8-K: Zoom Reports Strong Q2 FY26, Raises Full-Year Outlook

Zoom Communications announced robust second-quarter fiscal year 2026 results, exceeding expectations and raising its full-year financial guidance.

Summary

• Total revenue for the second quarter of fiscal year 2026 reached $1,217.2 million, marking a 4.7% year-over-year increase (4.4% in constant currency).
• Enterprise revenue grew by 7.0% year-over-year to $730.7 million, while Online revenue increased by 1.4% to $486.6 million.
• GAAP operating margin expanded significantly to 26.4%, up 9 percentage points year-over-year from 17.4% in Q2 FY25.
• Non-GAAP operating margin was 41.3% for the quarter.
• GAAP diluted EPS surged by 65.7% year-over-year to $1.16, and non-GAAP diluted EPS increased by 10.0% to $1.53.
• The company repurchased approximately 6.0 million shares of common stock in Q2, bringing the total repurchased under the current plan to 27.4 million shares.
• Customers contributing over $100,000 in trailing 12 months revenue increased by 8.7% year-over-year, totaling 4,274.
• The trailing 12-month net dollar expansion rate for Enterprise customers was 98%.
• Online average monthly churn remained flat year-over-year at 2.9%.
• Full fiscal year 2026 revenue guidance was raised to between $4.825 billion and $4.835 billion.
• Full fiscal year 2026 non-GAAP diluted EPS guidance was raised to between $5.81 and $5.84.
• Full fiscal year 2026 free cash flow is now expected to be between $1.740 billion and $1.780 billion.

Sentiment

Score: 8

Explanation: The filing presents strong financial results, including significant margin expansion, robust EPS growth, and a raised full-year outlook. The company's strategic focus on AI and continued share repurchases are positive indicators, despite moderate overall revenue growth and a slightly contracting enterprise net dollar expansion rate.

Positives

• Achieved highest year-over-year revenue growth in 11 quarters at 4.7%.
• Significant expansion of GAAP operating margin by 9 percentage points year-over-year to 26.4%.
• Strong growth in GAAP EPS (up 65.7%) and non-GAAP EPS (up 10.0%).
• Robust free cash flow of $508.0 million in Q2, up from $365.1 million in Q2 FY25.
• Increased number of large customers (over $100,000 in TTM revenue) by 8.7% year-over-year.
• Raised full-year outlook for revenue, non-GAAP operating income, and free cash flow, indicating strong confidence in future performance.
• Continued share repurchase program, with approximately 6.0 million shares bought back in Q2.

Negatives

• Online revenue growth was modest at 1.4% year-over-year.
• Enterprise net dollar expansion rate of 98% indicates slight contraction among existing enterprise customers, though it is a trailing 12-month metric.

Risks

• Potential declines in new customers, renewals, or upgrades, or a general decline in demand for the platform.
• Difficulties in evaluating future results due to the company's limited operating history.
• Intense competition from other providers of communications platforms.
• Adverse effects of macroeconomic conditions, including geopolitical tensions, tariffs, trade tensions, interest rate fluctuations, inflationary pressures, and market and foreign currency exchange rate volatility.
• Lengthened sales cycles, particularly with large organizations.
• Risks of delays or outages in services from co-located data centers, or failures in internet infrastructure.
• Compromised security measures, both internal and those of third-party reliance.
• Impact of global security concerns on regional and global economies and supply chains.

Future Outlook

For the third quarter of fiscal year 2026, total revenue is projected to be between $1.210 billion and $1.215 billion, with non-GAAP diluted EPS expected to be between $1.42 and $1.44. For the full fiscal year 2026, total revenue is anticipated to be between $4.825 billion and $4.835 billion, non-GAAP diluted EPS between $5.81 and $5.84, and free cash flow between $1.740 billion and $1.780 billion. The company also noted $724.7 million remaining in authorized share repurchases as of July 31, 2025.

Management Comments

• "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."
• "We delivered an across-the-board strong Q2 marked by achieving our highest year-over-year revenue growth in 11 quarters and expanding GAAP operating margin year over year by 9 percentage points."
• "With our robust performance, we are happy to raise our full year outlook for revenue, non-GAAP operating income, as well as free cash flow, which we now expect to be in the range of $1.74 billion to $1.78 billion."

Industry Context

Zoom's strong performance, particularly its focus on AI innovation and expansion of operating margins, positions it favorably within the evolving communications and collaboration software industry. The emphasis on AI aligns with broader industry trends where companies are leveraging artificial intelligence to enhance productivity, reduce costs, and improve user experience. While the online segment's growth is modest, the robust enterprise growth and increased number of large customers suggest continued relevance and adoption in the business sector, despite a maturing market and increased competition.

Comparison to Industry Standards

• The 98% net dollar expansion rate for Enterprise customers, while slightly below the 100%+ often seen in high-growth SaaS companies, indicates strong retention and some upsell, but also some churn or contraction. Companies like Salesforce or Microsoft Teams often report higher net retention rates in their enterprise segments.
• Zoom's GAAP operating margin of 26.4% and non-GAAP operating margin of 41.3% demonstrate strong profitability and efficiency, which compares favorably to many SaaS peers that are still prioritizing growth over profitability. For example, some younger SaaS companies might have negative or low single-digit operating margins.
• The 4.7% revenue growth, while the highest in 11 quarters for Zoom, is moderate compared to the hyper-growth rates seen during the pandemic peak. However, it represents a solid rebound and stabilization in a more competitive post-pandemic environment, where many collaboration tools are seeing decelerated growth.

Stakeholder Impact

• Shareholders benefit from increased profitability, strong free cash flow, and ongoing share repurchase programs, which can enhance shareholder value.
• Employees may benefit from the company's focus on AI innovation and strategic growth, potentially leading to new opportunities and stability.
• Customers are expected to benefit from AI-driven product enhancements aimed at improving productivity and user experience.
• The company's strong financial health and strategic direction indicate stability for suppliers and creditors.

Next Steps

• Host a Zoom Video Webinar for investors on August 21, 2025, to discuss financial results and outlook.
• Host an Investor Session as part of Zoomtopia 2025 on September 17, 2025, to provide insights into business strategy, key initiatives, and innovations.

Key Dates

Recommendation

The strong financial performance, particularly the significant expansion in GAAP operating margin and robust EPS growth, coupled with a raised full-year outlook, indicates a positive trajectory. The company's strategic focus on AI and consistent share repurchases further enhance shareholder value. While revenue growth is moderate, the overall profitability and cash generation make it an attractive investment for long-term growth and stability.

Keywords

Video Conferencing, Unified Communications, Cloud Communications, Enterprise Software, AI, Collaboration Tools, Financial Results, Earnings Report, Software as a Service, SaaS