ZoomInfo (ZI, Financial) saw a sharp decline of 17% today, erasing its monthly gains despite posting solid Q3 results with both revenue and earnings exceeding expectations, and Q4 guidance aligning with analyst forecasts. The stock had surged over 60% from early August lows, heightening expectations and the risk of a pullback due to any perceived weaknesses.

The main challenge for ZoomInfo, which provides analytics software for customer relationship management platforms, is the difficult environment for small and medium-sized businesses (SMBs). In the previous quarter, the company faced a steep drop due to concerning Q3 and FY24 guidance, largely attributed to high write-offs from SMBs. Over the past few quarters, ZoomInfo extended credit to more SMBs, leading to increased non-payment rates. The company responded by implementing measures to identify riskier customers.

This approach resulted in a significant increase in small business disqualifications, potentially impacting ZoomInfo's growth visibility in the coming quarters. Although management noted stabilization in write-offs and net retention rates during Q3, the caution about future growth challenges is affecting investor confidence.

• Despite the write-off issues, ZoomInfo showed significant improvements in Q3. Adjusted EPS rose 65% sequentially to $0.28, and revenue increased 4% from Q2 to $303.6 million.
• ZoomInfo Copilot, the company's AI-driven B2B insights tool, outperformed expectations. It contributed to growth in mid-market and enterprise sectors, with $100K and $1 million-plus customer segments expanding sequentially in Q3. The $100K cohort now accounts for 44% of the company's total annual contract value (ACV).
• As ZoomInfo continues to grow its enterprise customer base, benefits from mid-market recovery, and eliminates riskier businesses, SMBs will represent a smaller portion of its overall business. This shift will support a more favorable revenue mix and position ZoomInfo for sustainable growth.

At the start of 2024, investors were hopeful that ZoomInfo would find a bottom soon, particularly as more businesses adopt AI. However, the year has not progressed as anticipated. With demand conditions largely unchanged from the previous quarter, especially concerning SMBs, and write-offs continuing to challenge growth, volatility may persist in the upcoming quarters, delaying a significant turnaround until late 2025.