Big changes are happening at the fast-growing technology company ZoomInfo Technologies’ (DAY) shareholder structure and composition. Early institutional investors in ZoomInfo stock, including the company’s co-founders, sell huge blocks of stock while taking profits.
ZoomInfo Technologies provides an advanced, cloud-based, machine learning (ML) and artificial intelligence (AI) enhanced go-to-market data, insights, and analytics platform for marketers to efficiently target enterprise customers. The company recently went public, in June 2020. Shares are up 109% in the past 12 months and several insiders are paying out.
Insiders in the $25 billion company have sold more than $7.8 billion in ZI common stock in the past three short months. Net sales are significant in light of the company’s total capitalization at this time. Should individual investors be concerned? (Check out ZoomInfo Technologies’ stock charts on TipRanks)
I am optimistic about ZoomInfo stock.
Accelerate Insider Sales on ZoomInfo Stock
In general, business insiders know the company better than any of us “outsiders.” For this reason, viewing and analyzing insider activity can provide important insights when deciding whether to buy, sell or continue to hold stock in a company.
We’ve seen a rapid increase in insider activity on ZI stocks lately. Directors, officers and institutional mutual funds have been major net sellers since June this year.
Should Investors Be Worried?
Given the massive net sales by key insiders on ZoomInfo Technologies stock over the past three months, individual investors might ask: Do these insiders know something we don’t?
Perhaps the most important question would be whether individual investors should follow the lead of insiders and also sell their positions on ZI.
While the above questions are relevant to anyone investing in ZI stock and anyone planning to buy the company’s stock today, most of the trades were actually “uninformative” because rated by TipRanks, and we can find recent September purchases more informative than August sales.
ZI Insider Sales Less important than the last buying activity
On Wednesday, September 8, insider net sales were $8.2 billion. The figure included two secondary offerings of 20,000,000 shares of common stock for $63 each and 27,000,000 shares for $55.25 in August for aggregate gross proceeds of $2.75 billion. Investment funds including The Carlyle Group (CG), TA Associates and the co-founders of 22C Capital and ZI were the selling shareholders.
After financing the riskiest part of a fledgling company through the early funding rounds, venture and private equity funds employ exit strategies to monetize their interests and return capital to fund investors. An IPO (IPO) is a good exit option, and it is the most preferred option due to liquidity and better price discovery reasons.
Following ZoomInfo’s IPO in June last year, early investors had yet to effectively monetize their positions since a lock-up period that expired on November 29, 2020. They were free to liquidate their positions shortly after the lock-up period ended, but they have been patient and take their time.
In fact, we’ve even seen some significant insider buys in the past week. Directors and related investment funds, including TA Associates, bought millions of shares last week, while net insider sales fell $400 million over three months from $8.2 billion to $7.8 billion.
Insiders can sell a stock for a variety of noble reasons, but they usually buy their own company’s stock for one main reason: the potential for lucrative future capital gains.
Are ZI shares a good idea now?
In September, ZoomInfo committed to removing the complexity in its shareholder structure. The company will eliminate several classes of common stock by converting them all to class A shares in the next quarter.
The removal of Class B, Class C and Up co-units gives equal voting rights to every common stock unit, improves corporate governance and allows for easier mergers and acquisitions while reducing administrative costs.
However, that’s not the best part of a Buy dissertation on ZI stock right now.
In ZoomInfo, we have a high-growth business that reported 57% year-over-year revenue growth for the second quarter of 2021, to $174 million. This followed another strong 50% sales growth for the first quarter of this year. Profit margins have been increasing lately, with a second quarter gross margin of 86.8% breaking records, while free cash flow generation remains strong.
Rapid growth, strong profitability and improved cash flow opportunities are what growth investors usually look for, and ZI stocks offer all of these qualities to a good extent.
Analysts expect the company to grow revenue by 30.8% in 2022, after emphatic 48% revenue growth expected for this year. Normalized earnings could grow nearly 33% after a projected 50% increase for 2021, while free cash flow could grow 36% year-over-year for 2022 to nearly $370 million.
Despite the current high valuations, ZoomInfo seems like a great company to own for the long term.
Analysts take over ZI shares
Wall Street analysts are currently bullish on ZI stocks. TipRanks data shows consensus analyst rating on ZoomInfo stock at Strong Buy, with a average ZoomInfo price target of $72.17 per share, indicating a potential rate of increase of 7.7% over the next twelve months.
Of the 12 trained analysts who track the company, 10 rate the stock as a buy, two recommend holding existing positions, and none are currently recommending a sell.
Takeaway for investors
The recent surge in insider sales of ZoomInfo Technologies stock appears to be normal earnings from long-held positions by investing funds according to their mandates. There is no significant indicative information for investors to decode as a sell signal.
That said, significant insider buying over the past week could only point to bullishness from knowledgeable business insiders. Perhaps that is the signal that anyone considering buying new stocks should do further research.
Revelation: At the time of publication, Brian Paradza did not hold any position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of Tipranks or its affiliates, and is to be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be construed as a recommendation or solicitation to buy or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of any person, nor does any information in the article constitute a comprehensive or complete statement of the matters or the topic discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the contents of the article, and any action taken in response to the information contained in the article is at your own risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not an indication of future results, awards or performance.