen up, I think ZD could return to healthy organic growth and steady margins.
Financials
Ziff Davis’s financials are a bit tricky to parse because the company took its current form in September 2021, when J2 Global spun off its cloud services business and rebranded as Ziff Davis. Since then, revenue has been relatively flat, hovering around $1.4 billion. Given that the company has made several acquisitions, that implies organic growth has been lukewarm. The good news is that last quarter showed a resumption of organic growth. Operating margins have averaged around 15% over the past few years, and while net income has been dragged down by goodwill impairments and losses on investments. Free cash flow remains robust, about $233 million over the trailing twelve months.
The balance sheet looks solid. Debt to equity stands at 0.47, and debt to EBITDA is roughly 2.5. With $457 million in cash against $865 million in debt, and $135 million of debt paid down over the past year, leverage appears very manageable.
Valuation Metrics
On the valuation front, the stock trades at just 0.85x book value, though much of that book value is intangible, so it’s worth taking with a grain of salt. The P/E ratio looks ugly due to write-downs, but the stock is much more attractive on a cash flow basis, trading at only 7x free cash flow.
Shareholder Returns
Ziff Davis doesn’t pay a dividend, but it’s been aggressive with share repurchases: $185 million in 2024, $109 million in 2023, and $78 million in 2022. It looks like buybacks are continuing at around $75 million this year, implying a roughly 10% annualized buyback yield.
Conclusion
It makes sense that the market would be bearish on Ziff Davis right now — fears about AI and weak ad spending are legitimate. But I think the company’s diversified stable of niche brands gives it more staying power than investors are giving it credit for. The balance sheet is healthy, the valuation is cheap on a free cash flow basis, and management is returning capital to shareholders through buybacks. For patient investors, ZD looks like a quietly undervalued digital media business that could surprise to the upside once the advertising cycle turns.
Stocks mentioned: ZD 0.00%↑
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Good Article. But I think the low valuation reflects the business's structural deterioration, not market inefficiency.
ZD seems a classic value trap, low multiples masking real returns below the cost of capital.
Wondering if the price will keep going down if IAC will try to buy it