Ziff Davis (ZD) Q2 2026 Earnings Call Transcript

Ziff Davis reported Q2 revenue of $286.7M (-2.7% YoY) and adjusted EBITDA of $76.8M (-3.7% YoY), but adjusted diluted EPS rose to $1.03 (+13.2% YoY) helped by share count reduction. The company returned over $200M to shareholders YTD via repurchasing 4.5M shares (2.6M shares bought in the quarter for $121.5M) and closed the Connectivity divestiture to Accenture for $1.2B at a 14.5x trailing-12M adjusted EBITDA (less CapEx) multiple, improving balance-sheet flexibility. It also generated $54M in free cash flow (+100% YoY) and reiterated Q3 sequential revenue growth with low-to-mid single digit YoY decline; key cash uses include ~$200M of tax payments and repaying $149M convertible debt due Nov. 1, 2026 using existing cash.

Analysis

ZD is transitioning from a mixed media/operator story into a capital-return story, and that matters more than the flat top-line print. The divestiture plus buyback cadence means per-share value can keep rising even if the underlying revenue base only drifts; however, the market should not over-earn the AI productivity claims because lower engineering headcount and faster code shipping are efficiency gains, not proof of durable demand acceleration.

The bigger mechanism is distribution risk in Tech & Shopping: AI Overviews and answer engines are not just suppressing clicks, they are shifting bargaining power toward the platforms that control discovery. ZD’s defense is brand trust and off-platform channels, which should help keep EBITDA from collapsing, but the second-order winner may be SEO/GEO measurement and optimization tools rather than publishers themselves. That makes SEMR a more interesting “pick-and-shovel” beneficiary than a generic digital media long.

Near term, the overhang is cash deployment: taxes, the convert maturity, and ongoing repurchases will absorb liquidity through early 2027, limiting M&A optionality until the balance sheet is normalized. The contrarian view is that the stock may already be partially repriced for the asset sale and buybacks, while the harder problem—search traffic erosion at MedPage and Tech & Shopping—has not yet been fully reflected. Falsifiers are simple: if Q3 revenue deterioration re-accelerates, or if management is forced to slow buybacks because cash conversion weakens, the per-share bull case loses its main support.

Key Decisions for Investors

• Hold ZD as a capital-return compounder, but avoid chasing strength here; better entry is on any post-earnings pullback or if the stock re-rates above where buyback accretion can offset mid-single-digit organic decline over the next 1-3 months.
• Pair trade: long ZD / short a high-multiple digital publisher basket on any rally, using ZD’s balance-sheet support as the lower-risk leg; thesis fails if ZD’s organic revenue inflects higher for two consecutive quarters.
• Watch SEMR as a 3-6 month beneficiary of AI-search transition and GEO spending; if marketing budgets keep shifting from traffic capture to citation optimization, SEMR should see better demand elasticity than publishers.
• Do not add to ZD if Q3 shows worsening HCP ad spend or a sharper-than-expected search referral drop; that would indicate the buyback is masking a deteriorating core more than creating value.
• For event-driven accounts, sell premium/avoid upside calls into the next print unless management gives clearer evidence that sequential growth is broad-based rather than buyback-driven.