Zeta: A Q&A With CFO Of This Digital Marketing Company

Summary
- Zeta is a cloud-based marketing tech company.
- The company went public in June 2021 and enters a crowded and competitive field.
- CFO Christopher Greiner participated in a Q&A session which is presented below.

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Zeta Global Holdings Corporation
Zeta Global Holdings Corp. (NYSE:ZETA) provides advertisers with a data-driven platform for omnichannel digital marketing. The Zeta Marketing Platform (ZMP) allows for advertisers to engage via video, search, social media, and the ever-important connected television (CTV). The ZMP competes directly with other demand-side platforms (DSP) such as The Trade Desk (TTD). The ZMP is utilized by 34% of Fortune 100 companies.
Zeta went public in June of 2021 and currently has a market cap just under $2B. The 2021 fiscal year revenue guidance calls for $432M - $436M in total revenue. This is an 18% increase over 2020. Clearly, growth is an area to watch for improvement. The company has an impressive net retention rate of 122%. A rate over 100% means the company is upselling existing customers at a greater pace than customer churn. The company has significantly increased its sales and marketing (S&M) expenses. Through the first three quarters of 2021, the company has spent $164M on S&M compared to just $54M for the same period of 2020. This spend in 2021 includes $94.6M in stock-based compensation (SBC) related to the IPO. Removing this, the company spent over $69M in the nine months ended September 30, 2021. This spend shows a commitment to compete and spur growth.
Q&A With CFO Chris Greiner
Christopher Greiner joined the company in 2020. He previously held the role of CFO for LivePerson, Inc. He also spent significant time at IBM and holds a BBA in Finance and Economics from Baylor University. A big "thank you" for taking time to answer questions.
Q: For those who aren’t familiar, would you please provide an overview of what Zeta’s platform does to assist brands in acquiring and maintaining customers and what sets Zeta apart from other platforms?
Chris Greiner: Our software, the core of which is the Zeta Marketing Platform (ZMP), is a modern marketing cloud that helps companies ingest, synthesize, and activate consumer data for orchestrating and executing targeted marketing campaigns across all addressable channels. The ZMP delivers a unique combination of scale and precision. It consists of:
A unified data foundation that combines Zeta’s Data Cloud, consisting of a comprehensive identity graph and fueled by billions of behavioral signals, with first party data from our customers to resolve to a persistent ID; this enables ‘identity on demand.’
Patented AI to help marketers understand how to best engage consumers – right message, right place, right time.
Omnichannel technology to reach consumers when they are ready to make a decision.
Deterministic attribution to help marketers understand what’s working and what’s not. This also generates insights that make the AI smarter over time.
The data foundation functions as a ‘CDP inside’ the ZMP and can also be accessed by marketers as a CDP. Many of our recent wins began as a CDP.
In fact, a recent study by Forrester has proven something that we have known for some time. Enterprise Marketers taking advantage of the ZMP’s identity-based, omnichannel activation capabilities achieve 50% better results.
Advertisingis undergoing a fundamental shift from vaguely targeted, mass audience ads to highly targeted, programmatic, omnichannel marketing. The ZMP is a vehicle for advertisers to capitalize on this.
A "CDP", or customer data platform, takes data from multiple sources and unifies it to create a comprehensive profile of a customer.
Q: How does the ZMP differ from a typical DSP?
CG: The ZMP is a modern marketing cloud with a robust data foundation at its core. This data foundation consists of Zeta’s massive proprietary data set with identity as a backbone and fueled by billions of behavioral signals combined with first party data from our customers.
Said differently: the ZMP functions as a Hub of a data-driven ecosystem for which the DSP is a powerful spoke. In a legacy environment, DSPs generally operate separate and apart from a marketer’s martech stack (or marketing cloud).
Q: Do you see the shift from traditional media advertising to digital advertising as a trend that will accelerate during the next few years?
CG: The migration to digital is certainly accelerating. As the world comes out of the pandemic, companies see the current environment as one of the biggest opportunities to affect change. They are looking at digital, AI, and new technologies to identify, engage, and build customer loyalty.
Disruption in the digital ecosystem creates a critical need for marketing technology as enterprises look for help navigating changes like the elimination of Apple’s IDFA or the third-party cookie - neither of which we rely on to identify individuals today.
Our vision is to help enterprises accelerate their digital transformation of customer acquisition, retention, and growth through our technology, data, expertise & execution.
This is what they call a "fat pitch" question. I wanted to get this out there as I too see this industry as just in its infancy. Programmatic advertising has a giant runway ahead of it. According to eMarketer, advertisers spend over $75B on this in 2020 and this number will grow 20%-25% for 2021. Also of note, Zeta does not rely on third-party cookies.
Q: Is the company actively pursuing further M&A activity (after the acquisition of Apptness)?
CG: Zeta is focused on executing on its growth strategy and has a long-term goal to be the largest Marketing Cloud within five years. Smaller tuck ins that improve our first-party identity graph, expand channels, and supplement our salesforce may be pursued, but we are not seeking transformational acquisitions
Q: Do you expect advertisers to be “all the way back” this Q4 or do you anticipate some softness to continue with the travel and entertainment industry?
We saw good growth across our industry verticals with six out of 10 growing more than 30%. We did see some softness in automotive due to the chip shortage and supply chain issues but overall we have good balance across verticals.
Q4 will be a huge benchmark for many digital advertising firms, including Zeta. Most advertisers who may have held back due to COVID-19 are now spending again.
Q: What is management’s goal CAGR for revenue for the next 3-5 years?
CG: Our long-term target is greater than 25% revenue growth.
This will be a key metric that investors will likely look for the company to exceed. If management can grow at 25% or greater the stock will likely respond positively. Look for the additional spending on marketing to begin to pay off in the coming quarters.
Q: What is the company’s long-term model for profitability at scale?
CG: Our long-term target is 25% revenue growth with 20% Adjusted EBITDA margin.
Q: What are the biggest future opportunities for Zeta?
CG: We see our largest opportunities across five core growth drivers:
First, Growing ARPU and scaled customers, who we define as customers generating at least $100K in revenue over the trailing twelve-month period.
Second, Investing in sales capacity, marketing, and building out our partnership ecosystem.
Third, Scaling our newest product, Opportunity Explorer.
Fourth, Launching new products to new markets and new buyers.
And Fifth, Expanding internationally.
This is a very comprehensive and prudent answer. Growing large customers is a path to increased profitability.
Q: What is the largest challenge for Zeta?
CG: We have an opportunity to create better awareness in the market. We often need to overcome the “Zeta Who” challenge during the early stages of a sales cycle. Once we can demonstrate our end-to-end capabilities, we win a majority of the RFPs in which we compete.
Summary on Zeta
Zeta is an interesting newly public company to keep on the watch list. The net retention rate is quite encouraging as they reside in a crowded, yet rapidly growing, sector. Investors should look for growth and customer numbers to accelerate now that the company is spending significant funds on S&M.
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