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ZoomInfo (ZI -25%) plummets to all-time lows today after delivering an alarming outlook on near-term demand. The SaaS firm, focused on disrupting the traditional customer relationship management (CRM) space by pulling info from unique sources, did deliver decent headline results in Q2. However, management did not have many encouraging remarks about the current state of the economy. ZI discussed that a reduction in customer spending hindered its Q2 numbers. Even worse, the company does not expect challenges to ease over the near term.

As a result, ZI slashed its FY23 revenue outlook, projecting $1.225-1.235 bln, down from $1.275-1.285 bln, translating to just +12% yr/yr growth from +17%, which was already a substantial drop-off from the +47% jump posted in FY22.

• What happened? Because ZI's customers are disproportionately in the software vertical, where spending remains suppressed given the current low-growth environment, the shift toward profitability from growth at all costs weighed considerably on ZI's results.
  • ZI pointed to one example of an organization in the $100K cohort that removed 80% of its sales team -- where ZI's software is embedded -- overnight to focus on profitability over new business.
• ZI did not offer up much of a silver lining, stating that after Q2's performance, it no longer believes that current budgetary pressures clipping renewals will ease over the near term. Small and medium-sized businesses (SMBs) are amongst the worst hit, evidenced by a perpetual climb in write-offs for smaller customers
• With software companies putting their growth plans on hold, the percentage of total revenue from the software vertical dropped to 35% from 40% in the year-ago period.

However, there were a few pockets of strength in the quarter. Total revenue still edged 15.5% higher yr/yr to $308.6 mln, driven by some of ZI's most prominent customers, illuminated by a 40% increase in sales from its $1 mln plus cohort. ZI also witnessed a 20% bump in sales from its customer base outside of software, where the company is intentionally seeking to grow given the less negative impact of the current high-interest rate environment.

ZI is also rolling out several initiatives to contend with the numerous headwinds it faces over the near term. Founder and CEO Henry Schuck mentioned that the company would increase its matching and phone number coverage, decrease application load times and search latency, and adjust staffing levels. Generative AI will also become more rooted in its software. As a result, ZI continues to target a 40% margin despite the drop in sales for FY23.

Bottom line, it was a tough three months for ZI. Sales teams are contracting, and growth is stalling, setting the stage for a weak rest of the year. Although there were some bright spots, ZI's shares will likely continue tracking lower unless spending starts to turn around.