ZoomInfo Technologies: I Await More Evidence Of Growth Recovery, Hold

Investment Summary - Previous investment thought for ZoomInfo Technologies (ZI) was a sell rating due to relatively expensive valuation compared to peers experiencing similar growth weakness [2] - ZI's share price has fallen from approximately $12 to $9, with valuation multiple revised from 4.4x forward revenue to 3.6x [2] 2Q24 Performance - ZI reported a total revenue decline of 5.6% year-over-year, down from a 3.1% growth in 1Q24, totaling $291.5 million [3] - Adjusted EBIT margin decreased from approximately 40% in 2Q23 to 28% in 2Q24, leading to adjusted EPS of $0.17, down from $0.26 in 2Q23 [3] - Poor performance in the SMB segment resulted in elevated write-offs, with a $33 million incremental charge recognized this quarter [3] Demand Stabilization - Customer growth metrics have turned positive after multiple quarters of decline, with the number of customers with over $100k in annual contract value (ACV) growing 2.1% sequentially [4] - ZI signed its largest new business deal of $1.4 million in ACV, marking 2Q24 as the best new business quarter in the mid-market and enterprise [4] - The dollar-based net retention rate (DBNRR) stabilized at 85%, indicating potential recovery in the upmarket segment [5] Product Performance - ZI's Copilot product has been adopted by the majority of customers, contributing $18 million in ACV from over 1,000 logos, showing improvements in engagement and utilization rates [5] - Management noted opportunities for pricing uplift from Copilot, indicating a focus on monetization as adoption increases [5] Guidance and Valuation - Management's FY24 guidance appears conservative, not assuming any upfront prepayment from riskier SMB customers and a higher rate of write-offs for 2H24 [6] - ZI has a history of beating its own adjusted EPS and revenue guidance, suggesting potential for upside surprises [6] - A hold rating is maintained as more evidence of demand growth is awaited, with potential for significant upside if demand recovers [7] Conclusion - ZI's 2Q24 performance was mixed, facing headwinds in the SMB segment but showing signs of stabilization in customer growth metrics and product traction [9] - Ongoing uncertainties in the SMB market warrant caution before turning bullish [9]