Upmarket Strategy And AI-Powered Copilot Set To Drive Future Success

Key Takeaways

• Strategic shift to enterprise and mid-market focus aims to enhance profitability and reduce churn, stabilizing net revenue retention rates.
  
• Ongoing innovation in AI and data solutions bolsters competitive position, supporting potential revenue growth as enterprise demand increases.
  
• Significant reliance on upmarket growth and Copilot transition amid competition and downmarket decline may challenge revenue stability and long-term profitability.

Catalysts

Provides go-to-market intelligence and engagement platform for sales, marketing, operations, and recruiting professionals in the United States and internationally.

• ZoomInfo's strategic shift to focus on the upmarket, particularly enterprise and mid-market businesses, is expected to drive profitability improvement and enhance net margins due to higher customer lifetime values and operational efficiencies.
  
• The company's Copilot product, utilizing advanced AI applications, is experiencing strong market adoption, with $150 million in ACV, indicating potential for significant revenue growth as it continues to integrate with customer operations and expand its user base within accounts.
  
• ZoomInfo's ongoing innovation in data solutions, particularly in providing enriched data for AI-driven decision-making, is set to bolster its competitive position and could lead to increased revenue as more enterprises seek robust data foundations for their AI strategies.
  
• The transition of ZoomInfo's customer base from downmarket to upmarket strategies is anticipated to stabilize and possibly reduce churn, thereby potentially increasing net revenue retention rates over time.
  
• Share buybacks, including the authorization of an additional $500 million for repurchases, are expected to enhance earnings per share (EPS) by reducing the number of shares outstanding, thereby potentially increasing shareholder value.
  

ZoomInfo Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ZoomInfo Technologies's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 15.1% in 3 years time.
• Analysts expect earnings to reach $199.3 million (and earnings per share of $0.55) by about April 2028, up from $29.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $248.9 million in earnings, and the most bearish expecting $150.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.0x on those 2028 earnings, down from 92.9x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.65%, as per the Simply Wall St company report.

ZoomInfo Technologies Future Earnings Per Share Growth

Risks

• ZoomInfo's guidance for 2025 indicates a negative 1.6% annual growth at the midpoint, raising concerns about future revenue performance, especially considering the downmarket segment's expected decline.
  
• The downmarket segment, comprising less than 1/3 of the business, declined 9% in 2024 and is expected to contribute less to growth, which could impact the overall revenue stability and earnings.
  
• There is significant dependence on the upmarket segment for growth, which may not fully offset the downmarket decline if execution risks or unforeseen macroeconomic factors affect performance.
  
• The transition of existing customers to the Copilot platform is gradual and relies on a strong migration strategy; delays or lower-than-expected uptake could impact net margins and long-term growth.
  
• Elevated competition, particularly in providing AI-driven go-to-market solutions, may pressure ZoomInfo to innovate and maintain its data and AI leadership, potentially impacting future profitability and earnings.

Valuation

• The analysts have a consensus price target of $11.4 for ZoomInfo Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $199.3 million, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 8.6%.
• Given the current share price of $7.99, the analyst price target of $11.4 is 29.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.