Zeta (NYSE:ZETA) Beats Expectations in Strong Q2, Stock Jumps 16.6%

Jabin Bastian /
2023/08/02 4:17 pm EDT

Advertising and marketing company Zeta Global (NYSE:ZETA) reported Q2 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 25.1% year on year to $171.8 million. Guidance for next quarter's revenue was also better than expected $179 million at the midpoint, 1.58% above analysts' estimates. Zeta made a GAAP loss of $52.2 million, improving from its loss of $86 million in the same quarter last year.

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Zeta (ZETA) Q2 FY2023 Highlights:

  • Revenue: $171.8 million vs analyst estimates of $162 million (6.08% beat)
  • EPS: -$0.34 vs analyst expectations of -$0.33 (4.08% miss)
  • Revenue Guidance for Q3 2023 is $179 million at the midpoint, above analyst estimates of $176.2 million
  • The company lifted revenue guidance for the full year from $701 million to $715 million at the midpoint, a 2% increase
  • Free Cash Flow of $20.6 million, up 105% from the previous quarter
  • Customers: 425 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 63.9%, in line with the same quarter last year

Co-Founded by former Apple CEO, John Scully, Zeta Global (NYSE:ZETA) provides software and data analytics tools that help companies market their products to billions of customers.

The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.

Sales Growth

As you can see below, Zeta's revenue growth has been over the last two years, growing from $106.9 million in Q2 FY2021 to $171.8 million this quarter.

Zeta Total Revenue

This quarter, Zeta's quarterly revenue was once again up a very solid 25.1% year on year. On top of that, its revenue increased $14.2 million quarter on quarter, a strong improvement from the $17.5 million decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.

Next quarter's guidance suggests that Zeta is expecting revenue to grow 17.6% year on year to $179 million, slowing down from the 32.2% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 15.7% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Zeta's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 63.9% in Q2.

Zeta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.64 left to spend on developing new products, sales and marketing, and general administrative overhead. Zeta's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.

Key Takeaways from Zeta's Q2 Results

Sporting a market capitalization of $1.9 billion, Zeta is among smaller companies, but its more than $117.1 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by Zeta's significant improvement in new large contract wins this quarter. We were also excited that its revenue growth outperformed Wall Street's expectations. On the other hand, gross margin declined a little. Overall, we think this was a really good quarter that should please shareholders. The stock is up 17.2% after reporting and currently trades at $9.8 per share.

Zeta may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.