We came across a bullish thesis on Ziff Davis, Inc. (ZD) on Substack by Value Don’t Lie. In this article, we will summarize the bulls’ thesis on ZD. Ziff Davis, Inc. (ZD)’s share was trading at $42.07 as of March 17th. ZD’s trailing and forward P/E were 29.65 and 5.91 respectively according to Yahoo Finance.
A professional executive in a modern office setting talking on the phone surrounded by their digital media software delivery platform.
Ziff Davis (ZD) presents a compelling case as a severely undervalued digital media and subscription business undergoing a capital allocation inflection. Once trading near $100 per share, the stock has fallen ~70% from its 2021 peak and now trades at just 4x EBITDA and 6x free cash flow (FCF), despite stable revenue and high-margin operations. The company owns a diverse collection of internet brands, including CNET, PCMag, RetailMeNot, IGN, MOZ, and Downdetector, spanning multiple verticals such as gaming, technology, shopping, and cybersecurity. Revenue is primarily driven by advertising, clicks, and high-margin subscription and licensing income, particularly from Connectivity and Cybersecurity services like Ookla, VIPRE, and MOZ.
Historically, acquisitions have played a crucial role in ZD’s strategy, with the company deploying $3.3 billion across more than 90 deals since 2012. These acquisitions typically fall into two categories: tuck-ins that expand customer bases or enhance monetization, and larger platform acquisitions that establish new verticals. However, despite this aggressive M&A strategy, the stock has been penalized due to a lack of apparent value creation. Over the last three years, ZD has spent $331 million on acquisitions while taking $169 million in impairment charges, with revenue and EBITDA remaining largely flat. This stagnation has contributed to the market’s reluctance to assign a higher multiple to the business, as investors question the sustainability of ZD’s digital media brands in an evolving internet landscape.
Despite these concerns, the investment case for ZD is becoming increasingly attractive due to a notable shift in capital allocation. Management, after a period of inactivity from Q3 2022 through Q4 2023, has returned to offense, ramping up both share repurchases and M&A activity. Over the past year alone, ZD has spent over $200 million on acquisitions while simultaneously reducing its share count by 10%. With free cash flow exceeding $200 million annually, further buybacks and acquisitions appear inevitable, yet management’s current guidance does not factor in any incremental M&A or repurchases, leaving room for upside surprises.
Moreover, ZD’s growth trajectory is showing signs of revival. The company delivered solid Q4 and full-year 2024 results, and its 2025 guidance indicates a return to revenue and earnings growth, partially fueled by recent acquisitions. A valuation re-rating appears plausible as investor sentiment shifts from skepticism to recognition of stable fundamentals and improved capital allocation. A straightforward valuation model using ZD’s 2025 midpoint EBITDA guidance of $520 million, 8% capex on $1.5 billion in revenue ($120 million), interest expenses of $15 million, and estimated cash taxes of $70 million results in projected free cash flow of $290 million ($6.75 per share). Applying an 8-10x FCF multiple yields a valuation range of $54-$68 per share, representing significant upside from the current ~$40 stock price. Further capital allocation initiatives, such as additional buybacks or strategic M&A, could push this target even higher.
In sum, ZD offers a rare mix of extreme undervaluation, high-margin stability, and a shifting capital allocation strategy that could serve as a catalyst for re-rating. While the stock has drifted lower for years, the current setup suggests an inflection point may be near. At <4x EBITDA and ~6x FCF, ZD remains one of the cheapest assets in the digital media space, offering investors a compelling risk/reward opportunity.
Ziff Davis, Inc. (ZD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held ZD at the end of the fourth quarter which was 19 in the previous quarter. While we acknowledge the risk and potential of ZD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ZD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.