ZoomInfo (NASDAQ:ZI) Exceeds Q3 Expectations But Stock Drops 12%

Radek Strnad /
2022/11/01 4:21 pm EDT

Sales intelligence platform ZoomInfo beat analyst expectations in Q3 FY2022 quarter, with revenue up 45.5% year on year to $287.6 million. The company expects that next quarter's revenue would be around $299 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. ZoomInfo made a GAAP profit of $17.9 million, improving on its loss of $40.9 million, in the same quarter last year.

Is now the time to buy ZoomInfo? Access our full analysis of the earnings results here, it's free.

ZoomInfo (ZI) Q3 FY2022 Highlights:

  • Revenue: $287.6 million vs analyst estimates of $278.4 million (3.27% beat)
  • EPS (non-GAAP): $0.24 vs analyst estimates of $0.20 (21.7% beat)
  • Revenue guidance for Q4 2022 is $299 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow of $78 million, down 20.4% from previous quarter
  • Customers: 1,848 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 87.5%, up from 86.5% same quarter last year

“As a best-in-class high-growth software company with strong profitability, our customers are looking to us for best practices on how to grow efficiently - we do that by leveraging ZoomInfo's data, insights, and automation,” said Henry Schuck, ZoomInfo Founder and CEO.

Founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, ZoomInfo (NASDAQ:ZI) is a software as a service product that provides sales departments with access to a database of prospective clients.

Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality, coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrate data analytics with sales and marketing functions.

Sales Growth

As you can see below, ZoomInfo's revenue growth has been exceptional over the last two years, growing from quarterly revenue of $123.4 million in Q3 FY2020, to $287.6 million.

ZoomInfo Total Revenue

And unsurprisingly, this was another great quarter for ZoomInfo with revenue up 45.5% year on year. But the growth did slow down a little compared to last quarter, as ZoomInfo increased revenue by $20.5 million in Q3, compared to $25.4 million revenue add in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates ZoomInfo is expecting revenue to grow 34.5% year on year to $299 million, slowing down from the 59.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 30.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter ZoomInfo reported 1,848 enterprise customers paying more than $100,000 annually, an increase of 85 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

ZoomInfo customers paying more than $100,000 annually

Key Takeaways from ZoomInfo's Q3 Results

Sporting a market capitalization of $17.9 billion, more than $438.7 million in cash and with positive free cash flow over the last twelve months, we're confident that ZoomInfo has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth ZoomInfo delivered this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in new contract wins. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 12% on the results and currently trades at $38.25 per share.

Should you invest in ZoomInfo right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.