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01/10 19:55
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Total Revenue $1.23 billion, a 4.4% year-over-year increase (4.2% in constant currency). The increase was driven by strong business performance and demand for AI-related products.
Enterprise Revenue 6.1% year-over-year growth, representing 60% of total revenue, up 1 point year-over-year. Growth attributed to increased enterprise customer adoption.
Average Monthly Churn 2.7%, in line with Q3 of last year and at an all-time low. Stability in the online business contributed to this result.
Customers Contributing >$100,000 in Trailing 12-Month Revenue 9% year-over-year growth, making up 32% of total revenue, up 1 point year-over-year. Growth driven by increased enterprise customer spending.
Non-GAAP Gross Margin 80%, up 117 basis points from Q3 of last year. Improvement due to cost optimization efforts.
Non-GAAP Income from Operations $507 million, an 11% year-over-year increase. Growth driven by cost management and timing of spend.
Non-GAAP Operating Margin 41.2%, up 234 basis points from Q3 of last year. Improvement attributed to ongoing cost management.
Non-GAAP Diluted Net Income Per Share $1.52, $0.14 higher than Q3 of last year. Growth reflects strong business performance, cost management, and anti-dilution measures.
Deferred Revenue $1.44 billion, a 5% year-over-year increase. Growth driven by strong billings and collection processes.
Remaining Performance Obligations (RPO) $4 billion, an 8% year-over-year increase. Growth reflects strong contract bookings.
Operating Cash Flow $629 million, a 30% year-over-year increase. Growth driven by improvements in the collection process and stronger billings.
Free Cash Flow Margin 50%, up 11 points year-over-year. Increase driven by improvements in the collection process and stronger billings.
Cash, Cash Equivalents, and Marketable Securities $7.9 billion, excluding restricted cash. Reflects strong cash flow generation.
AI Companion 3.0: Unveiled as a next-generation agentic AI to transform work processes, including meeting preparation, task follow-ups, and driving work forward. Adoption surged more than 4x year-over-year.
Zoom Phone: Surpassed 10 million paid seats, showing consistent ARR growth in the mid-teens and gaining traction in industries like financial services and healthcare.
BrightHire Acquisition: Agreed to acquire BrightHire, an AI-powered hiring intelligence platform, to enhance hiring processes and strengthen collaboration platform.
Customer Experience Business: Achieved high double-digit ARR growth and was included in the 2025 Gartner Magic Quadrant for Contact Center as a Service.
Partnerships with Oracle and Salesforce: Deepened partnerships with Oracle and Salesforce, with Oracle adopting Zoom Custom AI Companion for workforce assistance and Salesforce adding Custom AI Companion.
Non-GAAP Gross Margin: Improved to 80%, up 117 basis points year-over-year, driven by cost optimization efforts.
Free Cash Flow Margin: Increased to 50%, up 11 points year-over-year, supported by improved collection processes and stronger billings.
AI-First Platform Strategy: Focused on AI-led innovation, platform expansion, and disciplined growth to deliver measurable value for customers and shareholders.
Share Buyback Program: Board authorized an additional $1 billion share repurchase, reflecting confidence in the company's financial position and growth strategy.
Macroeconomic Environment: Zoom's financial outlook and business trends are subject to risks from the macroeconomic environment, which could impact performance and financial results.
Regulatory Risks: Zoom's forward-looking statements and financial results are subject to risks and factors discussed in their SEC filings, including regulatory hurdles.
AI Investment Costs: Zoom is balancing investments in AI with cost efficiencies, which could pose financial risks if not managed effectively.
Deferred Revenue Growth: Deferred revenue growth is expected to slow to 4%-5% year-over-year in Q4, which may indicate challenges in securing long-term contracts or customer commitments.
RPO Revenue Recognition: Zoom expects to recognize 60% of total RPO as revenue over the next 12 months, down 1 point year-over-year, which could impact short-term revenue growth.
Customer Churn: While online business churn is stabilizing, any increase in churn could negatively impact revenue and customer retention.
Competitive Pressures: Zoom faces competitive pressures in AI and unified communications, which could impact its market position and growth.
Supply Chain and Operational Risks: Operational risks, including supply chain disruptions, could impact product delivery and customer satisfaction.
Financial Outlook for Q4 FY '26: Revenue is expected to be in the range of $1.23 billion to $1.235 billion, representing approximately 4.1% year-over-year growth at the midpoint. Non-GAAP operating income is projected to be between $477 million and $482 million, with an operating margin of 38.9% at the midpoint. Non-GAAP earnings per share are expected to range from $1.48 to $1.49, based on approximately 305 million shares outstanding.
Full Year FY '26 Financial Guidance: Revenue is projected to be between $4.852 billion and $4.857 billion, representing approximately 4.1% year-over-year growth at the midpoint. Non-GAAP operating income is expected to range from $1.955 billion to $1.96 billion, with an operating margin of 40.3% at the midpoint. Non-GAAP earnings per share are forecasted to be between $5.95 and $5.97, based on approximately 308 million shares outstanding. Free cash flow is anticipated to be in the range of $1.86 billion to $1.88 billion, representing approximately 3.4% year-over-year growth at the midpoint.
Deferred Revenue Growth: Deferred revenue is expected to grow by 4% to 5% year-over-year in Q4 FY '26.
RPO (Remaining Performance Obligations): RPO increased 8% year-over-year to $4 billion, with 60% expected to be recognized as revenue over the next 12 months.
Share Repurchase Program: An incremental $1 billion share repurchase has been authorized, reflecting confidence in the company's financial position and future performance.
Share Buyback Program: Under the pre-existing $2.7 billion share buyback plan in Q3, we purchased 5.1 million shares for $414 million. As of the end of Q3, we repurchased 32.5 million shares for $2.4 billion. In addition, our Board has authorized an incremental $1 billion share repurchase. This reinforces our Board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder returns.
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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