On Wednesday, Citi analyst Tyler Radke adjusted the price target on shares of ZoomInfo Technologies (NASDAQ:ZI), increasing it to $8.50 from the previous $7.00, while reaffirming a Sell rating on the stock. Despite a third-quarter revenue that surpassed minimal expectations, Radke highlighted concerns over the company's growth trajectory extending into 2025, citing small-to-medium business (SMB) churn and rising competition as significant challenges.
ZoomInfo's recent performance revealed a 3% year-over-year decrease in customer revenue performance obligations (cRPO) bookings, a slowdown in the addition of customers with over $100,000 in spending, and a 2% sequential decline in adjusted revenue growth. These indicators, according to Radke, point to ongoing deteriorating growth trends.
The company's guidance for the fourth quarter was also a factor in the maintained Sell rating, as it aligned closely with analysts' expectations, which had become increasingly optimistic after the stock had risen by 50% from its lows. However, the guidance provided by ZoomInfo's management suggests a more conservative outlook as they head into 2025.
Radke's report further indicated that the competitive landscape for ZoomInfo is rapidly changing, and with the anticipated headwinds from write-offs and SMB challenges likely to persist in the first half of the year, the stock is expected to continue facing pressure. The analyst's estimates for the fiscal year 2025 have been slightly increased, but projections for 2025 to 2027 have been lowered again.
The revised price target of $8.50 is based on a 10.8x multiple of the company's expected 2025 enterprise value to free cash flow (EV/FCF), a slight uptick from the previous target but still reflecting caution regarding ZoomInfo Technologies' future performance in the market.
In other recent news, ZoomInfo Technologies reported strong financial results for the third quarter, surpassing prior forecasts with a GAAP revenue of $304 million and an adjusted operating income of $112 million. The company's net revenue retention rate remained steady at 85%, while its enterprise customer base saw significant growth, with the $100,000 customer cohort increasing to 1,809 clients. Amid these developments, both Piper Sandler and DA Davidson have adjusted their outlooks on ZoomInfo. Piper Sandler increased the price target from $10.00 to $11.00, maintaining a neutral rating, while DA Davidson raised the shares target from the previous $9.50 to $13.00, also maintaining a neutral rating.
Despite a sequential revenue decline, ZoomInfo demonstrated effective operating controls, contributing to a robust operating margin of 37%, an increase from 28% in the previous quarter. This disciplined approach supported the company's bottom line, with earnings per share growing by 9% year-over-year.
For the fourth quarter, ZoomInfo forecasts GAAP revenue between $296 million and $299 million, with full-year 2024 GAAP revenue anticipated to be between $1.201 billion and $1.204 billion. These are recent developments from ZoomInfo Technologies, reflecting a company navigating its way through a challenging market environment.
InvestingPro Insights
While Citi analyst Tyler Radke maintains a cautious stance on ZoomInfo Technologies (NASDAQ:ZI), recent InvestingPro data presents a more nuanced picture. The company's stock has shown significant momentum, with a 42.02% price return over the last three months and a 28.99% return in the past month. This surge aligns with one of the InvestingPro Tips, which notes a "significant return over the last week."
Despite the challenges highlighted by Radke, ZoomInfo boasts impressive gross profit margins, with InvestingPro data showing a gross profit margin of 88.63% for the last twelve months as of Q2 2024. This strength is reflected in an InvestingPro Tip that points out the company's "impressive gross profit margins."
It's worth noting that while the analyst's concerns about growth persist, an InvestingPro Tip suggests that "net income is expected to grow this year." This potential for profitability growth could be a factor for investors to consider alongside the challenges outlined in the article.
For a more comprehensive analysis, InvestingPro offers 15 additional tips for ZoomInfo Technologies, providing investors with a broader perspective on the company's financial health and market position.
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