Zeta (NYSE:ZETA) Surprises With Q4 Sales, Provides Optimistic Full Year Guidance

Full Report / February 23, 2023
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Advertising and marketing company Zeta Global (NYSE:ZETA) reported Q4 FY2022 results that beat analyst expectations, with revenue up 29.9% year on year to $175.1 million. The company expects that next quarter's revenue would be around $150 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Zeta made a GAAP loss of $51.8 million, improving on its loss of $61.1 million, in the same quarter last year.

Zeta (ZETA) Q4 FY2022 Highlights:

  • Revenue: $175.1 million vs analyst estimates of $160.6 million (9.06% beat)
  • EPS: -$0.36 vs analyst estimates of -$0.40 (9.68% beat)
  • Revenue guidance for Q1 2023 is $150 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2023 is $691 million at the midpoint, beating analyst estimates by 2.9% and predicting 16.9% growth (vs 28.8% in FY2022)
  • Free cash flow of $13.8 million, up 43.5% from previous quarter
  • Gross Margin (GAAP): 62.3%, down from 63.7% 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.

As customers have increasingly moved online, more data has become available to businesses that allows them to more efficiently market their products. Zeta Global helps businesses utilise this data to market more effectively.

Today, much of what we do on the internet can be tracked and used to determine what types of products we may be interested in. Historically, brands had very limited data on who their customers were and how they were reaching them. With old advertising methods such as billboards and television ads, businesses had no way of ensuring that the people who saw their ads would be their target customers.

Using trillions of data points from activity across the internet, Zeta Global determines which customers would be interested in which products and helps businesses find customers that are most likely to buy their products.

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.

Other providers of sales and marketing solutions include AppLovin (NASDAQ:APP), DoubleVerify (NYSE:DV), LiveRamp (NYSE:RAMP), PubMatic (NASDAQ:PUBM), The Trade Desk (NASDAQ:TTD)

Sales Growth

As you can see below, Zeta's revenue growth has been strong over the last two years, growing from quarterly revenue of $114.4 million in Q4 FY2020, to $175.1 million.

Zeta Total Revenue

This quarter, Zeta's quarterly revenue was once again up a very solid 29.9% year on year. On top of that, revenue increased $22.9 million quarter on quarter, a very strong improvement on the $15 million increase in Q3 2022, which shows re-acceleration of growth, and is great to see.

Guidance for the next quarter indicates Zeta is expecting revenue to grow 18.8% year on year to $150 million, slowing down from the 24.4% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $691 million at the midpoint, growing 16.9% compared to 28.9% increase in FY2022.


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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 62.3% in Q4.

Zeta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.62 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Zeta's free cash flow came in at $13.8 million in Q4, down 24.5% year on year.

Zeta Free Cash Flow

Zeta has generated $43.4 million in free cash flow over the last twelve months, a decent 7.34% of revenues. This FCF margin is a result of Zeta asset lite business model, and provides it with optionality and decent amount of cash to invest in the business.

Key Takeaways from Zeta's Q4 Results

With a market capitalization of $1.9 billion Zeta is among smaller companies, but its more than $121.1 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by how strongly Zeta outperformed analysts’ revenue expectations this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown in absolute terms. Zooming out, we think this was still a good quarter, showing the company is staying on target. The company is so far flat on the results and currently trades at $9.06 per share.

Is Now The Time?

When considering Zeta, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Zeta we will be cheering from the sidelines. Its revenue growth has been solid, though we don't expect it to maintain historical growth rates. But while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately its gross margins show its business model is much less lucrative than the best software businesses.

Zeta's price to sales ratio based on the next twelve months is 2.0x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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