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    Zeta Global Holdings Corp (ZETA)

    Q4 2023 Earnings Summary

    Reported on Feb 21, 2025 (After Market Close)
    Pre-Earnings Price$10.76Last close (Feb 27, 2024)
    Post-Earnings Price$10.76Open (Feb 28, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • Upside potential from new AI products and mobile strategy not included in 2024 guidance: Zeta's investments in the Intelligent Agent Composer and mobile capabilities are expected to drive significant revenue, but these potential revenues are not included in the current guidance. This suggests potential upside if these initiatives gain traction faster than anticipated.
    • Expected recovery in automotive and insurance verticals: The automotive and insurance industries, which accounted for approximately 10% of Zeta's revenue and were challenged in 2023, are projected to return to growth. Excluding these industries, Zeta's net revenue retention would have been 118% instead of the reported 111%, indicating strong underlying growth momentum that could boost 2024 performance.
    • Rising demand for Zeta's AI solutions amid industry focus on AI and data privacy: As AI becomes a strategic priority for enterprises, CMOs are seeking secure AI solutions that protect their data. Zeta's ability to provide AI-powered marketing within customers' secure environments without exposing their data positions the company favorably. This is leading to increased interest and potential revenue opportunities from selling AI products directly to clients.

    What went wrong

    • Revenue growth may be negatively impacted if the automotive and insurance verticals do not recover as expected, as they represent significant portions of revenue, and their weakness has already impacted net revenue retention and customer ARPU.
    • Gross margins have declined due to increased integrated revenue from agency customers, and there is uncertainty about when margins will improve, potentially impacting profitability.
    • The company's outlook includes conservative estimates for political candidate revenue, but actual results may vary, introducing uncertainty into revenue projections.

    Q&A Summary

    1. Gross Margin Outlook
      Q: Have gross margins bottomed out, and what is the outlook?
      A: Management believes gross margins bottomed out at 60% in Q4. They expect margins to improve in 2024, starting from this base, driven by moving large agency customers from integrated to direct channels, growth in higher-margin automotive and insurance verticals, and increased political and advocacy revenue.

    2. AI Product Impact
      Q: How will AI and the Intelligent Agent Composer affect growth?
      A: The Intelligent Agent is seen as a significant revenue opportunity. While investments are already baked into the company's plans, any success from these AI products could provide upside to revenue estimates. The Intelligent Agent is expected to boost efficiency for clients and potentially generate high-margin software revenue.

    3. Automotive and Insurance Recovery
      Q: When will the automotive and insurance verticals recover?
      A: Management has good visibility into the sales pipeline for these challenged verticals. They anticipate a return to growth in 2024, possibly starting in the first half of the year, which should positively impact both revenue and gross margins given their higher-margin profiles.

    4. Revenue Growth Guidance
      Q: What is the expected revenue growth for 2024?
      A: The company is starting the year with a revenue growth guidance of 20% , consistent with prior performance. Last year, they began at 17% and finished at 23%. The investments in AI and mobile are not included in revenue guidance, potentially providing upside if they perform well.

    5. Free Cash Flow Allocation
      Q: How will substantial free cash flow be utilized?
      A: With around $200 million in free cash flow expected over 2024 and 2025 , management plans to be opportunistic with share buybacks and M&A. They are focused on increasing free cash flow conversion to 55%, up from 48% in 2024.

    6. Returning Customers
      Q: Are former customers returning to Zeta?
      A: Yes, several large clients are returning after trying larger marketing clouds. These customers found that the alternatives couldn't deliver what the Zeta Marketing Platform could. The company is winning back previous clients at a higher rate.

    7. Agency to Direct Shift
      Q: Is there a shift from agency to direct channels?
      A: While it's early, management expects a migration of large agency holding companies from integrated to direct channels. This shift should improve gross margins over time. They highlight that working with agencies can accelerate sales cycles and increase revenues.

    8. CTV Market Opportunity
      Q: How is the rollout of ad-supported streaming affecting Zeta?
      A: The increase in streaming platforms with ads is a massive opportunity. Zeta is already integrated with all major platforms and saw CTV revenue grow 30% quarter-over-quarter in Q4. Political and advocacy spending in CTV could make 2024 a strong year.

    9. Mobile Strategy Expansion
      Q: How significant is the mobile strategy expansion?
      A: Adding mobile as a channel is expected to dramatically increase TAM. By leveraging their $240 million opted-in individuals and Zeta ID, they can focus on deterministic attribution in the mobile ecosystem, providing a unique advantage.

    10. Reducing Stock-Based Compensation
      Q: What steps are being taken regarding stock-based compensation?
      A: Management is reducing dilution from 5% to 3.5%-3.75%. Senior executives are taking no restricted shares this year, opting for performance stock units instead, aligning compensation with shareholder interests.

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