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ZoomInfo (NASDAQ:ZI) Reports Bullish Q2, Lifts Full Year Guidance


Full Report / August 02, 2021
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Sales intelligence platform ZoomInfo reported Q2 FY2021 results beating Wall St's expectations, with revenue up 56.8% year on year to $174 million. ZoomInfo made a GAAP profit of $24.5 million, improving on its loss of $77.9 million, in the same quarter last year.

ZoomInfo (ZI) Q2 FY2021 Highlights:

  • Revenue: $174 million vs analyst estimates of $162.4 million (7.13% beat)
  • EPS (non-GAAP): $0.14 vs analyst estimates of $0.12 (19.3% beat)
  • Revenue guidance for Q3 2021 is $183 million at the midpoint, above analyst estimates of $171.4 million
  • The company lifted revenue guidance for the full year, from $673 million to $705 million at the midpoint, a 4.75% increase
  • Free cash flow of $91.8 million, roughly flat from previous quarter
  • Customers: 1,100 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 86.4%, in line with previous quarter

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.

Sales representatives spend only a minority of their time actually selling, in large part because they must spend so much of their time researching potential prospects. Sales and marketing departments are coming under pressure to increase efficiency, and that drives demand for platforms like ZoomInfo.

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 $110.9 million, to $174 million.

ZoomInfo Total Revenue

This was another standout quarter with the revenue up a splendid 56.8% year on year. On top of that, revenue increased $20.7 million quarter on quarter, a very strong improvement on the $13.6 million increase in Q1 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 31.7% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

Large Customers Growth

You can see below that at the end of the quarter ZoomInfo reported 1,100 enterprise customers paying more than $100,000 annually, an increase of 150 on last quarter. That is quite a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

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, licences, technical support and other necessary running expenses was at 86.4% in Q2.

ZoomInfo Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.86 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year 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.

Key Takeaways from ZoomInfo's Q2 Results

With market capitalisation of $9.96 billion ZoomInfo is among smaller companies, but its more than $399.7 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth ZoomInfo delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 5.16% on the results and currently trades at $57.57 per share.

Is Now The Time?

When considering ZoomInfo, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. 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 bountiful generation of free cash flow empowers it to invest in growth initiatives, and its impressive gross margins are indicative of excellent business economics.

The market is certainly expecting long term growth from ZoomInfo given its price to sales ratio based on the next twelve months is 28.6. Looking at the tech landscape today, ZoomInfo's qualities really stand out, and we really like it at this price.