ZoomInfo (ZI) Faces Pressure Despite Q3 Improvements as SMB Challenges Persist
2min read ZoomInfo Technologies saw a sharp decline in its share price today, retreating 16 percent, as its Q3 earnings report, despite beating expectations on the top and bottom lines, failed to alleviate concerns about the company's exposure to struggling small and medium-sized businesses (SMBs). Following a strong rally of over 60 percent from August lows, investors had high expectations heading into the report, increasing sensitivity to potential weak points.
Persistent SMB Headwinds
ZoomInfo’s ongoing challenges with SMBs remain a focal point for investors. The company, which provides analytics software to enhance customer relationship management platforms, has been grappling with elevated write-offs stemming from its SMB customer base. Many of these issues can be traced back to 2022 and 2023 when ZoomInfo extended credit to a higher mix of SMBs. As economic conditions worsened, non-payment rates among these customers spiked, significantly impacting the company’s financial performance.
To address the issue, ZoomInfo implemented measures to flag riskier customers, leading to a noticeable increase in small business disqualifications. While this strategy has helped stabilize write-offs and net retention rates, the reduced exposure to SMBs is expected to weigh on growth optics over the next several quarters.
Solid Q3 Performance Tempered by Uncertainty
Despite the challenges, ZoomInfo delivered notable improvements in Q3. Adjusted EPS climbed to $0.28, representing a substantial 65 percent sequential increase. Revenue reached $303.6 million, a 4 percent gain from the prior quarter. Additionally, ZoomInfo’s AI-powered tool, Copilot, which provides B2B insights for sales teams, outperformed expectations. The company reported sequential growth in its $100,000 and $1 million-plus customer cohorts, with revenue from the $100,000 cohort now accounting for 44 percent of the company’s total annual contract value.
These developments indicate that ZoomInfo is making headway in expanding its presence among mid-market and enterprise customers. As SMBs constitute a smaller portion of its revenue mix, the company could achieve more stable growth over the long term.
A Difficult Road Ahead
While management expressed optimism about stabilizing SMB write-offs, it also warned that the issue could continue to act as a drag on growth in the near term. With the overall demand environment showing little improvement since last quarter, particularly among SMBs, investor sentiment remains cautious.
ZoomInfo’s transition away from SMBs toward more durable mid-market and enterprise accounts positions it well for future growth, but the timeline for a meaningful turnaround remains uncertain. Current headwinds suggest that sustained recovery may not take hold until late 2025, keeping volatility elevated in the interim.
Conclusion
ZoomInfo’s Q3 results demonstrate meaningful progress in its mid-market and enterprise segments and highlight the growing success of its AI-driven solutions like Copilot. However, the lingering challenges with its SMB customer base continue to overshadow these positives, limiting the company’s ability to drive consistent growth. Until these headwinds subside and the company’s initiatives to improve customer quality take fuller effect, ZoomInfo is likely to face a challenging and volatile path forward.