ZoomInfo had their analyst day yesterday and came out with a target of $2B in revenue by FY’25 which is well above consensus and represents a 31% CAGR from here. This bullish update seems to have been largely passed over by the market considering it is down today. At 40% FCF margins, I believe it is attractively valued at current prices. TAM also more than doubled since IPO thanks to new acquisitions and sits at $52B. Think it’s the clear leader in a large and growing space, has an excellent combination of growth and profitability, and it continues to grow its moat.
I also wrote an overview of the business.
ZoomInfo was ranked a leader by Forrester Wave. They offer the greatest breadth and depth of data on target customers in their sector. They cover 120M professionals across 14M companies and provide a guarantee that 95% of data is current.
Main uses are to get new leads, but ZoomInfo also offers org charts and intent data (which customers are intending to make a purchase). This is something not a lot of competitors provide because it’s harder to get (you have to go directly to former employees for org charts). They price per seat and have 3 tiers with the average today being ~$2,100/year. They also have a free community tier where members must allow ZoomInfo to collect their email contacts for their Contributory Network in exchange for 10 contact credits per month. ZI gets its data mainly from 3 sources: their unique Contributory Network (50M email signatures daily), acquisitions such as that of RainKing and ZoomInfo, and algos that scrape 45M web domains daily.
Their moat lies in the network effects from their Contributory Network. 60% of ZoomInfo’s 16,000 paid clients participate to improve data accuracy, thus attracting more customers. 4M records are updated daily out of 120M total records so it’s significant.
Competitors with fewer users are not able to replicate this level of organic data collection so this is a major differentiator given $ZI is the leader. Because people’s contacts change all the time, maintaining the most up-to-date database will always be a challenge.
LinkedIn Sales Navigator is cheaper but is a closed platform that does not integrate with existing workflows, has a higher chance of having stale data, and does not usually have corporate contact information (relying on InMail). It’s more of a complement than a competitor.
Niche players like Infogroup, InsideView, Databook, TechTarget, etc. focus on specific datasets and generally lack the scale and quality of data that ZoomInfo offers. Legacy Data Providers like D&B Hoovers also lack the same quality and breadth of data.
Their closest competitor is InsideView which does not do anything like ZI’s Contributory Network, opting instead to acquire data either directly from third parties or through scanning the public web. I believe ZI’s lead will continue to extend over time as a result.
They are guiding for 42% growth this year with 43% FCF margins. It scores the best on Rule of 40. They also have a manageable amount of debt. Although switching costs are low, they are being built up with more integrations and as the platform improves, there will be very little reason to switch. NRR was ~108% in '20 which should improve as they move upmarket. Current valuation looks reasonable relative to growth/margins.
Their efficient bottom-up sales motion leads to an average sales cycle of just 30 days and >10x LTV/CAC. Their core TAM is $27B and they are currently just 2% penetrated. Notable customers include Zoom, Okta, and Shopify, with no customer forming >1% of revenue
They also enjoy a lot of optionality. TAM currently sits at $52B thanks to the following expansions:
Q3 2020 - Launched Engage: automated sales dialer, built-in email automation, and technologies to manage sales workflows.
Q4 2020 - Acquired Everstring: Data management capabilities
Q1 2021 - Launched Recruiter: identify, target, and engage with new talent. See work history, technologies used, and department org charts.
Q2 2021 - Acquired Insent.ai: conversational marketing platform, identifies website visitors and uses AI to initiate conversations and improve conversions
Using their best-in-class database as the foundation, they are building an application layer with seamless integration to help sales reps and marketers make better use of the data. Their goal is to be the first ever go-to-market operating system.
The main risk is regulatory. GDPR and CCPA have not been expanded to include B2B data yet, but ZI has been proactive in informing users that their data is being collected, which may lead to higher opt-out rates. They also rely on cookies to collect intent data, but it is a small part of the overall package.