zeta global’s ipo filing uncovers modest growth, strong adjusted profitability

A Look at Zeta Global's IPO Filing

As the work week begins, let's delve into a recent IPO filing. We'll be examining Zeta Global's submission, analyzing its details before the pricing is determined.

Though I haven't closely followed Zeta Global until now, its substantial funding – exceeding $600 million through equity and debt, as noted by Crunchbase – warrants a thorough investigation. This makes it a company classified as a unicorn.

What Does Zeta Global Do?

Essentially, Zeta Global specializes in data processing and analysis. It empowers businesses to execute highly targeted marketing campaigns, reaching customers at various stages of their purchasing journey.

To put it simply, Zeta assists companies in tailoring their marketing approaches based on individual customer profiles and behaviors.

With the continued expansion of the digital marketplace, the demand for Zeta Global’s services has undoubtedly increased. The key questions are: has Zeta experienced rapid growth, and does it present a compelling business model?

We will also compare its final private valuation against its recent financial performance to assess consistency.

Investor Confidence

The backing of firms like Staley Capital, GCP Capital Partners, Franklin Square Group, and GPI Capital indicates strong investor confidence in Zeta Global’s potential.

Understanding the reasons behind these investments is crucial to evaluating the company’s prospects.

Let’s explore the details of Zeta Global’s IPO filing to uncover the factors that attracted such significant financial support.

A Concise Overview of Zeta Global’s Operations

Analyzing a company’s promotional content offers valuable insights, not only into their self-description but also into their desired market positioning. Zeta Global provides a compelling example.

Their S-1 filings reveal how the company intends to be understood by the public.

Should the preceding explanation prove unclear, that is perfectly acceptable.

In simpler terms: Zeta delivers a data-driven, hosted service to substantial clients, equipping them with resources to gain deeper consumer insights and enhance marketing performance through the use of automated software. Zeta empowers its clientele to identify, engage, and interact with their customers on an individualized level across numerous channels.

Hopefully, this clarification is more readily comprehensible. Consequently, Zeta can be categorized within the marketing technology sector.

But how has the broader martech landscape responded to Zeta’s presence?

Steady Expansion and Robust Adjusted Profitability

Data from 2019, 2020, and the first quarter of 2021 are under review. Examining Zeta’s complete results for the past two years, the company experienced revenue growth from $306.1 million to $368.1 million. This represents a growth rate of slightly over 20%, which is considered moderate.

However, comparing the first quarter of 2020 to the first quarter of 2021, Zeta’s revenues increased from $81.3 million to $101.5 million. This translates to a growth rate of just under 25%, a positive trend.

Generally, growth rates are assessed not only by their absolute value but also by their rate of change. A rapidly decelerating high growth rate may be viewed less favorably than a consistent, quicker growth rate. Conversely, a slower growth rate that is accelerating could command a higher valuation than peers exhibiting stagnant growth.

Zeta falls into the latter category. The company’s Q1 2021 growth rate surpasses its 2020 growth rate, a potentially advantageous factor as it prepares for a public listing. A 20% expansion rate in 2020 is only average for a technology company with substantial backing.

Regarding profitability, Zeta Global demonstrates increasing unprofitability on a GAAP basis – meaning inclusive of all costs. The net loss in 2019, amounting to $38.5 million, increased to $53.2 million in 2020. Furthermore, the net loss for Q1 2020, which was $16.4 million, grew to $24.3 million by Q1 2021.

However, a shift to adjusted profitability reveals a different picture.

It’s important to note that the timeline in this table progresses from right to left, not left to right.

The data indicates that Zeta’s profitability, expressed as a percentage of revenue, is improving on a heavily adjusted basis.

In this instance, considering adjusted metrics is justifiable, as expenses related to “change in fair value of warrants and derivative liabilities” are largely non-operational. Additionally, for growth-oriented companies, depreciation and amortization expenses receive less scrutiny.

Therefore, the adjusted profits hold more significance compared to those of other companies.

With a rising adjusted EBITDA and improving adjusted EBITDA margins, Zeta possesses a compelling profit narrative for investors, alongside potentially accelerating revenue growth. This combination should enable the company to achieve a favorable revenue multiple upon its listing.

Concerning valuation multiples, what was Zeta’s last assessed value? PitchBook data suggests a valuation of approximately $1.3 billion in 2017 during a growth funding round. However, more recent valuation data from subsequent equity raises in 2018 is unavailable.

Consequently, the key question is whether the company is currently worth at least $1.3 billion. Given its current run rate exceeding $400 million in revenue, the answer appears to be affirmative. The software company should be able to achieve a multiple greater than 3x. Thus, it faces a relatively low hurdle, assuming its final private equity valuation wasn’t significantly higher than the known round.

Having considered these points, Zeta should be added to the list of unicorn IPOs to monitor. More such debuts are anticipated in the near future.