ZI - Some Concerns


I have read most of the posts here about ZoomInfo and it has piqued my interest. I did a shallow dive into the company so I could better understand them for myself and came away with more concerns than I’d like, tipping me towards passing on this one. I am hoping that the board can either soundly refute each of my concerns or otherwise confirm my suspicions, giving me better confidence one way or another.

1) Moat
What is the moat here? It seems as if every company these days claims they have AI/ML proprietary engines fueling their respective businesses so it is hard for me to view this as a moat. ZoomInfo has developed a sophisticated web scrapper which I personally feel can be bested fairly easily. You could certainly make the argument that the AI/ML is growing and learning so they have an advantage there but they are not the first mover from what I understand and there already currently exists copious competition in this space.

2) Balance Sheet
People have brought up the debt and I agree, they have a lot of it. Someone once told me debt is really just bringing future growth into the present. Taking that view of things, I could certainly see a slowdown in the future because of the debt load. They recently restructured the debt to take advantage of more favorable terms and interest rates, but it also seems to be able to take on more debt.

From Q1 earnings call, referring to debt refinance: “There are a couple of benefits that we get from that. One is we did take advantage of a really strong rate environment in February. So we lowered our rate across the board between both the term loan and the new bond. Additionally, it gives us added flexibility going forward. So the unsecured bond obviously has fewer covenants and whatever else. It also enables us to take on more term loan debt if we needed it going forward for potential acquisitions or other growth initiatives. And then finally, we also increased the size of our revolver to $250 million, again, to give us more flexibility going forward until we find good opportunities for continued investment.”

That is long but I wanted to include the entire quote. This to me says they wanted to restructure so they can take on more debt. They said elsewhere on the call that they are planning more M&A. A company this small already pounding the M&A narrative with loads of debt gives me pause.

From Q1 earnings call, referring to M&A: “We think – we continue to believe that M&A is going to be a strong growth driver for us, particularly where we can find a solution that gets remarkably better with our data asset at the shared foundation that we can sell across all of our go-to-market teams. And so we do view M&A as a strategic differentiator for our business…I think you will see us continue to do M&A deals throughout 2021.”

A smaller thing on the balance sheet that bothers me is the percentage of intangibles (intangible assets & goodwill) to assets which is 53%. This might not be a problem to most but it is a small nitpick for me.

3) Business Model
Someone who knows better might be able to dash this concern quickly but I don’t like the idea of the business being based on congregating public information. This is in contrast to someone like Crowdstrike, Datadog, or Cloudflare where everything is their own. I recognize that their scraping tool is really the special sauce but the tool is worthless without the public data that it aggregates. The concern that this is a telemarketer has been pretty well wrapped up so don’t confuse what I am saying with that argument.

4) Profitability
This might seem like a strange one but their numbers seem too good to be true. I don’t know if it is accounting wizardry or they may really just be that profitable, but it raises my BS meter. This could be completely wrong but it is difficult to see how a SaaS company can be this much more profitable than ALL the others given the stage they are at.

This is not meant to be a bear report or meant to deter anyone, but rather I am posting my concerns that I assume others have thought about as well. I am very impressed by their numbers and their customers who have put their trust in them so I would like to like them. Either way, thank you for bringing this company to the board as it certainly is an interesting one.

  • Junomean2
  1. Moat
    All tech businesses eventually get commoditized. Scale is the only real moat and network effects or brand help at a big scale. It’s true that other companies offer this same service but none of them are as comprehensive or provide the same level of data enrichment automation. Which are both hard to measure.

  2. Balance Sheet
    This has been brought up before and there are good reasons for it, such as the founders wanted to retain more equity and control rather than relinquish that to investors and the board. So it can cut both ways. I always like when companies talk about funding M&A as it shows they are aware of their limitations and don’t suffer from high-tech hubris, where they believe their engineering and product development is superior to everyone else. Too many successful high-tech companies suffer from this.

I included Verizon just to see what a company with a lot of debt would look like.

Debt/Equity: 1.56
Debt/Cash: 2.20
Debt/Capital: 5.67

Debt/Equity: 0.89
Debt/Cash: 0.41
Debt/Capital: 0.55

Debt/Equity: 0.67
Debt/Cash: 0.42
Debt/Capital: 0.46

Debt/Equity: 2.52
Debt/Cash: 17.62
Debt/Capital: 196.07

  1. Business Model
    I don’t think the business model is the issue here, or you haven’t brought up any issues with it. What people don’t seem to like is they are in marketing and the general population hates advertising, telemarketing, data scraping, etc. But the reality is that stuff is all necessary to make any great business function. I personally am much worried about companies that pollute on a large scale.

  2. Profitability
    Since you didn’t provide any numbers, here is what I found. Looks completely normal in the Saas world to me. Maybe slightly more profitable.

Gross Margin
ZI 77%
CRWD 77%
DDOG 74%
SPY Avg. 32%

Operating Margin
ZI 11%
CRWD -11%
DDOG -4%
SPY Avg. 10%

Long ZI



Thank you for the input on each of my concerns. Let me expound a little further on two of them.

I’m glad you brought up those numbers to show the relative debt levels for CRWD, DDOG, and then VZ. VZ might not be the best comparison as this is a telecom which typically carries massive amounts of debt, but I get where you’re coming from. This also creates a perfect segway into why I don’t like for intangibles/assets to be so high. Below I have shown the same comparisons except I am showing Debt/TangibleEquity (removing intangible assets and goodwill) as these items, typically, cannot be liquidated in case of default. I am only including the short-term and long-term debt on their balance sheet, not operating lease liabilities or anything else like that; since these don’t match your numbers, I’m not sure where you got them from, but I went straight to the financial statements at the end of their latest earnings report.

Debt/Equity: 0.78
Debt/TangibleEquity: 3.00

Debt/Equity: 0.85
Debt/TangibleEquity: 0.96

Debt/Equity: 0.87
Debt/TangibleEquity: 0.93

Debt/Equity: 2.18
Debt/TangibleEquity: 4.11

Putting all of that together, it is not difficult to see that their balance sheet is in rough shape, in my opinion at least. I am sure there are arguments to the contrary and to make it of no concern, but for me personally, it is a concern.

Business Model
What I was trying to explain, unsuccessfully, was that a business based around aggregation of public information feels fragile to me. Say websites change, say laws are put into the place which inhibits their scraping capabilities, say we shift towards a society that holds data more closely to the chest. None of these things may happen, but they are possibilities, and I am hesitant to invest in a company that could lose its entire business because some facet of data collection changes. I am an EXTREMELY amateur web scraper for investing purposes and I know how hard it is to continually update code to work with perpetually updated public systems. Maybe this experience has jaded me a bit, and clearly they are much more adept at their craft, but it is still a concern. This is not the case with the other companies such as CRWD, DDOG, NET, etc. where they have developed an in-house solution that is simply deployed publicly; it is not reliant on data that others own. I hope this helps clarify the purpose of this concern at least.

Regardless I appreciate the feedback and will certainly leave this company on the watch list for now.



What I was trying to explain, unsuccessfully, was that a business based around aggregation of public information feels fragile to me.


I thought you made your point clearly enough.

IMHO ZI is building its business not upon simple data aggregation but rather upon supplying key business intelligence to S&M organizations which would otherwise cost the customer significant time and expense to acquire.
They have a head start, considerable proprietary analytics and an effective AI/ML product.And it will only get better with volume and time.

The proof lies in the customer expansion rate and the revenue growth. Again IMHO there will always be a need to gather business information in order to conduct business, so I would discount concerns about fashions changing in regard to data management and handling. Consequently, I believe it is immaterial as to what extent in the future , data may be held close to the chest or the vest as the case may be.




Great points. I personally am not worried about the debt. But I think we’ve both laid out the facts and it’s just down to investing style and approach.

Regarding the business model. There are plenty of alternatives including paying partners for the data instead of scarping and that would only increase their value prop. This is what happened in advertising. As scraping became harder and harder it forced the stronger players to just buy the data cutting out the weaker players.

There also are co-op models, which is how I thought Salesforce’s solution for this used to work. I haven’t used it for years, but the model was a salesperson that had done their own prospecting logged in, and shared the data they had confirmed by calling the contact. They got credit for that and could buy more data that was confirmed by other salespeople that belong to the co-op. It worked surprisingly well. There are AI-driven methods to solve a lot of this now as well.


Putting all of that together, it is not difficult to see that their balance sheet is in rough shape, in my opinion at least. I am sure there are arguments to the contrary and to make it of no concern, but for me personally, it is a concern.

I am sorry Junomean2. But a debt to equity under 1 is considered good and is less risky than other companies. That is a Financial standard. Crowdstrike just received a loan for 750 million at a 3 percent interest rate which is due 2029. They have almost 2 billion dollars of cash and market securities on their balance sheet. Under any circumstances their balance sheet would be considered strong. They could have received a lower interest rate if they had secured the loan with shares but I find that since they didn’t, they were looking after shareholders, since there wasn’t any dilution.

While I like to see a clean balance sheet I think it is important to realize that many companies have debt on their balance sheet. Alot of the tech companies have debt on their balance sheet, but most of the companies, under their option, can convert the debt to shares. So numbers do not really explain any companies balance sheet if you do not understand what the numbers are telling you.