Awesome. I think it's, we're about ready to go? Awesome. All right, well, thanks everyone, for joining us. Welcome to Day Two of the 26th Annual Needham Growth Conference. I'm Ryan MacDonald. I'm a software analyst here at, at Needham, and, in this fireside chat session, it's my pleasure to be joined by Zeta Global. We have the co-founder, chairman, and CEO, David Steinberg-
Yes.
-and CFO, Chris Greiner. Gentlemen, thanks for joining me today.
Thank you, Ryan.
Thanks for having us.
Absolutely. So for those of you in the audience, we've got about 40 minutes for a fireside chat. You know, we'll probably spend about 30 with questions from me, and then if you do have questions for management, in the last 10 minutes, well, we'll be free to ask and get those answered for you. But with that, we'll jump right in and get started. And David, it's a pleasure to have you here, and thanks for coming to the conference, so-
It's a pleasure to be had.
Yeah.
This is my first conference in a while.
Oh, I love it. I love it. Well, thanks for choosing ours. Maybe for those who are unfamiliar with Zeta, how about a brief overview of the business?
Yeah. So when we think of Zeta, we are a data-driven marketing platform. We traditionally do that in the form of a data cloud and a marketing cloud, which are merged together in a way that allow us to put data, and like everybody else talks about this week, artificial intelligence, as native to the application layer of our marketing cloud. We traditionally are selling our product as a software, as a service to our clients, and our main goal in life is to help very large enterprises to create, maintain, and monetize customers at a substantially lower cost than they can without our data or our software.
Mm-hmm. Excellent. And, and for those who are maybe newer to it, what types of organizations or verticals does Zeta sell into? And, you know, who are the users within those organizations that, you know, will use Zeta as a part of their everyday role?
Well, Chris is better at this one than me. We have about 15 different verticals, none of which makes up more than 13% of our revenue as of the third quarter of the year. It's been one of the things that really benefited us through the last couple of years-
Mm
... because we saw certain verticals have challenges, and we saw certain verticals really grow. So being vertical agnostic has been very important to us. Before I turn it over to Chris to add to it, which he will do much better than I, I also like to talk about the fact, our best customers are enterprises that know the most about their customers. So when you think about it, we look at efficacy in addition to efficiency as it relates to marketing. If you can't manage it, you can't really operate it.
Mm-hmm.
When we look at efficacy, and we look at attribution, our goal is to create a substantially larger return on investment for our clients' marketing than they can get without us, and we like to do this odd thing, which we call proving it.
Mm-hmm.
So we do that by being able to plug into their CRM systems-
Mm-hmm
... while simultaneously putting what's called a CDP, or consumer data platform, in place between us and the customer. As all of that data feeds in, it allows us to look at the entire journey that the customer took before becoming their customer, which then allows the algorithms to get smarter and further target to the 240 million-plus Americans who are opted into our data cloud today. So as you think of verticals, we're big in ones where you're seeing the customer all the way through.
Mm.
And by the way, we're in CPG, it's important to us, but it's not... You would think of us more financial services-
Mm
... automotive, health and wellness, so on and so forth. Chris?
I think the only thing to add, it was perfectly said, is when you think about-
Thank you
... what's driving all of those verticals? You're welcome. You're my boss. What's driving all of those verticals?
We did bonuses yesterday.
That's true.
You would think he wouldn't care.
That's true. You did a really great job.
Yeah, I did.
Across all of those verticals, you should kind of as an investor, what's really interesting right now is structurally-
Mm-hmm
... and what we're benefiting from is there's two forces that are driving the market, that's been driving our record sales pipeline-
Mm
...record RFP activity. The first is a broader replacement cycle. So as the chief marketing officer works with the CIO, as they're looking to get more and more efficiency across their technology stack, it's only Zeta in this ecosystem.
Mm
... that can consolidate down data vendors, the CDP partners that they have, their marketing cloud vendors, and their multiple activation vendors, oftentimes from 5-10 to 1-
Mm-hmm
... to the marketing platform. So the replacement cycle is one, and the second is the focus and the need for personalization. As David mentioned, only through our data cloud-
Mm
... can Zeta bring to an enterprise brand, oftentimes more than they know about their existing customers and far more about who's in the market for their product, instantaneous or in real time, so it's those two forces-
Mm
... that we're able to address through efficiency and efficacy.
And, and-
Oh-
... oh, just to jump in for one more second, I promise.
Mm-hmm.
When John and I founded the company, the vision really was to do everything a marketer needed in one platform, which I think has created a lot of confusion, right?
Mm.
We're winning in the marketplace. We publicly announced that not only are we at record pipeline and record RFPs, we won greater than 50% of the RFPs we were invited to participate in the last 3 quarters in a row. An average of 8-10 companies are invited to those RFPs, so most of them are much bigger household names for their core businesses, even though they operate side hustles in the marketing cloud space.
Mm-hmm.
But it's really been a differentiator, not just to consolidate cost, which I think is intuitive when you go from 7, you know, software partners or data partners or activation partners down to 1, but the efficiency of knowing who the potential customers are. And my favorite example is, we can help a credit card company to figure out who to market to and literally remove everybody from the marketing funnel who will not be credit-approved for their product before we spend one penny of their money on marketing... So literally, you're taking, in many cases, 40% or 50% of the expense out by knowing who the consumer is and knowing they'll be credit approved. So you don't have to go through all the process of marketing to individuals who might say yes, and then you're gonna reject them. That's one example-
Mm-hmm.
To sort of bring to life Chris's, you know, talking about how identity is important.
Mm-hmm. Yeah, absolutely, and when you think about the refresh or the replacement cycle that we're currently in, sort of, how often do these come about within the marketing ecosystem, and how long do they typically last? Where do we stand within the most recent one or the current one we're in?
I'll let Chris give his opinion. This is more art than science.
Yeah. Mm-hmm.
You know, most of them are seven or eight years-
Mm-hmm
... is sorta how it works. Now, the flip side is that the CMO is the shortest serving tenured executive-
Mm
... in the CXO suite, so new CXOs come in, or new CMOs come in, they wanna make changes. That's a bit of a differentiator, and, and as Chris talks about very eloquently, a lot of the decision making is now starting to really begin with the CIO as they look for consolidation, and, and that's really a strong suit for us 'cause we're so tech-based.
Mm-hmm.
But if you look at the Marketing Cloud ecosystem, it really began to sort of form when Salesforce bought ExactTarget.
Mm-hmm
... Adobe bought Neolane-
Yeah
... and Oracle bought Responsys, which is, you know, you're going back seven, eight, nine years at this point. You know, quite frankly, they invested in them, to a certain extent, for a short period of time, and then that went from their side hustle to the side hustle to the side hustle, right?
Mm-hmm.
So now Salesforce is probably a little more focused on, Slack. You've got Adobe a little more focused on what's going on with them this week.
Yeah.
Are they buying or not buying?
Yeah.
What are they doing? And then, of course, Oracle has completely pivoted from the space and is really focused on being a financial services company. From our vantage point, we're not seeing them, quite frankly, as often as we used to in this particular ecosystem. But we are solely focused on being the world's best marketing cloud, and, you know, quite frankly, we were super excited and a little surprised even, when Forrester named us the number one marketing automation company in the world. The two things I like to point out when I say that are, A, in the year that they named us number one in the world, we did not spend even $200,000 on services with Forrester. So we were not one of those guys who shockingly spent $10 million and was number one in the world.
And number two, I think even more interestingly and shocking, that same year, they took Salesforce, Oracle, Adobe, and SAP, and they moved them out of the leader quadrant.
Mm.
To me, that was a, that was a bold statement.
Mm-hmm. And that's, you're kind of leading to my next question here, where I think an interesting aspect in addition to the sort of replacement, refresh cycle that's benefiting you on the RFP side is, the conversation, you know, even from last year or two years ago, is shifting from Zeta who to Zeta why. And so how have you really sort of been able to drive that change? Obviously, I think the industry analysts play a big role in that, and then if we sort of quantify that to an extent, you know, how would you say what does the number of at bats you see today look like versus a year or two ago?
I'm sorry, Chris. You know, I feel like I shouldn't even show up to these 'cause you're usually better at these than me.
This is a welcome break.
Well, you've been talking all morning. So you know, to answer your question, the reason we've had three quarters in a row of record pipeline-
Mm
... record RFP, is we've gone from this sort of Zeta who to Zeta why.
Mm.
We still have to convince the why, but it's no longer we enter the room with people saying: Who are you?
Mm.
It's been a lot of things. You know, for better or worse, taking the company public has really helped our brand.
Mm-hmm.
It's given visibility to very large enterprises into the strength of our balance sheet and the incredible strength of our business. I mean, obviously, we haven't reported Q4 yet, but up until that quarter, it was nine quarters in a row we've been public for nine quarters. We've beat our guidance and raised our guidance nine quarters in a row. We've had nine quarters of greater than 20% growth. I only know that 'cause we just did our global kickoff, and I had to do Chris's slides while he was over here. And, you know, what happened was, large enterprises, there were some companies, they just don't trust private companies with mission-critical function, and that helped us a lot from that perspective. And then our ZetaLive conference.
Mm
... has really been game-changing for us.
Yeah.
We had over 10,000 people attend the conference this year in person or virtually, and, you know, really over $100 billion a year in annual marketing spend decision makers were physically in the room. We talk about Hamilton, right? But in the room while we were doing this conference.
Mm. And as you think about moving forward, how much more room for improvement do you think you have in terms of just increasing visibility into deal pipeline, getting more at bats? Are you at a point where you're essentially seeing everything or-
No.
No.
Chris?
No, I mean, if you think, just by proxy, we've-
Mm-hmm
... we've, you know, had 440 scaled customers at the end of last quarter. It's probably closer to 650 unique brands-
Mm-hmm
... but there's 10,000+ large U.S. enterprises-
Yeah
... just in the U.S.-
Mm
... let alone, you know, what's out there globally. So I think it's super early innings for us.
As it relates to brand evolution-
Mm
... you know, there is this brand out there called Coca-Cola-
Mm
... that I see as aspirational.
Nice.
It's pretty, pretty good example.
Didn't get the laugh I expected, but, what can you do? It's a tough room.
We'll talk about, like, you know, maybe how SI Partners can help with that a little bit later. You know, now I wanna shift to maybe discussion of a few of the verticals that Zeta sells in. Not all verticals are created equal and, or face the same cycles, and in that vein, you know, automotive and insurance have been troubled over the last 12-18 months... but, you know, our checks suggest those headwinds are hopefully shifting to tailwinds in 2024. You know, what have you been hearing in customer conversations in those verticals, and how's that informing your sort of expectations for next year or the current year, you know, an improvement at, uh-
I'll let Chris start, and then I'll, I'll speak to the last part-
Mm-hmm
... 'cause I am speaking to the customers directly.
We said publicly at the end of the last quarter's call that it's our expectation that the automotive and the insurance verticals turn positive in the second quarter of 2024, and Dave can talk about what gives us. This is back in November-
Mm-hmm
... that type of visibility to make a call like that. You know, but more meaningfully, if you look at the total growth of Zeta, just to give you a sense for when those turn positive, what type of tailwind-
Mm-hmm
... it could be on future growth, third quarter's total revenue growth rate for Zeta was 24%.
Mm.
If you remove the impact from those two verticals, which were decelerating, total Zeta would've grown over 35%-
Mm
... high 30s, in fact. So just gives you a sense for the upside-
Mm-hmm
... especially relative, you know, to where we're fortunate next year's consensus is starting at.
It could be a nice tailwind.
It will be.
Mm.
You know, if you look at, we are on the ground with people in the physical office of many of our largest clients in those verticals, and, you know, listen, automotive went from supply chain to strikes. This is not like private information. It was a very tough time for them. If you don't have product, you don't generally grow your marketing budget.
Mm-hmm.
It's just, you know, business 101, right? And then the automotive guys came out of COVID. They were under-allocated as it relates to reserves against all the people who forgot how to drive and got into accidents. And they were under-allocated for the supply chain issues of fixing those vehicles, which then got twice as expensive. It appears to me, based on very deep conversations and even agreements that have been executed at this point-
Mm
... that, we're coming out of that in a very meaningful way, going into the period in which Chris has talked about.
That's great to hear. When you look at some of the other verticals, you know, telecom, consumer and retail, and financial services are, I think, your top, represent your top three. How do you think about the relative strength of those? I know they've shown some nice durability, but, you know, there's all this caution about, does the recession move to the consumer?
Yeah.
You know, how do you feel about the durability of those?
So shockingly, as a serial entrepreneur and a technologist-
Mm
... I am trained as a economist, which is scary. Which is also meant to say that I will almost universally always be wrong. But, I was saying for the last two years, I don't think we see another recession.
Mm.
For those of you who don't know, we were in a recession. We just decided to call it something else.
Yep.
but as we came out of that, we've seen a lot of strength in those particular verticals, and what's interesting is some of the verticals that you would look at in the United States, from a percentage of debt-to-GDP perspective, that you would think would be having challenges, we're growing in those verticals faster-
Mm-hmm
... than some of the verticals that are not challenged this week, because they're looking for efficiency, and they're looking to scale.
Mm.
Our platform is sort of bespoke for that. It's been... We're feeling good about 2024.
Yeah, and what I mean, think 2, 2, your 2 largest deals in 2023 were in the consumer and retail segment, so-
That they were.
... kind of speaks to the trying to drive the efficiency there.
Yeah.
Interesting.
That was.
Yeah
... the vertical I was sort of subtly referring to.
Yeah, absolutely. Absolutely. So gaining penetration with agencies has been another big focus for Zeta, which can be a bit margin dilutive on the front end, but creates a pretty significant longer-term opportunity. Can you provide a bit more color on how big of an opportunity you think the agency channel is, and, you know, how many scale customers could one agency customer create, given the number of brands they work with over time?
I'll let Chris speak specifically to the last part of the question.
Mm-hmm
... 'cause he'll know the exact numbers of what they represent each. I would just say a lot, 'cause when you sign one agency client, you're able to work with every one of their clients and partners. I would tell you that most of last year was driven by one sizable agency holding company relationship. I think this year you will see that relationship go from one large agency holding company to as many as three or four.
Wow.
I just got back, as we were talking about, from the Consumer Electronics Show.
Mm-hmm.
I was not there to see the big TV, unfortunately. But, you know, I spent most of my time in conference rooms, meeting with the agency holding companies, because they're there to see their clients.
Mm.
It is incredible to me, the type of challenges that the holding companies are having.
Mm-hmm
... and how our platform is so perfect-
Mm-hmm
... to fix them for their clients. And back to Zeta, why the agencies used to say, "Well, we can't really bring you in, because nobody knows who you are." So they'd walk in with one of our competitors. Now, literally, you know, seven, eight meetings a day with the holding corps, and then them saying: "Can you come to dinner tonight, meet with this global corporation?
Mm.
Or this or that or the next thing. The other thing I want to point out before I turn it over to Chris is, yes, the gross margin for these clients as they ramp up can be lower because they start off platform, and Chris will take you through my favorite example of how our largest client in the holding corporation space started totally off platform and moved almost totally on platform over three years. Because it's just more efficient, it's easier, it's more cost-effective for them, too. But it is a little bit of a misnomer that it's contracting our margin, because it's actually really good for operating margin.
Yeah. Yeah.
Because the gross margins are substantially higher than our operating margins.
Mm
... even though they're lower than the high-end gross margins we have as a company. Because we're already profitable, by definition, most of what your expenses have incurred have been fully amortized against that new customer, right?
Mm.
Those dollars will drop at an incrementally higher rate-
Mm
... than operating margin, and I just don't think anybody's sort of figured that out yet.
Mm.
Although we do think they'll move on and grow into gross margin.
Yeah, that same customer that David just mentioned, the first year where they had, you know, real robust annual spend with Zeta was 2020.
Mm-hmm.
As David mentioning, you know, that was around $3 million of spend with Zeta.
Mm-hmm.
Only about 7% of that 3 million was using Zeta's data, Zeta's channels to market-
Mm
... and that's defined as direct revenue. Fast-forward to 2022, and that customer was north of $20 million in spend.
Mm-hmm.
But importantly, as they saw the value of Zeta's data and Zeta's channels to activate on, the percentage of revenue that was direct went from 7%–76%, and they'll be bigger than a $20 million customer in 2023. So that's important from, you know, from a margin accretion perspective.
Mm-hmm.
The direct revenue business, which is three-quarters of our revenue in any given quarter and year-
Mm
... has a 70%-75% gross margin profile, and when our customers start with integrated, they use Zeta's data, they use our measurement. They first start with a social media platform, most likely Meta or TikTok. The gross margin profile of that starting business is mid-30s%.
Mm.
That's how we blend to the low- to mid-60s, but the pathway is to take that new pipeline of buyers-
Mm-hmm
... who get a better ROI from Zeta's channels and Zeta's data, get them to do that same migration that the first customer did. And by the way, the sales team that David created to close that first customer is the same group that has closed two, three, and four now-
Nice
... and drove that progression from 7%– 76% mix.
Wow. And, and when you're seeing in the, let's call in the conversation—initial conversations with numbers two, three and four, are you—
Well, there are eight of them.
There are 8 of them now. Then five, six, seven, eight as well.
Well, we're not there yet, but we're working on it.
Now that you have a more sort of established playbook, mature relationship with some of the existings, are you seeing opportunities to start with a greater percentage of direct platform versus starting only on the social media channels? How, how, how does the customer view that?
It's interesting. It does depend on the customer.
Yeah. Mm-hmm.
The lowest barrier to entry, to getting a client up, is off platform.
Yep.
You know, for better or worse, you sort of always wanna create the least amount of friction when you're trying to create a new relationship, right? So if you start with, "This is a massive problem they have-
Mm-hmm
... nobody has automated it, other than us, and nobody knows how to do it other than us," it's sorta like, "Why wouldn't we give you that," right?
Mm-hmm.
It's sort of become a little bit of the sales motion versus sorta doing it the other way around. But I do wanna reiterate, I absolutely believe that they will continue down the same path as the other one we worked with, and you will see that customer move from, you know, 93% off platform-
Mm-hmm
... to now, I don't know if it's... What's the percentage on platform for that customer?
Well, there, last year they were 76%.
So 70%–
Mm
... 76%.
Yeah.
I was gonna say 75. But so, literally, I think we'll see a similar thing, but the good news is that leads to accelerated growth, and it leads to accelerated operating margin.
Mm-hmm.
You know, it's a good trade, 'cause-
Yeah, absolutely
... this might not be a popular thing to say at an investor conference, but we're just really trying to build the world's best company. We're not always focused on, was the gross margin 62% or 61% or 60%? I'm more focused on: What's the revenue growth? What's the operating margin? What's the cash flow?
Mm-hmm.
Are we filling the pipeline in a way that we can continue, you know, growth at the same levels we've been doing? You know, we're not looking... Well, I've gotta be careful here, but bottom line, when I look at our business, it, it's of course an important metric, but it's not, like, the metric that matters to me.
Mm.
Maybe it should be, but it's... I'm sorta more focused on gross revenue growing by X%, EBITDA growing by Y%.
Mm
... and free cash flow growing by Y x 2, right? Or, you know, whatever, whatever I can do there.
Excellent. And maybe just to clarify then on, on the opportunity for agencies, so how many do you see as a sort of a opportunity in terms of agencies, and then rough estimate on, on, you know, number of brands the agencies represent?
Well, you can give the second part-
Yeah
... 'cause you know what that is.
Yeah. You know, when with that first-
Mm
... large agency that we began to work with a couple years ago-
Yeah
... they, you know, by the end of the year, maybe three-
Okay
... different enterprise brands. Wouldn't surprise me if this year we ended with well north of 20-
Oh, wow
... darn near close to 30.
Mm-hmm.
Wow.
And by the way, this is a holding corporation that is very closely associated to having their own data-
Mm-hmm
... and their own CRM. So, like, and yet they're still growing from 3– 20, right?
Yeah.
And by the way, there's a lot of holding companies out there that have assets in the data space, in the CRM space, and they do what they do really well. And this particular client is among the best-run organizations I've ever seen in the world.
Mm-hmm.
I'm honored to work with them, but the fact that they've now scaled from 3 to over 20 enterprises that they manage marketing for, working with us, that's something, once again, we think we can replicate across other holding companies.
Yeah, absolutely. All right, that's helpful. You know, I was turning on the TV a couple days ago, and apparently there's an election this year.
I heard.
That's what I've heard. And that's actually a pretty decent revenue stream for Zeta. Can you talk about sort of how you know elections sort of drive a bit of a tailwind to the top line of the business?
Well, you know, we call it advocacy.
Yeah
We don't call it political.
We have both.
Well-
We have both, yeah.
... we do break it out for Wall Street.
Yeah.
Yes, that's right. But, no, so listen, we're one of the few marketing companies that still has a meaningful client base in the political ecosystem.
Mm-hmm.
I lived in D.C. for 17 years before I moved out of D.C. a few years ago, and we maintain a lot of very unique relationships in that town that have benefited us. They've benefited us the last two political cycles. I think they will benefit us substantially more-
Mm-hmm
... this particular cycle, for a whole host of reasons. I mean, just off the top, these guys are gonna spend between $3 billion and $4 billion-
Mm-hmm. Yeah
... just on the presidential.
I think I saw, like, a 31% growth is the forecast, 2024 over 2020 general election in terms of overall ad spending.
It's gonna be much higher than that-
Yeah
... from what I'm seeing. I'll be in D.C. again next week for a couple days.
Mm-hmm
... meeting with everybody. But, listen, we maybe I shouldn't say this again, but we don't take on campaigns that we believe are directly filled with hate.
Mm-hmm.
We're sort of, whether it's advocacy or political, which, by the way, does not include the Republican or Democratic primary leaders-
Mm-hmm
... for better or worse. But probably include David Duke, you know, so on and so forth. You know, guys like that, we wouldn't work with. But-
Got it
... it'll be a meaningful tailwind to the business that I'm not sure everybody knows about yet.
Yeah, and where do you think the biggest change in terms of the channels that the advertiser are investing in 2020 versus in 2024?
I think you'll see a disproportionate percentage moving on platform.
Mm-hmm
... for this cycle, and I think you'll see CTV, connected television, over-the-top TV, being by far-
Mm-hmm
... the largest growth engine-
Mm-hmm
... in political. I mean, obviously, they'll continue to do their linear TV buys, 'cause they just... They can't spend as much money-
I was gonna-
... as they wanna spend.
They can't help themselves.
No, no, but what I'm telling you, like, they're gonna have so much money this time.
Yeah.
This is public, right? So there's gonna be so much money coming into this ecosystem, that they're not going to be able to spend it in a normal environment.
Mm-hmm.
So what's gonna happen is, they're all gonna bid each other. They're gonna bid against each other in linear, and you're gonna see linear cost go through the roof.
Mm
... during the course of this cycle. You'll then see them trying to invest as much as they can into CTV, online video, and ultimately, social and mobile, all of which we will be a meaningful participant in.
Now that, I think relative to 2020, a lot more of this, you said, direct platform. So I think in 2020, there was a bit more of a hit on the gross margins because of that indirect, but so it won't be as margin dilutive as, you know, you saw 4 years ago, I would imagine.
Well, that won't.
Yeah.
I mean, but, but obviously, the growth of the-
Mm-hmm
...the holding companies... Well, I think we're sort of at our low point, and we're sort of in good shape, 'cause we're already starting to see some migration on the platform from the second client.
Yeah. That's helpful. Okay, so if we summarize sort of growth levers in 2024, you got auto and insurance on the recovery path, durable end markets with, you know, your three largest verticals, political tailwinds, it seems like, to the top line, agency growing. So right now, Chris, you know, consensus has got, I think, about 17% growth for 2024. I know you haven't guided yet, but you know, what maybe was the Street missing at this point, and, and could 2024 be another 20%+ growth year?
Look, I think, you know, Dave and the board, you know, our internal growth goals are always well in excess of where the Street is-
Mm-hmm
... and where we guide, right? That's just, you know, while we have at least 1 billion, at least 200 million, at least 110 million, the targets out there-
Mm-hmm
... our internal goals are higher than that.
Yeah.
I don't... You know, we're not gonna guide-
Yeah. By the way, that's for 2025, what he just -
Yes. Yeah, that's right. The Zeta 2025 targets.
Just for those new in the room-
Which are established-
That's our 2025 goals.
... and very public, yeah.
Yeah. We're not gonna guide today. Certainly, so, you know, 2024, 2025-
Mm-hmm
... those growth rates weren't informed by anything we put out there prior.
Mm-hmm.
I think the many benefits of having a long-term model, which we've now had in place for a couple of years to get to those goals, is the Street is anchored to what those goals are.
Mm-hmm.
So $1 billion in revenue, if you look at where consensus sits, and it goes down through EBITDA and free cash flow, and the beauty of when you execute better than you need to do each quarter-
Mm-hmm
... and you make those growth rates required to get to that out-year goal that much lower-
Mm-hmm
... the Street takes that delta, that overachievement, and then just lowers the out years.
Mm-hmm.
We're benefiting from doing better, and then the Street holding to those anchor points of where the long-term model sits.
It's good management, honestly.
That's-
I was gonna say, we sometimes get ahead of ourselves on that. One other thing I wanna ask on is, so sort of recent updates or relatively recent, was it Google and Yahoo recently introduced new requirements for Gmail and Yahoo Mail?
Yes
... around increasing authentication requirements, new spam rate threshold, et cetera, and making it easier to, for an email subscriber to unsubscribe?
Yes.
Email's a huge channel for Zeta. You know, how are you navigating this?
It's-
What kind of challenge does this create for you?
It's, it's the best thing that could possibly happen to us.
Mm.
The only thing better will be the elimination of the Third-Party Cookie.
Mm-hmm.
Uh-
Which is occurring in, or starting to finally occur, right, in 2024?
Well, we'll see.
Yeah.
We'll see. But, certainly the Wall Street Journal thinks so.
Yeah.
But, the reality is that when you are an ESP like us, where you're delivering legitimate mail on behalf of legitimate customers across an ecosystem of over a thousand global clients.
Mm-hmm.
You want the bad actors to be pushed out.
Mm-hmm.
Because everything we're doing is to make sure that we never deliver a message to a consumer that they don't want. So the real metric that matters to an ESP, then a sub-brand, then a sub-IP address, just to give you all of the sort of lingo, before it feeds into the MTA and it then is delivered, is what's the interaction rate between the consumer and the brand? And that's really the metric-
Mm
... by which the ISP manages whose IP addresses are they gonna allow to deliver mail into their ecosystem, and whose are they not? Because we're always using our data to target that mail, and we're removing people that we do not think would want that mail, our interaction rates are usually at 3%-400%-
Mm
... of what the requested interaction rate should be. Once again, the less mail that's going into the inbox-
Mm-hmm
... it's actually better for us.
Yeah.
Now, there's always a little bit of turbulence when they first make the changes. The good news is, we're fully integrated into-
Yeah
... both those guys. We've already seen the changes. We've already sort of-
Mm-hmm
... dealt with all of the builds that were necessary for it in December, and we've seen no... You know, we had one weekend where we were sort of cutting over purposely-
Mm
... but it certainly didn't affect the business. It's, it-
If anything, it's more just like a topic of conversation that maybe your customers reach out about, but not really a concern for the business?
I'm not even hearing from customers on it.
Mm.
I mean, what I will say is, it's gonna be bad.
Yeah
... for organizations that are not really focused on delivering messages that consumers really wanna get. And, you know, that, you know, is something that I think those organizations will have to sort of recalibrate their businesses-
Mm
... around that, if they're fully ESPs, which nobody's-
Sure
... really a standalone ESP anymore.
Do you, do you think it could have a sort of reverse, like more of a tailwind effect, like you saw with IDFA, a couple of years back?
Well, we got a lot of tailwinds-
Yeah, yeah, I know.
... we've talked about already. Why don't we just say-
Yeah, no, no.
... we don't think it's gonna affect our businesses in any-
That's good.
Okay.
I wanna shift to, with the last 10 minutes or so... Actually, we've got 10 minutes left. Does anybody in the audience have questions before I keep going? No? Okay, perfect. So I wanna shift to a couple initiatives sort of for beyond 2024, and one of those, I sort of alluded to earlier, was the system integrator channel, and it's been an increasing area of focus for Zeta. You know, and it honestly fits the narrative of moving from Zeta who to Zeta why. You know, but our understanding is that, you know, ZOE and your generative AI engine is really a big part of unlocking that channel. So, you know, what's your strategy on working with SIs, and what's allowing you to maybe accelerate those efforts this year?
So first of all, it's interesting, 'cause it took us four years to get our first agency holding corp client, and then we were able to sort of expand that very, very rapidly after we got that. We just started focusing on the SI model a couple of years ago, and recently talking about it. It does appear as if we will make meaningful headway in that particular space faster-
Mm-hmm
... than we were able to do it, but that makes sense.
Yeah.
We're bigger, our brand's a little more well known. You know, it sort of starts, we might already be working with a couple of them, where you start with a joint client, and you see what you can do together and it goes from there. Most of the large systems integrators want to get into the recurring revenue space.
Mm-hmm.
Right? And today, when they're reselling Salesforce, or they're reselling Adobe, or they're reselling one of the other guys, it's a body shop piece of work.
Yeah.
They come in, they charge some meaningful amount of money, they do the customization, they build, they deliver. We're taking a different tack with them.
Mm.
We're taking our analytics package, which I think is really good, we call it our Agile Intelligence Platform, and we're white labeling it to the SI to sell to their customers, and they're building a deliverable of those analytics on top of it. So they get some body shop work day one, and then they get the subscription revenue in the long run. The beauty for us is, not only do we participate in that meaningful recurring revenue, once they're using our CDP, which is necessary to put this in place for the enterprise, it's nearly impossible to activate without us.
Mm.
So one of the things people don't realize is, you put this consumer data platform in place, you import the client's first-party data, you append our data in, which brings usually hundreds of incremental data elements. We remove the personally identifiable information to protect the consumer and to keep us on the right side of all regulations, and we replace it with a Zeta ID number, 'cause obviously, we are very talented around nomenclature. But, you know, you've got the ZID, it sits on top. Now, they know that these 3,000 people are actively in market to buy their products today, and they will be credit approved to their products. Would you like to market to them?
Mm.
If you don't go through us, there is no primer-
Mm-hmm
... to unlock the Zeta ID anywhere else.
Mm.
Which is one of the reasons I think our Net Retention Rate continues to be very, very strong, because once you bring us in, it is nearly impossible to get rid of us.
Mm-hmm.
That's what we like about sort of getting in through the SIs.
Yeah. How much, how much work is to be done on sort of, sort of laying out that vision and getting the buy-in from the SIs at this point?
Well, I mean, listen, you know... SIs are complicated. They're generally large partnerships... even if they're public, they have a very walled-off set of groups.
Mm-hmm.
You know, they'll have their digital group, they'll have the group that owns that particular enterprise relationship, they'll have other different groups that are sort of around the rim, somebody in CRM.
Mm-hmm.
You know, you're sort of trying to get to consensus. Once again, it's not unlike when we started selling to the agency holding companies.
Mm-hmm.
'Cause you'd sort of come in... Generally, we'd come in through the top. I would get an intro to the CEO or the Chairman, and we'd sort of come down-
Mm-hmm
... and we'd sort of spawn out, and then you'd sort of sign the agreement, and then you'd have to get one customer that really liked you, and then you'd need an internal champion. And that internal champion would call somebody else and say, "Wow, if you're having a problem with this client, you should talk to these guys.
Mm-hmm.
And then it sort of spawns out. I think we'll see a similar path in the SI ecosystem.
What I've found in the past is you can force their hand. You keep winning against their software platforms that they're sponsoring, that they start seeing all the revenue go out the door, then, you know, it turns their heads a little bit.
That is for sure true.
Yeah. Maybe just quick on mobile, it's another big investment initiative that's more, I think, for the future than really for 2024. You know, how are you thinking about sort of, what's required to really build upon with your existing mobile capabilities? And then, you know, do you think this is something that's more of an organic investment or something that you can accelerate through M&A?
Yeah, let me start by saying we're already materially in mobile.
Mm-hmm. Mm-hmm.
It is, you know, probably the biggest opportunity in front of us from a sort of hyper growth-
Mm-hmm
... perspective. We are actively building our own product-
Mm-hmm
... which we like to do. If we were to buy somebody, we would, you know, do what I think we've done very, very well. We buy the fifth or sixth mover in the space.
Mm-hmm.
The guy who was not able to sell the product, but built an incredible product. We would merge it into our platform, and our average growth rate is very, very high-
Mm-hmm
... for buying these small companies that we tuck in.
Mm-hmm.
Sort of one of the things Chris really did well when he designed our investor day was he had Steve Vine come up and talk about our M&A strategy. 'Cause some people are like, "Oh, looks like you're overpaying for these little companies." I'm like, "Well, you know, if you look at the fact we grow them by 400%-
Mm-hmm
... we increase EBITDA, and we're effectively paying an average of 3.2x EBITDA within 12 months of buying them, probably not such a bad trade, right?
Doesn't look that expensive anymore.
Yeah. But, we've been very good at that. I have not seen anybody yet who represents what we would do there.
Mm-hmm.
That might change.
Mm-hmm.
But it is something we're building, it's something we're already doing, and I think as you put, it's a longer term, very big-
Mm-hmm
... growth opportunity.
Awesome. We'll finish on a clarifying for Chris. We don't need to see any success in SI or mobile to hit Zeta 25, do we? Those should be upside, correct. Awesome. Well, we came in right on time.
Look at us, Chris.
David, Chris, thank you so much for taking the time today.
Thanks, guys.
Absolutely.
Appreciate that.