Why Does Stan Druckenmiller Own ZoomInfo Stock?

Billionaire investor Stan Druckenmiller has always been known for his concentrated positions in assets with the potential to solidly outperform the market. The investing legend’s largest holdings often attract the scrutiny of Wall Street and retail investors alike as a result. Druckenmiller’s small holdings, though, can also be extremely informative to scrutinize.

One such minor holding is ZoomInfo (NASDAQ:ZI), a software company that operates a B2B database and commercial search engine that provides essential market intelligence for its customers.

Druckenmiller owns about 5.9 million shares of this small tech company, accounting for 2.4% of his total portfolio. Why does Stan Druckenmiller own ZoomInfo, and does the stock have potential for investors today?

ZoomInfo’s Revenue and Earnings Growth

One of the first things that sticks out about ZoomInfo as a business is its historically high revenue growth rate. Until Q2 of this year, the company had never reported a quarter of negative year-over-year revenue growth.

In 2020, the year the company went public, it reported total revenues of $476 million. Fast forward just four years, and the trailing 12-month revenue total now stands at $1.23 billion.

This trend, however, has turned around over the last two quarters. In Q3, the company reported quarterly revenues of $303.6 million, down from $313.6 million last year.

The Q3 report caused shares to dip by about 15%, bringing them down to near the $11 mark. It’s worth noting, however, that ZoomInfo still beat Wall Street’s revenue forecast for the quarter by a modest margin.

Earnings have been a different story, as ZoomInfo posted much better income results in Q3 than in Q2. For the second quarter, the company reported a loss of $0.07 per share.

Q3, however, saw that reverse to positive earnings of $0.07 per share on a GAAP basis. Adjusted earnings were far higher, reported at $0.28 per share.

Although the company has had a bad couple of quarters as far as revenue growth is concerned, analysts still expect it to continue raising its net income going forward. In the coming 3-5 years, ZoomInfo’s earnings per share are expected to rise at a compounded annual rate of about 8.9%.

Is ZI Stock Undervalued?

Despite its status as a high-growth tech company, ZoomInfo actually trades at quite modest multiples to most of its value factors.

ZI shares are currently priced at 12.5x cash flow and 14.9x projected forward earnings, both of which are fairly low for a company like ZoomInfo. The price-to-sales ratio of 3.9 and price-to-earnings-growth ratio of 5.0, however, are less positive.

Despite this potentially attractive valuation, analysts aren’t particularly optimistic about ZoomInfo’s near-term returns. The median target price for the stock is $11 per share, roughly similar to the price shares fell to on Q3’s earnings report. More than two-thirds of the analysts covering ZI also rate it as either a hold or a sell.

Here, it’s worth noting that Druckenmiller’s is among the investors who have held onto ZI despite its recent difficulties where revenue growth is concerned. The average buy price for Druckenmiller’s shares was $16.20, and his stake in the company has lost approximately a third of its value.

With Q3’s earnings report having just been released, though, it’s not yet clear how a second consecutive quarter of shrinking revenues will affect Druckenmiller’s investment decisions.

So, Why Is Druckenmiller Still Bullish on ZoomInfo?

While Druckenmiller is well-known for an aggressive and concentrated investing style, he is also somewhat risk-averse and tends to be sensitive to losses. The fact that he has held ZI despite losing so much of his initial investment so far begs the question of just what he sees in the company.

One of the first and most obvious factors to look at is the company’s competitive position. In the lead-list market, the company commands a share of over 80%, making it virtually unassailable.

The few competitors that do exist for ZoomInfo in this space have negligible pieces of the market, and it’s very unlikely that any of them will be able to scale up enough to take ZoomInfo’s massive lead.

Unsurprisingly, ZoomInfo is also getting in on the AI revolution. Earlier this year, the company introduced its own AI copilot meant to help sales teams make the most of promising leads.

It’s worth noting that marketing and sales are among the comparatively few areas where AI has delivered concrete, quantifiable results and helped businesses raise their top and bottom lines.

As such, ZoomInfo’s leveraging of the technology is likely to create real value for its customers instead of simply making it another attendee of the AI hype party.

A final element that may have attracted Druckenmiller to ZoomInfo is the company’s young but growing share buyback program.

Druckenmiller first purchased ZI shares in Q4 of 2023, by which time ZoomInfo had been reducing its number of outstanding shares modestly for two consecutive quarters.

This year, though, the rate of buybacks has accelerated significantly. In Q2, the number of outstanding shares declined by over 7% on a year-over-year basis. This shows a commitment on management’s part to returning cash to shareholders, an instinct that may appeal to a long-term investor like Druckenmiller.

Why Does Stan Druckenmiller Own ZoomInfo Stock?

Stan Druckemiller likely owns ZoomInfo stock because of a combination of attractive valuation alongside an 80% dominant market share.

ZoomInfo is an interesting company with both positive and negative traits. On the one hand, the company has an excellent competitive moat, an opportunity to leverage new technologies successfully and is buying back shares in a way that concentrates existing ownership positions.

On the downside, ZoomInfo’s revenue growth appears to be stalling, and the company’s 3-5 year earnings growth prospects are projected to only be in the high single digits.

Right now, it’s difficult to call ZI a strong buy in light of its high price-to-sales and price-to-earnings-growth ratios coupled with stalling revenue growth.

Investors like Druckenmiller who already own shares may want to hold in order to avoid locking in losses, though. ZoomInfo appears to have a strong business, but the stock’s price remains high for both its current performance and its forward growth prospects.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.