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

Explicit Guidance:

• FY2026 Revenue: Raised midpoint to $1,855.0 million (up $37M from prior), representing 42% YoY growth (27% excluding Marigold and political candidate revenue); initial 2026 guidance excluded these items at 21% organic growth.
• FY2026 Adjusted EBITDA: Raised midpoint to $414.6 million (up $9.4M), implying 22.4% margin; seven consecutive years of margin expansion.
• FY2026 Free Cash Flow: Raised midpoint to $271 million (up $16M), implying 14.6% margin and 65% cash conversion (at Zeta's 2028 target levels).
• FY2026 GAAP EPS: Raised midpoint to $0.23 (up from $0.10), representing >600% increase from initial guidance of $0.03; excludes potential one-time tax benefit from valuation allowance release (upside potential).
• Q4 2026 Revenue: Midpoint of $523 million (up $15M), representing 33% total growth (23% excluding Marigold/political revenue).
• Q4 2026 Adjusted EBITDA: Midpoint of $136 million (up $4M), implying 25.9% margin.
• Q4 2026 Political Revenue: Expected $13 million (up $5M from prior), driven by delayed political cycle start.
• 2026 Guidance Assumptions: Assumes minimal partnership contribution (only signed pilots included) and a 2–5% conservatism cushion; excludes impact of potential one-time tax benefit.
• 2027 Outlook Indication: Expecting to begin next year with 20–21% organic growth base (historical norm) and maintaining 2–5% guidance cushion; official 2027 guidance to be released in February.

Business-Segment Outlook:

• Athena OS Launch: General Availability (GA) expected in Q1 2027; select customers entering beta later this year.
• Athena Adoption Impact: Expected to drive continued ARPU acceleration; top 25 Athena users grew revenue >70% in Q3 vs 46% company-wide; >70% of total customer base are Athena adopters.
• Product Expansion (ZBI): Extending beyond marketing into inventory management, supply chain management, and fraud/cybersecurity; positioning as "Intelligent AI Infrastructure" for enterprise-wide use cases.
• Athena MCP & Inference (AIM): Introducing models with 95% accuracy, 40% lower cost per request, and 6x faster response time vs. frontier models; enabling integration into ChatGPT, Claude, and Gemini workflows.
• Super-Scaled Customers: Count reached 212 (up 18% YoY); target long-term growth model remains 4–8% (currently exceeding this at >17%).
• Revenue Mix: Expecting >50% of super-scaled customers to be monthly active Athena users; non-Athena growth expected to remain robust via organic base.

Market and Competitive Outlook:

• MarTech Replacement Cycle: Accelerating replacement of legacy stacks; Zeta winning >50% of RFPs/pilots, expected to increase post-Salesforce/Braze acquisition.
• Salesforce/Braze Dynamics: Cited as a key inflection point; neither Salesforce nor Braze is "AI-native," creating a ~2-year integration risk and opportunity for Zeta to capture share during the transition.
• Google Search Displacement: Google answering ~68% of queries via Gemini (down to 32% click-through rate historically); causing diminishing marginal returns on search spend; customers expected to shift budget from "and" (Google) to "or" (Zeta), driving Zeta growth.
• AI-First Ecosystem: Shift toward agentic shopping and personalized agents (e.g., "Alfred," "Instinct") expected to drive demand for Zeta's data cloud to help agents focus on client products.
• Identity Landscape: Continued depreciation of third-party identifiers (e.g., Apple) reinforces Zeta's proprietary data advantage as competitors relying on identifiers deteriorate.
• Global Expansion: Accelerating international investment; strong performance in London (Europe hub), Canada, Japan, and Brazil; leveraging global agency clients to expand footprint.

Macro / Industry Outlook:

• Economic Context: Enterprises operating on "leanest margins" (consumer discretionary, retail, travel, auto) are prioritizing data-driven solutions, accelerating Zeta adoption in these verticals.
• Regulatory/Data Sovereignty: Emphasis on "Data Sovereignty" as a core differentiator; enterprises seeking to control relationships and proprietary data amidst AI shifts.
• AI Infrastructure Trend: Shift from application-centric to objective-centric intelligence; demand for solutions that maintain data sovereignty while leveraging frontier models.
• M&A Environment: Salesforce acquisition of Braze viewed as validating the "AI-native" replacement cycle narrative.

Strategic Initiatives:

• Partnership with Palantir: Fully integrated data cloud; 8 pilot agreements signed (one converting to super-scaled client by month-end, two active). Expect to add >$100 million in incremental annual revenue in coming years; pilots expected to scale faster than standard pilots due to sophistication.
• Acquisitions (Senso & Digital Audience): Senso integrated to enhance connection to frontier models for personal agents; Digital Audience strengthens identity/activation; both accretive to data cloud signals.
• Partnership with OpenAI: Expanding across product innovation and advertising; Zeta actively serving ads on OpenAI's platform; collaboration on GEO (Google Equipped Optimization) and emerging ad business.
• AI Engineering Efficiency: Code automation generating ~90% of total output (vs. 20–30% for competitors); reduced time-to-ship by 27% and time-to-review by 300%, enabling engineers to ship twice the code weekly.
• Zeta Live Event: Generated >$100 million in new pipeline in weeks; 23 new deals signed; targeting >$100 billion in booked business (10x ROI from last year).
• Capital Allocation: Continued share buybacks; $29.9M repurchased in Q3, $101.4M YTD; targeting 3–4% net dilution for 2026.
• SBC Reduction: Stock-based compensation reduced from 33% (2023) to 12% (YTD 2026); trend expected to continue.

Risks and Headwinds to Outlook:

• Guidance Conservatism: Outlook assumes 2–5% cushion and minimal partnership contribution; actuals could exceed guidance if partnerships scale faster.
• Integration Timelines: Reliance on partners (Palantir, OpenAI, Fireworks) and internal execution (Athena OS GA in Q1 2027) carries risk of timeline slippage.
• Macroeconomic Sensitivity: Political candidate revenue (expected $13M in Q4) remains subject to election timing and cycle dynamics.
• Competitive Response: Potential competitive reactions from Salesforce/Braze integration or Google's AI search dominance, though Zeta views current trajectory as advantageous.
• One-Time Factors: Future GAAP EPS upside excluded current valuation allowance release benefit, which remains a "reasonable possibility" but not guaranteed.

Management Tone on the Future:

• Confidence Level: Extremely high; CEO David Steinberg describes the opportunity as "greater than at any point in our corporate history" and notes "incredible advantage" post-Salesforce/Braze news.
• Strategic Certainty: Emphasizes Zeta is "AI-native" and "ahead of schedule"; views Athena OS not as a pivot but an evolution.
• Execution Focus: Highlights "durable, defensible growth" with accelerating margins and cash flow; confident in ability to fund expansion internally.
• Market View: Believes the ecosystem shift (Google search click decay, AI agent rise) is structural and favorable to Zeta's proprietary data moat.
• Change vs. Prior Guidance: Consistently "beating and raising" (21st consecutive quarter); raised FY26 guidance by $37M revenue, $9.4M EBITDA, and $16M FCF.