A closer look at ZoomInfo Technologies
In Friday's e-mail, I took a first look at cloud-based software company ZoomInfo Technologies (GTM) – not to be confused with Zoom Communications (ZM), known for its ubiquitous video conferencing.
I analyzed the company's historical financials and concluded:
ZoomInfo's financial picture is mediocre at best. After a period of high growth, revenues, profits, and FCF [free cash flow] have stalled out.
So I can see why the stock might have fallen by 50% in recent years – maybe even 75%. But plunging 97% to trade at less than 2.5 times earnings?
The stock actually popped 10.7% on Friday (perhaps due to my e-mail?), but it's still down 96% from its November 2021 peak.
Today, I'd like to take a closer look at what the company does and share the bull and bear cases for the stock. I'll also try to answer these questions from the end of Friday's e-mail:
What's going on here? Is the business about to go off a cliff due to disruption from AI and/or problems servicing its debt?
Or are investors, having been burned again and again trying to catch a falling knife for four and a half years, making a big mistake by pricing this stock way too low?
ZoomInfo is a go-to-market intelligence platform with data from 100 million companies and 500 million business professionals – including phone numbers, organizational charts, intent-to-buy signals from web activity, etc. It sells access to this platform to other companies, which use it to boost their sales teams' effectiveness.
In its latest earnings presentation, ZoomInfo claims that salespeople using its service grow their sales pipeline by 32%, increase win rate by 18%, and close deals 15% faster:
Let's start with the bull case for the stock by turning to reader Michael F., who first put it on my radar screen:
The market is really punishing it because investors think AI is going to replace its data, despite 75% of its revenue being enterprise-level contracts.
Just as with Intuit (INTU) and others, when it comes to business customers, AI is not going to replace the one-throat-to-choke vendors, plus the organizational upheaval such a change can cause – smaller businesses will be even more loathe to change.
He outlines how the company's products keep it insulated from AI upheaval:
ZoomInfo certainly hasn't been sitting on its hands. When it comes to incorporating AI, they have moved beyond the AI chatbot strategy and have agentic ZoomInfo Copilot, which operates in the background and connects to an enterprise's customer relationship management ["CRM"] software to automate end-to-end sales workflows.
For example, based on public data, Copilot maps out the buying groups within a company so sales can spend more time cultivating the relationship rather than wasting time digging up who to talk to. It also tells salespeople which of their accounts are in a buying window and why – and it can also draft specifically tailored outreach or follow-up e-mails to customers. I can easily see many small sales departments taking advantage of this, especially small businesses that don't have the margins of a large company to be able to hire more people.
No salesperson or small business owner with limited time is going to want to try to set this up for themselves. There might be some companies that will try to have their IT team make something in Claude, but it will certainly not work anywhere near as well, and it runs the risk of whoever built it leaving the company with no one to take over in their stead.
Someone posting on Value Investors Club under the name "bulldog2013" made a more in-depth bull case on April 9 (subscription required). He summarizes his argument:
The market is pricing this like a melting ice cube.
Three things are responsible for the discount: leverage, near-zero revenue growth guidance, and the belief that AI is an existential threat to the business. The leverage is manageable. The revenue picture is considerably better beneath the surface. The AI thesis is largely wrong.
More importantly, at these prices, I don't need to be right about all three. Even in a flat-revenue, depressed-multiple scenario, continued buybacks at a 22% FCF yield produce strong per-share returns. That's the thesis.
He argues that the weak revenue growth is due to a "deliberate strategic decision":
ZoomInfo reported 3% revenue growth in 2025 and is guiding roughly 1% in 2026. For a software company, ugly. But the headline obscures a deliberate strategic decision.
The business has two structurally different segments. The upmarket business, companies with over 100 employees, is now 74% of total ACV [annual contract value]. It grew 6% in [fourth-quarter] 2025 – triple the rate from a year earlier. Net revenue retention in this segment is above 100%. The [$100,000-plus] ACV cohort sits at 1,921 customers, near all-time highs. This part of the business is healthy.
The downmarket business is declining at roughly 10% per year. Management is not trying to stop this. Qualification criteria were tightened, sales resources redirected upmarket, pricing and packaging changed. Management expects an 80/20 upmarket/downmarket mix by end of 2027. At that point, if upmarket grows at 7% and downmarket declines at 5%, total revenue grows roughly 5%. This is a managed transition, not fundamental deterioration... The guidance is conservative.
Like Michael, he doesn't think AI will disrupt ZoomInfo's business:
The most common objection to ZoomInfo is that LLMs [large language models] will replace the need for a B2B [business-to-business] data business. The argument sounds intuitive – if AI can tell you everything about a company and its employees, why pay for ZoomInfo?
The problem is that ZoomInfo's most valuable data isn't publicly available. Direct dial numbers, accurate org charts for private companies, intent signals derived from web activity, and enriched buyer profiles don't get scraped from LinkedIn or press releases. They come from the contributory networks – customers and community members actively contributing their business data in exchange for enriched data back. No LLM can replicate this because the underlying data doesn't exist in the public domain.
At the [fourth-quarter] 2025 call, [CEO Henry Schuck] addressed this directly: the value of quality data is increasing as AI deployment rises, not decreasing, because AI agents running at scale on bad data create compounding problems you can't unwind.
He continues by refuting that AI reduces demand for B2B data:
The Operations business growing above 20% contradicts this directly. Enterprises building AI agents are discovering those agents are only as good as the data feeding them. First-party CRM data alone is insufficient for any use case beyond basic customer support. ZoomInfo is becoming the third-party data layer enterprises need to make their AI initiatives function. That is the opposite of displacement.
The SEO [search engine optimization] disruption to downmarket new business is a real headwind. AI overviews have reduced inbound traffic to ZoomInfo's website, which has historically been a meaningful [product-led growth] source for smaller customers. Management has acknowledged this, with benefit expected in the back half of 2026. The key mitigant: this headwind primarily affects the downmarket business, which management is deliberately shrinking.
Turning to the bear case, reader and former ZoomInfo customer Walter C. writes:
I looked at ZoomInfo's services just before their IPO. I was looking for a way to search for potential contacts for sales outreach, and they had a tool for doing that inside companies, providing e-mails and telephone numbers. As it was the quarter before their IPO, they got very aggressive on pricing so I took them up on a one-year subscription.
But I soon figured the stock would be a great short. They were hoping to charge a lot of money for an e-mail and phone number database, but you can get this from many places. I saw a race to the bottom... I didn't renew my subscription.
However, Walter notes:
To ZoomInfo's credit, it appears that they have broadened their offering to be more of a CRM platform, a tool for general sales outreach. So in that way, they are a cheaper option to Salesforce (CRM).
The question I have is what are their customers actually buying and using on the platform today? How captive are they? And can the pricing stick for the most part? If all that is good, then clearly the stock has overshot to the downside, probably on the same AI fears hitting Salesforce's stock.
Another element of the bear case is that ZoomInfo has a large tax receivable agreement (here's a helpful primer on this subject). It's a meaningful liability and a deterrent to any potential acquiror. This is the disclosure in the company's quarterly presentation:
The bear case came to the fore on May 11, when the company reported first-quarter earnings...
While the quarter was decent – with a 1.5% increase in revenue and 9% increase in adjusted operating income – the company reduced its full-year guidance substantially:
This destroyed management's credibility with investors and triggered a 33% collapse in the stock that day.
Two days later, bulldog2013 – the same Value Investors Club member who shared the bull case on April 9 – threw in the towel, writing:
This is a mess. We sold our shares. This was a thesis-breaking update. Sorry to anyone that bought this piece of sh*t company.
Another Value Investors Club member added:
We're the idiots who bought before the quarter and quickly lost 50%-plus. We've rarely seen such a U-turn in guidance. Management seems completely lost on the earnings call, at the JP Morgan conference, and on our 1x1 call. We also spoke with an upmarket customer who wasn't very positive.
We think this is a melting ice cube because customers don't want their non-data products, and their data is being commoditized away as AI makes it easier to get comparable data in-house or from cheaper competitors.
We were excited about the CEO's compensation package, but that was a huge mistake and we now view [it] as a big negative. His long-term incentive plan is a call option with little chance of even being in the money, so the CEO [is] motivated to try science projects, overpay for acquisitions, and/or lever up without worrying about the debt. I'd be short now if it wasn't already trading at $3.50.
In summary, this is one of the most hated stocks and management teams I've ever come across – which I view as a strong bullish signal.
The stock is trading at a mere 2.6 times this year's estimate of $1.11 per share. It's priced as if the business is in full-scale collapse – and it's not.
At the recently lowered guidance midpoint, revenue is only projected to decline by 1.7% in the second quarter and 4.4% for the full year. And non-GAAP unlevered FCF for 2026 will only decline by 2.2%.
Perhaps management's guidance will once again prove to be too optimistic. But my experience is the opposite...
When management teams know they're going to report awful numbers and the stock is going to get killed (which was the case going into ZoomInfo's first-quarter earnings announcement), they often do a "kitchen sink" quarter to get all the bad news out and ensure easy comparisons going forward.
So I put this stock in the category of "interesting speculation" – though not as attractive as my two current favorite speculations, Joby Aviation (JOBY) and Fannie Mae (FNMA).
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.