Zeta Global Holdings Corp. (ZETA) Earnings Call Transcript & Summary

Awesome. All right. Thanks, everyone, for joining us at Day 1 of the Morgan Stanley TMT Conference. My name is Katie Keyser. I'm on the software research team here at Morgan Stanley. Super excited to be joined by the Zeta Global team, David Steinberg, CEO; Chris Greiner, CFO. Hey, guys, great to see you.

Thank you.

Great to see you, Katie. Thank you for having us.

Thanks for being here.

Yes. It's great to be here.

Awesome. A quick disclosure statement before we get started. For important disclosures, please see the Morgan Stanley research disclosure website, morganstanley.com/researchdisclosures. Awesome. So with that, thanks, guys, for being here. Great to see you.

Great to see you.

Maybe for investors that are newer to the Zeta story, just provide a quick overview of the business, relatively complex. So maybe talk to who the end customer is. What about the Zeta portfolio lets you kind of uniquely straddle both marketing and advertising? And maybe just why the business model is differentiated relative to some of the legacy MarTech players that we all know.

And we only have 34 minutes.

Then make it great.

I was going to say, I try. So let me start by saying Zeta has built a software and proprietary data cloud platform that helps very large enterprises, more cost efficiently manage their customer acquisition, customer retention, customer monetization. 51% of the Fortune 100 and 24% of the Fortune 500 use the Zeta Marketing Platform today. That is not an aspirational number. That is the number that we work with. And -- what we traditionally do is by combining everything a marketer needs into one user interface with one reporting infrastructure, we're able to deliver a substantially superior return on investment. A recent Forrester survey or report, I should say, showed that for every dollar spent on the Zeta Marketing Platform, we return 600% on their ad spend as it relates to returns. So I think that's 100% to 200% better than our next closest competitor.

Awesome. And maybe just to hit on kind of the AI debate at the top, right? This is a question that's on all of investors' minds, whether AI is representing a threat to the industry, a transformational opportunity for legacy kind of vendors here. So maybe Zeta has been building AI into its platform for a number of years. You're doing a lot on the innovation front with Athena, which we'll get into. But maybe just high level, like where do you see Zeta positioned on the AI threat versus opportunity spectrum? And I think kind of the key question is what gives you confidence in the durability of the moat going forward, just given how fast the kind of tech...

I mean, obviously, there's this new, what I would call, silly narrative that large language models are going to disintermediate all enterprise software. And I guess I joke at sort of the silly Wall Street narrative du jour. There tends to be one every year or 2. As it relates to Zeta, we have 3 massive moats in our business. First and foremost, we have 552 million active people who are opted in our data cloud today with an average of 5,000 to 7,000 data elements per person. Our first-party tracking pixel sits on 1 trillion pages of content and ingest trillions and trillions of proprietary marketing signals that synthesize to a deterministic individual that we have never and would never share with any large language model. Second, in order for our clients to operate with us, which include some of the largest companies in the world, as I've said, 51% of the Fortune 100, we take 100% of their first-party data. We ingest it into a consumer data platform. We then merge our data with it to enrich it. I don't see any of the Fortune 500 companies delivering their first-party data to large language models anytime in years to come. And then three, we have a 600% return on investment today. Our clients don't look at us as an expense to be disintermediated. They look at us as a revenue source. We are a revenue center for their businesses, and we are driving meaningful growth into their businesses. And then fourth and final answer is working with a Fortune 500 customer, Katie, very difficult from an onboarding and management perspective. You have to get through their data security groups, data privacy, procurement, legal, accounting, CIO, CTO, CMO, that is a very difficult skill set to build that we have really become experts at over the years. And it took us a very, very long time to get there. So data, return on investment and the ability to operate inside of very large enterprises is a massive moat to our business. I'll finish by saying we do believe that the large language models are going to massively benefit our business. So -- as I like to say, I started my first company at 21 years old in 1991, I was the youngest person in the room for the first 20 years I ran businesses. I am now universally the oldest guy in any room I walk into. There are some exceptions. But the reality is that teasing a friend. The reality is that when you think about it, I lived through the mobile era that was going to destroy technology. I lived through the dot-com area where the Internet was going to destroy Walmart and JPMorgan Chase. I lived through the beginning of cloud computing, which everybody the difference between the winners and the losers from my vantage point has always been the ability to create intelligence. Companies that create intelligence and outcomes that adopt these new technologies. And as you said, we adopted artificial intelligence in 2017. We started working with it back then. When we went public in June of 2021, our banner on the side of the New York Stock Exchange said data plus AI equals intent. Everybody was asking me, who's Al and why is he in charge of our data strategy. That's how sort of far back we go in AI. But we've announced a major partnership with OpenAI, where we're using them to be the voice foundation and the conversational super agent inside of Athena, but it's all our models. It's all our data that's training it. We use Anthropic inside of our engineering team. In fact, our engineering team today is 125% more productive than it was just 12 months ago. Now it delivers 150% increment, but 25% of it, you have to Q&A out, right? So -- but the net 125% is very, very strong. We use Microsoft tools. We use Git. We're sort of using everybody across the board to drive productivity. And I think that this is going to be a renaissance for Zeta.

Yes. Yes. Great context. I guess, Chris, I want to kind of bring you in and think about how this translates to the model. Q4 results, very strong last week, growing 28% on a normalized organic basis, guiding to 26% kind of sustaining that 20% growth again. I wanted to ask in the context of how you kind of laid out a framework at your Analyst Day late last year, durability, predictability and profitability of your growth. I thought that was a very thoughtful framework. It's kind of the quality that investors are looking for. So maybe just talk through how you kind of exemplified that in '25, and how you're thinking about it going forward?

Yes. We used to have a metric of how many straight years we were growing over 20%. We've now added the 3 straight years of growing over 30% on the top line. It's actually 28% even organically on a compound basis over a multiyear period. So I think the ability to show that our market is growing, call it, roughly 10%, we're growing 2x to 3x that consistently. So that puts us in a durable take share position. On the predictability of our business, I mean, it's one thing to beat and raise because you could do that through setting low expectations and or low, low expectations and doing kind of okay. We set growth every year at least 20%. And as you said, we surpassed it by giving ourselves that typical, which we disclosed a typical 2 to 5 points of buffer. So we try to demonstrate through our track record, how predictable our business is. But we also give the metrics that allow us to be predictive in our models to investors. So over 90% of our revenue comes from customers that have been with us over a year. We show investors how those cohorts behave over almost now 5-year period so that you can do the same level of modeling that we do internally. And then on the profitability side, it was record adjusted EBITDA, which is great. But as a company, we've more and more anchored to free cash flow. It was a record free cash flow margins and a turning point in the company getting to positive GAAP EPS, not just for the quarter but then being able to project it forward for '26, that's getting to at least $0.02 to $0.04 of positive EPS. And I think that's just kind of us running from here.

At some point, people will start to give us credit for visibility, right? We've been public for 18 quarters, we've beat our guidance and raised guidance 18 consecutive quarters. So we're obviously -- we have at least some level of visibility into the business.

Yes. Definitely, we'll dig into some of those points that you brought up, Chris. But 1 of the other ways we kind of look at the share gain is by wallet share within your customers, often talk about kind of addressing 1% of the available marketing, advertising, wallet today with potential to kind of drive that up. What are the key strategic initiatives we kind of talked to the impressive ROAS, but anything else that you can kind of highlight on the strategic initiative side to drive that out.

Yes. So to be clear, our 603 global enterprise clients spent $100 million in marketing last year, and we had 1.3% of that wallet share, put us to about $1.3 billion in revenue last year. We're projecting $1.755 billion this year, up from the $1.3 billion last year, which would -- and our clients are growing about 10% a year. So you would say that grows to about 1.6% to 1.7% of wallet share. Our long-term goal is to get to 10% of wallet share or build a $10 billion a year business with a 30% operating margin and 75-plus percent of that flow into free cash flow. We're not going to do that over the next few weeks, but we do think we're going to do that over the next number of years. What we're seeing is that the higher we drive the return on investment, the greater the percentage of budget that our clients move to us. And I think the next step function in return on investment is going to be the launch of Athena. Athena, which is our conversational super intelligent agent, say that 3x fast, is really a conversational voice platform that allows you to manage the Zeta Marketing Platform. So if you think about it, we've built an F-22 fighter jet at Zeta, but our average client knows how to fly a Cessna. And they're flying that Cessna and they're returning 600%, but they're not using anywhere near the capabilities of the fighter jet. Athena is going to be our clients' copilot in managing the fighter jet. So you'll be able to say to Athena, Athena, I'd like to create 2 million incremental customers this quarter. I'd like to simultaneously lower my cost to create a customer by an average of 7%. What new data sets am I not accessing that I should access to do that or what new channels can we experiment to get there. Not only will Athena speak back to the client, it will change the entire user interface to show the answers. By the way, there's great demos of this on our website if you want to see it. The clients that are already using it in beta are seeing a substantially higher return on ad spend than the 600% we're showing, and the best quote I was given that it is totally and completely revolutionized their workflow. So the ability to speak in a conversational way with the platform have it answer you, have that interface then change the platform, be able to say, yes, Athena, I like those new data sets. I like that channel, let's start the activation, but I don't want to start with $10 million, I'd like to start with $500,000. And I have to be out of the office for the rest of the day. Could you e-mail me hourly with the return on investment, so I can track it remotely, and we can make sure it's staying on track before I expand this. That's all available in version 1 of Athena, which will be generally available by the end of this quarter.

Awesome. Maybe taking a step back and thinking about the data asset that feeds a lot of this ROAS goodness. Very robust proprietary database. Maybe talk us through what having this database does for you? How is it compiled? And then when we think about the breadth of the data set, definitely very wide. But when we think about the depth of it, right? How do you guys think about the need to kind of go out and acquire more data? Do you feel like you have enough to keep delivering that insight?

Well, so first of all, our data cloud which has 552 million globally, people opted in, 242 million in the United States. We touched 2 billion people a quarter. We just don't track them because they're not opted in. We do get there -- we do see some of their data from a modeling perspective. We have 20 different platforms that plug in to publishers that we partner with the publishers. We give them software that makes them more profitable, allows them better interaction with their end users, allows their end users to share their data out and drive large volumes of traffic to the publishers, and in exchange, they put our first-party tracking pixel on every page they host. They host our Java script on every page and then a host of other things that we do. So what I would tell you is today, we have pretty much every credit card transaction, we have all of their psychographic, all of their demographic. All of their web behaviors, searches are all synthesizing in for those 552 million people. As it relates to, is it enough? Listen, some data isn't valuable until 7 years later. Some data is worthless in 10 seconds. So the more data we can ingest, the more powerful the models can be and because we never share our data with any large language model ever, it's proprietary to us and it's a major moat to our business. What I would say as well is, whenever we look at an acquisition, when we think about buying companies, we bought 18 companies in 18 years. I'd say it's highly probable there will be a 19th. We look at data sets and we look at what's there. And when you think about the most recent acquisition of Marigold, where we picked up some unbelievable enterprise assets, you picked up Cheetah Digital, you picked up Selligent, you picked up Sailthru. But I'd say the most valuable is the loyalty program, where many Fortune 500 customers are currently using us for loyalty. That is now at giving a SKU-level transaction data to train our models on. And my entire goal is to continue to drive a greater return on investment. My goal is to get to an order of magnitude, return on investment for our clients, 1,000%. And I believe we can do that over the next couple of years as it relates to our data sets, the evolution of our internal AI, partnering with third-party AI partners, and I think Athena will be the tip of the spear.

And maybe talk a little bit about the 2 platforms that you have to activate this data, direct integrated. Maybe talk a little bit about channel expansion.

So I want to be clear. We have 1 platform. So you asked the right question, but we have 1 platform. We have 1 user interface, 1 reporting infrastructure. The SEC mandated that we reported in 2 separate segments. One we call on our platform. One is our integrated platform. Our integrated platform is mostly our partnership with Meta and others where we match the Zeta ID to the Meta ID. I don't know really anybody else in our industry who does that. And listen, Meta takes a disproportionate percentage of the revenue as they should, which makes us even more valuable to them. As it relates to how we sell it, I would tell you that when we started with our agency holdco clients, they didn't have a solution for seamlessly managing their social media marketing. Most of the competitors in the programmatic space, they're just focused on the open web, and they're all trying to figure out -- they're all trying to figure out connected TV, whereas we came at it with a fully integrated solution that included social, mobile, display, online video, messaging and connected TV. When a client activates through us using our data and our set up tools to a third-party walled garden that we partner with, we count that as integrated. Whereas on platform, it's going directly through us to the publisher.

Right. And I think the kind of next set up for why Athena can be so interesting is when we start to think about the cohort progression right that Chris you were talking about earlier. So maybe when you are thinking about the use case expansion with your customers, what are you seeing there? You talked to an 80% kind of increase in incremental use case expansion on Q4. So maybe what's driving that strength in the use case adoption?

Yes, it's interesting. Outcomes, better outcomes, but we just conducted our most recent NPS survey. And what the survey comes out almost indisputably is the more our customers use what's available on the platform, whether that's more channels or more use cases or more of our data, the happier they are. Our ability, and I think it was seen through our net revenue retention rate of 120%, which was coming off a prior year record 114% is a good indication reflection of that usage, that happiness, that loyalty of the customer. So what's been driving that, to your point, for most part, up until 2024 was channel expansion. So we're getting an average of, call it, 3 channels per skilled customer. This year, 2025, I should say, was the year in which we saw an inflection point in use case adoption. That's important to our financial model because when customers use more than 1 of our use cases, they spend roughly 5x more. And that could be going from retention to grow or retention to acquire or any different direction. We are now at a point where in the most recent quarter, 80% -- so 80% growth in number of use cases, greater than 1, which reflects almost 1/4 of our total customer base, and that's up from, call it, 13% of our customer base using more than 1 use case a year ago. I think for us, the 1 Zeta sales motion, which we're organized, all sellers can sell any channel, if you will, on the truck. But we do have them organized by use cases, that's how our customers, for the most part, organized. They have existing customer set of technologies and people and new customer acquisition set of technologies and people focused on that. We have a thin layer of -- think about it as fighter pilots that sit above all of those use cases that are very strategically going at existing customers and then prompt the market to where we see we can add immediate value by getting them to use more than 1 use case.

And if you think about it, when a client uses us for customer acquisition and then chooses to add retention, the data from acquisition informs retention. Then the data from retention informs monetization, which then both of those inform acquisition and the return on investment, not just return on ad spend, the return on investment goes up exponentially when you use us for all 3, which is why they spend 500% more. We actually discovered this almost by accident. When we looked inside of the NPS score a year ago, and we said, wow, we better get behind this. And we brought in a gentleman named Ed See, who ran the Chief Marketing Officer practice for McKinsey, very difficult to get a practice leader out of McKinsey, but we brought him in, his technical title is Chief Growth Officer, but I call him Chief One Zeta Officer. And he's doing 2 things. One, they're going in and they're doing this. This 80% lift in customers who use us for multiple use cases with not an accident. But what's more important than that, Katie, is, I believe, Athena is going to be the tip of the spear for multiuse case. Let's go back to what we were talking about earlier. So now we've completed how we're going to add 2 million customers at a 7% discount, yada, yada, yada, Athena can then literally pivot and say, by the way, did you know 1 million of your existing customers are currently doing research with your competitors' products and thinking about churning, would you like to save them? And that's how you go from 1 use case to 2 automatically because we're tracking all the data.

Awesome. Yes, that's helpful. Maybe for a little bit of context around the actual technology of Athena, right, how would you characterize the evolution from ZOE, which was previously the kind of innovation engine here and then into what's kind of fundamentally different about Athena? And then started to get at what's really interesting from a use case perspective. Maybe, Chris, if you could kind of just talk to monetization, if you kind of look at historical precedents, there was a pretty material uplift for low usage. And so kind of how are you thinking about it?

Why don't I start with the technology and how it works, and I'll turn it over to you, Chris, give the percentages on ZOE return. What I would say first and foremost is when you look at the fighter jet that we bought, it is so complex. Like it's not just us, it's tech companies, we get so excited about building our platform, and we put every feature in it and every function at it. We think it's amazing and then clients get in front of them, like, what the hell do I do with this? And we're a product of that, right? So we found that clients are using a small percentage of what our platform can do because that's what they know how to do. And the concept of sending out a learning and development group to train these people how to use the entire platform, when this is what they do an hour a day. They're not doing it 100 hours a day, right? Not possible. But somebody will tease me later for that. The bottom line is that by adding the voice enablement that can also control the platform, it's going to open up all of the data sets and use cases and channels that they don't currently use. Today, all of our AI is internally built. You've got large language models out there, you've got small language models out there. I sort of jokingly say we build midsized language model, where we're transacting -- we're looking at trillions of data points, but we don't need to ingest the entire Internet to decide if this individual is going to get a credit card and will credit approve for our clients' credit card, right? So when you think about Athena, she is native to the application layer for the Zeta Marketing Platform. If she wasn't, she couldn't control it. Like you couldn't have an API in and out and have that work. It has to be native. But we're using OpenAI's voice enablement platform, which is the best in the world to make her truly conversational. The other thing that's going to happen in V2 is you'll be able to access her as a Zeta client inside of your Chat GPT app inside of your phone. So it's going to be native going both ways. And I think that's going to be an incredible uplift to return on investment to get from that 600% to 1,000%. Chris?

The intent from the very first version, if you will, of Athena, which was a Zeta opportunity engine or so, it was to make life easier for our customers to use more of the platform. There was so much data and intelligence to be extracted, but it was sometimes hard to navigate. So ZOE made that discovery process faster and easier. Athena now kind of hypercharges that. And we wanted to understand, our intent was to make life easier, which meant you use more channels, more use cases, was that actually happening on the platform. So then we took a sample of customers in the dozens that had ZOE's capabilities. And then we looked at it over a month, 6 months, 9 months, 12 months, beyond a year of what was their change in ARPU over that period of time, those that had ZOE but weren't using it and those that had ZOE and were using. We found that it was a 2x to 3x greater ARPU on those earliest adopters of ZOE then those were not using it. So as we begin to kind of have the fun with numbers on what Athena could generate, it's -- you just kind of start at a base level 2, and you can really model up because Athena has really made it multiplier easier to navigate the platform.

And to be clear, at this point, we've included a de minimis amount of Athena increment into the projections for this year because it goes generally available by definition, we're saying the end of the quarter, but it's now by the end of the month, right? We're in March. And we're very, very much on track for that. I feel highly confident. And the reality is that we'll have to see. What we're doing is we're going to launch it, we're actually birthing Athena sort of like the birth of Venus we're going up the birth of Athena, we'll see if we can pull off about a Chilean event. But the reality is that when she comes out, we've got a full learning and development package that we're going to be rolling out with it to all of our clients and we'll start with our top 30 customers, and we'll physically go visit them with the learning and development group to start getting everybody up to speed. So listen, if they adopt it quickly and they see higher return on investment, I think it's highly probable that they will spend more than we're budgeting.

Wanted to zoom out a little bit to some of the bigger picture kind of industry buying patterns that you're seeing from customers. The RFP sets that you guys throw out continue to be very, very interesting...

Only up 100%.

Right. Maybe like anything particular in the competitive dynamic that's driving that. Any differences in kind of win rates that you're seeing over the past few quarters? And then not just kind of more RFP wins, but larger ones. So kind of what's kind of driving that?

You know what's been interesting is, for many years, we got RFPs. But you could tell, they were literally written by the incumbent, right? Like the incumbent sitting in the room, writing the RFP, so they cannot lose it, right? Because this might be a Salesforce shopper, it might be an Adobe shopper or it might be an Oracle shop, and they're not going to not be those shops. And by writing the RFP, those large enterprises probably have a rule, they have to go out every 3 years or every 5 years or so on and so forth. That's changed. For the first time, I would say the vast majority of the RFPs we're receiving, the companies are willing to bifurcate marketing cloud from the core products of the larger software companies. And I think a lot of that is because their architectures at this point go back, in most cases, 15 years. You're still talking about exact target responses at Neolane here. And what happens is you can't integrate AI into the platform. You can talk about Agent Force from now until you're blue in the face, but it doesn't make any difference if it doesn't really work, right? And Salesforce is marketing cloud shrunk last quarter. That was their results. We're not interpreting them. That's what they said. Adobe and Oracle don't break it out, but I don't know what they're doing. What I would tell you is the architecture that we have built has data and AI is native to the application layer. When our competitors put AI on their platform, you have to step out of the platform to an AI algorithm, do a query. The algorithm has to do a data dip into a data repository back to the algorithm to create intelligence and then it forms the marketing cloud what to do. That latency destroys return on investment. Because AI and data, we launched a whole new platform in 2021 that literally, we can process thousands of data points in milliseconds, and decide, should this person see this ad, get this message or get this connected TV ad, that is creating this 600% return on investment. So I want to be very clear. Guys like Salesforce, Oracle, Adobe are some of the greatest companies in the world, their core products are best of breed. I don't even think they have meaningful competitors yet in their core products. But their marketing clouds are now the side hustle to their side hustle, and they're just not getting the investment. They would have to re-architect the entire thing, which they could, at some point, choose to do, but then none of them own any first-party data. They're just using their clients' data to train the algorithms. We are very, very focused on the sort of 1 plus 1 equals 4 as it relates to our clients' data plus our data. And so not only are you seeing 100% increment in RFP volume, which we talked about. I think we're seeing RFPs we're going to win at a greater percentage than we've ever won before.

Yes. And I think 1 of the most compelling data points from the print was how balanced from a vertical perspective it was 9 out of the top 10 kind of growing over 20%. I guess are there any key areas from a vertical perspective that you're thinking could be delivering outside share gains? Anywhere specifically you're thinking about for '26?

It's continued to strike us positively that the verticals that are closest to consumer discretionary, which are the brands that have to make the most -- kind of get the most ROI for their dollars invested were our best-performing verticals again. They grew over very strong comps in the year prior. One vertical that I'd call out because we've been intentional on incremental investment, not just in people but healthcare is 1 that you absolutely cannot have a generalist on. You must have a domain expertise in health care, by the way, across health plans, across health systems, et cetera. But we've also been intentional in finding partnerships around data there. So that was a vertical that did not grow 20% in 2024, that did grow over 20% in 2025 that we're optimistic about.

And I would just say, 1 of the things we decided when we sort of pivoted this business in 2017 into what it is today, was we wanted to operate across every vertical, right? We effectively operate against 15 different verticals that I'm not sure what percentage of GDP, those 15 make up, but I know the top 3 make up half. So it's got to be a disproportionate percentage. What I would say is, we're very well balanced. We usually, there's a year where a couple of the verticals are flat. A couple of the verticals are growing a little bit. A couple of the verticals are skyrocketing growth. The last couple of years, we've seen really solid growth from over 10 of our verticals in pretty much every quarter. And it's been interesting, even some of the verticals that their industries have been challenged. They're moving more budget to us than ever before because they need the higher return on investment. And then the guys who are skyrocketing are doing the same thing because they want to supercharge the growth. So it's been great. I would tell you, Katie, I believe, based on the business we've built, the assets we control, we have the people, the technology and the data to continue to be a 20-plus percent organic growth company for many, many years to come.

Yes. And you're not just growing well, but you're expanding margins as well. So maybe with the last few minutes, just talk about kind of the key leverage drivers and how you're thinking about balancing AI investment was still expanding.

I'll start and let you turn it over. But let me just start by saying a lot of the investments we made in AI, we made from 2017 to 2021. So everybody is now trying to catch up at 3,000% more cost per item. So we were able to get in before the price is really skyrocketed. A lot of people after our call said, well, if you're really delivering 600% return on investment, why are you not raising price? And to me, what a lot of people don't understand is the 40% approximate of our business, that's utilization fees. We effectively buy the marketing for our clients, and it transitions through our platform. So we decide what the margin is there. Do we want to manage it to growth or do we want to manage it to profitability? I believe that over the next few years, we will surpass 1,000% return on investment to our clients. And I believe we'll be able to keep all of the margin that exists above that, which will start to drive meaningful increment to gross margin. Chris, I didn't leave you much time, but I'm sorry.

I'll go super fast. We've created a model to where we don't have to sacrifice growth or profitability or vice versa. We give as much -- truly as much investment we can to the innovation team. We try to be smart in how many people and who we hire on the marketing and sales side. The secret sauce is everything else in the middle should be 0. And we're not there, but that allows us to really refine, get efficiency in the middle, over invest in the end, and that's resulted in great growth and profitability.

And by the way, we've grown the business, I think, on a 3 or this will be the fourth year of a compounded 30-plus percent growth rate greater than the 50% EBITDA. And last year, we grew free cash flow by 78%. So, yes, I feel like we're doing a good job managing to that.

Very impressive. Awesome. We'll leave it there. Thanks so much.

Thank you, Katie.

Appreciate it.