The Burning Question: Ziff Davis $ZD

Management Capitulation?

During the 2022 bear market, there was one word that the pundits loved to talk about and yet it was never useful, capitulation. The interest rate hikes led to a pretty orderly selloff, the VIX never had a major spike, there was never a big flushout, the S&P 500 had a 25% drawdown over ten months, and then the stock market just started going up again.

But Colin King at Value Don’t Lie recently uncovered one of the best capitulations I have ever seen, so I am delighted to bring you another episode of “The Burning Question” with Team VD!

Introducing a collaboration between Value Don’t Lie (VDL) and Unemployed Value Degen (UVD).

With VDL and UVD, please clap for Team VD!

You’re ghonnorheally love this collaboration, opportunity is contagious when VD is going around!

Today’s Burning Question is about a company which is profitable, growing, buying back stock, has insider buying, and the falling stock price is finally causing management to capitulate. They’re literally telling us they will do anything to get the share price back up.

Ziff Davis (ZD) is facing four years of multiple compression with the price to sales ratio falling from 4.3x in 2021 to 0.92x today, despite being a software company with close to 30% EBITDA margins. Revenue growth has been lumpy, with trailing twelve month revenues peaking in June of 2020 at $1.489 billion, falling to a trough of $1.364 billion in 2023, and now in five quarters of sequential growth, returning to $1.457 billion. In 2024 they started delineating the revenue contribution and growth rates for each of their five business segments so that analysts could more easily calculate a sum of the parts analysis. And in November of 2025, they announced a strategic review to evaluate ways to unlock shareholder value.

From the Q&A section of their most recent earnings call:

“So starting with: is anything off the table? No.”

“I would also say that we’re at a point where the disconnect between the current value of the company and we believe the intrinsic value of the company, the true value of the company in our own minds, is probably at the widest it’s ever been.

And so with respect to your question on specific businesses, look, we go into this with an open mind, with a goal of unlocking the maximum amount of value. And what I would say is that we believe every one of our divisions should command a multiple, each of them individually, higher than what is the current Ziff Davis multiple. So in my mind, this value disconnect isn’t just in a couple of places, it really is across the board.”

Spinoffs are in vogue these days, what once was a conglomerate premium has transformed into a conglomerate discount. Either management teams are overwhelmed with diseconomies of scope, or passive flows from sector ETFs are rewarding pure businesses. The most famous recent spinoff was General Electric voluntarily separating itself into three entities, with GE Vernova up 350% since the separation. Of course it helps to spinoff a company that makes natural gas turbines for the AI revolution.

Ziff Davis itself has previously attempted to unlock value through a spinoff, in October 2021, the predecessor company J2 Global separated into two entities Ziff Davis (ZD) and Consensus Cloud Solutions (CCSI). The spinoff didn’t unlock any value in this instance, for both companies revenue was mostly flat in the following four years, and both suffered similar multiple compression.

This time around, I think it is more likely that they will sell two of their five business segments to a strategic buyer. Ziff Davis is an acquisition focused tech company. They have a strategy of buying what they believe are leading tech brands which can be scaled up. Since 2013, they have deployed $3.3 billion of capital on these acquisitions, although the current market capitalizations of ZD and CCSI combined only add up to about $1.75 billion today.

These tech brands are navigating the double whammy of AI disruption, and the weak consumer since 2022. The big disruption so far is the reduced search traffic which is becoming increased AI chatbot queries. Companies had spent years engaging in Search Engine Optimization (SEO) only to have search engine traffic decline to Large Language Models. SEO is turning into Generative Engine Optimization (GEO), and it takes some time to see how things are going to work out. Management is guiding that the worst of the traffic hit from the SEO to GEO transition is behind them, although I have my doubts that they can really know that.

But not all of Ziff Davis’ business segments seem equally susceptible to AI disruption. ZD has five major segments:

If I were in charge of cracking the walnut, I would separate shopping, gaming, and wellness from connectivity and cybersecurity. But Ziff Davis is going to respond to letters of interest from potential acquirers, so how the walnut is going to be cracked is a bit up in the air. Management did clarify that they have not yet received any interest for the whole company, but anything is possible.

There are two standout segments that should be resilient and fetch high multiples, Connectivity is the least likely to be disrupted by AI, and Cybersecurity is one of the hottest sectors right now due to fears of increased threats due to AI. It is possible at some point that Cybersecurity itself is disrupted as software becomes cheaper to write, but for the last couple of years, cybersecurity multiples have gone up due to AI, not down. Both have the majority of revenue from subscriptions, which in the past would have led to outrageous multiples.

Health and Wellness, Gaming, and Shopping seem much more likely to have been affected by the weak consumer for these last few years than AI disruption. Going forward, AI disruption is still a threat, but there are good odds we are entering a strong consumer discretionary environment with interest rate cuts, jumbo tax refunds, and all the other reasons I have talked about in my occasional macro musings post.

I took a look at price to sales multiples of the five segments as they are now and as they were in 2018 to get a feeling for how the market feels about potential AI disruption. For example, peers in the technology and shopping category trade at a price to sales of 0.8x today but 3.9x in 2018, implying that the market fears disruption here acutely. But gaming peers have a price to sales today of over 5.0x, while in 2018 it was only 4.5x. This implies that the market feels gaming is not likely to be disrupted by AI and it is also likely that the sales are cyclically low and due for a rebound. Multiples are highest when revenues are lowest for cyclical companies.

Cybersecurity peer multiples are higher now than they were in 2018 reflecting the increased AI demand for cybersecurity. Connectivity is higher now, which makes sense as that has the least likelihood of AI disruption. Health and Wellness peer multiples are lower now than in 2018, which is interesting due to the K-shaped economy theme that has dominated the consumer since 2022, but competition is fierce and new brands are challenging entrenched companies.

Only one of the five segments have peers trading in line with Ziff Davis’ current price to sales ratio, Technology and Shopping. The four other segments all have peers which are trading at much higher multiples. A hypothetical five way split of the company into pure components would result in a combined market capitalization of somewhere between $3 billion and $7 billion depending on how much of a small cap discount these spinoffs would receive compared to peers. That is an enormous upside compared to the current market capitalization of $1.34 billion.

But the most likely outcome is that Ziff Davis sells one or two segments, and uses the cash for a mix of share buybacks, debt retirement, and future acquisitions. The appetite for M&A this year is fierce as companies are afraid that Democrats will regain control of Congress and the tyrannical reign of Lina Kahn might return. So I would expect transactions to happen quickly, certainly before the end of 2026.

In the meanwhile, Ziff Davis is trading at a forward price to earnings multiple of 4.5x, is buying back stock aggressively, and has $500 million of cash on the balance sheet to offset $864 million of long term debt. Some of that debt is convertible at a conversion share price of over $100, with $150 million maturing in November 2026, and $260 million maturing in March 2028. The coupon rates are 1.75% and 3.625% respectively, barely a real return for convertible bondholders. The rest is $460 million at 4.625% due in October of 2030. I wouldn’t be in a hurry to retire any of that debt, and management has reiterated that buying back stock is the best use of capital at the moment. Since the beginning of 2022, they’ve spent $485m of their $855m free cash flow on buybacks, reducing the sharecount by more than 16%.

One of the more poignant questions on the last earnings call noted that, since management believes that the worst of the SEO to GEO affects are behind them, and the consumer is getting stronger, why would they sell a business segment at the trough? Perhaps the best course of action is just to wait for the recovery, allow five sequential quarters of revenue growth to turn into nine sequential quarters of revenue growth, and allow the multiple to correct on its own? That’s a very fair question. But I think management has capitulated, and they want to unlock value as fast as possible, but they also are not distressed sellers.

Management does have aligned incentives, they have been engaging in insider buying, catching this falling knife all the way down. Since the 2021 CCSI spinoff, management and directors have been selling over $80 a share, and buying under $60 a share:

Even if management acts quickly to correct the valuation disconnect with strategic options, I think they will still make prudent decisions, they are GAAP net income profitable, they have enough cash to cover near term maturities, their debt is at low interest rates, and management’s incentives are reasonably well aligned. Buying at the current share price of $34.28 and a price to sales ratio of 0.92x feels pretty darn safe when the CEO spent half a million buying at $58.86 and a half a million more buying at $39.56.

Putting a price target on a rough gemstone that is about to be split in two is a bit of a fool’s errand. It isn’t clear which units will be sold, and at which multiples. Perhaps in a few years, when the disruption from AI has settled down, companies like ZD could return to a 3.5x price to sales ratio. But in the meantime, I find it hard to think that the price to sales ratio will get higher than 2.0x. At these prices, however, the aggressive share buybacks are doing a lot of heavy lifting, GAAP earnings per share are up 7% in the trailing twelve months due mostly to share buybacks and management continues to buyback shares hand over fist.

In two years, buying back stock at these prices, moderate revenue growth, and returning to a price to sales ratio of 2.0x, would lead to a share price of $82.13. Of course, it is also possible that in two years that stock price will be spread across multiple different companies and ticker symbols after some spinoffs.

Ziff Davis (ZD) $34.28: $82.13 by mid 2028