Will ZoomInfo Stock Go Up?

B2B companies often struggle just to get basic contact info for their prospective clients. ZoomInfo (NASDAQ:ZI) was built to address that pain point.

For a subscription fee, ZoomInfo can compile data on a company’s decision-makers, locations, size, and revenue. It can also be proactive and analyze industries to build lists of prospects based on a target profile.

The platform has applications from lead generation to market research to recruiting. The company has integrated AI to make its products more efficient and that potential fueled optimism around ZoomInfo’s share price.

ZI jumped 60% initially and kept up that momentum through late 2021 when it traded at over $77 per share. But revenue struggles in 2022 and the broader technology sector sell-off sparked a downward trend. More recently, ZI bounced off of an all-time low of $12.76 per share in November after the 3rd quarter earnings release.

Investors weren’t thrilled by the company’s stagnant outlook. However, management reported 9% revenue growth, made a substantial share buyback, and reported higher profits. Now trading well up from its lows, is ZoomInfo stock a buy?

The Fascinating Story Behind ZoomInfo

The company’s backstory began in a dorm room in 2007 when two roommates came up with the idea for a business database.

Initially called DiscoverOrg, the business had a laser niche focus and quickly grew to be the leader in the space. It soon faced stiff competition from a company called ZoomInfo. So in 2019, DiscoverOrg decided to acquire ZoomInfo and merge into a single company.

The combined company’s flagship product, RevOS, was launched in early 2022. The platform’s goal is to accelerate marketing efforts for B2B companies by increasing the accuracy of cold-calling and email efforts.

According to ZoomInfo’s most recent customer impact report, RevOS has been an integral part of creating 32% more revenue for the 7,000 clients that were surveyed. The average reported pipeline increase was 46%, and nearly all of the surveyed companies said that they preferred ZoomInfo’s data to the competition.

And yet for all the good news around the company, ZI dropped over 40% in the last 12 months, a trend that’s continued through the first few weeks of January.

In the latest earnings release, ZoomInfo increased the low end of its full 2023 guidance, but only slightly. That wasn’t enough for investors who are growing concerned about the company’s economic moat. A horde of companies have cropped up over the past few years that offer competing solutions, and many are priced far lower than ZoomInfo.

Around 35% of ZoomInfo’s customers are software companies (down from 40% recently), which have faced declining revenue and cut costs, and in turn those cuts are hurting ZoomInfo’s revenue.

Will ZoomInfo Stock Go Up?

According to 20 analysts, ZoomInfo stock will go up to $20.35 per share, suggesting 22.2% upside potential.

22 analysts have issued ratings on ZI and a slim majority of 13 rate it as a Buy at this price point. Two of those analysts forecast that the stock will outperform the market, and could go as high as $25 per share, representing a 52.3% gain.

The consensus is that ZI will hit $20 per share over the next 12 months, 21.9% higher than where it currently trades. 8 Hold ratings exist on the stock currently, and just one Sell rating. The lowest forecast would result in ZI dropping by 14.7% to $14 per share over the next year.

What’s giving the analysts some hope are the bullish financials. ZoomInfo managed to increase revenue to $313.8 million in the 3rd quarter of 2023, a 9% year-over-year gain. It also beat revenue expectations for the quarter by 1.1%.

Net income of $30.2 million was 68% above last year’s net income of $17.9 million. That boils down to a diluted earnings per share of $0.08, which beat estimates for the quarter by 5.6%. ZoomInfo’s adjusted operating margin was slightly down from 41% last year to 40% in the third quarter.

The all important unlevered free cash flow also dropped from $99.8 million in 2022 to $94.8 million in the 3rd quarter. That’s partly due to the company’s efforts to buy back its shares. ZoomInfo repurchased 8.8 million shares in the quarter, representing an outflow of $160.1 million.

All in all, it wasn’t a bad quarter for the company with management reporting 1,869 customers that have an annual contract value of $100,000 or greater. But it still wasn’t enough to get investors to believe that ZI is ready for an upswing.

Is ZoomInfo Stock Undervalued?

The company reported solid, if not exceptional earnings in the 3rd quarter, and is well below where it was trading just a few years ago.

The price-to-sales value for ZoomInfo now stands at 5.3x compared to almost 25x back then. For a technology stock with growth potential, ZI certainly appears undervalued.

The main question for the company is whether its software clients will start spending again, or whether ZoomInfo can replace that revenue elsewhere.

Even though the company has a strong hold on market share, legitimate concerns exist that a bigger technology player decides to dip its toe in the market.

Is ZoomInfo Stock a Buy or Sell?

For now, ZoomInfo is the leader in providing actionable data for B2B companies looking to go-to-market.

Management reported higher revenues as well as earnings and beat expectations last quarter. It raised its guidance for the year but not enough for investors to get excited and buy back in.

Notably, ZoomInfo’s software clients in particular have faced tough times and that’s been reflected in the sub-par revenue over the past 2 years. It’s too early to tell if that’s going to turn around soon. Still, investors looking for an oversold stock with high growth potential would to well to take a look at ZI.

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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.