ZoomInfo Technologies Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

ZoomInfo is a leading provider of market intelligence software, data, and analytics for sales, marketing, operations, and recruiting teams, offering a cloud-based platform that helps businesses identify and engage with their ideal customers.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

ZoomInfo operates a B2B data platform, offering a comprehensive database and software tools to help businesses with sales, marketing, and recruitment efforts. Unlike many other firms that rely on limited customer contact or single touchpoints, ZoomInfo’s products are aimed at finding and identifying the best customers and contacts for its users through the combination of both AI tools and human insight.

  • Revenue Distribution:

* ZoomInfo’s revenue primarily comes from subscriptions to its platform, offering access to its database, analytics tools, and engagement platform. The company’s ability to secure new subscriptions and retain existing ones is a key indicator of future growth. The number of customers using the platform has been consistently on the rise, with growth seen across various customer segments. The company operates as a global entity, and its customers are located throughout North America, Europe, and Asia.

  • The primary way they generate revenue is through subscriptions and the pricing of this subscription fluctuates based on volume, customer type, geographic region, and length of contract, etc.

  • They also have some professional service income.

  • Industry Trends:
    • The demand for data intelligence and analytics is increasing across all industries. Companies are spending more on sales, marketing, and recruitment and using AI solutions to automate and optimize these functions. The need for better tools to identify and target ideal customers, and the use of data in business is only rising which are tailwinds to the company’s business.
  • The market is becoming more competitive with other players, and is constantly evolving due to technological innovations.
  • Margins:
  • Their margins have improved quite significantly in recent times * In the last report they had a gross margin of 79.1%, which has helped with increased profitability
  • They expect margins to remain consistent at around 37.5 to 38% and even rise in the future by increasing prices.
  • Competitive Landscape:
  • The competitive landscape includes other data providers as well as data solutions providers. They compete with similar companies like Apollo, Lusha and Lead411, as well as other technology giants that have products in the B2B intelligence space, like Salesforce. * The competition has only gotten tougher in recent times, so that could affect growth and pricing.
  • What Makes ZI Different?:
    • They emphasize their AI-driven insights and their massive database that they have built using both AI and human intelligence.
    • They are a leader in the space and have been in the business for a long time, thus making them a recognizable name.
    • They offer an easy-to-use platform that integrates sales, marketing and recruiting tools into one place.

Financials:

  • Revenue Growth:
    • ZI has demonstrated substantial growth in revenue in the past and is projected to grow in the future. Revenue increased from 293 million dollars in 2018 to over 1.4 billion dollars in 2023, which shows the fast growth.
    • In the latest earnings, they are expecting 2024 revenue to be somewhere in the range of 1.477 to 1.497 billion which again shows good growth.
  • They aim to grow subscriptions and reduce volatility in revenues in the future.
  • Profitability:
  • The company has had great profitability lately which is trending upwards due to high margins.
  • In the recent report, Non-GAAP operating income is up 18% and net income has surged by 145%
  • Cash Flow:
  • The company has good cash flows from operations.
  • The latest cash from operating activities is $394.3 million compared to 179 million for the same period last year, which is extremely positive.
  • Debt:
  • The company has a decent amount of debt. * However, with the current trajectory of rising profits and consistent revenues, it is not too concerning.
  • They are focusing on decreasing the debt on their books in the future.
  • Guidance:
    • They expect a 2024 revenue of about 1.477 billion to 1.497 billion dollars. They are also expecting adjusted operating income between $768 and $780 million.
    • For the first quarter of 2024 they are expecting revenue between 368 million and 370 million dollars, and adjusted operating income between $147 and $149 million.
  • Concerns/Controversies:
  • They face increasing competition from newer AI solutions being created in the market. * Also, their recent change in pricing has been criticized by its users, and if these changes don’t provide more value, they could be harmful.
  • There were also concerns about their use of client data, they have created policies and implemented new policies in an attempt to provide safety and privacy.
  • Management Commentary:
    • The management has continuously emphasized its customer growth and the recurring revenue that they make, while also focusing on profitability, debt, and integrations.
    • They have also made it clear that they are using AI and Machine Learning to optimize their operations and they are doing continuous research and development on improving the efficiency of their products and services.
  • They are focused on creating long term value for the shareholders.

Moat Assessment:

  • Rating: 2/5
  • Justification: ZoomInfo possesses a narrow moat based on its established brand, its proprietary data and collection process, and network effects.
    • Intangible Assets: They have a well-known brand in the B2B data space that commands a lot of respect. They have years of data collected from various sources which gives them a good competitive advantage
    • Switching Costs: Switching to another data provider may result in loss of data, and re-learning new systems, thus causing some switching costs for their customers.
    • Network Effects: A stronger network means there are more contacts and information, thus causing new customers to be more likely to use their platform, and giving a powerful moat.
      • Limitations:
    • While they have the above advantages, they are not completely immune to new and emerging players in the market, which creates constant competition and can quickly disrupt their dominance. The technology can be easily replicated as well by competitors.
    • Also, switching costs are not too high to prohibit other companies from grabbing their customers.

Understandability Assessment:

  • Rating: 3/5
  • Justification: * The basic business model is moderately easy to understand. They offer a platform that provides sales, marketing, and recruiting tools to other businesses which simplifies many of their operations, and they make money through subscriptions.
    • However, the intricacies of data management and AI-driven processes can be a bit complex.
    • Also, understanding the various accounting adjustments, specifically for a company with multiple acquisitions, can be fairly difficult for the average investor.

Balance Sheet Health Assessment:

  • Rating: 4/5
    • Justification:
      • ZoomInfo has a healthy balance sheet with its rapidly increasing cash flows, however it has a fairly high debt which it has taken on over the past few years due to acquisitions. They are working on debt management in an effort to make their balance sheet stronger.
    • They should be closely monitored to make sure their debt is not getting out of hand and that they are continuing their growth.

Conclusion

ZoomInfo is a growing company in a lucrative field which has generated strong results. The company is focusing on improving its offerings through innovation, as well as strategic acquisitions and partnerships to maintain an edge in the marketplace. Their focus on value creation rather than short-term profits, as well as the expansion of their platform and customer base make them a contender for the future. While the competitive landscape and debt are real risks, and requires close monitoring, they could have long term profits if the management continues to successfully execute. Overall, the business has some strengths and is moderately complicated but requires the investor to carefully assess and understand the business before making an investment decision.