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ZoomInfo (NASDAQ:ZI) Q2 Sales Beat Estimates, Stock Jumps 10.5%


Full Report / August 01, 2022
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Sales intelligence platform ZoomInfo reported Q2 FY2022 results that beat analyst expectations, with revenue up 53.5% year on year to $267.1 million. Guidance for next quarter's revenue was $278 million at the midpoint, 2.6% above the average of analyst estimates. ZoomInfo made a GAAP profit of $15.9 million, down on its profit of $24.5 million, in the same quarter last year.

ZoomInfo (ZI) Q2 FY2022 Highlights:

  • Revenue: $267.1 million vs analyst estimates of $254.4 million (4.96% beat)
  • EPS (non-GAAP): $0.21 vs analyst estimates of $0.18 (18.7% beat)
  • Revenue guidance for Q3 2022 is $278 million at the midpoint, above analyst estimates of $270.9 million
  • The company lifted revenue guidance for the full year, from $1.06 billion to $1.08 billion at the midpoint, a 1.87% increase
  • Free cash flow of $98 million, roughly flat from previous quarter
  • Customers: 1,763 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 87%, in line with same quarter last year

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.

The company essentially runs a large database of professionals similar to LinkedIn, and it also maintains a repository of companies with information about their revenue, industry or number of employees. It then puts this data together to help sales teams find and identify potential customers, alerts them if new ones appear and provides them with contact details of prospective buyers. ZoomInfo scrapes the information and data from public websites, sources it from email communications of people who let the company scan their mailboxes or buys it from other companies.

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.

ZoomInfo’s main competitor is LinkedIn which is owned by Microsoft (NASDAQ:MSFT), but there are plenty of smaller competitors in this space whether public, like TechTarget (NASDAQ:TTGT), or private, like Clearbit or FullContact.

Sales Growth

As you can see below, ZoomInfo's revenue growth has been exceptional over the last year, growing from quarterly revenue of $174 million, to $267.1 million.

ZoomInfo Total Revenue

This was another standout quarter with the revenue up a splendid 53.5% year on year. On top of that, revenue increased $25.4 million quarter on quarter, a very strong improvement on the $19.4 million increase in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates ZoomInfo is expecting revenue to grow 40.6% year on year to $278 million, slowing down from the 60.1% 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 31.7% over the next twelve months.

Large Customers Growth

You can see below that at the end of the quarter ZoomInfo reported 1,763 enterprise customers paying more than $100,000 annually, an increase of 140 on last quarter. That is a bit less contract wins than last quarter but about the same as what we have typically seen over the last year, suggesting that the company still has decent sales momentum, even if this was a weaker quarter.

ZoomInfo customers paying more than $100,000 annually

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. ZoomInfo's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 87% in Q2.

ZoomInfo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.87 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like ZoomInfo to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that ZoomInfo is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. ZoomInfo's free cash flow came in at $98 million in Q2, up 6.75% year on year.

ZoomInfo Free Cash Flow

ZoomInfo has generated $238.1 million in free cash flow over the last twelve months, an impressive 25.6% of revenues. This extremely high FCF margin is a result of ZoomInfo asset lite business model and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from ZoomInfo's Q2 Results

Sporting a market capitalization of $15.2 billion, more than $365.6 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 Wall St’s revenue expectations. On the other hand, there was a slight slowdown in new contract wins. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 10.5% on the results and currently trades at $41.75 per share.

Is Now The Time?

ZoomInfo may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. There are numerous reasons why we think ZoomInfo is one of the best software as service companies out there. While we would expect growth rates to moderate from here, its revenue growth has been exceptional, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

ZoomInfo's price to sales ratio based on the next twelve months is 12.7x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. Looking at the tech landscape today, ZoomInfo's qualities as a business really stand out and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $65.4 per share right before these results, implying that they saw upside in buying ZoomInfo even in the short term.

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