Zeta Global Holdings Enjoys Major Stock Surge: Factors Behind the Growth

The stock price of Zeta Global Holdings (NYSE: ZETA) has climbed 20% in just one week after executives announced plans to buy $3 million of the company’s stock. This move aims to inspire confidence among investors following doubts raised by short-seller Culper Research regarding Zeta’s financial integrity. The ensuing panic saw Zeta’s stock plunge from around $37 to as low as $18. In response, Zeta stated it had conducted a forensic review of its financials, deeming Culper’s report false and misleading. These actions helped ZETA recover from $18 to its current price of $23. Moreover, ZETA stock has tripled since early 2023, rising from $8 to $23.

Driving Forces Behind Zeta’s Revenue Growth

The surge in Zeta’s revenue stems from a growing customer base. The number of scaled customers, those generating at least $100,000 in annual revenue, increased from 403 in 2022 to 475 currently. These customers contribute to nearly 97% of Zeta’s total revenue, with the average revenue per user (ARPU) rising from $1.4 million in 2022 to roughly $1.8 million today. Recently, Zeta reported its Q3 results, revealing a revenue of $268 million, a year-over-year increase of 42%, beating expectations of $248 million. However, the company reported earnings of $0.16, which was slightly below the consensus estimate of $0.17. Zeta also increased its full-year projections, anticipating fourth-quarter sales of $295 million, a 47% rise year-over-year, well above initial forecasts of $268 million.

Current Trends in Profit Margins

Zeta remains unprofitable, although operating losses have reduced significantly—from $259 million in 2022 to $102 million now. Its operating margin improved from -43.8% to -11.3% during this period. Notably, on an adjusted basis, Zeta has achieved a positive bottom line despite high stock-based compensation costs, which reached $243 million last year, amounting to 33% of revenue.

Potential for Future Growth in ZETA Stock

This year, ZETA stock has surged 170%, outperforming the S&P 500 index, which gained only 24%. However, fluctuations in ZETA’s stock over recent years have been inconsistent, with annual returns of -5% in 2021, -3% in 2022, and 8% in 2023. By contrast, the Trefis High Quality (HQ) Portfolio, known for containing 30 less volatile stocks, consistently outperformed the S&P 500 during the same period. This raises questions about whether ZETA will face another downturn similar to what occurred in 2021 and 2023, or if it will continue its current momentum. Despite the recent rise, there remains potential for further growth from its present level of $23. As Zeta continues to grow revenues due to new customer additions and improved ARPU, its profitability is projected to enhance over the coming years.

ZETA currently trades at 4.5 times its trailing revenues, a significant increase from the 2 times seen in 2022. Analysts anticipate a 65% revenue growth between 2023 and 2025. Should Zeta’s valuation multiple increase to 6 times revenues, the stock price could exceed $40 by early 2026, based on projections of over $1.2 billion in revenue for 2025. This scenario suggests a 75% upside from the current price. Furthermore, the average price target by analysts for ZETA stands at $38, indicating a potential upside of 65% from here.

Considerations for Investors

Nevertheless, investors should remain aware of potential risks, including tariffs and inflation concerns. Recent economic conditions may challenge the Federal Reserve’s ability to manage inflation effectively. If the Fed pauses rate cuts, the overall market could react negatively, impacting individual stocks such as ZETA. Our detailed analysis on Could S&P Crash More Than 40%? explores these potential challenges further.

While ZETA stock appears poised for further advances, it’s important to evaluate how Zeta’s peers perform on relevant financial metrics. For additional insights, visit Peer Comparisons.

[1] Returns as of 11/21/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.