Investments In AI, LiveIntent, And Data Will Unlock New Opportunities

Key Takeaways

• Early AI investments and first-party data strategies are expected to significantly boost market share and revenue growth, aiming for over $2 billion by 2028.
  
• The One Zeta initiative and acquisitions, like LiveIntent, are poised to enhance revenue per customer, operating margins, and ROI, driving profitable growth.
  
• Reliance on AI-driven growth and new market strategies faces risks from market adoption, execution challenges, litigation, and data privacy regulations impacting revenue and margins.

Catalysts

Operates an omnichannel data-driven cloud platform that provides enterprises with consumer intelligence and marketing automation software in the United States and internationally.

• Early investments in AI and first-party data are expected to fuel market share gains and propel revenue to over $2 billion by 2028, positively impacting revenue growth.
  
• The Zeta 2028 plan forecasts a 20% organic revenue CAGR between 2024 and 2028 with a 580 basis point improvement in adjusted EBITDA margin to at least 25%, enhancing net margins.
  
• The focus on expanding customer use cases through the One Zeta initiative will drive higher revenue per customer, increasing average revenue per user (ARPU) and impacting revenue growth.
  
• GenAI capabilities are projected to drive additional usage of Zeta's platform, contributing to consumption revenue growth, which accelerates revenue and benefits overall earnings.
  
• Integration of acquisitions like LiveIntent is expected to deliver incremental value rapidly, enhancing publisher monetization and ROI for marketers, which should augment revenue and operating margins.

Zeta Global Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zeta Global Holdings's revenue will grow by 21.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -6.9% today to 8.2% in 3 years time.
• Analysts expect earnings to reach $147.3 million (and earnings per share of $0.63) by about April 2028, up from $-69.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 77.1x on those 2028 earnings, up from -37.5x today. This future PE is greater than the current PE for the US Software industry at 29.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

Zeta Global Holdings Future Earnings Per Share Growth

Risks

• The company's projections rely heavily on achieving sustained 20% organic revenue CAGR through 2028. Any slowdown in market adoption of AI-driven marketing or failure to capture a larger share of current customer budgets might significantly impact projected revenue growth.
  
• Although the company forecasts significant margin improvements, actual cost-saving from AI integration and headcount efficiencies may not materialize as expected, potentially impacting net margins and adjusted EBITDA.
  
• The company's growth strategy includes significant contributions from new products and vertical expansion, which involve execution risks and the uncertainty of penetrating underrepresented sectors, which could affect long-term revenue and ARPU growth.
  
• The ongoing litigation and associated audit costs may be a financial distraction, potentially impacting net income if litigation costs rise significantly or if investor confidence is undermined.
  
• While scaling AI adoption is a growth driver, potential changes in data privacy regulations or customer resistance to deeper AI integration could hamper revenue growth from these technologies.

Valuation

• The analysts have a consensus price target of $31.154 for Zeta Global Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $44.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $147.3 million, and it would be trading on a PE ratio of 77.1x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $11.02, the analyst price target of $31.15 is 64.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.