ZoomInfo (ZI) Up After Strong Earnings

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ZoomInfo (ZI) is a popular stock among growth investors since going public in the middle of 2020. Revenue growth is undeniable, but does the company’s valuation limit its upside? The stock is up over 5% after strong earnings.

Overview

  • ZoomInfo (ZI) is a go-to-market intelligence platform for sales and marketing teams.
  • The cloud-based platform provides highly accurate and comprehensive information on organizations and professionals.
  • The platform’s goal is to enable sellers and marketers to shorten sales cycles and increase win rates by delivering the right message, to the right person, at the right time, to hit their number.

Third Quarter Highlights

Key Metrics + Operational Highlights

  • ZoomInfo acquired RingLead, a provider of data orchestration and revenue operations automation that further connects the intelligence and engagement layers of the ZoomInfo platform. The deal closed in September.
  • The company also announced its first integrations with Chorus.ai after completing the acquisition in July. Chorus.ai allows users to transcribe and analyze calls taken in ZoomInfo Engage.
  • ZI closed the quarter with more than 25,000 customers and more than 1,250 with $100,000 or greater in annual contract value.

Financials

  • Revenue for the quarter came in at $197.6 million, a 60% increase year-over-year. This beat expectations by 7.5%.
  • Part of the revenue increase was via acquisition, but organic revenue growth was still strong at 54% year-over-year.
  • GAAP operating income increased 10% year-over-year to $20.2 million (10.2% margin)
  • ZI tracks to non-GAAP adjusted operating income which was $78.4 million for the quarter, a 34% YoY increase (39% margin).
  • International revenue is up over 80% year-over-year and now generates $80 million on an annualized basis.

Management Commentary

Henry Schuck, Founder + CEO

“ZoomInfo delivered exceptional results, with another quarter of accelerating revenue growth, and strong free cash flow generation. We continue to execute across all areas of the business as we build a category-defining company by delivering end-to-end success for go-to-market teams worldwide”

  • On the near future: “Leading indicators are pointing to meaningfully higher annual net dollar retention rates with expected improvements across customers of all sizes.”
  • International expansion: “Our investments internationally continue to be a success story. We materially grew our data coverage in Europe and expanded the number of reps targeting the international opportunity. We’re in the process of opening an office in the U.K. and have already hired our first team of sales reps that will be based there. Because of our highly differentiated offering, demand for our platform is high, driving year-over-year international revenue growth greater than 80% in the quarter, with international representing more than 11% of our overall business or over $80 million on an annualized basis.”
  • On what customers want: “Prospects and customers tell us they want a one-stop shop a unified platform, and they want their investments across the sales tech stack to be integrated. This further reinforces the competitive moat that we are building with our unified platform.”
  • European data set: “Europe is close to 90% of what you have from a coverage perspective in the United States … We have nearly every business with over 100 employees in Europe, and that’s where we’re really launching the international offering, and we continue to build rest of the world as well.”
  • On ZoomInfo vs. CRMs: “We still envision the world as ZoomInfo is an intelligence and engagement solution that can help you get more out of your CRM investment. And we’re never fighting for dollars against CRM solutions today. We’re really trying to convert those systems of record to true systems of insights.”

Peter Hyzer, CFO

  • On profitable growth: “We believe that our philosophy of maintaining cost of revenue, our cost of service, R&D and G&A as a percentage of combined revenue in the low 30s on an annual basis, then managing sales and marketing costs as a percentage of revenue based on the growth that we drive will enable us to continue to deliver sustainable growth over the long term, accompanied by a leading profitability profile.”
  • On debt: “As of September 5, we carried $1.25 billion in gross debt at a net leverage ratio of 3.4x trailing 12 months adjusted EBITDA and 2.6x trailing 12 months cash EBITDA, which is defined as consolidated EBITDA in our credit agreements”

Guidance

  • For the fourth quarter, ZI is targeting revenue of $206 million – $208 million.
  • The company also projects adjusted operating income between $79 million – $81 million.
  • The fourth quarter estimates will bring FY2021 totals to around $732 million in revenue, $300 million in adjusted operating income, and $322.5 million in unlevered free cash flow.

Valuation

  • At $72.20 per share, ZI is trading close to $30 billion in enterprise value.
  • According to analyst estimates, ZoomInfo is expected to bring in $925 million in revenue in FY22.
  • ZoomInfo also has strong margins with gross profit expected to be over 88% and adjusted EBITDA margins over 40%.
  • This means ZI is trading ~36.5x 2022 gross profit.

KR: ZoomInfo has executed wonderfully, especially since becoming a public company in June of last year. They continue to increase their TAM and they are showing strength in international expansion. I have seen the platform in action and I can see why it’s such an important tool for sales teams – I believe the product is very sticky. Analysts expect strong growth of 30%+ lasting even to FY2025. But at 35x forward gross profit, it is an expensive bet on the future of its B2B platform. If we see a weakness in the stock price, ZI could be an interesting addition to a more aggressive portfolio.

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