Should You Buy Zeta Global Stock Instead of Applovin Stock? | ZETA Stock vs. APP Stock

SUMMARY

Parkev Tatevosian, CFA, provides a detailed comparison of Zeta Global and AppLovin, focusing on revenue growth, profitability, and valuation. The analysis concludes with a recommendation based on current market prices and intrinsic value assessments.

MAIN POINTS

• The comparison begins by evaluating Zeta Global and AppLovin on revenue growth and profitability over the past three years. [0:00]
• AppLovin demonstrates a dramatic improvement in operating profit margin, reaching 75.8% in the trailing twelve months. [1:00]
• Zeta Global also improves its operating margin significantly, but remains much lower than AppLovin at 0.4%. [2:01]
• AppLovin trades at a forward price-to-earnings ratio of 28, over 50% higher than Zeta Global's 16.5, with both companies currently out of favor in the market. [3:00]
• Discounted cash flow analysis suggests AppLovin is slightly overvalued while Zeta Global is undervalued relative to their intrinsic values. [4:00]
• The final recommendation favors Zeta Global as the better investment due to its more attractive valuation profile. [5:01]

DETAILED ANALYSIS

A comparative assessment of Zeta Global and AppLovin centers on their recent financial performance and market valuations. Over the past three years, both companies have shown notable revenue growth, with Zeta Global accelerating its compounded annual growth rate and AppLovin rebounding after a period of deceleration. The advertising and marketing sector, which both companies serve, continues to expand and now approaches a trillion dollars annually, providing a substantial market opportunity.

Profitability analysis reveals a stark contrast between the two firms. AppLovin has achieved a remarkable turnaround in operating profit margin, moving from a negative margin of -1.7% in 2022 to an industry-leading 75.8% in the most recent trailing twelve months. This improvement places AppLovin at the top among hundreds of companies tracked by the analyst.

Zeta Global, while also improving dramatically from -54% to 0.4% in operating margin, remains far less profitable. However, as a software company, Zeta Global retains the potential for further margin expansion as revenue increases and fixed technology investments are leveraged.

Valuation metrics further distinguish the two companies. AppLovin commands a forward price-to-earnings ratio of 28, making it over 50% more expensive than Zeta Global, which trades at 16.5. Both companies are currently trading at or near their lowest valuations since January 2024, reflecting broader market concerns about the potential impact of artificial intelligence advancements on their business models.

Discounted cash flow analysis indicates that AppLovin's market price of $501 slightly exceeds its fair value estimate of $441, suggesting it is marginally overvalued but within a reasonable margin of error. In contrast, Zeta Global's market price of $17 is well below its estimated fair value of $23, comfortably within the analyst's margin of safety and signaling undervaluation.

The analysis concludes that while both companies have made significant progress in revenue growth and margin improvement, Zeta Global stands out as the superior investment opportunity at current prices due to its more favorable valuation relative to intrinsic value.

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