Q3 2024 Earnings Summary
- Strategic Acquisition Enhances Competitive Position: The acquisition of CNET puts the company in a stronger platform position to deliver integrated multi-platform advertising, which should help attract larger advertiser accounts and drive revenue growth.
- Active and Diversified M&A Strategy: The management is leveraging a diversified approach across multiple verticals (tech, gaming, shopping, cyber/martech) in an environment that now resembles pre‑COVID conditions. This strategy, backed by a strong balance sheet and robust free cash flow, supports further expansion and accretive acquisitions.
- Premium Content and AI Opportunities: The company’s high-quality, high domain authority content is proving increasingly valuable in an evolving AI landscape, with premium publisher data expected to play a critical role in training large language models. This positions the company for potential licensing benefits and additive search traffic growth.
- Segment headwinds affecting organic growth: Management noted that challenges within cybersecurity, Martech, and B2B segments have negatively impacted Q3 organic growth. These issues, if persistent, could continue to pressure revenue and margin performance in future quarters.
- Softness in the Moz group: Executives acknowledged declines in Moz’s new customer acquisition partly due to timing (e.g., Moz Con) and the product’s lower user-friendliness, compounded by intensified competition from aggressive paid marketing. This could hamper growth in a key SEO business.
- Uncertainty around AI content licensing: The Q&A revealed unresolved debates over licensing obligations for training large language models using premium publisher content. This uncertainty in the regulatory and contractual environment could pose risks to future revenue streams from intellectual property.
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FCF Conversion
Q: What drove EBITDA–FCF conversion above 60%?
A: Management attributed the over 60% conversion to improved working capital recapture and seasonal timing effects—including adjusted timing of interest and tax payments—with the understanding that quarter-to-quarter variability remains possible. -
Capital Allocation
Q: Any shift from repurchases to more M&A?
A: Management reiterated that their dynamic approach continues to balance debt repayment, share repurchases, and M&A without signaling a shift, maintaining flexibility across all capital allocation pillars. -
Revenue Growth
Q: What drives 4Q revenue acceleration overall?
A: Management expects high single-digit revenue growth in 4Q, bolstered by seasonality, a full quarter contribution from CNET, and strong performance within consumer tech, despite headwinds in some segments. -
Organic Growth
Q: Will organic growth rebound in 4Q?
A: While a full quarter of CNET helps, organic growth will be mixed, as improvements in some areas are offset by challenges in B2B and cyber-marketing, suggesting a cautious but positive outlook. -
M&A Opportunities
Q: Which verticals are attractive for M&A?
A: Management sees opportunities across diverse sectors including tech, shopping, gaming, connectivity, and health, noting normalized deal activity and attractive pricing particularly in challenged spaces. -
AI Licensing
Q: What are key learnings from the AI licensing study?
A: Their research revealed that premium publisher content disproportionately drives LLM training, underpinning the firm’s stance that licensing is necessary rather than treating training as fair use. -
GenAI Search Impact
Q: What percent of queries show AI overviews?
A: Management clarified that approximately 10% of their most valuable search queries include AI overviews, up from 8%, with high domain authority supporting sustained traffic across channels. -
Internal GenAI Use
Q: How is GenAI used internally?
A: The focus is on using GenAI for coding and product development enhancements rather than content creation, preserving the brand’s hallmark of human-driven journalism. -
Moz Softness
Q: What caused softness in the Moz group?
A: Management noted that reduced new customer acquisition was partly due to the timing of Moz Con and a focus on SMB challenges, with plans for product enhancements and increased paid marketing. -
Holiday Outlook
Q: What are early thoughts on the holiday season?
A: Though early to tell, management is optimistic that an expanding holiday window and events like RetailMeNot national cashback day point to a solid holiday season. -
Health Business
Q: Any food and beverage impact in health?
A: Management observed minimal effect since food and beverage is not central to their ad formula, though noted some headwinds on the provider side due to cutbacks by large pharma.