Zeta Global Holdings Corp. (ZETA)

Executive Summary / Key Takeaways

• Seven-Year AI Headstart Meets Execution Excellence: Zeta Global built AI natively into its platform starting in 2017, creating a data and algorithmic moat that competitors cannot replicate overnight. This foundation has delivered 17 consecutive quarters of beating and raising guidance, including through the 2022 "tech reset," proving the model's resilience and predictability.

• Direct Platform Mix Shift Drives Margin Expansion: Direct platform revenue reached 75% of total revenue in Q3 2025, up from 70% a year ago. Direct revenue carries lower costs and higher margins than integrated revenue, fueling a 230 basis point improvement in adjusted EBITDA margin guidance to 21.5% for 2025—transforming Zeta from a growth story into a profitable scale story.

• OneZeta Flywheel Creates 3x Revenue Multiplier: Customers adopting two or more use cases generate over three times the annual revenue of single-use-case customers. The cohort of multi-use-case customers grew over 100% year-over-year in Q3 2025, while those using five or more channels increased over 60%. This self-reinforcing adoption loop accelerates both growth and customer stickiness.

• Strategic Acquisitions De-Risk and Accelerate: The LiveIntent integration, completed ahead of schedule, adds mobile-first identity capabilities and is already accruing at 100% of its earn-out. The pending Marigold acquisition brings 100+ enterprises, 20 of the top 100 North American advertisers, and loyalty program data that will train Zeta's proprietary algorithms, widening the data cloud moat.

• Valuation Disconnect Offers Asymmetric Upside: Trading at $19.05 with a 3.83x price-to-sales ratio and 33.3x free cash flow multiple, Zeta trades at a substantial discount to its growth rate and margin expansion trajectory. Analysts see 50-100% upside potential, while the company's 14% free cash flow margin and 60% conversion rate signal improving capital efficiency that the market has yet to fully recognize.

Setting the Scene: The AI Revolution in Marketing Technology

Zeta Global Holdings Corp., founded in October 2007, operates at the intersection of artificial intelligence, proprietary data, and marketing automation. The company is not a latecomer to the AI boom; it began natively building AI into its platform around 2017, a foundational investment that predates the current generative AI frenzy by half a decade. This early start created a platform architecture where AI and data are embedded at the application layer, eliminating the latency that destroys return on investment when competitors must query external algorithms.

The marketing technology landscape is undergoing a once-in-a-generation replacement cycle. Legacy marketing clouds like Salesforce (CRM), Oracle (ORCL), and Adobe (ADBE) operate on decades-old architectures that require stepping out of the platform to query algorithms, creating 5-7 second delays that kill campaign performance. Zeta's platform executes the same decisions in milliseconds. This speed advantage translates directly to client ROI: every dollar spent through the Zeta Marketing Platform returns six dollars in revenue, putting Zeta on par with walled gardens like Google (GOOGL) and Meta (META) while offering superior transparency and control.

The industry structure favors Zeta's approach. Global marketing spend is roughly 75% media and 25% CRM revenues, yet most competitors charge meaningful upcharges for data while Zeta bundles data into activation. This makes Zeta the most profitable partner for agencies on average, increasing their margins by 25% compared to alternatives. When agencies are under margin pressure themselves, this economic incentive creates a powerful adoption tailwind that competitors cannot easily counter.

Technology, Products, and Strategic Differentiation: The AI-Native Architecture

Zeta's core technology advantage rests on three pillars: the Zeta Marketing Platform (ZMP) with embedded AI since 2017, the OneZeta multi-use-case strategy, and the forthcoming Athena conversational agent. The ZMP processes billions of structured and unstructured data signals to predict consumer intent, optimize messaging, and drive personalized marketing across all addressable channels. Unlike competitors who bolted AI onto existing platforms, Zeta's AI is native, enabling real-time decision-making without the latency costs that plague legacy systems.

The OneZeta initiative represents Zeta's most important growth engine. By encouraging customers to adopt multiple use cases—acquisition, growth, and retention—Zeta creates a flywheel effect where each additional use case increases customer stickiness and revenue per account. Customers using all three use cases experience substantially better ROI, higher Net Promoter Scores, and increased stickiness. The data proves this: customers adopting two or more use cases generate greater than three times the annual revenue of single-use-case customers. In Q3 2025, the count of customers using two or more use cases grew over 100% year-over-year, while those using four or more channels increased 44% and those using five or more channels grew over 60%.

The shift to deeper platform usage transforms Zeta's revenue model from transactional to platform-based. As customers deepen their usage, switching costs rise exponentially. The platform becomes embedded in their marketing operations, making it difficult for competitors to displace. This dynamic drives net revenue retention consistently above 111% and creates a predictable expansion path within the installed base.

Athena, the AI conversational superintelligent agent launched at Zeta Live in October 2025, represents the next evolution. Athena acts as a real-time voice-activated command center for the ZMP, allowing clients to plan, execute, analyze, and optimize campaigns in plain-spoken English. The rollout timeline is aggressive: internal beta now, client beta by end of Q4 2025, and full production readiness by Q1 2026. Management believes Athena will be among the single biggest drivers of the OneZeta methodology by removing friction and enabling easy expansion to secondary use cases. If successful, Athena could accelerate multi-use-case adoption beyond current trajectories, directly impacting revenue per customer and margin expansion.

Financial Performance & Segment Dynamics: Evidence of Strategy Working

Zeta's financial results validate the strategic thesis. Revenue increased 25.7% year-over-year to $337.2 million in Q3 2025, with direct platform revenue accounting for 75% of the mix, up from 70% in the prior year period. This mix shift is the single most important margin driver. Direct revenue carries lower cost of revenue than integrated revenue because it eliminates third-party margin sharing. The impact is visible in the cost of revenue trends: despite the higher direct mix, GAAP cost of revenues as a percentage of revenue was 39.5% in Q3 2025, a 13 basis point increase year-over-year but a 160 basis point increase sequentially from Q2's 37.9%.

The margin expansion story is accelerating. Adjusted EBITDA guidance for 2025 was raised to $273.7 million at the midpoint, representing a 42% year-over-year increase and a 21.5% margin—up 230 basis points from 2024. For 2026, management expects $354 million of adjusted EBITDA at a 23% margin, up another 150 basis points. This trajectory demonstrates operating leverage at scale. As direct revenue mix increases and OneZeta adoption deepens, Zeta can grow EBITDA faster than revenue while improving margins.

Free cash flow generation has reached an inflection point. Q3 2025 free cash flow was $47.1 million, up 83% year-over-year, representing a 14% margin—the highest in company history. Free cash flow conversion hit 60% in Q3, up from 48% in Q3 2024 and 57% in Q2 2025. This improvement is despite an 18-point working capital headwind from longer agency payment cycles. The company repurchased 1.7 million shares for $28 million in Q3 and 6 million shares for $85 million year-to-date, with $198.9 million remaining under the repurchase plan.

This capital allocation signals management's confidence that the stock is undervalued relative to intrinsic value.

Customer metrics reinforce the growth quality. Scaled customers increased 20% to 572, while super-scaled customers grew to 180 from 144. Scaled customer ARPU rose 4% to $579,000, and super-scaled ARPU held steady at $1.6 million despite the larger customer count. Seven of the top 10 industry verticals grew faster than 20% year-over-year on a trailing 12-month basis, with telecom joining the 20%+ club in Q3. This broad-based growth reduces concentration risk and demonstrates platform versatility.

Outlook, Management Guidance, and Execution Risk

Zeta's guidance framework reflects disciplined conservatism built on 17 quarters of consistent outperformance. For 2025, management raised revenue guidance to $1.275 billion (26% growth excluding political and LiveIntent), adjusted EBITDA to $273.7 million (21.5% margin), and free cash flow to $157.4 million (71% growth). The Q4 2025 guidance implies 16% year-over-year growth, or 23% excluding political and LiveIntent—consistent with the Zeta 2028 plan targeting 20%+ organic growth.

The initial 2026 organic outlook—$1.54 billion revenue (21% growth) and $354 million adjusted EBITDA (23% margin)—is particularly significant because management provided it before closing Marigold, establishing a clean baseline. This guidance assumes $15 million of political candidate revenue, double the 2022 midterms level, and includes a 2-5% top-line buffer. Management explicitly stated they left conservatism in the guide, noting that 60% of the installed base has been with Zeta for 3+ years and expands spend 15 points annually on average.

The Marigold acquisition, expected to close by end of 2025, adds an "incredible sales team" and over 100 enterprises currently on a single use case. This represents immediate OneZeta cross-sell opportunity. Strategically, the loyalty program data will be game-changing for training proprietary algorithms, including Athena, Answers, and generative engine optimization products, widening the data cloud moat. Management has not included any Marigold contributions in 2025 guidance, creating potential upside for 2026.

Execution risks center on integration and macro sensitivity. The LiveIntent integration was completed ahead of schedule and is accruing at 100% of earn-out, demonstrating management's M&A competence. However, the company acknowledges that macro uncertainty could impact customer spend, and the effective tax rate remains negative due to valuation allowances on U.S. deferred tax assets. One customer accounted for over 10% of revenue in the nine months ended September 30, 2025, up from none in the prior year period, indicating renewed concentration risk that bears monitoring.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is execution at scale. While Zeta has proven its ability to integrate acquisitions quickly, the Marigold deal adds complexity. If integration falters or the expected OneZeta cross-sell fails to materialize, the 2026 growth trajectory could disappoint. Management's confidence is high—"we think the LiveIntent deal was a grand slam home run, and we're looking forward to having a similar experience with Marigold"—but each acquisition carries unique challenges.

Macroeconomic sensitivity remains a concern. Management's guidance assumes a "softer macro in the second half" of 2025, building in a buffer. However, if recession materializes, marketing budgets are often early cuts. The company's performance-based model provides some protection—clients only pay for measurable outcomes—but a severe downturn could still impact growth rates and customer retention.

Data privacy and AI regulatory risks are evolving threats. The business depends on the ability to collect and use data online, and new consumer tools, regulatory restrictions, or changes to web browsers and mobile operating systems could impair data collection. Additionally, evolving AI regulatory frameworks could increase compliance costs or limit certain algorithmic applications. While Zeta has successfully navigated a short seller report and maintains independent validation of its practices, regulatory headwinds remain a wildcard.

Customer concentration has re-emerged. With one customer exceeding 10% of revenue, Zeta faces client-specific risk that didn't exist in 2024. While this reflects a large enterprise deepening its relationship—a positive signal—it also creates vulnerability if that customer reduces spend or switches platforms. The agency business model, while profitable, can be lumpy, and longer payment cycles created an 18-point working capital headwind in Q3.

Competitive Context: Next-Generation vs. Legacy

Zeta competes directly with Salesforce (CRM), Adobe (ADBE), Oracle (ORCL), and HubSpot (HUBS), but positions itself as the "next generation Marketing Cloud." The competitive advantages are quantifiable: Zeta's AI is native to the application layer, eliminating the 5-7 second latency that destroys ROI for legacy platforms. This speed advantage is not incremental—it fundamentally changes campaign performance and economics.

Against Salesforce, Zeta's advantage is agility and cost efficiency. While Salesforce commands 16-17% market share with $10.3 billion in quarterly revenue, its growth has matured to 9% year-over-year. Zeta's 26% growth reflects superior AI-driven personalization, though it lags in absolute scale and ecosystem breadth. Salesforce's Agentforce and Data Cloud are credible competitors, but they remain bolted onto a legacy architecture.

Adobe's Experience Cloud, with 10% market share and $5.99 billion quarterly revenue, excels at content-driven marketing but lacks Zeta's depth in predictive intent modeling. Adobe's 12% growth and 30% net margins reflect a mature, profitable business, but its content-centric approach requires additional integrations for full omnichannel activation where Zeta operates natively.

Oracle's marketing cloud, part of its broader CX suite, benefits from enterprise scale and cloud infrastructure but suffers from legacy on-premise dependencies and slower agility. Oracle's 12% total growth matches Adobe but lags Zeta's pace, while its 21% cloud growth shows strength in infrastructure rather than marketing applications.

HubSpot's inbound platform, growing 21% with $809.5 million quarterly revenue, targets SMBs and mid-market with user-friendly tools but lacks enterprise-scale data analytics depth. Zeta's enterprise focus and superior machine learning for purchase intent create a differentiated position, though HubSpot's 85% gross margins and 19.9% operating margins demonstrate strong unit economics at scale.

Zeta's primary competitive moat is its proprietary AI and data advantage developed over eight years, not eight months. This moat counters Salesforce's scale by providing nimbler, lower-cost predictions that exploit integration complexities. Against Adobe, it exploits creative-tool weaknesses by enabling notably better behavioral targeting. The network effects from opted-in data create a self-reinforcing cycle: more data improves predictions, which improves ROI, which attracts more customers and data.

Valuation Context: Disconnect Between Performance and Price

At $19.05 per share, Zeta trades at a 3.83x price-to-sales ratio and 33.3x price-to-free-cash-flow ratio. These multiples are compelling for a company growing revenue at 26% with expanding margins. The enterprise value of $4.51 billion represents 3.68x revenue and 82.66x EBITDA—elevated on an absolute basis but reasonable for a company at an inflection point from growth to profitable scale.

Balance sheet strength supports the valuation. With $385.2 million in cash, $460.3 million in net working capital, and a 3.01 current ratio, Zeta has ample liquidity to fund operations and acquisitions. Debt-to-equity of 0.30 and $342.5 million in undrawn revolver capacity provide financial flexibility. The company is in compliance with all covenants and expects to remain so.

Relative to peers, Zeta's valuation appears attractive. Salesforce trades at 6.34x sales with 9% growth; Adobe at 6.37x sales with 12% growth; Oracle at 10.51x sales with 12% growth; HubSpot at 6.70x sales with 21% growth. Zeta's 3.83x sales multiple represents a 30-60% discount to slower-growing competitors, despite superior growth and margin expansion. Analysts have consistently rated Zeta a Strong Buy, with DCF models indicating 61% upside and comparisons showing a 50% discount to fair value.

The company's capital allocation enhances the investment case. With $198.9 million remaining on the share repurchase authorization and a track record of buying back stock when management believes it's undervalued, Zeta is actively reducing share count while investing in growth. Year-to-date dilution of 1.6% is on track to meet the 4-6% target for 2025, down from 15% in 2024, demonstrating disciplined equity management.

Conclusion: The AI-Native Inflection Point

Zeta Global has reached an inflection point where its seven-year AI investment is translating into both superior growth and expanding margins—a rare combination that legacy competitors cannot easily replicate. The 17 consecutive quarters of beating and raising guidance are not a fluke; they reflect a business model where the OneZeta flywheel, direct platform economics, and agency profitability incentives create self-reinforcing momentum.

The investment thesis hinges on two variables: whether Zeta can maintain its execution velocity as it scales from 572 scaled customers to thousands, and whether the Athena launch can accelerate OneZeta adoption beyond current trajectories. If successful, Zeta will continue taking share from legacy marketing clouds while expanding EBITDA margins toward the 23% target for 2026.

The pending Marigold acquisition adds both opportunity and risk. The 100+ enterprises on single use cases represent immediate cross-sell potential, but integration must be flawless to justify the $325 million consideration. The LiveIntent integration's success provides a template, but each deal carries unique challenges.

Trading at a significant discount to slower-growing peers while generating the highest free cash flow margins in company history, Zeta offers an asymmetric risk/reward profile. The market appears to be pricing Zeta as a traditional martech vendor rather than an AI-native platform at an inflection point. For investors willing to look past the small scale and bet on execution, Zeta's combination of growth, margin expansion, and strategic positioning creates a compelling long-term opportunity. The next 12-18 months will determine whether this AI-native flywheel can deliver on its promise of profitable, sustainable scale.