On Wednesday, Wells Fargo adjusted its outlook for ZoomInfo Technologies (NASDAQ:ZI), reducing the price target to $21 from the previous $28, while retaining an Overweight rating on the stock. The adjustment follows ZoomInfo reporting a mixed first quarter, with revenues slightly surpassing Street estimates.
The company's year-over-year revenue increased by 3% and saw a sequential decline of 2%, primarily due to better enterprise and mid-market renewals, which were somewhat negated by increasing weaknesses in the small and medium-sized business (SMB) segment.
ZoomInfo's first-quarter billings fell short of expectations, coming in at $313 million, a 6% decrease year-over-year compared to the Street's anticipated $334 million. This shortfall was attributed to persistent renewal challenges and the aforementioned SMB weaknesses.
Current remaining performance obligations (cRPO) saw no growth year-over-year in the first quarter, remaining stagnant compared to a 2% growth in the previous quarter, reflecting the same revenue and billings trends.
Moreover, the company's net revenue retention (NRR) rate declined further to 85% from 87% in the fourth quarter, influenced by the same factors impacting revenue and billings. In light of these results, ZoomInfo has also reduced its guidance for the upcoming year, acknowledging the increased headwinds in the SMB sector.
Despite the current challenges and the reduction in the financial outlook for ZoomInfo, Wells Fargo expressed a belief that ZoomInfo holds a higher probability of recovery compared to other software companies that have not fared well post-COVID. The firm noted the frustration with the inconsistency in setting financial targets but still sees potential for ZoomInfo to bounce back.
InvestingPro Insights
In light of Wells Fargo's updated outlook on ZoomInfo Technologies, it's worth considering some key metrics and insights from InvestingPro. With a current market capitalization of $6.05 billion, ZoomInfo is trading at a P/E ratio of approximately 60.41, which adjusts to a slightly lower 50.47 for the last twelve months as of Q4 2023. Despite recent challenges, ZoomInfo boasts an impressive gross profit margin of 88.79%, suggesting a strong ability to control costs relative to revenue.
One of the notable InvestingPro Tips for ZoomInfo is the aggressive share buyback by management, which can often be a sign of confidence in the company's future prospects. Moreover, analysts predict the company will be profitable this year, a positive sign amidst the reported challenges. With a PEG ratio of 0.79, the company's earnings growth rate is favorable when pegged against its P/E ratio, indicating potential for value.
For those looking to delve deeper into ZoomInfo's financial health and future outlook, there are over 10 additional InvestingPro Tips available, providing a more comprehensive analysis. Interested investors might consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. This could be a valuable tool for investors seeking to make informed decisions based on the latest data and expert insights.
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