Zeta Global 3Q'26 Earnings Call - ZETA GLOBAL HOLDINGS CORP

Financial Performance:

• Q3 2026 revenue reached $493 million, growing 46% year-over-year (YoY) and 30% excluding Marigold and political candidate revenue.
• Adjusted EBITDA was $121 million, up 55% YoY, with margins expanding 140 basis points to 24.6%.
• Free cash flow (FCF) was $82 million, up 73% YoY, achieving a FCF margin of 16.5% and cash conversion of 67.3%.
• GAAP diluted EPS was $0.14 (vs. a $0.02 loss YoY); Non-GAAP diluted EPS was $0.38, up 58% YoY.
• Cost of revenue (excluding D&A) decreased to 39.7% (-120 bps QoQ), while OpEx (R&D, G&A, S&M) improved significantly YoY.
• GAAP net income for the quarter was $38 million; Year-to-date GAAP EPS is positive at $0.13.
• Share buybacks totaled $29.9 million in Q3 and $101.4 million YTD; Net dilution was 1.1% for the quarter.

Guidance and Future Outlook:

• Raised full-year 2026 revenue guidance midpoint to $1.855 billion (+42% YoY), an increase of $37 million from prior guidance.
• Raised full-year 2026 Adjusted EBITDA guidance midpoint to $414.6 million (+49% YoY) with a 22.4% margin.
• Raised full-year 2026 Free Cash Flow guidance midpoint to $271 million with 65% conversion.
• Raised full-year 2026 GAAP EPS guidance midpoint to $0.23, up from $0.10 prior and $0.03 initial guidance.
• Q4 2026 revenue guidance raised to $523 million midpoint (+33% YoY, +23% organic); Adjusted EBITDA guidance raised to $136 million.
• Management expects organic growth of at least 20-21% for 2027, noting strong momentum despite a 2-5% conservatism cushion.
• Full-year 2028 cash conversion target (65%) has already been achieved in the current year.

Business Segments and Product Lines:

• Athena OS (Operating System) is the primary growth driver; over 50% of super-scaled customers are monthly active users, accounting for >70% of total revenue.
• Top 25 Athena users grew revenue >70% YoY (vs. company-wide 46%), while Athena adopters showed net revenue retention (NRR) >500 bps higher than the overall base.
• Super-scaled customers grew 18% YoY to 212; Quarterly ARPU for this segment expanded 22% YoY to $2 million.
• Athena adoption is driving faster campaign development (doubled QoQ) and increased platform engagement (+50% hours spent).
• New product lines include Athena Inference Model (AIM) achieving 95% accuracy at 40% lower cost and 6x faster response; Athena MCP extends intelligence into workflows like ChatGPT, Claude, and Gemini.
• Strategic acquisitions: Senso enhances connectivity to frontier models and "GEO" (Generative Engine Optimization) for shopping agents; Digital Audience strengthens identity/activation.
• Zeta Business Intelligence (ZBI) is expanding use cases beyond marketing into inventory management, supply chain, fraud detection, and cybersecurity.

Market and Competitive Landscape:

• RFP volume surged >100% YoY, signaling an accelerating replacement cycle for legacy Marketing Technology (MarTech).
• Salesforce's acquisition of Braze is viewed as a catalyst for Zeta, as neither platform is AI-native, creating a "replacement" opportunity for Zeta's native AI stack.
• Strategic partnership with Palantir is fully integrated; 8 joint pilots active, with one expected to become a super-scaled customer by month-end. Partnership projected to add >$100M in incremental annual revenue long-term.
• Partnership with OpenAI is expanding into Zeta's GEO and emerging advertising business.
• Google's increasing reliance on AI (Gemini answering ~68% of queries) is reducing click-through rates to 32% (vs. 90%+ historically), driving a shift in advertiser spend toward Zeta.
• 23 new deals signed directly from Zeta Live; >$100M in new pipeline generated in recent weeks.
• Strong growth in consumer discretionary sectors (retail, travel, automotive) and telecom.

Risks and Challenges:

• Future revenue includes only a 2-5% cushion and minimal contribution from partnerships (based on signed pilots).
• Political candidate revenue fluctuations remain a factor, though Q3 and Q4 guidance were raised above expectations.
• Integration risks associated with the Palantir partnership and M&A (Senso/Digital Audience).
• Dependence on third-party AI models (though Zeta maintains data sovereignty and exclusive data cloud access).
• Potential for one-time tax benefits from valuation allowance release excluded from guidance, creating uncertainty on potential upside.

Management Commentary and Tone:

• Tone is highly confident and optimistic; CEO David Steinberg emphasized "incredible execution" and "greater opportunity than at any point in corporate history."
• Management highlighted a "21st consecutive beat and raise" quarter and successful capital deployment despite heavy R&D and strategic investment (e.g., Zeta Live).
• Strong focus on the transition from a marketing platform to "Enterprise Intelligence Infrastructure" via Athena OS.
• Emphasis on "defensible growth" driven by proprietary data assets and AI-native architecture.
• CEO noted spending "disproportionate time" on Palantir integration, underscoring strategic priority.

Analyst Questions and Answers:

• Balancing Core vs. New Ambitions: Management confirmed the core marketing business remains strong (30% organic growth) while Athena OS accelerates ARPU without distracting from existing success.
• Athena Adoption Drivers: Higher spend is driven by superior ROI (600-700% on marketing spend) and increased platform activity (campaign development doubling QoQ).
• 2027 Guidance: Preliminary expectations maintain a 20-21% organic growth base with transparency on M&A and political revenue impacts.
• Palantir Partnership: 8 active pilots (one converting to super-scaled immediately); integration allows faster ROI demonstration and scaling compared to standard pilots.
• Competitive Edge (Salesforce/Braze): Zeta views the acquisition as a strategic advantage due to the lack of AI-native architecture in the combined entity, accelerating the replacement cycle.
• Google Impact: Declining search clicks are increasing CPCs and diminishing returns for advertisers, pushing them toward Zeta's AI-driven, data-first approach.
• International Expansion: Heavy investment in global markets (London hub, Canada, Japan, Brazil) leveraging global agency clients to expand reach.
• Headless Strategy: Athena MCP allows Zeta to plug into third-party UIs (e.g., enterprise GPT) while retaining control over the data cloud and activation layer.

Other Key Points:

• Code automation now accounts for ~90% of total code output, reducing time-to-shipment by 27% and accelerating innovation.
• Zeta Live event hosted >3,000 attendees, including decision-makers representing >$200B in marketing spend; ROI on event investment projected at >10:1.
• Zeta named to Fortune's "Best Workplaces in Technology," rising 10 spots in 2026.
• "Athena AI Model" (AIM) developed with Fireworks and NVIDIA Nemetron to provide enterprise-specific context and lower costs.
• Management is on track to achieve 3-4% net dilution for the full year 2026.