TipRanks Smart Growth Newsletter #5: Engage. Scale. Profit.
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Dear Investors,
Welcome to the fifth edition of our brand new TipRanks Smart Growth Newsletter.
Through the Smart Growth Newsletter, we aim to provide you with high-potential investment insights to support your growth strategy. Each week, our analysts will identify cutting-edge companies positioned to capture market share and deliver exceptional growth, giving you unique insights in a dynamic investing landscape.
Stocks we recommend have been carefully analyzed and vetted, using TipRanks data, ensuring you receive well-researched, high-potential opportunities aimed at delivering substantial, long-term growth. We will present you with a comprehensive analysis that outlines our selection process, giving you clear insights into why each stock stands out as a top growth opportunity.
With that in mind, let’s dive into this week’s top pick and explore why it could be a valuable addition to your Growth portfolio.
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This Week’s Top Growth Pick: Zeta Global Holdings (ZETA)
Zeta Global Holdings Corp. is an AI-powered marketing technology company that provides a comprehensive, data-driven platform for customer acquisition, engagement, and retention. Zeta’s platform integrates advanced artificial intelligence, proprietary identity graph technology, and omnichannel execution, enabling businesses to deliver personalized marketing campaigns, optimize customer experiences, and maximize return on investment.
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Here’s Why ZETA’s Stock Is Likely to Grow:
❖ AI-Driven Innovation: Zeta’s platform integrates advanced AI tools and its proprietary technology stack, enabling hyper-personalized campaigns and superior ROI for clients.
❖ Strategic Customer and Partner Growth: Zeta’s growing Scaled and Super-Scaled Customer ARPU and key partnerships with industry leaders underscore its expanding market position.
❖ Exceptional Revenue Growth: Zeta is continuing on a strong upward trajectory, with full-year guidance projecting 35-36% growth.
❖ Clear Path to Profitability: Expanding adjusted EBITDA margins and increasing free cash flow highlight Zeta’s operational efficiency and scalability.
❖ Strong Financial Position: With a pile of cash on its balance sheet and positive free cash flows, Zeta has a robust liquidity position to fund growth and innovation.
❖ Attractive Valuation: Following the short-seller-induced dip, Zeta trades at moderate multiples, making it undervalued relative to both its peers and strong growth outlook.
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History of Techie Marketing
Zeta Global Holdings Corp. was founded in 2007 by entrepreneur David A. Steinberg and former Apple CEO John Sculley. Over the years, Zeta has grown into a prominent player in the marketing technology (MarTech) space by leveraging data, analytics, and AI-powered technology to drive customer acquisition, engagement, and retention for businesses.
From the outset, Zeta prioritized research and development (R&D), focusing on artificial intelligence (AI), machine learning (ML), and data-driven solutions. Zeta’s investment in proprietary data assets and cloud infrastructure has been foundational to its growth, enabling it to remain competitive and adaptive to evolving market trends.
The company’s MarTech innovations have enabled Zeta to differentiate itself by delivering hyper-personalized marketing campaigns at scale, improving customer engagement and return on investment (ROI) for clients. Its focus on cloud-based infrastructure and privacy-first solutions ensures the company remains adaptable to evolving market trends and regulatory environments.
Source: Zeta Global FQ3 2024 Investor Presentation
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Technology Sells
Zeta’s ongoing R&D investment and ability to leverage cutting-edge technology make it well-positioned to capitalize on the growing demand for data-driven, AI-enhanced marketing solutions, driving future growth and market leadership.
In 2015, Zeta Global launched the Zeta Marketing Platform (ZMP), disrupting the marketing industry with a comprehensive tool for managing customer acquisition, engagement, and retention. Re-launched in 2019, ZMP leverages advanced AI and trillions of consumer signals to make it easier for marketers to acquire, grow, and retain customers more efficiently and effectively.
Zeta has consistently upgraded the ZMP with advanced AI and ML capabilities, enhancing personalization, real-time decision-making, and automation. In 2017, the company launched Zeta Identity Graph – a core data engine within Zeta’s ecosystem – tying together billions of deterministic (such as verified email addresses) and probabilistic (behavior-based inferences) data points to build accurate, real-time consumer profiles. It powers the ZMP by providing precise targeting and personalization insights.
Further innovation came with:
- Cloud Migration (2020): The company migrated its platform to cloud-based infrastructure for enhanced scalability, performance, and enterprise integration.
- Opportunity Engine (2020): An AI-powered predictive tool identifying high-value opportunities.
- Real-Time Data Activation (2021): Immediate customer insights for real-time campaign optimization.
- Generative AI Integration (2023): Automating content creation, optimizing messaging, and scaling campaigns.
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Acquiring Capabilities
Beyond in-house developments, Zeta’s growth has been fueled by strategic acquisitions, which have expanded its technology stack and data capabilities. Since its establishment, the company has completed 12 acquisitions, with seven of them occurring in the last five years.
Among these, key acquisitions in the past three years were:
- LiveIntent (2024): Zeta acquired LiveIntent, a pioneer in people-based marketing, to bolster its identity graph, introduce a new publisher cloud, and accelerate growth in mobile and retail media.
- WhatCounts (2023): Zeta purchased certain assets of WhatCounts, Inc., including customer contracts and technology assets, aiming to integrate their Email Service Platform (ESP) for synergistic benefits.
- ArcaMax (2022): This acquisition enhanced Zeta’s Data Cloud and extended the capabilities of the Zeta Marketing Platform by integrating new touchpoints and growing its first-party data ecosystem.
- Apptness (2021): Zeta acquired Apptness’s technology platform and data, enriching its proprietary data with over 45 million monthly high-fidelity consumer signals.
These acquisitions have been instrumental in expanding Zeta’s technological capabilities, data assets, and market reach, contributing significantly to its growth strategy.
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Partnering With the Best
Zeta Global serves 475 scaled enterprise customers, each generating at least $100,000 in revenue over the trailing twelve months, and 144 super-scaled customers, defined as those from whom the company has generated at least $1,000,000 in revenue over the same period. These clients span multiple verticals, including retail, financial services, telecommunications, and more. Zeta’s diverse client base reflects its broad industry reach and the versatility of its AI-powered marketing solutions.
The company continues to attract new customers, as its “all-in-one” platform makes notable strides towards marketplace leadership. In fiscal Q3 2024, Zeta announced significant client wins, such as an eight-figure deal with a global retail brand, and two seven-figure deals with a global sports & entertainment brand and a leading e-commerce company, respectively.
Source: Zeta Global FQ3 2024 Investor Presentation
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Beyond expanding its customer base, Zeta has established strategic partnerships to expand its service offerings, particularly focusing on enhancing its AI-powered marketing solutions. These include:
- Snowflake: As a Powered-by-Snowflake partner, Zeta integrates with Snowflake’s Data Cloud to enable seamless, real-time data exchange. This collaboration allows marketers to activate campaigns with greater precision by enriching Snowflake’s records with Zeta’s Customer Data Platform (CDP) and Identity Graph.
- Amazon Web Services (AWS): Zeta leverages AWS to manage significant and unpredictable traffic spikes, achieving high scalability and durability. Utilizing services like Amazon DynamoDB, Amazon EMR, and Amazon RDS, Zeta sustains high messaging throughput and accelerates product development, ensuring efficient operations and stability.
- Yahoo: In 2024, Zeta and Yahoo collaborated to drive marketing impact for global brands, leveraging Yahoo’s ConnectID to enhance identity resolution and audience targeting.
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Swimming in Cash
Despite multiple acquisitions and heavy investment in R&D, Zeta maintains a rock-solid balance sheet with a moderate net debt-to-equity ratio and strong cash reserves. Notably, Zeta holds more cash than its total debt, reflecting a robust liquidity position. At the end of fiscal Q3 2024 (ended September 30), the company reported cash and cash equivalents of over $418.5 million.
Zeta generated $34 million in operating cash flow in Q3, a 51% year-over-year increase, and achieved free cash flow (FCF) of $26 million, a 93% YoY rise. With positive cash flow and substantial cash reserves, the company is not experiencing any cash burn and has sufficient liquidity to support ongoing operations and strategic initiatives.
Source: Zeta Global FQ3 2024 Investor Presentation
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Zeta’s strong financial performance has driven a notable increase in both equity and cash reserves over recent quarters. In FQ2 2024, Zeta’s revenue grew 33% YoY, followed by a 42% surge in FQ3, signaling a strong upward trend. Operating cash flows rose over 50% YoY in both quarters, reflecting improving efficiency and profitability.
The company’s ability to acquire new high-revenue clients continued in Q3, contributing significantly to revenue growth. Moreover, Zeta’s capability to increase revenue per customer highlights improved monetization and deeper customer relationships. In FQ3, Scaled and Super-Scaled Client ARPU (Average Revenue Per User) surged 30%+ YoY, reinforcing the outlook for sustained growth.
Source: Zeta Global FQ3 2024 Investor Presentation
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Growing Into Profitability
Zeta’s Direct Platform Revenue – high-margin revenue from its AI-driven platform – now constitutes 70% of total sales, up from 67% in FQ2, positively impacting overall profitability. The remaining 30% comes from the Integrated Platforms segment, which, while having lower margins, complements the core platform and supports growth diversification.
Adjusted EBITDA grew 59% YoY in Q3, underscoring significant operating leverage. The Adjusted EBITDA margin expanded to 20.0% from 17.9% YoY, demonstrating improved operating efficiency driven by economies of scale and cost management. With non-GAAP profitability already achieved, Zeta appears on track to reach GAAP net profitability in the near future – potentially within a few quarters – supported by its sustained growth trajectory.
Source: Zeta Global FQ3 2024 Investor Presentation
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Reflecting confidence, Zeta raised its revenue guidance for FQ4 2024 and the full fiscal year. The company expects:
- FQ4 revenue growth of 39-41% YoY and adjusted EBITDA expansion of 45-49%.
- Fiscal year 2024 guidance now includes 35-36% revenue growth and a 45-46% adjusted EBITDA increase.
- Zeta also raised its FCF guidance for fiscal 2024 by $5 million, forecasting an end-year FCF of $90 million at the midpoint.
Source: Zeta Global FQ3 2024 Investor Presentation
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“Never Waste a Crisis”
In November 2024, Culper Research, a short-seller, published a report alleging issues with Zeta Global’s business practices. The short-seller accused the company of issues including misleading revenue practices, reliance on questionable data sources, and regulatory risks. It claimed that Zeta’s growth was driven by unethical practices and attempted to undermine its financial credibility and business integrity.
Zeta Global responded promptly, stating that the report was “riddled with misrepresentations, speculative conjecture, and categorically false statements.” The company emphasized its confidence in its internal accounting processes, controls, and data collection practices, asserting compliance with applicable laws and standards.
Zeta’s independent auditor, Deloitte, conducts annual audits of the company’s financial statements, supporting the integrity of its financial reporting. Deloitte confirmed that the company’s FY2023 financial statements are accurate and comply with accounting standards. They also verified that Zeta’s internal financial reporting processes are effective and trustworthy.
Zeta also addressed specific claims made in the report, clarifying that certain partnerships and data contributions mentioned were not material to its overall business. The company reiterated its commitment to transparency and maintaining robust business practices. Moreover, an external forensic review found its practices sound and financial statements accurate
All in all, thanks to Zeta’s timely, transparent, and forceful response, the crisis appears to have been short-lived, with no material impact on the company’s operations or customer relationships. Notably, after the report came out, Zeta secured a milestone contract renewal with one of its largest customers, won a significant contract through an RFP process with a leading Fortune 100 corporation, and received commitments for FQ4 from over 20 of its super-scaled customers.
Source: Zeta Data Summit Presentation
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Fast Growth at a Fair Price
In the days that followed the short-seller’s attack, Zeta’s stock dropped significantly. Although it clawed back some of the losses during a rebound that came after Zeta defended its integrity, the harm to investor sentiment halved the stock’s year-to-date gain to “only” ~130%.
Despite the strong performance so far, TipRanks’ top-rated Wall Street analysts expect Zeta’s stock to continue on its steep upward trajectory, rating the stock a “Strong Buy” and projecting an average upside of over 102% (!) in the next 12 months.
Meanwhile, the “crisis”-induced decline in the stock has brought Zeta’s valuations down to much more attractive levels. Thus, Zeta’s TTM P/S, EV/EBITDA, and EV/Revenue multiples are moderate relative to the company’s comparable peers in the industry. Based on forward valuations, which are especially relevant for growth companies like Zeta – particularly Forward EV/Sales and Forward EV/EBITDA – Zeta Global (ZETA) appears to be moderately undervalued versus peers, given its strong growth outlook.
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To Sum It All Up
Zeta Global Holdings Corp. is a leading AI-powered marketing technology company providing a comprehensive, data-driven platform for customer acquisition, engagement, and retention. Zeta’s platform leverages advanced AI, proprietary identity graph technology, and omnichannel execution to deliver personalized marketing campaigns and optimize ROI. Despite heavy investment in R&D and strategic acquisitions, Zeta maintains a strong liquidity position with growing cash reserves and positive free cash flow. The company’s rapid revenue growth, expanding margins, and increasing customer monetization highlight its clear path to sustained profitability, with non-GAAP profitability already achieved. Recent challenges, including short-seller allegations, have created an attractive valuation opportunity, and Zeta remains undervalued relative to its peers. With strong guidance for FY2024, robust operational execution, and Wall Street analysts rating it a “Strong Buy” with significant upside projections, Zeta Global presents a compelling investment opportunity for growth-focused investors.
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Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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