On Wednesday, ZoomInfo Technologies (NASDAQ:ZI) experienced a revision in its market outlook as KeyBanc adjusted the company's price target, bringing it down to $18.00 from the previous $20.00. Despite the reduction, the firm has chosen to maintain an Overweight rating on the stock.
The adjustment comes after a quarter that saw a mix of positive and negative developments for ZoomInfo. The company witnessed improvements in several areas that were previously concerning at the start of the year. Notably, the net renewal rate decreased but outperformed both the firm's and the company's expectations. Additionally, the company reported strong win-backs, a stabilization in the software industry, and a significant 16% growth in customers at the high end.
These factors contributed to a stronger quarter in terms of top-line results. However, a new challenge has emerged, as the small and medium-sized business (SMB) segment displayed deteriorating behavior, which has led to a downward revision in revenue expectations. This segment had previously demonstrated resilience in 2023 before taking a downturn early in the year. The decline in the SMB segment has been attributed to macroeconomic factors rather than competitive pressures, although distinguishing between the two might be difficult in a cost-sensitive market segment.
Despite the headwinds and lowered price target, KeyBanc remains optimistic about ZoomInfo's prospects. The firm believes that the current net-new sales threshold remains appealing. Nonetheless, there is an acknowledgment of the ongoing challenges, likened to a game of "headwind Whac-A-Mole," where resolving one issue may lead to the emergence of another. The firm's positive stance is based on the overall performance and trends that are moving in the right direction, despite the need to adjust expectations due to the SMB market's recent performance.
InvestingPro Insights
As ZoomInfo Technologies (NASDAQ:ZI) navigates through market adjustments and analyst revisions, key metrics and insights from InvestingPro provide a deeper understanding of the company's financial health and future prospects. With a market capitalization of approximately $4.51 billion and a high gross profit margin of 88.79% over the last twelve months as of Q1 2023, ZoomInfo showcases a strong ability to generate revenue efficiently.
One of the notable InvestingPro Tips for ZoomInfo is the company's aggressive share buyback strategy, which often reflects management's confidence in the business's future. Additionally, ZoomInfo is expected to see net income growth this year, which could signal potential for investors. These factors, combined with the company's impressive gross profit margins and the fact that analysts predict ZoomInfo will be profitable this year, provide a compelling narrative for investors considering the stock.
While KeyBanc has lowered the price target, ZoomInfo is trading at a low P/E ratio relative to near-term earnings growth, with a P/E ratio adjusted for the last twelve months at 50.47. This could indicate that the stock is undervalued compared to its growth potential. Moreover, with the company trading near its 52-week low and possessing liquid assets that exceed short-term obligations, there may be an opportunity for investors to enter at a favorable point.
For those interested in a deeper dive into ZoomInfo's financials and future outlook, InvestingPro offers additional analysis and tips. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the full range of insights, including 13 additional InvestingPro Tips for ZoomInfo, at https://www.investing.com/pro/ZI.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.