David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Zeta Global Holdings Corp. (NYSE:ZETA) does use debt in its business. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
What Is Zeta Global Holdings's Debt?
The chart below, which you can click on for greater detail, shows that Zeta Global Holdings had US$184.1m in debt in December 2023; about the same as the year before. On the flip side, it has US$131.7m in cash leading to net debt of about US$52.4m.
A Look At Zeta Global Holdings' Liabilities
We can see from the most recent balance sheet that Zeta Global Holdings had liabilities of US$176.4m falling due within a year, and liabilities of US$193.8m due beyond that. Offsetting this, it had US$131.7m in cash and US$170.1m in receivables that were due within 12 months. So its liabilities total US$68.3m more than the combination of its cash and short-term receivables.
Since publicly traded Zeta Global Holdings shares are worth a total of US$2.32b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Zeta Global Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Zeta Global Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 23%, to US$729m. With any luck the company will be able to grow its way to profitability.
Caveat Emptor
Despite the top line growth, Zeta Global Holdings still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$165m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$187m. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Zeta Global Holdings that you should be aware of before investing here.
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.