Thanks, everyone. Welcome back. My name is Rishi Jaluria. I cover enterprise software and a little bit of digital media here at RBC. I'm delighted to have with me again Vivek Shah, who's the CEO of Ziff Davis and Brett Richter, CFO. Welcome, gentlemen. Thank you so much for being here.
It's great to be here.
Always a pleasure having you every year. Always a fun conversation that we have and lots to talk about this time. Maybe let's just start. Ziff Davis is a name that not everyone's familiar with, even if they're familiar with all the brands that you guys have. Maybe let's just start with a little bit of an overview of the business for the generalists in the room and then we can dive deeper.
Yeah, so we're a digital media and internet company. We own a portfolio of brands that are content and ad-supported content brands, subscription-supported software brands, and then subscription-supported data businesses. Our history is one of serial acquisition. The company was built really over the last 15 years through a pretty programmatic and systematic approach to acquisitions, which I'm sure we'll talk about. The business is a little bit the majority of the revenue, about 60% is advertising, and the balance is subscription and licensing.
All right. I think that's great. All right, let's jump into the kind of big splash that you made on the Q3 earnings, which is that you're kind of engaging outside advisors looking at value-creating opportunities, whether that's divestiture, sales, whatever be the case. Can you talk about, number one, what led to doing this? This is coming off the backs of greater segment-level disclosure that you provided the quarter before, which we all really greatly appreciated. What prompted this process? What led to it? Any color that you can give us in terms of which segments maybe might be more interesting or more compelling based on feedback you've gotten so far?
Yeah, so it did start, as you point out, Rishi, with our February call, we went from two reportable segments of the company to five. Part of the reason for doing that was to just provide the investment community real transparency, more transparency into the different pieces of the business. We have seen public market investors kind of engage in that and start to look at and say, "Wow, there's some really interesting pieces inside of the company, different growth characteristics, et cetera, et cetera." The same from the analyst community starting to look at price targets on a some-of-the-parts basis. That was the design of those disclosures.
A byproduct of the disclosures was a lot of interest from private market investors, from sponsors, and even strategics saying, "You know, wow, I didn't know that this particular business had this size or this profit margin or these growth characteristics." Enough of those conversations were happening inbound, coming in, that we felt like we were at a moment where we should engage advisors to understand those, be transparent about that process in the degree to which there are others who haven't reached out to us, to really engage in any and all dialogue. Look, the reality of the company right now is given its current per-share price, the current valuation. I mean, we're talking about a company that's trading roughly 3x-4x EBITDA. A company that's growing, a company with great margins, great free cash flow.
There is clearly a value problem here. There is a value disconnect here. The degree to which we can capture some of this trapped value through a process like this, we are going to do it. We have a very open mind about it. For me, it comes back to, is this going to create a sustainable per-share price improvement for our shareholders? That is really how we go into it. With respect to specific businesses, it is too early to comment on that. Should not comment on that. What I will say is, again, I think if anyone takes a little bit extra time and looks at all the different pieces, you could see how there are attractive components to each. The other thing that I will say is, just because I have been asked this, I do not think there is a single business we own that deserves the multiple that the company has.
Definitionally, I think everything is a meaningful premium over the current implied value of the company, implied multiple of the company.
Yeah, yeah. No, that's helpful. As you've been having dialogue with investors and analysts, and we're kind of taking this on a segment-by-segment level, have you started to see a big disparity in terms of where people see the most value? I would agree with you, no segment should be trading at 4x EBITDA within the entire business. Are there certain ones that have kind of stuck out based on the investor conversations you've had of whether it's health and wellness or connectivity or whatever?
Yeah, I mean, look, I think it's worth probably talking about each. I would say with respect to the health and wellness business, that's the biggest segment inside the company. Grew 13% top line in Q3, 18% adjusted EBITDA growth in Q3, year-to-date 12% top line growth. This business is doing extremely well. It's doing well for a few reasons. It is a pharma commercialization business. What does that mean? We help pharma drive prescription lift and adherence amongst patients and script writing amongst physicians. That's what we do. We do it extremely well. The pharma market is robust. The pipeline is robust. I think the commercialization movement is more towards digital and away from mass market television, et cetera. There are other things going on there in terms of Washington that I think could be tailwinds for us. That's doing really well.
On the digital health and wellness piece of that business, applications like Lose It, which is a calorie tracking and macro tracking application, are doing extremely well. It is a byproduct of the use of GLP-1s that as people use these drugs, they get down to a weight they want to maintain and sustain. That has been a really great tailwind for us. This is a great business. It has been, and it's been a great business for a while. That kind of gets lost. By the way, the other thing is that there's this whole narrative around AI and search and what that means for businesses like ours. This is probably the greatest exhibit AI could have about how those issues and those ideas don't really apply to the way our businesses are structured.
I would say the health and wellness business obviously is one that I would highlight. Connectivity is another one. This is the Ookla business, which includes Speedtest and Ekahau and RootMetrics and Downdetector, a great suite of brands that sit at the center of the broadband industry, that sit at the center of both cellular and Wi-Fi. What I will say is that that business historically was a very strong grower. 2024 was a reset year. We brought in some new leadership to completely retool that business. We were willing to take that year to kind of reinvent a lot of pieces. What was really happening was a lot of these businesses were not fully integrated. They were purchased, but they were sitting side by side with an Ookla.
Steven Bai, former Chief Business Officer at Dish, former CTO at Sprint, a serious individual within the telco industry, has come in as the leader of that business and has completely retooled it, brought it back to growth. Year-to-date, 7% growth. We are going to accelerate that growth into next year. We think this year will, when fourth quarter concludes, we think that is a low double-digit, high single-digit type grower. That is reaccelerating. I think that business, which operates at a 50% margin, is fantastic. If we have time, I would love to talk about some products that are coming out that I think are going to be really nice engines for growth for that. That is doing really well. Within our cybersecurity and MarTech business, the cybersecurity piece of that, which is our Viper business and our IPVanish VPN business, are also returned to growth.
That's something that it's taken a little longer for us, but we have high-margin growing cybersecurity software businesses inside of our portfolio. You probably know better than anyone what those should be valued at, but they're certainly not what's implied here. I think you've got a lot of things that there's a few things to explain. The tech and shopping business declined in Q3. It declined, though, largely as a function of a part of the business that we have announced previously that we are winding down. There's some noise in the comparison year over year. That noise will get past us. Great brands in there in CNET and RetailMeNot. That's probably the part of the business where the search volatility is presenting itself most.
I would say that's the area where we're watching what's happening in search, which I think is more volatility than AI overview dislocation. Happy to go back to that. Gaming and entertainment has always been a good business. It's just lumpy. The game cycle, release cycle, console cycle is the type of thing where you're going to see ups and downs. It's so hard. You're like, "Wow, that Q2 was incredible, but what's happening Q3?" We're going to see that, and we've always seen it. With IGN Entertainment as the core brand, I mean, we sit there with the most powerful brand in gaming information. Lots of things to like. Obviously, lots of things to describe. Feels maybe sometimes complex for some folks.
I think that's part of, back to your earlier question, the degree to which this process can help resolve a little bit of that, I think it will be productive.
The only thing I might add to that as we talk about sort of putting a wrap on the overall business and who we are and what we do is we have deeply ingrained and highly disciplined financial principles. I think the steps that we're taking are consistent with that. While we're highly passionate about the communities we serve, highly passionate about all our stakeholders, including our associates, we're dispassionate about the fact that we need to generate value for shareholders. As we proceed in this journey and things have happened in the first part of 2025, largely on the back of our incremental disclosures and the deeper understanding of certain of our businesses, we were presented with potential, and that's all it is, potential. There's nothing assured.
Opportunity for us to potentially highlight, if not capture, some of what we believe is the disconnect and the value, the intrinsic value of our businesses and how the stock is trading. On the one hand, and I forgot the exact adjective you used, maybe splash, we made an announcement a couple of weeks ago. It is just consistency, which is when we run our businesses, we are very sensitive that they're profitable. We're very sensitive to margin. We're very focused on free cash flow generation, all on the back of going back to making sure that we meet the needs of the communities we serve. This is, while different, is not new for Ziff Davis. In fact, if you go back to 2020, 2021, which just predated my participation in the business, very similar steps were taken. Certain businesses were divested.
Voice backup businesses, a very large business, multi-billion dollar business by some measures, was spun off. This is consistent with the way we approach value creation.
Yeah. No, that makes a lot of sense. Maybe, Vivek, and Brett, let's jump into AI. Let's start with the less fun part, which is the headwinds and AI search and all that before we get into the more fun and where you're productizing it and integrating into the portfolio. Clearly, there's a very big debate out there with traditional SEO quote on its way out and more searches with AI search summaries and ChatGPT and Perplexity. Just how are you navigating that? What have you seen so far? As we think about kind of your own properties, where is your ability to kind of lean into this new paradigm and actually benefit from it?
Yeah. Look, I think I've disclosed this. We've talked about this. It's always worth understanding the way the company actually generates revenue and how much of it is based on web traffic. Roughly a third of the revenues are web traffic, right? There's a lot of revenue that happens outside of web traffic, subscription, data, social media, YouTube, email, all these other platforms, events, et cetera, that don't fit into web traffic. What we're describing, or what we're really describing, is factors of distribution for web traffic. For us, that's roughly half. The revenue related to search, call it mid-teens % of the company's revenue. It's not everything. I think it's an important statement to continue to reinforce because I routinely find myself in dialogue where everyone's like, "Well, this is how you make all your money." That's just not true.
It's not nothing, right? We're certainly not saying that. In terms of what we're seeing, Google's been quite transparent about this. AI is driving more search. The search volume activity is going up. That's an interesting thing to observe. I think AI exploration leads to more searching. That may be a long-term reality, which I think would be good for us. The thing that we're watching is actually the search volatility. When we look at AIOs, when they're present and not present, and there's percentages of when they're present and not present, they're still not present for the majority of the terms that matter to us. Even when they're present, it's not clear what it's doing around click-through rates.
What is happening is there's an incredible amount of volatility in the search rank itself, where you sit on that page. I would argue that forum content, content from Reddit and Quora, has had far more of a meaningful impact to traditional publishers and high-quality sources of content. Now, what I also think is happening is the internet is getting overwhelmed by AI slop. I think what you're going to see is, I think, a real, I think, rejuvenated interest in content from professional organizations with journalists who are trained to produce articles and produce content. I'm actually very bullish about the role of trusted quality content in a world where I think we're going to get overwhelmed by things that we just don't know if we can believe and we can trust.
I say this because while we are very focused on AI enablement inside the company, trust takes years to build, seconds to destroy, and forever to repair. We are seeing it where the technologies and the information and the outputs you're getting aren't there yet. In fact, I think what you're seeing is a lot of people taking that not there yet, publishing it on the internet. I think that's a real problem. I think that's a problem that is happening now. I think we and other high-quality sources of content are part of that solution.
Yep. Yep. Absolutely. Maybe let's lean on the other side of AI. You've talked about integrating this within your portfolio. You've got Halo. You've got Imagine. Can you talk a little bit about what have you seen in terms of usage and adoption of these and performance so far? As we think about the overall impact, how would you measure success with them? Would that be just more greater engagement, greater traffic, greater click-through rates? How should you think about that?
Yeah. Look, I think we have AI enablement inside of the company in two ways. You're talking about product, things that are being launched that incorporate AI or products that are entirely AI-based. I think there's just work and workflow and how we're trying to gain efficiencies within workflow. I'll talk about the former. From a product point of view, it runs the range, right? It can be consumer product facing. I mentioned Lose It, great application. Historically, the way you did food logging is you typed in the food that you ate. Kind of laborious, kind of boring, compliance issues with that, right? Like, I don't want to do it all the time. Now, with AI, we're using visual technology.
You take a photo of your meal, and it unpacks exactly what it is, what you've eaten, and then all the nutritional and macro information that you want. That has driven the logging behavior through the roof. What you see is with more logging, one, we're collecting more data. I'll get to that in a second. You're just getting better retention because you're using the product, right? What leads to, I think, non-renewals or cancellations of consumer-based subscription products is you don't use it, right? You're like, "Well, I don't know why I'm paying for this." As you're using it, the retentions are strong. That's an example of how you can incorporate technology in a way that I think helps from a consumer product point of view.
When you reference Halo and you reference Imagine, just for everyone's knowledge, those are essentially AI-based insight and ad platforms. What we recognize is when you reach 300 million people a month across our portfolio of brands, which we do, and you reach them in these really high-value verticals in technology and in healthcare and in entertainment, et cetera, shopping, we have really important signals. The signal capture and the information that we're getting is built into this. The internal platform is called Core. Core is essentially a data management platform that's proprietary to the company that ingests all of these signals. What's been built into this is using AI and machine learning to take from those signals insights. For instance, you know how you can do surveying of customers or surveying of individuals.
We're building digital clones of our audiences that you can do real-time surveying, right? You're not waiting three weeks to get answers. You're not incentivizing someone to fill out a survey. From market research and from marketers, this could be very valuable, right? There's a market research and insights piece of this. We've worked with studios, and we've said, "Give us your entire script. We will put it into Imagine, which is the IGN AI. We're going to spit back thoughts about how that." This is the kind of service that we're building through audience capture and signal, leveraging AI to create some predictive insights for our clients and customers. The second half of that is ad targeting.
There is the insights piece, which is we can generate information for you to use to help you make your plans and make your product and make your marketing. Then we can activate across not just our own inventory sets, but across the internet's inventory and social inventory. That is where, even back to the discussion around traffic, when I can plug my insights into the traffic of the internet and all of the buying platforms, right? Whether it is the social buying platforms at Meta, whether it is through Google's Ad Exchange or through The Trade Desk, all of those platforms we can plug into to target our audiences outside of our property. It is almost near infinite inventory.
If we can bring our signals and our information to get sort of the right ad in front of the right person at the right moment, I think that becomes very interesting. It is early. The simple answer to your question is revenue. That is what I am looking for is revenue generation and driving share of wallet from our customers. The reason why I think we are well equipped is because we are the tech vertical leader, because we are the gaming vertical leader, because we are amongst the health vertical leaders. I think we are going to be the entity that marketers are going to come to to do this. Look, the way media is getting planned today and bought is it is search, it is social, it is CTV, and then they are going to pick one to two vertical partners that they want to go deep into.
Because a lot of that other stuff is transactional. They want to start doing things that are more robust, and that is where we feel we can get the call. We are bullish. We are bullish about what these technologies can mean. What we are not doing, and just because it is worth emphasizing, is we are not writing content using AI. That, I think, is a very dangerous proposition for us.
Yeah. Yeah. That makes a lot of sense. Maybe then if I take all the different businesses you have and I think about kind of your near-term priorities as we think out to 2026, assuming you continue to hold on to all these businesses for the foreseeable future, I guess, number one, how do we think about the ability for you to return to sustain organic growth as an entire company? I mean, understanding there's obviously volatility and variation between the businesses, but call it steady state organic growth. Are there any businesses where you think that you talked about the outperformance you've seen on healthcare and on connectivity? Are there any businesses where you find maybe underappreciated growth potential or idiosyncratic opportunities for you to accelerate growth from right-targeted investments or a better market or whatever have you?
Yeah. Look, I think I take a step back, and you know this. The history of this company is really a total growth company where we've never really made that delineation between organic and inorganic. We started disclosing it a couple of years ago because investors had asked for it. Our own mindset is we generate free cash flow. We redeploy that free cash flow into an acquisition system to generate more free cash flow. Often what that means is we're buying businesses that may not have organic growth, but that have earnings potential locked into it, and we're willing to kind of shrink the business to get that to that earnings potential, and we'll compound that way. That has always been the company that will continue to be the company. That doesn't mean we don't have great, strong pockets of organic growth, which we do.
I refer to health, and I refer to connectivity, et cetera. What I do not want to do is then also confine and restrict our acquisition program because then I think we are going to be getting away from what we have done historically well. For me, I want to be compounding EBITDA. I want to be compounding EPS. We are obviously very active in buying in our own shares. I think it is the single greatest investment we can make right now, and we are going to continue to do that. I guess what I would say to you is it has been five quarters of revenue growth. Even in this period of time, it is not like the business has been in decline. It has been basically treading water, right?
Treading water, I think, at a time where there's been a fair amount of disruption, and I think similarly situated businesses haven't done the same. Look, I think that from my point of view, within the portfolio, and to your point, we'll see what the portfolio looks like in six months, 12 months, et cetera. We like everything we hold in our portfolio. This process where we're having these explorations is not a process of, "Oh, I wish we didn't have this piece of the portfolio, and I'm trying to divest things that we don't want." No. This is a portfolio we like.
I'm just a realist around that we need to, if we have a sum of the parts opportunity, and it's not going to show up in demand for the stock with people buying it, seeing that disconnect, then you have to do something, right? That doesn't mean that we love all of our children. We think they all have potential in different ways and with different timelines. That's the good news. Historically, that might not have been the case. We did some things where I felt like we needed to get out of certain businesses because I didn't see a path for us. That's not how I feel about our businesses today.
Yep. No, that's great. Maybe that nicely dovetails into the next question, which is when you think about capital allocation, how should we think about the balance of share buybacks with an undervalued stock, M&A, and to the extent you can comment on what you're seeing in the M&A pipeline and how that's been evolving. Maybe I'll toss a third one, which is reinvesting, right? And if there are opportunities to accelerate growth and park the box through business.
We will continue to prioritize M&A. M&A is characterized by closing deals at a perception of the ability to capture excess returns against the appropriate amount of risk. We have closed seven deals this year. They have all been relatively small. Our M&A activity is high. Our M&A impact maybe in this period certainly is compared to 2024 when we closed two larger deals with TDS and CNET has been low. There is a competition for capital. Sorry. A competition of capital amongst our divisions for M&A opportunities. It was great to see Cyber and MarTech return to M&A this year. In a multi-year period, you could look across all of Ziff Davis and see activity. We are selective because, again, we have to be confident in the ability to generate cash flow from the acquisitions that reflect attractive risk-reward profiles.
It's competing also against our opportunity to buy back stock at these levels. If you look back over the first nine months of the year, we've invested about $70 million in our M&A program, just under $70 million, but we invested more in our stock buyback program. In fact, through nine months, we used about just under 85% of our cash flow to buy back our stock. That's a consistent theme and has been a consistent theme for several years now. We like to believe that that investable capital is after we've allocated the appropriate OpEx and CapEx to our businesses.
If you look at connectivity, and we talked about this on our third quarter call, we've recently increased our investment in connectivity to support the expected growth of the business, including the recent launch of two products, which actually expand the market presence of connectivity more broadly, serving communities beyond large enterprise governments and IT professionals.
Yep. Great. Maybe let's, because Vivek, you brought that up earlier, maybe let's talk about the new products around connectivity.
Two of them, Speedtest Pulse and Speedtest Certified. Both of these are a function of Speedtest and Ekahau finally realizing the synergy that we always viewed as part of the reason why we acquired Ekahau. It just took a couple of years longer than we probably wanted. What is Speedtest Pulse? What Ekahau does today is Wi-Fi pros, installers, systems integrators, of which there are tens of thousands, that's the TAM, use this high-priced hardware and software to design and deploy Wi-Fi systems in hotels like the one we're sitting in. That's what they do. They get hired to do this. They pay us for this software. There is a demand for field technicians for residential ISP, and there is demand for IT professionals on floors of every office building in every city in every country.
That market is what Speedtest Pulse, which we announced a week or two weeks ago, is meant to address. It is a smaller device. It clips onto your phone. It is a lower-priced device, and a field tech can come into your home, walk your home, identify your Wi-Fi issues. What ISPs are dealing with is, while they'll tell you that their responsibility ends at the front door, it doesn't. That's not how a consumer thinks. A consumer thinks, "No, the Wi-Fi is your problem." Their field techs aren't equipped to actually identify and solve those problems. We think the universe of potential customers for Pulse just in residential ISP is enormous. Now add to that your office floor, where all of a sudden the Wi-Fi seems off for a week, and it says it's unstable.
Right now, all that team can do is a truck roll, calling that Wi-Fi pro to come in six hours later, charge a lot, walk around with this device will allow the IT person on the floor to deal with it. The volume of floors, I literally sit there and say, "Every floor should have a Pulse." You start to get dizzy with the potential. Yes, we invested a significant amount in that. Speedtest Certified is a different business where we are certifying hotels and office buildings and stadiums in terms of the quality of their Wi-Fi. They are both interesting, and they are both examples of what Bret's talking about, which is reinvesting here at both the CapEx and OpEx levels to get products like that to market.
Yeah. No, that makes a lot of sense. Maybe lastly, let's talk about cybersecurity and MarTech. It's probably the business we talk about the least, but there's still a lot of great assets in there. You saw a little bit of a return to growth with M&A and then VPN as well. Just number one, how durable do you think that kind of recovery is on a go-forward basis? Given that you just had this Symantec Labs acquisition, how does that impact the overall growth outlook?
Yeah. Look, I think we're optimistic about maintaining the growth levels we're seeing, which are modest, but certainly not declines. These are subscription businesses, so they're quite stable either way. We feel good about that. Good cash flow businesses. I think Symantec is a small acquisition, but it does reveal a little bit of how we're looking at marketing technology as a customer acquisitions business more than even a marketing technology business. How do we help our customers? One of the outcomes with all of this volatility in search is search is the number one form of customer acquisition for nearly every business. That's being changed. Search keyword terms are skyrocketing. The degree to which we can help our customers generate customer acquisition through other mechanisms and efficiently, that's where I think that plays out.
Awesome. I think we're just at time, so it's a great place to wrap up. Vivek, Bret, thanks so much for being here. Thank you, everyone.
Thank you.