Zoom's Q2 Earnings Surge: AI Adoption Drives Growth and Raises FY26 Outlook

Zoom stock gains on stronger than expected second quarter earnings and revenue - SiliconANGLE

Zoom stock gains on stronger than expected second quarter earnings and revenue Shares of Zoom Communications Inc. were up more than 5% in late trading today after the online communications company impressed investors with earnings and revenue beats in its fiscal 2026 second quarter. For the quarter that ended on July 31, Zoom reported adjusted earnings per share of $1.53, up from $1.39 in the same quarter of the previous fiscal year, on revenue of $1.22 billion, up 4.7% year-over-year. Both figures were ahead of the $1.38 per share and revenue of $1.2 billion expected by analysts. Zoom ended the quarter with 4,274 customers contributing more than $100,000 in trailing 12-month revenue, up 8.7% year-over-year, while the company reported a 12-month dollar expansion rate for enterprise customers of 98%. Online average monthly churn came in at 2.9%, flat year-over-year. Net cash provided by operating activities was $515.9 million, up from $449.3 million in the second quarter of fiscal year 2025 and Zoom had cash, cash equivalents and marketable securities of $7.8 billion as of the end of July. Business highlights in the quarter included the July 9 launch of new agent-based artificial intelligence capabilities for Zoom's platform that help users orchestrate tasks to save time during their workday. The release included a new Custom AI Companion add-on that can connect to more than 16 third-party apps without leaving Zoom. The AI Companion add-on is available for online purchase and includes support for integration into third-party conferencing apps such as Microsoft Corp.'s Teams and Google LLC's Meet. At an annual industry analyst event later the same month, Zoom said that its ambitions extend well beyond video conferencing, highlighting a strategic pivot toward disrupting how work gets done, not just how people communicate. Chief Executive Officer Eric Yuan claimed that "work is broken," noting that around 40% of a worker's time is consumed by navigating disparate tools like email, chat and documents. Zoom's response is to unify context and data, for example, their Docs and Mail apps, which aren't necessarily striving to outdo Microsoft on features but instead offer real value through centralized data access. The idea is to make searching across chat, email and documents easier, along with setting the stage for more intelligent, AI-driven workflows through its AI Companion. "AI is transforming the way we work together and Zoom is at the forefront, driving innovation that helps people get more done, reduce costs and deliver better experiences for customers and employees alike," said Yuan in the company's earnings release. For its fiscal 2026 third quarter, Zoom expects adjusted earnings per share of $1.42 to $1.44 on revenue of $1.207 billion to $1.212 billion. Analysts had been expecting $1.39 per share and revenue of $1.21 billion. For the full fiscal year, the company expects adjusted earnings of $5.81 to $5.84 on revenue of $4.817 billion to $4.827 billion. Both figures were ahead of the $5.61 per share and revenue of $4.81 billion expected by analysts.

Why Zoom Communications Stock Zoomed Today | The Motley Fool

At just 12x this year's free cash flow, Zoom Communications stock could be an incredible buy. Pandemic communications star Zoom Communications (ZM 10.29%) stock, um (I'm trying not to say "zoomed"), moved ahead quickly Friday morning, rising 8% through 9:50 a.m. ET after beating soundly on its fiscal Q2 2026 earnings report last night. Analysts forecast Zoom would earn $1.38 per share, adjusted for one-time items, on sales of $1.2 billion. Zoom earned $1.53 instead, and sales were a bit ahead of $1.2 billion. The report wasn't quite as good as that makes it sound. Sales grew less than 5% year over year, and Zoom's earnings as calculated according to generally accepted accounting principles (GAAP) weren't quite as robust as the "adjusted" figure. GAAP profits were actually only $1.16 per share. Still -- and here I'm going to say it -- those earnings zoomed 66% higher in comparison to last year's Q2. (For what it's worth, the rise in adjusted earnings was only 10%). Commenting on the results, CEO Eric Yuan said "Zoom is at the forefront [of how] AI is transforming the way we work together," essentially arguing that Zoom is an artificial intelligence stock -- and the numbers back him up. Zoom generated an incredible $508 million in Q2 free cash flow (FCF), up 39% year over year, and the company's generated nearly $1 billion ($971.3 million, to be precise) in FCF so far this year. If Zoom can keep going at that rate, the company could conceivably rack up nearly $2 billion in cash profits this year, and at a market cap of only $24 billion, this would value the stock at barely 12 times FCF. Whether Zoom's growing at 66%, 39%, or even only 10%, that probably makes it a great growth stock buy.

Zoom Reports 39% Cash Flow Jump in Q2

Zoom Video Communications (ZM 1.54%), best known for its video conferencing software and now expanding into unified communications, released its second quarter fiscal 2026 results on August 21, 2025. The company reported higher revenue, stronger non-GAAP earnings, and sharply improved non-GAAP margins compared to both its own past guidance and Wall Street expectations. Revenue came in at $1,217.2 million, above both the $1,211.12 million analyst consensus (non-GAAP) and the company's forecasted range. Non-GAAP earnings per share (EPS) registered at $1.53, ahead of the $1.39 estimate. Free cash flow (non-GAAP) grew 39.1% year over year compared to Q2 FY2025. Overall, the quarter reflected significant progress in profitability, ongoing cash generation, and continued momentum in its core Enterprise segment. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2026 earnings report. About the business and focus areas Zoom builds cloud-based collaboration tools, including video meetings, team chat, cloud phone systems, and developer application programming interfaces (APIs). Its products are designed to support flexible work, from large-scale webinars to all-in-one communications platforms for enterprises and small businesses. The company's mission is to power human connection by making communications frictionless across locations and devices. Recently, the business has prioritized expanding its core video capabilities, developing artificial intelligence (AI) tools, broadening integrations, and scaling internationally. Key drivers of success include its Enterprise segment performance, maintaining strong security and privacy standards, and advancing features like AI Companion, a generative AI assistant embedded in Zoom's work platform. Continued engagement and retention among enterprise customers, the ability to upsell new tools, and expanding in international markets are also central to long-term growth. Quarterly highlights and financial performance During Q2 FY2026, Zoom saw a 4.7% year-over-year increase in GAAP revenue. That growth was driven mainly by the Enterprise segment, which generated $730.7 million in revenue, up 7.0% year over year. The number of Enterprise customers spending more than $100,000 annually climbed to 4,274, up 8.7% from the prior year. The Online segment, which services smaller businesses and individual users, contributed $486.6 million -- up 1.4% year over year. Online customer retention remained stable, with monthly customer churn holding steady at 2.9%. Notably, 74.9% of recurring revenue in the Online business now comes from customers with 16 months or more of continual service, which rose 0.5 percentage points year over year. Operating margin expanded to 26.4%, up from 17.4% in Q2 FY2025. The company also delivered $508.0 million in free cash flow (non-GAAP), a 39.1% year-over-year increase. Net income (GAAP) rose to $358.6 million. The company repurchased approximately 6.0 million shares as part of an ongoing buyback program, which has now retired 27.4 million shares to date. This activity partially offset ongoing dilution from stock-based compensation, which is still a sizable component of the company's compensation expenses. Zoom continued to build out its AI-first work platform, centering its efforts on AI Companion. This product is a digital assistant for meetings, developed with both Zoom-designed and third-party AI models. According to CEO Eric Yuan, AI features now come at no extra charge to paid users, unlike many competitors. AI Companion powers tasks like meeting summaries, scheduling, and workflow automations. Zoom's federated AI approach underpins this strategy, aiming for both productivity gains and cost reductions. Custom AI Companion, designed for enterprises with specialized needs, has seen growing demand, but its revenue contribution is not expected to be material until later periods. Zoom Phone, which is its cloud-based phone system, and the Contact Center software continue to show momentum. The company maintains a strong security posture, holding to end-to-end encryption and a policy of not using customer data for AI training. While there were no major updates on product security, these measures remain crucial for customer trust. However, the impact of these development initiatives was not broken out in this quarter's financial metrics. International expansion continues to be a company focus, with localization efforts such as translated captions in over 35 languages and strategic channel partnerships outside the U.S. However, the latest release did not provide detailed international growth data. While operational progress was evident, challenges persist. The Enterprise net dollar expansion rate held at 98%, below the 100% benchmark that signals expansion within existing accounts is keeping up with any churn. Persistent stock-based compensation, totaling about 17% of revenue in Q1 FY2026, remains a significant expense. Additionally, competition remains strong, especially from providers bundling communications tools into broader productivity suites. Looking forward: Guidance and outlook For Q3 FY2026, management guided GAAP revenue in the range of $1,210 to $1,215 million. This forecast suggests nearly flat revenue compared to the just-reported quarter -- a pattern that is typical for this point in the company's fiscal year. Non-GAAP operating income is expected to be $465 to $470 million, and non-GAAP EPS is expected to fall to $1.42 to $1.44. Full-year guidance was raised: management now expects revenue of $4,825 to $4,835 million, up from the prior range, and free cash flow (non-GAAP) of $1.74 to $1.78 billion. Non-GAAP operating income is now forecast at $1,905 to $1,915 million, and non-GAAP EPS in the range of $5.81 to $5.84. The company has $724.7 million remaining on its authorized share repurchase plan as of July 31, 2025. ZM does not currently pay a dividend. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

Zoom Video Q2 Profit and Revenue Rise

Zoom Video Communications(ZM 1.54%) reported results for the fiscal second quarter ended July 31, 2025, with revenue up 4.7% year over year to $1.22 billion and non-GAAP diluted EPS of $1.53, both exceeding non-GAAP guidance. Free cash flow rose 39% year over year to $508 million (41.7% margin); the company ended the quarter with $7.8 billion in cash and marketable securities and repurchased 6 million shares for $463 million. The company also accelerated share buybacks and raised full-year revenue and profitability outlooks for fiscal 2026 while highlighting rapid AI adoption and strong enterprise traction. AI companion adoption drives platform engagement at Zoom Video Communications Monthly active users of AI Companion, Zoom Video Communications' integrated artificial intelligence (AI) suite, increased over fourfold year over year, now in the millions, with usage broadening to meeting preparation, post-meeting task management, and new AI-supported features for Zoom Phone and Zoom Docs. AI-driven tools contributed to large-scale enterprise wins, such as a deployment of nearly 60,000 seats at a Fortune 200 U.S. technology company and measurable cost reductions for customers like SecureONE through Virtual Agent 2.0. "Reflecting this impact, AI Companion Monthly active users have grown over four times year over year, with millions using our AI to boost business value throughout the meeting life cycle and beyond. AI adoption now extends well beyond meeting summaries, with strong momentum in meeting prep and post-meeting task management, call summaries for Zoom Phone, and AI-first meeting integration in content generation capabilities for Zoom Docs. This progress is just the beginning, and we look forward to sharing more AI innovations at Zoomtopia next month." Accelerating user adoption of AI features strengthens customer stickiness, increases cross-sell opportunities, and positions Zoom Video Communications to lead future enterprise collaboration software innovation. Zoom Video Communications delivers best-in-class profitability and robust free cash flow Non-GAAP gross margin reached 79.8%, up 128 basis points year over year, while non-GAAP operating income of $503 million (41.3% margin) topped guidance by $38 million, and free cash flow rose 39% year over year to $508 million (41.7% margin). The company ended the quarter with $7.8 billion in cash and marketable securities and repurchased 6 million shares for $463 million. These financial achievements were driven by sustained enterprise growth, low churn, and careful management of AI infrastructure costs, including migration from cloud to colocation data centers. "Non-GAAP operating margin was 41.3%, up 216 basis points from Q2 of last year. The non-GAAP operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP diluted net income per share was $1.53 on approximately 308 million non-GAAP diluted weighted average shares outstanding. This result was 16¢ above the high end of our non-GAAP guidance and 14¢ higher than '25. The non-GAAP EPS growth reflects strong business performance, effective cost management, and less dilution, driven by our buyback program and disciplined stock compensation management. Turning to the balance sheet, deferred revenue at the end of the quarter grew 5% year over year to $1.48 billion, slightly ahead of the high end of our previously provided range. In the fiscal third quarter ending October 31, 2025, we expect deferred revenue to be up 4% to 5% year over year. ... We expect to recognize just under 61% of the total RPO as revenue over the next 12 months (from the fiscal second quarter ended July 31, 2025), slightly up from 60% in fiscal 2025." Zoom Video Communications' ability to expand margins and generate strong free cash flow, even while investing in AI, demonstrates operational discipline and supports ongoing shareholder returns. Contact center and phone solutions outpace competitors, fueling enterprise growth The number of Zoom Video Communications Contact Center customers with over $100,000 annual recurring revenue (ARR) grew 94% year over year to 229, and Zoom Phone maintained mid-teens ARR growth despite already-large scale. Among the top 10 contact center deals, nine replaced the leading contact center provider, and seven were explicitly AI-driven, with cross-selling expanding penetration in upmarket accounts. The growth highlights Zoom's ability to win with large accounts in high-stakes deployments and migrate them into the high-end AI products. "Our top 10 contact center deals were all of leading competitors, and all but one were cloud displacements. Inland Real Estate Group, whose member companies employ more than 1,200 people, faced challenges for years managing disparate systems. ... We have also made progress in building additional routes to market. We are excited about our newly established collaboration with PwC, which expands our Zoom contact center and AI opportunity and ability to meet the needs of global enterprise customers. Together, we have already co-sold several large deals, including a Fortune 50 technology firm for which PwC will provide advisory and implementation services. Our employee experience offering continued to shine with WorkVivo reaching 168 customers with over $100,000 ARR, up 142% year over year." This rapid upmarket expansion in contact center and phone demonstrates effective execution against leading competitors and highlights the company's ability to win large, complex enterprise deals. Looking ahead Management raised fiscal 2026 guidance: revenue is now projected at $4.83 billion to $4.84 billion (midpoint 3.5% year-over-year growth), non-GAAP operating income is projected at $1.91 billion to $1.92 billion (39.5% margin), non-GAAP EPS is forecast at $5.81 to $5.84, and free cash flow is expected to reach $1.74 billion to $1.78 billion. Fiscal third-quarter revenue guidance implies 3% year-over-year growth at the midpoint, with underlying momentum driven by continued expansion in enterprise and AI-driven workloads. No explicit quantification was provided for Custom AI Companion monetization; management expects material AI revenue uplift primarily from fiscal 2027 onward.

Zoom raises FY26 revenue outlook amid surging AI adoption and robust enterprise growth (NASDAQ:ZM)

CEO Eric S. Yuan highlighted revenue growth at its fastest rate in 11 quarters and meaningful progress on three key priorities: "delivering world-class AI to enhance customer value, rapidly innovating Zoom Workplace, and Seeking Alpha's Disclaimer: The earnings call insights are compilations of earnings call transcripts and other content available on the Seeking Alpha website. The insights are generated by an AI tool and have not been curated or reviewed by editors. Due to inherent limitations in using AI-based tools, the accuracy, completeness, or timeliness of the earnings call insights cannot be guaranteed. Please see full earnings call transcripts here. The earnings call insights are intended for informational purposes only. Seeking Alpha does not take account of your objectives or your financial situation and does not offer any personalized investment advice. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank.