Zeta Global: Cautious Due To Unfavorable Growth Composition And Pricey M&A (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• Growth is undoubtedly strong, but it is driven more by ARPU-mining of existing clients. New accounts growth trends are seeing a deceleration.
• There is ample scope for margin expansion at the GAAP-EBIT, driven by operating leverage effects. This is evident from the 37% YoY incremental EBIT margins.
• Zeta paid a consideration of 5.8x EV/Revenues for LiveIntent, significantly above the 2024 SaaS median EV/Revenue transaction multiple of 2.8x, and within the highest 4th quartile of transaction comps too.
• Valuations are close to fair value levels when looking at ZETA's typical discount 13.9% vs peers as a baseline. Technically, vs SPX 500, bearish momentum fights a key support level.
• Declining RPOs, which are a leading indicator of revenues, are a demand risk monitorable. There is a potential silver lining here that RPOs may increase following good conversions of an impressive 60% QoQ growth in requests for proposals.

Read the full article here.