Zeta (ZETA) Reports – Maintain HOLD
Shares of Zeta (ZETA) are selling off hard this morning following the company’s Q3 report after the close yesterday. At the moment, this is not a concern. The company beat expectations (for the 13th quarter in a row), management was transparent that early guidance for 2025 is conservative (they want to continue a beat and raise cadence), and ZETA stock ran hard (+34% over the last five days) into earnings. Some selling is perfectly fine.
The Results:
- Third-quarter revenue grew 42% to $268.3 million, beating expectations by $15.6 million.
- Adjusted EPS grew 60% to $0.18 beating by a penny.
- Scaled customer count grew to 475, up from 468 in Q2 and 440 at this time in 2023.
- Quarterly scaled customer average revenue per user (ARPU) grew 33% to $557,231.
- Super-scaled customers (sales agencies) steady at 144.
- Super-scaled customer ARPU up 30% to $1.6 million.
- The LifeIntent acquisition didn’t add anything in Q3 as it closed in Q4.
Guidance:
- FY 2024 revenue increased by $61 million to $986 million (+35%) versus consensus of $944 million. LiveIntent adds $14 million of the $61 million.
- FY 2025 revenue – management is comfortable with consensus, which was calling for about 22% revenue growth at the time of the call.
- Tyler note: Part of Zeta’s growth is due to acquisitions. Excluding political advertising and acquisitions, organic growth in 2024 will likely be around 25%. Part of the reason for management’s conservative guidance (which boils down to agreeing with consensus) for 2025 is that they’re not going to stick their necks out regarding non-organic growth. When we came into 2024, guidance implied under 20% growth, but Zeta did far better.
Themes from the call:
- A new Publisher Cloud solution is expected to be a big growth opportunity, helping to enhance publisher yields.
- LiveIntent acquisition synergies ahead of schedule.
- Big-picture growth themes revolve around AI integration, market expansion and product innovation.
- With the recent equity offering and positive free cash flow, Zeta is well positioned for strategic M&A.
- Zeta is ramping up its sales force.
- 2025 guidance and a long-term model, “Zeta 2028,” will be shared in February.
Analyst Reactions:
- B. Riley, Oppenheimer, Morgan Stanley and Bank of America all raised price targets with most falling in the 41 – 44 range. Bank of America is more bullish, with a PT of 50 (up from 36 pre-report).
Takeaway
This was a good quarter, the business is doing well and we’re standing by ZETA. Shares are likely selling off due to super high expectations heading into the event, a big run-up in the stock pre-report, and rational conservatism on the part of management regarding guidance for 2025, which won’t even begin for two months. HOLD
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