Here's Why Zeta Global Holdings (NYSE:ZETA) Can Afford Some Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Zeta Global Holdings Corp. (NYSE:ZETA) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Zeta Global Holdings

What Is Zeta Global Holdings's Net Debt?

As you can see below, Zeta Global Holdings had US$184.1m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$131.7m in cash, and so its net debt is US$52.4m.

How Strong Is Zeta Global Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Zeta Global Holdings had liabilities of US$176.4m due within 12 months and liabilities of US$193.8m due beyond that. On the other hand, it had cash of US$131.7m and US$170.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$68.3m.

Given Zeta Global Holdings has a market capitalization of US$2.67b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Zeta Global Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Zeta Global Holdings reported revenue of US$729m, which is a gain of 23%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Zeta Global Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$165m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$187m into a profit. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Zeta Global Holdings has 1 warning sign we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.