Point DavisZD96,46 $
Today we have a very speculative idea: take shares of the media holding Ziff Davis (NASDAQ: ZD), in order to make money on manipulations with this company.
Growth potential and validity: 13,5% behind 12 Months; 9% per year for 10 years. In all cases, we take into account the possibility of company separation.
Why stocks can go up: because the company can be bought.
How do we act: we take shares now by 94,26 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
ZD are digital media assets of J2 Global. J2 has since split into media- and cloud businesses. Today we are discussing exactly the media company.
According to its annual report, ZD's revenue is divided into the following segments.
Digital Media — 75,47%. These are internet applications and online media ZD. They can be divided into the following groups:
- Technologies. Editions about high technologies PCMag and Mashable, Ookla and Downdetector services.
- Purchases. Discount aggregators, promotions and coupons like RetailMeNot.
- Entertainment. Widely known in narrow circles, the publication about IGN games and the gaming service HumbleBundle.com with a focus on charity.
- beauty and health. A selection of publications of the medical and near-medical sense: doctor rating and research provider Castle Connolly, a resource about pregnancy BabyCenter and a whole scattering of media and resources for people, working in the field of medicine.
Sources of income in this segment:
- Advertising - 78,37%.
- Subscriptions and Licensing - 18,45%.
- Click-based Ad Revenue − 3,18%.
Segment operating margin — 20,33% from its proceeds.
Cyber Security and Marketing Technology - 24,53%. Here are the solution groups this segment offers:
- Threat Intelligence, education security, protection of correspondence: VIPRE и Inspired eLearning.
- IPVanish VPN.
- Service for saving and managing Livedrive data.
- Services for email marketing, search engine optimization and more: SEOMoz, Kickbox, Campaigner, iContact и SMTP.
- Online Communication: eVoice and Line2.
The main source of income in the segment is a subscription. A small part of the income comes from a fee depending on the intensity of use. Segment operating margin — 8,4% from its proceeds.
Revenue by country and region:
- USA - 83,79%.
- Canada - 2,34%.
- Ireland - 2,67%.
- Other, unnamed countries - 11,2%.
Arguments in favor of the company
Normal and even good. The company's business is characterized by high stability and good customer retention rates.. In the company's key advertising business, the revenue retention rate is 114%, but the unsubscribe rate of subscribers in all segments is approximately 3%.
In both cases, we see a very high level of customer retention., which provides this business with enviable reliability. This can attract a lot of investors to the company's shares., who are very concerned about business sustainability in these turbulent times.
Revenue retention rate (net revenue retention) = Sum, spent by customers for a certain period this year (net of proceeds from acquired companies) / Amount, spent by customers for the same period last year.
This metric is typically used to assess the health of businesses with a high share of forecasted renewable revenues, whether they be subscriptions or simply renewing existing service contracts..
This metric shows, how great is the company’s ability to compensate for the damage from the departure of some users or subscribers by pumping money out of the remaining customers. The indicator is higher 100% means, that she more than covers the outflow. Indicators in the range of 95-100% are considered good, within 90-95% - acceptable, within 85-90% - normal. But if this figure is lower 85%, it's a problem.
Subscriber unsubscribe level (churn rate) = (Average revenue per subscription last month × Number of unsubscribes this month) / All subscription revenue this month. An unsubscribe rate in the region of 6-8% is considered normal.
And to and fro. I believe, that both major parts of the company's business are waiting for a tailwind. Advertising business to benefit from rising US online ad spending. It seems to me, the reality will be even cooler than forecasts, because the level of polarization of society in the United States will increase and online culture wars will blaze with great force - and the opposing camps will be willing to pay a lot of money for the right to hold a megaphone and shout to the target audience.
Cybersecurity will grow simply because, that the number of threats in this area will grow exponentially. Sectors with the lowest level of computer literacy among workers are most affected by hacker attacks for ransom, is education and government institutions. So I think, we can hope so, that ZD, as an experienced media company, will be able to master this market even more successfully than many purely IT competitors.
Certainly, ZD will definitely not have stunning growth rates here, both markets are quite competitive. But it will give her business some perspective., which allows us to hope for some kind of growth in financial indicators and the attention of investors to its shares. The latter is even more important.
Hacker attacks for ransom in the US by industry
| Government buildings | 24% |
| healthcare | 16,5% |
| Academic | 14% |
| IT | 7,7% |
| Production | 7,2% |
| Transport | 5,5% |
| Commercial premises | 4,8% |
| Communications | 4,4% |
| Emergency services | 4,2% |
| Finance | 3,8% |
| Energy | 2,8% |
| Food and agriculture | 2,7% |
| Chemistry | 1,1% |
| Water supply and sanitation | 0,8% |
| Defense industry | 0,4% |
| Nuclear reactors and nuclear waste disposal | 0,1% |
24%
Can buy. In absolute numbers, ZD is a serious asset:
- billion views video, 8,5 billion online visits and 29.6 billion page views per year;
- 670 million installed applications;
- 73 billion emails sent annually;
- 2,4 million annual paid subscribers;
- 135 million social media followers.
Don't forget, that even sad, nielsen's troubled media business has found a generous buyer.
ZD is relatively inexpensive: P / S 2,74, real P / E in the area 27,6. And if we count without subtracting one-time income from the allocation of a cloud division to a separate issuer, then P / And there 9,2, capitalization - 4.45 billion dollars.
This factor, combined with all the strengths of the company, can attract a buyer to it.. Very likely seems to be the purchase of Apple: the apple company is intensively developing the service segment and ZD can be very useful to it in this regard. Well, or Apple can enter into a large mutually beneficial partnership with ZD, which will also be a great boon for the quotes of the latter.
Separate Cybersecurity. The company can release the marketing and cybersecurity segment into free swimming, spinning it off as a separate issuer and distributing shares to ZD shareholders.
Considering, that the market has a large shortage of profitable companies in this area, i would expect, that the shares of a "cyber-safe" issuer will fly into the stratosphere, like KnowBe4, which strongly resembles him.
For all the good against all the bad. The company runs ahead of the left-liberal train of Western society and constantly reports on its participation in initiatives to increase the proportion of women and minorities among employees and in leadership positions., air emissions control. I believe, that this can attract biased politicized ESG investors into the company's shares, which will help us pump up quotes.
What can get in the way
Accounting. The company has 1.802 billion dollars of debt, of which 497.238 million must be repaid during the year. There is enough money at the disposal of the company to pay off urgent debts: 694,842 million on accounts plus 316.342 million debts of counterparties.
But still the company's debt burden is high, And, given its propensity to spend money on business expansion and development, I would prepare for that, that the debt will grow, what will scare away some investors in the light of raising rates and rising prices for loans.
Nothing supernatural. There will definitely not be a rapid increase in income here. This may disappoint some investors..
What's the bottom line?
We take shares now by 94,26 $. And then there are two options:
- keep up 107 $. Think, we will reach this level in the next 12 Months;
- hold shares 10 years.
In all cases, we take into account the possibility of company separation. Therefore, the shares of Ziff Davis may fall, while the shares of one of its divisions fly into the stratosphere. How it works in practice, you can see in the comments to the idea on Synnex.
