A class action lawsuit was filed against ZoomInfo Technologies (ZI) by Levi & Korsinsky on September 4, 2024. The plaintiffs (shareholders) alleged that they bought ZI stock at artificially inflated prices between November 10, 2020, and August 5, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought ZoomInfo Technologies stock during that period can click here to learn about joining the lawsuit.
ZoomInfo Technologies operates a cloud-based platform for offering sales and marketing solutions. The company claims that its platform enables businesses to find, acquire, and grow customers. The company’s claims about its revenues, operating income, and customer and retention metrics are at the heart of the current complaint.
ZoomInfo Technologies’ Misleading Claims
According to the lawsuit, ZoomInfo and two of its senior officers and/or directors (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the company’s customer base, its subscription renewal practices, and other issues from SEC filings and related material.
For instance, during the Class Period, the defendants consistently reiterated their efforts and strategies to retain and grow customers. Also, the company stressed the importance of contract renewals as a means to grow its business. The CFO also noted in a press release that new business continued to be strong.
Furthermore, during a conference call with analysts on February 12, 2024, the CEO mentioned that the demand and sales momentum for ZI’s offerings was the best ever. The company had closed the highest number of new logos in Q4 FY23, the CEO added. Also, December was the best month on record for “in-month create and closed win rate,” and the median sales cycle had shortened meaningfully compared to the prior year.
All these factors implied that ZoomInfo was set to report solid financial performance in the quarters to come. However, subsequent events (discussed below) revealed that ZoomInfo allegedly misled investors about the demand and revenue expectations for its services, methods of service contract renewals, and future expectations.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices and prospects during the Class Period. Importantly, the Defendants are accused of misleading investors about their revenue and customer renewal expectations, which grossly affected their future performance.
The information became clear in a series of events that occurred between November 1, 2022 and August 5, 2024. Notably, on August 5, the company released its Q2 FY24 results, which missed both sales and earnings expectations. ZoomInfo stated that it had incurred a $33 million charge owing to non-payment from small business customers. ZI further added that it was forced to implement a “new business risk model” that will help in reducing write offs. Plus, ZI was changing its operational procedures so that small business customers make upfront payments and noted that some of the prior customers were not able to afford its offerings.
Moreover, ZoomInfo slashed its full-year Fiscal 2024 guidance drastically. The company guided revenue between $1.190 billion and $1.205 billion, down from $1.255 billion and $1.270 billion. Adjusted earnings per share was slashed to $0.86 to $0.88 range from $1.00 to $1.02 guided earlier. Following the news, ZI stock fell 5.9% on August 5.
To conclude, ZoomInfo had made unrealistic claims about its customer retention tactics and revenue expectations during the Class Period, resulting in disappointing financial performance. Year-to-date, ZI stock has plunged 44%, leading to heavy losses for shareholders.
