ZoomInfo’s stock price has taken a beating over the past six months, shedding 29.6% of its value and falling to $3.89 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in ZoomInfo, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think ZoomInfo Will Underperform?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons why GTM doesn’t excite us, plus one stock we’d rather own.
1. Billings Hit a Plateau
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Over the last year, ZoomInfo failed to grow its billings, which came in at $295.9 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect ZoomInfo’s revenue to drop by 6.2%, a decrease from its 16.3% annualized growth for the past five years. This projection doesn’t excite us and indicates its products and services will see some demand headwinds.
3. Shrinking Operating Margin
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses — everything from the cost of goods sold to sales and R&D.
Looking at the trend in its profitability, ZoomInfo’s operating margin decreased by 49.7 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. ZoomInfo’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 35.2%.
Final Judgment
We cheer for all companies solving complex business issues, but in the case of ZoomInfo, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 1× forward price-to-sales (or $3.89 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward our favorite semiconductor picks and shovels play.
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