Cloud-based market-intelligence platform ZoomInfo Technologies (NASDAQ:ZI) didn’t get much attention in the financial press until the summer of 2020. Then on June 3, the initial public offering (IPO) of ZI stock took place and suddenly all eyes were on ZoomInfo.
ZoomInfo’s IPO raked in $935 million and was, at that time, the largest public debut of a tech company in 2020. Clearly, IPO mania was back in full swing, and investors were eager to jump on the bandwagon.
But before we hail the IPO renaissance, informed investors must stop and think about the implications of a relatively off-the-radar company generating so much money, along with so much hype, in such a short span of time.
Is the excitement surrounding ZoomInfo stock sustainable? There’s certainly an argument to be made in favor of buying the stock. Yet caution may be worthwhile, as the hype associated with IPOs and the cloud space could have a surprisingly brief shelf life.
A Closer Look at ZoomInfo Stock
For its IPO, ZoomInfo stock was priced at exactly $21 per share. In the short-term at least, that price turned out to be a bargain. The shares gained over 60% during their debut on the Nasdaq.
By June 10, exactly a week after the stock’s debut, ZoomInfo was approaching the $63 level. Traders haven’t fared too well if they bought the stock for $63, though; After a month, ZoomInfo stock was changing hands for $43 and change.
That is a picture-perfect example of what I call the “hype cycle.” Often, stocks go up slowly and fall quickly. However, IPO hype can cause the exact opposite scenario to happen.
In this instance, eager traders soaked up the IPO-event excitement and bid up the share price. The next phase was the comedown, in which ZoomInfo stock was sold off as traders’ attention was diverted elsewhere. It’s a natural process and hopefully overeager IPO traders learned a less from the episode.
A Timely Platform
The onset of the novel coronavirus precipitated a mad rush towards practically every company involved in tech generally and cloud computing specifically. It’s conceivable that ZoomInfo, with its well-timed IPO, was a beneficiary of this trend.
As an artificial-intelligence-powered supplier of “insights” (i.e., business data), ZoomInfo has the numbers to back up its braggadocio. The company stated:
“We provide a comprehensive 360-degree view on approximately 14 million companies and over 120 million professionals… Our intelligence is kept up to date in real time. This enables us to provide our customers with a contractual guarantee that at least 95% of the employment information they access will be current.”
The latter guarantee is impressive, although it may be difficult to verify. Still, ZoomInfo evidently has more than 15,000 clients and a hand in the red-hot data analytics, artificial intelligence, and cloud-computing niches.
In that light, the IPO hype is at least somewhat understandable.
Just a Theory
Call it far-fetched if you’d like, but I have a theory about the astounding initial move of ZoomInfo stock.
As you hopefully know by now, there’s no connection between ZoomInfo and Zoom Video (NASDAQ:ZM). As InvestorPlace contributor Ian Bezek explains, “They’re entirely different businesses, management teams, and capital structures. Anyone buying ZoomInfo thinking it is a video conferencing play is making a mistake.”
That’s an important warning from Bezek and duly noted. Yet I suspect that not everyone initially realized the distinction between Zoom Video and ZoomInfo. In fact, with Zoom Video’s share price going up like a rocket this year, it’s possible that some participants in the “Robinhood crowd” bought ZoomInfo thinking it was Zoom Video.
Granted, this phenomenon couldn’t possibly account for all of ZoomInfo’s initial gains. But then, I’ve seen weirder things happen in the markets. At the very least, there’s merit to the contention that the same traders who hastily bid up the stock could just as quickly dump their shares.
The Bottom Line
Judging from the data presented by the company, ZoomInfo seems to be a well-positioned firm that’s involved in several hot tech niches. Regardless, I would advise cautious investors to steer clear of IPO hype and instead aim for moderation during immoderate times.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.