On Monday, Barclays (LON:BARC) revised its outlook on Zeta Global Holdings Corp (NYSE:ZETA) stock, shifting from an Overweight to an Equalweight rating, while setting a price target of $28.00. The adjustment follows an evaluation of the company's future growth prospects and current market valuation.
The analyst from Barclays highlighted concerns about the challenges Zeta Global may face in maintaining its growth trajectory. As investors turn their attention to the company's organic growth and comparisons for the fiscal year 2025, Barclays anticipates a tough decision between improving gross margins and pursuing additional revenue growth. This situation is likened to that faced by Twilio (NYSE:TWLO) Inc. in 2022.
Barclays also pointed out that the valuation of Zeta Global is becoming less appealing as a lower multiple is applied to Integrated revenue growth, which has approximately 35% gross margins.
Despite Zeta Global's agency business potentially reaching approximately $130 million in revenue by the end of the fiscal year 2024, there are concerns about the company's ability to continue this momentum into fiscal year 2025 with additional brands within these agencies.
The analyst cited a lack of visibility on improvements in the Direct mix within these customers as a contributing factor to their cautious stance. After a strong performance year-to-date, with Zeta Global's shares increasing by 240% compared to a 5% decline in the EMCLOUD index, the firm now sees the shares as less attractive.
This is based on the current valuation of approximately 7x enterprise value to next twelve months sales, in contrast to peers trading at around 5x.
In other recent news, Zeta Global Holdings Corp is making significant strides in the market. Barclays recently downgraded Zeta Global's stock rating from Overweight to Equalweight, setting a price target of $28.00, reflecting concerns over the company's future growth prospects and valuation.
Despite these concerns, Zeta Global has announced plans to acquire LiveIntent, a marketing platform, for $250 million, expected to enhance Zeta Global's identity resolution capabilities and expand its publisher monetization.
Analysts from DA Davidson, Canaccord Genuity, and Needham have shown confidence in Zeta Global's future performance. DA Davidson raised its stock price target to $39.00, maintaining a Buy rating.
Canaccord Genuity also raised its price target for Zeta Global to $35, citing strong momentum and potential for continued growth. Needham maintained a Buy rating on Zeta Global with a steady price target of $36.00, emphasizing the seamless synergy between Zeta Global and LiveIntent.
Zeta Global has reported a 35% year-over-year revenue growth and a 33% rise in year-over-year revenue for the second quarter of 2024. These developments highlight Zeta Global's strong positioning and growth trajectory in the market.
InvestingPro Insights
Recent InvestingPro data provides additional context to Barclays' revised outlook on Zeta Global Holdings Corp (NYSE:ZETA). Despite the downgrade, Zeta's financial metrics reveal a company in a growth phase with some notable strengths. The company's revenue growth remains robust, with a 32.61% increase in the most recent quarter and a 25.16% growth over the last twelve months, reaching $822.09 million.
However, profitability remains a challenge, aligning with Barclays' concerns. Zeta is not profitable over the last twelve months, with an adjusted operating income of -$131.48 million and an operating income margin of -15.99%. This supports the analyst's view on the potential trade-off between improving gross margins and pursuing additional revenue growth.
InvestingPro Tips highlight that Zeta operates with a moderate level of debt and its liquid assets exceed short-term obligations, which could provide some financial flexibility as the company navigates its growth challenges. Additionally, analysts predict that the company will be profitable this year, potentially alleviating some concerns about its financial trajectory.
For investors seeking a more comprehensive analysis, InvestingPro offers 9 additional tips for Zeta Global, providing a deeper understanding of the company's financial health and market position.
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