Zoominfo: Q4 Results and Dampened 2023 Outlook. Is Management being Conservative?
With 40% of its customers from the software vertical, tailwinds in 2021 have become headwinds. By Benjamin Tan
Zoominfo (ZI 0.00%↑) Q4 2022 revenue topped $300mn and registered an annual growth rate of 36%. Adjusted operating income margins exceeded 40%, which puts Zoominfo in a rare category of meaningful profitability among higher-growth technology companies. But the key issue with last evening’s financial report had to do with its outlook: 2023 is only projected to grow at high teens. Not bad for any company to be forecasting double digit growth in a recessionary environment, but expectations for Zoominfo had been higher, especially in the light of historical performance.
Key Highlights from Q4 2022 Report
The technology sector has been laying off employees since early-to-mid 2022 to reduce overheads and prepare for potentially weaker business volumes. Even giants like Salesforce (CRM 0.00%↑) and Meta (META 0.00%↑) could not avoid the fate as recessionary pressures continued unabated and markets demanded to see higher profitability.
With 40% of its customer base originating from the software vertical and a largely seat-base revenue model, Zoominfo faced increasingly stacked odds in 2022. While it had enjoyed extraordinary growth in tandem with prevalent hiring in the technology sector back in 2021, those tailwinds recently turned into headwinds. Trying to retain accounts and win new ones when customers (exiting and potential) were retrenching became a tall order. CEO Henry Schuck explained on the earnings call:
We have seen a reduction in seats driven by layoffs and that impacts both up-sells and down-sells and that definitely occurred in Q4. We are always looking to run plays against that and those plays obviously include additional functionality or looking for other pockets of the organization that could benefit from our software. But realistically, those plays haven’t worked as well as we want to, particularly given that the buyer behavior is much more fragile in that moment when people are executing a restructuring and kind of worried about their own team. But in some cases, we do see that work, but in many cases, particularly here in Q4, I’d say that, there was an impact related to that.
As a result, Q4 2022 revenue of $302mn barely beat the $300mn goalpost given in November 2022; outlook for 2023 also fell short of Wall Street expectations.
Below are additional highlights from Q4 2022 results:
FY 2022 DBNR dropped drastically to 104% (FY 2021: 116%)
Billings growth slowed down to 14%, compared to 60% in the prior year
Remaining performance obligations added in the seasonally critical forth quarter was $128mn, which is a retrograde from the $152mn added in Q4 2021
Total customer base added in FY 2022 was 5,000, consistent with prior years
For the second quarter in a row, sequential $100k cohort added in Q4 was below 100; this cohort accounts for roughly half of Zoominfo’s total revenue
Replaced both CRO and CTO
Moderated headcount growth and eliminated some positions
Maintained 40%+ adjusted operating profit margin
Solid B2B Sales and Marketing Suite, but Recovery will Depend on Technology Hiring
Zoominfo’s B2B sales and marketing software should, in theory, become more relevant as customers look to “do more with less”; CEO Schuck illustrated Zoominfo’s value-add on the Q4 2022 call:
We remain early in the digital transformation of B2B sales…our platform drives meaningful efficiencies for companies in all industries as our customers reduce their sales budgets and headcount…67% of sales leaders reported immediate topline revenue gains after implementing ZoomInfo. Sales development representatives cut their time researching prospects in half. Account executives reduced deal cycles by nearly 40% and increased win rates by more than 45%. STR’s, AEs and account managers increased quota attainment by more than 50% and the average quota attainment with ZoomInfo was more than 90%. 70% of marketers reduced spend due to more accurate targeting and the average recruiter using ZoomInfo reduced the time to higher by 20%.
There is little doubt that Zoominfo offers a superior and efficient go-to-market software platform for sales and marketing teams, particular in the U.S. where its dataset is most mature. But all is moot if customers do not believe much selling to transpire in the coming quarters. Unless confidence in the macro environment recovers, Zoominfo can only do so much. Already in Q4 2022, quarterly DBNR levels likely dropped below 100% levels, reflecting reduced subscriptions among existing customers. Zoominfo is projecting 2023 DBNR to remain weak, despite the abovementioned advantages of using Zoominfo products.
Employment levels in the technology sector remains the key swing factor for Zoominfo. At current stock price, the company is trading below 20x EV/CFO and 10x EV/Sales - still higher than many of its peers, except that Zoominfo has proven cashflow and profit margins.
Zoominfo management does not see any major turning point in buyer sentiment on the horizon. Rerating will only happen when confidence returns. What it may look like is this: Marc Benioff thumping his chest in the greatest of Ohana glory, and declares the return of headcount expansion at Salesforce.
That day will come - Benioff is gagging for it.
(Author is long Zoominfo)
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