ZoomInfo (ZI)

Sales intelligence platform ZoomInfo reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 1.4% year on year to $305.7 million. Guidance for next quarter’s revenue was better than expected at $296.5 million at the midpoint, 1.5% above analysts’ estimates. Its non-GAAP profit of $0.23 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 2007 as DiscoveryOrg and renamed after a merger in 2019, ZoomInfo (NASDAQ:ZI) is a software as a service product that provides sales departments with access to a database of prospective clients.

Companies need to be able to interact with and sell to their customers as efficiently as possible. This reality coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrates data analytics with sales and marketing functions.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, ZoomInfo grew its sales at a 13.1% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, ZoomInfo’s revenue fell by 1.4% year on year to $305.7 million but beat Wall Street’s estimates by 3.5%. Company management is currently guiding for a 1.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 1.2% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will face some demand challenges.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

ZoomInfo’s ARR came in at $1.21 billion in Q1, and it averaged 3.2% year-on-year declines over the last four quarters. This performance mirrored its total sales, showing the company lost long-term deals and renewals. It also suggests there may be increasing competition or market saturation.

This quarter, ZoomInfo reported 1,868 enterprise customers paying more than $100,000 annually, an increase of 1 from the previous quarter. That’s a bit fewer contract wins than last quarter and below what we’ve observed over the previous year, suggesting its sales momentum with new enterprise customers is slowing. It also implies that ZoomInfo will likely need to upsell its existing large customers or move down market to accelerate its top-line growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

ZoomInfo’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. This inefficiency partly stems from its focus on enterprise clients who require some degree of customization, resulting in long onboarding periods that delay customer spending.

For software companies like ZoomInfo, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

ZoomInfo’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 87.8% gross margin over the last year. That means ZoomInfo only paid its providers $12.17 for every $100 in revenue.

In Q1, ZoomInfo produced a 87.6% gross profit margin, marking a 1.4 percentage point decrease from 89.1% in the same quarter last year. ZoomInfo’s full-year margin has also been trending down over the past 12 months, decreasing by 1.1 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

ZoomInfo has been an efficient company over the last year. It was one of the more profitable businesses in the software sector, boasting an average operating margin of 8.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, ZoomInfo’s operating margin decreased by 10.3 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, ZoomInfo generated an operating profit margin of 16.5%, up 2.6 percentage points year on year. The increase was encouraging, and because its revenue and gross margin actually decreased, we can assume it was more efficient because it trimmed its operating expenses like marketing, R&D, and administrative overhead.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

ZoomInfo has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 37.1% over the last year.

ZoomInfo’s free cash flow clocked in at $124.5 million in Q1, equivalent to a 40.7% margin. This result was good as its margin was 1.2 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

Over the next year, analysts predict ZoomInfo’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 37.1% for the last 12 months will decrease to 32.4%.

ZoomInfo reported $140.5 million of cash and $1.40 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $438.2 million of EBITDA over the last 12 months, we view ZoomInfo’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $36.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see ZoomInfo’s full-year EPS guidance top analysts’ expectations. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its new large contract wins slowed. Zooming out, we think this was a mixed quarter. The stock remained flat at $10.30 immediately following the results.

Updated: June 16, 2025 at 10:18 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own ZoomInfo, you should also grasp the company’s longer-term business quality and valuation.

We cheer for all companies solving complex business issues, but in the case of ZoomInfo, we’ll be cheering from the sidelines. First off, its revenue growth was uninspiring over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its bountiful generation of free cash flow empowers it to invest in growth initiatives, the downside is its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. On top of that, its declining operating margin shows it’s becoming less efficient at building and selling its software.

ZoomInfo’s price-to-sales ratio based on the next 12 months is 2.9x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $11.07 on the company (compared to the current share price of $10.28).