Zeta (NYSE:ZETA) Q3 Sales Beat Estimates
Advertising and marketing company Zeta Global (NYSE:ZETA) beat analysts' expectations in Q3 FY2023, with revenue up 24.1% year on year to $189 million. The company also expects next quarter's revenue to be around $207 million, in line with analysts' estimates. Turning to EPS, Zeta made a GAAP loss of $0.27 per share, improving from its loss of $0.49 per share in the same quarter last year.
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Zeta (ZETA) Q3 FY2023 Highlights:
Revenue: $189 million vs analyst estimates of $178.9 million (5.65% beat)
EPS: -$0.27 vs analyst estimates of -$0.27 (1.82% beat)
Revenue Guidance for Q4 2023 is $207 million at the midpoint, roughly in line with what analysts were expecting
Free Cash Flow of $13.5 million, down 20.1% from the previous quarter
Customers: 440 customers paying more than $100,000 annually
Gross Margin (GAAP): 61.1%, down from 62.2% in the same quarter last year
Co-founded by former Apple CEO John Scully, Zeta Global (NYSE:ZETA) provides software and data analytics tools that help companies market their products to billions of customers.
Advertising Software
The digital advertising market is large, growing, and becoming more diverse, both in terms of audiences and media. As a result, there is a growing need for software that enables advertisers to use data to automate and optimize ad placements.
Sales Growth
As you can see below, Zeta's revenue growth has been strong over the last two years, growing from $115.1 million in Q3 FY2021 to $189 million this quarter.
This quarter, Zeta's quarterly revenue was once again up a very solid 24.1% year on year. On top of that, its revenue increased $17.2 million quarter on quarter, a very strong improvement from the $14.2 million increase in Q2 2023. This is a sign of re-acceleration of growth and great to see.
Next quarter's guidance suggests that Zeta is expecting revenue to grow 18.2% year on year to $207 million, slowing down from the 29.9% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16.1% over the next 12 months before the earnings results announcement.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Zeta's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 61.1% in Q3.
That means that for every $1 in revenue the company had $0.61 left to spend on developing new products, sales and marketing, and general administrative overhead. Zeta's gross margin is poor for a SaaS business and it's dropped significantly since the previous quarter. This is probably the exact opposite of what shareholders would like to see.
Key Takeaways from Zeta's Q3 Results
Sporting a market capitalization of $1.67 billion, Zeta is among smaller companies, but its more than $120.8 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We enjoyed seeing Zeta exceed analysts' revenue expectations this quarter. We were also glad its full-year revenue guidance came in higher than Wall Street's estimates. On the other hand, its gross margin declined. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is flat after reporting and currently trades at $7.73 per share.
So should you invest in Zeta right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
