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01/10 20:13
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong financial performance, with revenue and EPS exceeding guidance, and a positive outlook on AI initiatives and partnerships. The 3% revenue growth and 8% growth in enterprise revenue are significant. The share buyback increase and low churn rate are also positive indicators. Despite some caution on enterprise outlook due to elongating deal cycles, overall demand remains strong. The Q&A section suggests optimism about AI and growth in the Contact Center segment. These factors, combined with the market's positive reaction to AI advancements, suggest a positive stock price movement.
Total Revenue $1.175 billion, up approximately 3% year-over-year. This result was $8 million above the high end of guidance, despite Q1 FY '26 having one fewer day than Q1 FY '25.
Enterprise Revenue Grew approximately 6% year-over-year, now representing 60% of total revenue, up 2 points year-over-year.
Average Monthly Churn Rate 2.8%, a 40 basis point improvement year-over-year, marking the lowest churn rate for a first quarter.
Customers Contributing Over $100,000 in Revenue Grew 8% year-over-year, now making up 32% of total revenue, up 2 points year-over-year.
Non-GAAP Gross Margin 79.2%, slightly lower than Q1 of last year due to continued investments in AI.
Non-GAAP Income from Operations $467 million, up 2% year-over-year, exceeding guidance by $22 million.
Non-GAAP Operating Margin 39.8%, down 23 basis points year-over-year due to changes in bonus structure and investments in AI.
Non-GAAP Diluted Net Income per Share $1.43, $0.12 above guidance and $0.08 higher than Q1 of last year, driven by strong business results and a reduction in diluted shares.
Deferred Revenue $1.43 billion, up 5% year-over-year, driven by business performance and refinement of discounting strategy.
Remaining Performance Obligations (RPO) Increased 6% year-over-year to approximately $3.9 billion, with 61% expected to be recognized as revenue over the next 12 months.
Operating Cash Flow $489 million, representing an operating cash flow margin of 41.6%.
Free Cash Flow $463 million, representing a free cash flow margin of 39.4%, with declines year-over-year due to timing of tax payments.
Cash, Cash Equivalents and Marketable Securities Approximately $7.8 billion, excluding restricted cash.
Share Buyback Purchased 5.6 million shares for $418 million, an increase of 1.3 million shares quarter-over-quarter.
Custom Avatars for Zoom Clips: Eric Yuan debuted the new Custom Avatars for Zoom Clips with AI Companion during the earnings call.
Zoom Tasks: Zoom Tasks helps surface, manage and complete tasks across Zoom Workplace, bringing tasks together in a centralized management tab.
Calendar Manager: The new calendar manager allows AI Companion to schedule meetings on behalf of users, optimizing scheduling and managing updates.
Custom AI Companion: Custom AI Companion is now generally available, with strong enthusiasm from Global 2000 trial customers.
Zoom Workplace for Frontline and Clinicians: These solutions were made generally available in Q1.
Zoom Revenue Accelerator: This AI-first sales enablement solution saw a 72% year-over-year growth in licenses.
Zoom Workplace Enterprise Plus: The Boston Celtics upgraded to Zoom Workplace Enterprise Plus, including Zoom Phone.
$1 million ARR deal: A leading financial institution selected the Zoom collaboration experience platform in an over $1 million ARR deal.
Zoom Contact Center: The number of Zoom Contact Center customers grew 65% year-over-year.
Workvivo: Total Workvivo customer count grew 106% year-over-year.
Partnership with Bell Canada: A new strategic partnership was announced with Bell Canada.
Churn Rate: Average monthly churn improved to 2.8%, the lowest ever for a first quarter.
Deferred Revenue: Deferred revenue grew 5% year-over-year to $1.43 billion.
Operating Cash Flow: Operating cash flow in Q1 was $489 million, representing a margin of 41.6%.
Free Cash Flow: Free cash flow was $463 million, with a margin of 39.4%.
Share Buyback Plan: Accelerated execution of the $2.7 billion share buyback plan, purchasing 5.6 million shares for $418 million.
AI-first Strategy: Zoom's AI-first strategy is aimed at helping customers navigate an uncertain macro environment.
Macroeconomic Environment: The company has expressed concerns regarding a more challenging and uncertain macroeconomic environment, which has led to a more prudent outlook for their Enterprise business.
Competitive Pressures: Zoom faces competitive pressures as it continues to innovate and expand its offerings, particularly in the AI space, to maintain its market position against rivals.
Regulatory Issues: There are potential regulatory issues related to AI-generated content, as the company emphasizes the importance of trust and security in its AI initiatives.
Supply Chain Challenges: While not explicitly mentioned, the overall economic environment may imply potential supply chain challenges that could affect operations.
Customer Retention: Despite improvements in churn rates, the company remains vigilant about customer retention in a competitive landscape.
Investment in AI: The ongoing investment in AI has led to a slight decline in non-GAAP gross margin, indicating a risk associated with balancing innovation and profitability.
AI Innovations: Zoom launched several AI-powered innovations, including Zoom Tasks and a new calendar manager, aimed at enhancing productivity and efficiency for customers.
Custom AI Companion: The adoption of Zoom AI Companion grew nearly 40% quarter over quarter, with strong enthusiasm from Global 2000 trial customers.
Customer Experience Growth: Zoom's Customer Experience offering has rapidly evolved, with a 65% year-over-year growth in Zoom Contact Center customers.
Partnerships: Zoom announced a strategic partnership with Bell Canada and expanded its collaboration with Mimecast, enhancing its unified platform offerings.
Share Buyback Program: Zoom accelerated its $2.7 billion share buyback plan, purchasing 5.6 million shares for $418 million.
Revenue Guidance FY '26: Zoom raised its full year revenue guidance to a range of $4.8 billion to $4.81 billion, reflecting approximately 3% year-over-year growth.
Operating Income Guidance FY '26: Non-GAAP operating income is now expected to be in the range of $1.865 billion to $1.875 billion, with an operating margin of 38.9%.
EPS Guidance FY '26: Non-GAAP earnings per share is raised to a range of $5.56 to $5.59 based on approximately 312 million shares outstanding.
Q2 Revenue Guidance: For Q2, revenue is expected to be in the range of $1.195 billion to $1.2 billion, representing approximately 3% year-over-year growth.
Q2 Operating Income Guidance: Non-GAAP operating income for Q2 is expected to be in the range of $460 million to $465 million, with an operating margin of 38.6%.
Share Buyback Program: In Q1, Zoom accelerated execution of its existing $2.7 billion share buyback plan, purchasing 5.6 million shares for $418 million, an increase of 1.3 million shares quarter-over-quarter.
The earnings call presents a mixed outlook. Financial performance is stable, with modest growth and improved cash flow. Product development is promising, particularly with AI, but lacks immediate impact. Market strategy is unclear, with vague responses on growth timelines and AI monetization. Expenses are managed well, but there's no FY '27 guidance. Shareholder returns aren't mentioned. The Q&A reveals stable demand but no immediate inflection. Overall, the sentiment is neutral, reflecting stable yet unspectacular performance.
Zoom's earnings call highlights strong AI-driven growth, strategic partnerships, and a robust share buyback program, with positive guidance for revenue and operating income. The Q&A session reveals positive sentiment towards AI innovations and stable customer churn despite price increases. While some uncertainty remains about AI's future financial impact, the overall sentiment is positive, with raised guidance and strong customer engagement in AI and Contact Center products. These factors suggest a likely positive stock price movement in the short term.
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