Shares of ZoomInfo Technologies (NASDAQ:ZI) fell more than 3.7% in pre-open trading Monday after RBC Capital downgraded the stock citing GenAI and intensifying competition.
RBC analysts downgraded the stock to Sector Perform from Outperform with a price target of $28 (down from $30).
“With shares up 40% off May lows (vs. IGV up 23%), we believe now is the right time to trim exposure given: 1) checks indicate intensifying competition; 2) potential risks to the core value proposition from GenAI; 3) ongoing macro challenges; and 4) overhang from data privacy concerns long-term,” they commented.
Although ZoomInfo still offers extensive data, competitors are closing the gap by providing comparable functionality at much lower prices, the analysts note. Considering ZoomInfo's high cost (list price over $10K/year, likely half that in practice), it becomes challenging to compete against this combination.
Further, they note that in a GenAI world, data quality is critical. Initially, the firm’s investment thesis favored ZoomInfo for its superior data. However, competition narrows the gap, and they find ZoomInfo lacks data for many well-funded GenAI start-ups. This raises concerns about its value proposition.
They also worry that GenAI could undermine ZoomInfo's long-term value proposition. Concerns grow as LLMs might be used to discover contact information online. Though products like ChatGPT have safeguards against revealing email addresses, they anticipate someone developing a contact information search app on an LLM platform. Despite ZoomInfo's valuable proprietary data, charging a premium becomes challenging when LLMs can potentially provide contact information for free.
“Net, we see an unfavorable risk/reward profile and await signs of better visibility on reacceleration and the GenAI story,” the analysts conclude.