Dotdash Meredith Sees Double Digit Revenue Growth in Q2 2024

Dotdash Meredith, a subsidiary of IAC, reported its Q2 2024 financial results on Tuesday and delivered strong results, both in growing the digital business as well as minimizing the downside of its print business. In a shareholder letter, IAC CEO Joey Levin said:

DDM is in excellent shape with accelerating Digital revenue growth and expanding margins, and the broader ad market seems solid. We’re raising our profit outlook for the year and are focused on demonstrating our current momentum heralds the long-term power of our business.

In total, it generated $425.2 million, up 3% year-over-year. When looking at Dotdash Meredith, it is helpful to consider both digital and print revenue.

• Digital delivered $238.1 million in revenue, up 12% year-over-year.
• Print delivered $191.7 million in revenue, down 7% year-over-year.

If we look at the DDM’s Q2 results over the last couple of years, this is the strongest digital has been since it acquired the Meredith assets. And other than the historically strong Q4, it’s the strongest quarter for the business in a couple of years.

There are multiple drivers of this success. We’ll start with licensing, because there is new revenue represented here. Back in May, Dotdash Meredith signed a licensing agreement with OpenAI for an undisclosed amount of money. Now that the remainder of that quarter has closed, we can start to get a better understanding of the economic impact. On the earnings call, IAC CFO & COO, Christopher Halpin, said:

If you look at the digital licensing line, revenue grew 19% in the quarter or $4.9 million of dollar growth. If you look at the prior quarter, the existing licensing business grew by 9%. It’s fair to assume about half of the dollar growth to get you up to 19% came from our OpenAI license. We note that represents revenue earned since the partnership started in early May within the quarter, so there’s only about 60% of a quarter of revenue captured in the second quarter and will be full going forward. If you take about half the dollar amount and gross it up, you have insight on the fixed portion of our fee.

We did the math. If half of the incremental growth came from OpenAI, then that would be approximately $2.45 million in licensing revenue. If we extrapolate that out to a full quarter, it’s just shy of $4.1 million. And so, over a year, Dotdash Meredith can expect to generate approximately $16.3 million in licensing revenue from OpenAI.

What’s important about this revenue is that it represents high margin dollars that go straight to the bottom line. If we assume 90% margin, that’s about $2.21 million in operating income. Considering the business generated $18.3 million in total operating income, this single licensing deal contributed over 12% of its income. And the team is very confident that more deals will materialize. Whether they will materialize to that extent is uncertain.

If we move to the advertising, it is on the rise, growing 16% year-over-year. Core sessions—traffic to its most important sites (listed below)—were up 9%, which, coupled with higher programmatic CPMs, contributed strongly. Another major contributor on the advertising side is D/Cipher.

Launched in May 2023, D/Cipher is DDM’s approach to ad targeting that uses reader behavior. It’s more advanced than just “reader is on a BBQ article, so let’s give them an ad about BBQ.” Using its hundreds of millions of monthly pageviews, it’s able to map what types of content people are likely to read based on what they’ve already read, which allows advertisers to target more appropriately.

At the time, CEO Neil Vogel told Axios, “when someone lands on something, we know exactly what they want to do.”

And it has, according to DDM’s own reported numbers, worked well. According to its site, it delivered a 2.3x better CTR vs. cookie-targeted media and 40% less cost per product page visit.

In the shareholder letter, Levin said:

Advertisers are adopting our marquee ad targeting product, D/Cipher, which outperforms cookie-based offerings and reaches a differentiated audience – a powerful weapon for our premium sales force. D/Cipher is now part of more than half of our premium campaigns and has helped turn previously challenged categories like Home and Food back to growth.

Performance marketing continues to lag behind. It generated $53.5 million in the quarter, but that was flat year-over-year. Affiliate revenue was up 17%, but its services revenue in the finance category is severely holding it back. This was also a problem in Q1, so the business is still struggling to get the finance category moving in the right direction from a performance perspective.

One of the big risks for Dotdash Meredith—and for many publishers—has been its dependence on search and the rise of AI overviews. According to the earnings letter:

Google began to roll out AI Overviews in mid-May, the impact on our traffic has been negligible. Referrals from Google search queries produce less than half of our traffic, and based on our analysis, AI-generated answers are being served on roughly 15% of searches across our categories, with the highest frequency in Health, Technology, and Finance. Click-through rate differentials between pages with and without AI Overviews are minor so far, but it is still early and products change quickly, so the past isn’t prologue.

Looking at its core sessions, things have been rising since it started reporting this number in Q3 2022, making new highs every year. Whether that can continue remains to be seen, but if CTR impact remains minimal, it could be a good sign for both Dotdash Meredith and publishers more holistically.

On the print side, the business continues to decline. But this has always been expected. Dotdash Meredith’s strategy has been managing this declining business as close to profitably as possible and then moving more of the print budget to its digital properties. It’s working. It generated operating income from print this quarter, which as the below chart shows, it doesn’t always do.

It is speculation to time when Dotdash Meredith gets out of the print business. I could ask ChatGPT to calculate when the business will generate under $100 million in revenue assuming 5% quarterly drops in print revenue (Q3 2027), but at the end of the day, only the team really knows when this becomes uninteresting.

Suffice it to say, Q2 2024 was a strong quarter for Dotdash Meredith. It is projecting strong growth in the second half of the year and more profit than it had initially anticipated.