Q3 2025 Zoom Video Communications Inc Earnings Call
You have joined the meeting as an attendee and will be muted throughout the meeting.
Well, hello everyone and welcome to Zoom's Q3 FY 25 earnings release webinar as a reminder today's webinar is being recorded, and now I will hand things over to Charles F. As, head of investor relations. Charles, over to you.
Thank you, Kelsey.
Hello everyone and welcome to Zoom's earnings video webinar for the 3rd quarter of fiscal year 2025.
I'm joined today by Zoom founder and CEO Eric Yan and Zoom's CFO Michelle Chang.
Our earnings release was issued today after the market closed and maybe downloaded from the investor relations page at investors.zoom.us.
Also on this page, you'll be able to find a copy of today's prepared remarks in a slide deck with financial highlights that along with our earnings release include a reconciliation of gap to non-GAAP financial results.
These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAP.
During this call, we will make forward looking statements including statements regarding our financial outlook for the 4th quarter and full fiscal year 2025. Our expectations regarding financial and business trends.
Impacts on the macro economic environment, our market position, stock repurchase program, opportunities go to market initiatives, growth strategy and business aspirations and product initiatives including future product and feature releases, and the expected benefits of such initiatives.
These statements are only predictions that are based on what we believe today.
And actual results may differ materially.
These forward looking statements are subject to risks and other factors that could affect our performance and our financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10K and quarterly reports on Form 10Q.
Zoom assumes no obligation to update any forward looking statements we may make on today's webinar.
And with that, let me turn the discussion over to Eric.
Thank you, Charles. Thank you, Evan, for joining us today.
Yeah, well in October, the host leader Zootopia.
Of any new customer and innovation event. And it was an amazing opportunity to showcase all that we will be working on for our customers.
We had a record-breaking what your attendance and unveiled of a new vision AI first work platform for human connection.
This obli marks an exciting milestone as we extend our strengths as a unified communication and collaboration platform into becoming an AI first work platform.
Our goal is to empower customers to navigate to today's work challenges.
Streamline information.
Prioritizing tasks and making smart use of time.
Auntopia, we took a meaningful steps towards that vision with the release of AI company.
2.0.
For the Suki in all the things that customers have come to expect from Zoom.
A brick and neck piece of innovation custom obsession.
And a reliable, easy to use products.
This release built upon the awesome quality of Zoom AI company 1.0 across features like meeting summary, meeting query, and a smart composed and brings it together in a way that evolves beyond the task specific AI towards agentic AI.
This major operate allows the air company to see a broad window of context.
Since he die information from internal and external sources and orchestrate action across the platform.
We are combined to raise the bar for AI and demonstrate to customers that we understand their needs.
They want AI to enhance their existing workflows, not a disrupt them.
We want AI to deliver exceptional results for their entire teams.
And they want to experience the value firsthand.
Before incurring additional spend.
We highlighted many customers at Zootopia.
Quality Laquara, CIO of this scale provided a great example of how Zoom AI company helped democratize AI and enhance productivity across the organization.
Without sacrificing security and privacy.
And it wasn't just this killer.
The real, real HSBC Exxon Mobil and Lake Plato architects shared a similar stories about Zoom's secure, easy to use solutions, helping them thrive in the age of AI and flexible work.
Building on our vision for them for democratizing AI, we introduced a road map of time expanding AI products that create additional business value through customization, personalization, and alignment to specific industries or use cases.
Customer AI company add on, which will be released in the first half of next year, aims to meet our customers where they are in their AI journey.
By plugging into another pieces, integrating with third party apps and personalizing experiences like a customer AI avatars and AI coaching.
Additionally, we announced that we also have customer AI company paid add-ons for healthcare and education.
Uh, well, as early as the 1st quarter of next year.
This AI force industry tailored solutions will build upon the remarkable traction and the customer love they have in this industries and allow us to deliver AI solutions that meet their customers' unique needs from the lecture hall to the doctor's office.
We also announced the Zoom workplace.
For Frontline workers.
Available in the first half of 2025.
With the goal of extending our success in Zoom workplace further into the extremely large but underserved frontline worker market.
We will first target the frontline reach industries where we have a strong install base and have gained substantial earnings, such as retail, healthcare, and manufacturing.
This mobile centric solution will address the unique work style of frontline workers with features like their companion generated shift summaries on shifted communications work management, insights, and more.
How is center and the work we are key pillars of our strategy to extend from our core strengths into natural adjacs.
And I'm very pleased to share that both had amazing horrors.
We secured our largest error, contact center customer.
And over 20,000 seats.
Demonstrating our ability to compete at the high end expanded further into the email market and when with the channel.
In fact, our top 4 card center deals in the quarter came from China.
We should speak to our progress, leveraging this amazing resource to extend our success across geographies and industries.
We also saw incredible attraction with work we as we landed 3 net new work we customers with over $1 million in ARR.
Including the largest deal to date with a fortunein company.
We are very happy to see that both contact center and work people benefit as a natural upsal to a massive base of Zoom workplace customers.
And we are encouraged to see this product, bringing brand new customers to Zoom and it become beachhead for Zoom workplace to expand.
The success of this bidirectional land and expanded motion demonstrates our better together platform vision is resonating well with customers looking for a full AI first work platform. Breaking the world of customers and employee experience.
Now, let me recognize some of our amazing customers.
Thank you, Ahinia Tributaria.
Space, National Revenue Service.
For their extraordinary expansion in Q3.
Over 2 years ago, Ahenia, like many other customers became convinced of the constraints of their own pri phone system and then deployed 30,000 zunfeng seats.
Of the Zumafe rapidly deliver the value and the scale.
To enhance efficiency and the service quality during a demanding tax season in 2022.
In order to consider our total experience.
How many channel solutions for the
elevate their taxpayer services.
This resulted in an incredible
Record settings Zoom account center deal with over 20,000 seats.
In conjunction with Zoom workplace, delivering a complete Zoom experience for both employees and the taxpayers.
Thank you, Ahencia, for your trust and the partnership.
I it, it's a Zoom from footprint.
As announced at Zootopia.
We are deepening the integration of ServiceNow now assist with Zoom Air Companion to boost our generative AI product offerings.
And deliver advanced workflow synergies for our customers.
It was a, uh, an owner.
Having chairman and CEO Bill McDermott, who is also a member of Zoom's board of directors.
John asked at the Zootopia. Thanks, Bill. We look forward to continuing our strong partnership.
Let me also thank the red pin. He did international fintech.
And the proper tech company.
For choosing Zoom.
They keep to us as a brand new customer through a trusted channel partner and identify the Zoom as a better solution to transform the way engage customers with their innovative property payments so and services.
Relevant opted for the Zoom total experience, including Zoom Center elite, Zoom revenue accelerator and a Zoom Workplace business plus in order to enhance customer experience, elevate the agent productivity and happiness. and realize major cost efficiencies from sweeping line operations.
Finally, let me thank
Athena Health.
A leading provider of network enabled software and services for medical practice and health systems for integrating Zoom meeting SDK into their uh the one electronic health record.
By leveling Zoom's cutting edge video technology.
Ati health is empowering its network of over 160,000 providers to deliver seamless virtual care through telehealth.
I was so pleased to see more customers adopting our Zumba workplace and business services products in order to reap the benefits of our modern natively integrated AI powered technologies.
Before handing it off to Michelle, I'm very excited to share that earlier today, we announced our new corporate name.
Zoom
Communications Inc.
This change reflects our evolution into an AI first work platform for human connection and our vision for long term growth.
Now, over to our new CFO, Michelle Thong.
Thank you.
Thank you, Eric and. Hello, everyone. It was great to meet any of you. It seemed to you.
I'm excited to be taking you through earnings for the first time, and I look forward to partnering with you all going forward.
To kick us off. And pleased to announce that we beat our top line and profitability guidance in Q3.
In line with our previous statements, year over year revenue growth trough and Q2 and showed improvement in Q3, driven by positive trends in both enterprise and online.
He a few highlights from our recorder.
We saw progress towards our AI first vision with Zoom AI Companion monthly active users going 59% quarter over quarter.
And as Eric mentioned, we saw great traction expanding into adjacent markets with growth and more viable and contact center.
A number of work evo customers whose 72% year over year, driven in part by the strength of our meta partnership.
And the number of Zoom contacts on our customers surpassed 1250, up more than 82% year over year.
Now, let's dive into the financial results.
In Q3, total revenue for approximately 4% year over year to $1.178 billion.
This result was $13 million above the high end of our guidance.
Our enterprise revenues grew approximately 6% year over year.
Reflecting a continued shift to Enterprise, which now makes up 59% of our total revenue, up 1 point year over year.
We're pleased with the continued stabilization and online. The my ongoing macro conditions.
And you're through with time, is it an average monthly term, which decreased to 2.7%.
Down 30 basis points year over year.
This is our lowest ever reported turn.
In our enterprise business we saw 7% year over year customer growth in the upmarket as we ended the quarter with just shy of 4000 customers contributing more than $100,000 in trailing 12 months revenue.
These customers now make up 31% of our revenue.
Up 2 points year over year.
Our trailing 12 months net dollar expansion rate for enterprise customers in Q3 came in at 98%.
The number of enterprise customers at the end of Q3 was approximately 1,920,400.
As we've mentioned in prior quarters, the number of enterprise customers distinguishes between our two go to market motions.
And will fluctuate with us in our focus.
And as such has become a less valuable measurement of company performance over time.
Pivoting to our growth internationally.
Our America's revenue grew 4% a year.
Amia for 5%.
An APAC was flat.
On a constant currency basis, and the 3% and APA or 2% year over year.
Moving to our non-GAAP results, which, as a reminder, excludes stock-based compensation expense and associated payroll taxes.
Acquisition related expenses.
Net gains on strategic investments.
Net litigation settlements and associated tax effects.
non-GAAP gross margin in Q3 was 78.9%.
As compared to 79.7% in Q3 of last year.
The year over year reduction was primarily due to investments in AI.
For the full year of AO 25, we continue to expect our gross margin will be approximately 79%.
non-GAAP income from operations came in at $458 million exceedingly high end of our guidance of $443 million as we continue to make progress managing expenses while investing in AI.
Our platform and emerging products.
This translates to 38.9% non-GAAP operating margin for Q3.
As compared to 39.3% in Q3 of last year.
non-GAAP diluted netting income share in Q3 with $1.38 on approximately 314 million non-GAAP diluted weighted average shares outstanding.
This result was 7 cents above the high end of our guidance, and 9 cents higher than the rate of last year.
Turning to the balance sheet.
Deferred revenue at the end of the period for 5% year over year to $1.38 billion driven by the continued refinement of discounting practices, as well as lengthening billing terms.
In Q4, we expect deferred revenue to be up 5 to 6% year over year.
Looking at both are billed and unbilled contracts are RPO increased 5% year over year to approximately $3.74 billion.
We expect to recognize 61% of the total RPO as revenue over the next 12 months, up from 58% in Q3 of last year.
Operating cash flow in the quarter decreased 2% every year to $483 million.
Free cash flow through 1% year over year to $458 million.
Operating cash flow and free cash flow margins in the quarter were 41% and 38.9% respectively.
We ended the quarter with approximately $7.7 billion in cash, cash equivalents and marketable securities, excluding restricted cash.
Under the pre-existing $1.5 billion share buyback plan in Q3, we purchased 4.4 million shares for $302 million increasing our repurchases quarter over quarter by $14 million.
And at the end of Q3, we repurchased 11.6 million shares for $739 million.
Turning to guidance in Q4, we expect the revenue to be in the range of 1.175 to $1.18 billion which at the midpoint.
Represents approximately 2.7% year over year growth.
We expect non-GAAP operating income to be in the range of 443 to $448 million representing an operating margin of 37.8% at the midpoint. As we continue to prioritize efficiencies across our operations.
Our outlook for non-GAAP earnings per share is $1.29 to $1.30 based on approximately 315 million shares outstanding.
We are also pleased to raise our top line and profitability outlook for the full year of FR 25.
We now expect revenue to be in the range of 4.656.
To $4.661 billion which at the midpoint represents approximately 2.9% year over year growth.
Our total revenue guidance assumes a continuation of mixed macroeconomic environment.
We expect our non-GAAP operating income to be in the range of 1.813 to $1.818 billion representing an operating margin of 39% at the midpoint.
Our outlook for non-GAAP earnings per share for FY 25 is $5.41 to $5.43 based on approximately 3150 million shares outstanding.
With the free cash flow results in Q3 and the increased outlook for operating income in that 425. We now expect free cash flow to be towards the high end of our previously provided range of 1.58 to $1.62 billion for the full year.
As indicated in the earnings press release today. We are all so excited to announce our board has authorized an incremental $1.2 billion share repurchase.
This reinforces our board and management teams confidence in Zoom and enables us to further leverage our strong cash flow and balance sheet to drive shareholder returns.
The incremental authorization brings our total unexecuted buyback to approximately 2 billion.
Which we expect to execute by the end of fiscal 26th.
In conclusion, we believe our results and our guidance underscore the progress that we've made driving top line growth, strong financial management.
And shareholder returns.
We're excited about our differentiated AI platform vision to deliver value for our customers and incredibly grateful for the trust and support of the entire Zoom team, our customers and our investors.
Kelsey, please que the first question.
Thank you so much, Michelle, and as Michelle mentioned, we will now move into the Q&A session. So when I call your name, please turn on your video and unmute yourselves. And as a reminder, in an effort to hear from everyone, we please ask that you limit yourself to one question, and our first question will come from Meta Marshall with Morgan Stanley.
Great, thanks so much. Uh, congrats on the quarter, um, maybe for you, Eric, I just wanted to get a sense coming out of Zoomtopia, you know what you were hearing from customers just about where their strongest interest is on AI and kind of where they're looking for you to kind of take the roadmap to address kind of some of their their needs.
Yeah, so media is a great question. That's our, the theme of uh Zoom top this year, read about AI. You know, we launched the AI company in $1 last year. And with uh more and more customers, they enable the AI and also at Zoomatopia, we mentioned that there are, there are over 4 million accounts who are already enabled AI company, given the, the quality ease of use and no additional cost, the customer really like Zoom Air company. However, after
One year later, they also want to understand what's the direction? Are there any new things, you know, and uh for us. So, and uh, the feedback from uh uh our customers at Zoomopia about uh, you know, Zoom Air combine the two were extremely positive.
Because, you know, first of all, in look, they look at our innovation, you know, the speed, right? And you know, the, the lot of uh uh features built into the AI company in 2000.
Again, at the, at no additional cost, right? At the same time, Enterprise customers also want to have some flexibility. That's why we also introduced the customized air company. And also air Copan is studio, and that will be available first half of next year, and also we can monetize. Overall, the customers really trusted Zoom, right? As we continue, you know, improving the AI quality like meeting summary you compared to Zoom meeting summary quality versus any other competitors.
I have a high confidence customers like our solution, like our quality, and also a lot of uh new uh innovative features and the customer really enjoy their company to that though. And by the way, you look at a lot of the 3 months.
the 60%.
Right. And so that's very, very, very, you know, the, the positive side. So overall, the customer really like Zoo I companion. And also they really appreciate us. We see, we are not going to try the customer for AI company.
I doing this, at no additional cost. So that's very good news for us.
Great thanks. Thank you.
We will not hear from Kash Rangan with Goldman Sachs.
I thank you very much. I'll echo the congratulations and congrats to you, Michelle, on your first earnings conference call with Eric, uh, we had the pleasure of attending Zoomopia as well. I'm curious, where are the budgets for AI coming from is it from a separate pool from your customers or are they take budgets out of
Uh, budget or AI money out of budgets that were designed for Zoom and also a follow up question on the macro a tone of customer conversations for the elections, you sense that there's slightly higher animal spirits, better appetite to spend in tech, on tech edit uh and on Zoom's products. Thank you so much.
Yeah, OK, thank you and looks like you are driving. So, I think, uh, look at AI, the cost, right? So every company, I think now they're all thinking about where they should allegate, you know, uh, the, uh, the budget, right? Where is this student to get more money or fund, right, to support AI. I think every company is different and uh some interview customers and they have a new budget, some customers, they consolidated into the field windows and some customers, they just want to say, hey,
You know, maybe actually saving the money from other, you know, areas, you know, and the to, you know, the shift the budget towards embracing AI. And given our strengths on the quality plus and no additional cost. Zoom is much better position. In particular, customers look at all the vendors when they try to consult and look at, again, the AI cost is not as small, right? You look at some of the competitors.
You know, per user per month, $30 right? And look at the Zoom, better quality and a no additional cost, you know, that's the reason why when it comes to total cost of ownership. Customer look at Zoom, I think much better position. You're right, otherwise, customers say if they are going again, almost every business is they subscribe to multiple software services. If each software service vendors, they are gonna charge the customer with, with the, with the AI. Guess what?
Every business is.
The Harvard who spend more. That's the reason why they trust Zoom, and I think we are much better, uh, position. And back to the second question, I think it's too early to tell and every company they look at, you know, the macroeconomic, I think as we all know, it's getting better. And also in terms of regulation for AI and also also, also is uh, is way too early to tell. But overall, I think that every company, they are very optimistic about the doubling down embracing AI.
They look at the windows who, who they trust with the better quality, also a better, you know, total cost of ownership. I think that's the reason why I truly believe Zoom is much better position.
Maybe if I can add in uh cash maybe unasked but an important note is our forecast sort of assumes like macro conditions and like spending conditions relative to what we saw in Q3.
Yep.
All right, we'll go ahead and move on to Arjanbatia with William Blair.
Perfect. Um, thank you and uh congrats on the uh re-acceleration here, um, Eric, maybe, uh, if we can switch gears a little bit to contact center, um, you have that 20,000 seat deal uh with the Spanish revenue Service, I believe this quarter, um, that's a very large deal, very impressive. Can you just maybe elaborate a little bit on what were some of the major factors that drove Zoom to win a deal like that. What was the process like? How competitive?
What it, was it, and, um, you know, what were some of the maybe differentiating factors that you saw, um, in that, that you can maybe, uh, replicate in other contact center deals, yeah, great question. So, and given that, I still wear the head of uh Zoom accounts and a general manager. I really like your question. I think a few things, you know, first of all, they are already a customer.
They deploy, I think, if I recall correctly, more than 30,000 Zulufe seats, you know, before, you know, in a very busy tax season you know Zoom deliver a great performance. You know, they are, they really trust them. And when they look at the Zoom account center, you know, they know actually, you know, our back in the architecture, we scalable, right? And also to look at our, all the features that, right, as I mentioned in all the, you know, pasta, you know, few quarters, you know, it's about the PCI, you know, Feder rep, and the workforce.
matter in quality management and also social channel. They know our pace of innovation is amazing.
And it because of the architecture, because of the trust, because of the, the, the features and also look at our capability and we, we, we have no problem from the very beginning, can support in a very large, you know, center agent and, you know, deployment, because again, when we build the architecture from day one, not like other vendors, but they had to, they had to have a surgery, right, to support up to 10,000 or 20,000 from day one, our architecture all very scalable. That's the reason why there's a customer, they are very, very happy.
You know, to deploy the Zoom account center. Again, from all side of perspective, feel like, wow, that's a large deal, 20,000 agents. But you're talking with our product engineering team and say, hey, we already supported that deal, you know, from architectural perspective on day one, right? So, you know, given more and more customers recognize the potential of Zoom and uh you know, look at our piece of innovation, I think especially the AI, I think we are we're very well positioned to win more deals like that.
Thank you. Thank you.
Our next question is going to come from Patrick Wallraven with JMP Securities.
Patrick, you are muted.
Oh, I hopefully I'm unmuted now. Can you hear me? Yes. OK, great. Uh, congratulations, Michelle, I think I'm gonna, um,
Uh, focus on you if that's all right, so can you just tell us again, you know, why you, uh, I asked you this question at the analyst day, but I think a bigger venue would be helpful. Why you took this job, um, what you found so far.
And then maybe you obviously haven't guided for next year yet and you're early in your tenure but maybe any points that you would share with us in terms of how to think about next year.
Yeah.
Uh, great. Thanks for the question. Um, let me kind of go back, uh, and just remind people, I, I came to them, um, I think in part at the beginning because of the iconic brand and the established leadership in meetings, um, that is Eric and I began our conversations over the interview process. I got more and more excited about where I saw them going when the AI first platform company and could see a lot of the seeds, if you will, of growth.
um being planted and, and starting to come to fruition. So, um, got very excited about that, um, and maybe, you know, my, my learning sense has been delightful, honestly, to see the customer love and the pace of innovation. I think, you know, you'd heard about it before, but to be amongst it, I think has been um a delight. And so, um, you know, my focus as a CFO is really gonna be on top line, as you noticed, uh, getting the top line.
revenue growth, um, further accelerating, um, certainly continuing to manage, uh, it, you know, margins and expenses does Kelly has and then maybe the last part I'd say that I think you saw is re up, uh, here today is um capital allocation uh with our buyback, um, and in terms of how to guide for FY 26, look, we will officially guide as we always have, um, in the next guidance period, um, so I'll save my comments.
Uh until then.
OK, great, thank you.
Yeah.
James Fish with Piper Sandler has the next question.
Hey guys, thanks for the question, um, maybe Eric for you on the AI side you guys are talking about AI investments obviously impacting the gross margins you talked about that last quarter, but is, is this where, where do we think about the AI investments actually going into is it sort of the back end infrastructure or thinking about it more on companion side and more modules. How are you feeling about the AI portfolio for contact center generally then just Michelle for you on the you talked about like the billing terms we're starting to see though a difference between on on.
RPO and billings for sure, um, but a big divergence really on the current and non-current RPO trends this quarter. You just kind of walk us through what happened there despite the comment on like the billing terms thanks.
Yeah, yeah, great question. I, I can, I can address your, your first one. So you call AI, right? So, so we have to invest more, right? And uh, you know, I think a few areas, right? You know, one is uh look at our Zoom workplace platform, right? You know, we have to invent more talents, you know, deploy more GPUs and also use more of the club basically GBS as well as we keep improving the AI quality and uh in innovate on AI features, you know, that's for yeah for workplace.
And at the same time, you know, we are going to introduce the customized AI company. Also, AI, you know, studio, and the next year, you know, not only do we offer the free service for our companion, but those enterprise customization certainly can help us in terms of monetization. At the same time, we leverage the technology we build for the workplace.
Apply that to the contact center, you know, like uh uh virtual Zoom virtual agent, right? And also some other, you know, the, the, uh, accounts and features, we can share the same AI infrastructure and also a lot of component and also can be shared as Zoom account and where AI companion is not free. The center is different, right? We also can monetize. Essentially, we build the, the, the, the same common AI infrastructure architecture and uh workplace.
cu s t om ized work uh AI company, we can monetize. Col center also can monetize. I think more and more, you know, now like today, but you see you keep investing more and more, and soon we can also monetize more as well. That's why I think it do not, we do not worry about the cost in the long run at all. I mean, the AI investment because, you know, with the monetization, you know, come in certainly can help us more. So, so far we feel very comfortable.
And James, maybe to answer your question, um, on RPO and specifically why we see the current piece go up.
Um, we are seeing this to confirm lengthening billing terms so we're encouraged by that of of an indicator of both an online and enterprise of our customers' dedication, uh, to Zoom, um, in particular, current, uh, as you note went up 10% and the way that I would have you think about that is when we have coterminous contracts, uh, we tend to see is we sell outside of that expiry cycle, that current volume go up temporarily before it goes to long term. So not, not a positive thing is.
The expanding portfolio with our customers.
And we will now hear from Alex Zukin with Wolf Research.
Hey guys, congratulations on a a solid quarter, um, maybe just I'll, I'll say 1.5 questions, um, on, on the monetization side, Eric is you're starting to see AI companion, uh, additions, uh, and interactions start to scale as you think about the
You kind of ultimate monetization opportunity uh of AI in terms of the broader portfolio.
How, when, where should we see it? Is it through uh selling contact center that's more AI native into the, you know, the overall base is it the verticalization of the AI companion 2.0 is it uh better AI companion, uh, expanding just give us a flavor for the how and the when, and Michelle, if I look at from a kind of forward KPIs I see enterprise billings growing double digits again. I see CRPO.
Growing double digits again. I see churn for the online business basically getting lower every quarter by, you know, 20 to 30 basis points. Why shouldn't we kind of extrapolate that as the online business stable flat.
Enterprise business accelerating from here.
Yeah, um, Eric, do you wanna go on the monetization or I'm happy to tag in on the AI the second one because they just ask this if you want then I can do the first one later on.
Yeah, um, so to, to answer your question, um, and Alex, obviously we're not gonna guide to 26th until February, um, but I would say we feel good about the beat forecast we feel good about the implied rays um to, to Q4, uh, and we feel good about the overall acceleration. If you look at our age 2 growth, uh, it's above H1. So not that in terms of what we've said and what we've guided, it's delivering on what we said and then you kind of go to the underlying
KPIs and you, and you look at it and I think there's a lot of strong fundamentals. So look, I'm not going to confirm uh the numbers that you gave, but I think um maybe one way to think about uh the models for revenue, uh, we've given a Q for revenue growth, uh, guide, I believe the midpoint of that growth rate is probably represents a reasonable proxy for how to think about revenue growth into FY 26.
Yeah, Alex, by the way, you know, we will share more in detail in the Q4 or call you will see the 26. By the way, you mentioned online. Remember, you know, 2 years ago, if I, you know, 23, I look at the online business, he declined by 80%.
A year ago, the 4%. Now this year, you know, flat, right? You see the trend is very positive. So back to your question of AI monitor this. We already monetize the air today, but not for the workplace product for our reading the services like a contact center, like a Zoom revenue accelerator, right? And like, you know, the new, newly coming services like Zoom Workplace for frontline workers, for educators, for healthcare, those, uh, you know, the product tailored for uh vertical industries.
At the same time, we also focus on Interpol eyes, you know, I think it's some, you know, maybe a, you know, second half of next year. And uh, you know, for the, because the, the customized AI company and AI Companion studio will not be available in the first half of next calendar year, right? I think a lot of, uh, you know, mon monetization opportunities, but also at the same time, you know, not only do we monetize AI company, but also we have the AI company to further build the relationship.
the customer, you know, like a customer look at it today the Zoom platform, you know, on the one hand, ease of use the stable, secure, plus AI, you know, a greater performance, quality, and a new additional cost, right? I think more and more, we, we do see some customer last two quarters, you know, they switched to Zoom platform.
Right, I'll give you one example, right? Why, you know, in Q3, we want a very large insurance company.
And if I recall correctly, around 20,000 seats.
Alright, they switch to resume workplace, uh workplace platform. You know, for sure, there's some big competitors there, you know, so-called for free, but when they analyze their employee like our Zoom service, they analyze the total cost. Zoom air company also add a no additional cost. That's one of the key reasons why.
You know, they select a zoom.
Is there a collaborative platform. So that's a very big event right in Q3, so.
Perfect thank you guys. Thank you, Alex.
And then I fine backside to your question in online kind of the way that I would think about the Q4 is sort of flat to slightly down, and then certainly, because I get this question a lot, the ambition for online is growth.
Just wanna make sure I, I answered your online questions.
Thanks again, Alex, and we will move on to Sidi Panagrahi with Mizuho.
Great, uh thank you. Uh,
Michelle, uh, send your report on call, um, and you talk about your focus to react for top line growth.
Um, can you, can you guys hear me?
Yeah, OK, OK, uh, so good, it's good to see the platform, um, mostly your NRR satellaging and now you talk about multiple products like phone, contact center, work we work, customized companion, a lot of different products you're talking about that layer in growth. So, I do look forward to next year, which products you're more excited about and how do you rat out this products when it comes to layering the growth to the core platform.
Yeah, it's, it's such a great question. Um, I guess I would start with just sort of the foundation of Zoom and then I'll kind of build out uh in my answer. So look, the foundation of Zoom was obviously the meetings we're working very hard to move that to platform and you know, we're excited by, you know, the the acceleration of seat down cells that we're seeing we're excited by the competitive ones that we're seeing. We're excited by the um online turn rate, so kind of in our foundation as we bring in AI.
as Erik has said many times that no additional cost or we bring, um, you know, we build out the portfolio of workplace. We're excited at sort of what that could mean to uh the foundation of our business and then certainly as we think about the pro sectors and they're part of that, um, workplace platform is a shift to phone, which has been a significant growth driver to us. We'll certainly, uh, that will certainly continue. Um, and then I would say the
products that we're seeing, the momentum and um today we call them or I call them our emerging products and contact center and work vivo, you know, I think we'll continue to be durable elements uh for product growth going forward. Um, and then over time I think you'll see more of that, um, AI monetization and some of the things that we announced at Zoomtopia, but like any um product says will come in with time. And you, you asked a lot about product growth, but I guess I would also call
allowed, um, that I think there's a lot of growth factors that we still, um, can grow from in terms of our international growth or our channel expansion or continuing to go upmarket. There's a lot of really um great proof points.
Of when we get customers in on the workplace, it decreases churn, you know, that accelerates, um, revenue growth with our land and expand. I think there's a lot of, you know, beyond sort of the traditional product levers of growth, a lot more we can do.
Thank you. Thanks for that color.
Alan Berkovsky with Scotiabank has the next question.
Hey guys, thanks for uh taking the questions here and I'll echo the congrats on a strong quarter.
Uh, Michelle, it looks like the deferred revenue growth in the quarter came in right as you guys were expecting, which is a slight change of pace from the beats we've seen there, you know, there are a number of large deals you highlighted in the quarter like the contact center deal over 20,000 seats.
Can you just walk us through the puts and takes there in the quarter and perhaps give us a refresh about the level of conservatism you're embedding in your Q4 guide of deferred revenue growth being 5 to 6%.
Yeah.
Um, so first of all, I would say, you know, we, we guided that um it'll be 5 to or that it grew 5% in Q3 and the guide it to 5 to 6%, so just to re reorient everyone the dynamics of what's driving that are um tightening of discounting and lengthening the billing terms and we expect those to obviously continue uh into Q4. So, um, you know, in terms of what may be, you know, how to think about it in terms of our guidance philosophy.
I would say it is very much the same so I've continued to guidance philosophy similar uh to, to what has been had historically as soon.
OK, thanks guys. Congrats the other thing that I would mention, um, nothing different to what Zoom has said historically is that revenue is ultimately um the better measure and indicator for our business, you know, given some fluctuations that you'll see from quarter to quarter, um, in, in the retina. So that's really what I would point people to.
And Bank of America's Michael Funk has the next question.
Yeah, great, thanks, thank you all for the time. Um, 11 for you, Eric. So, you know, you really created iconic brand with with Zoom video, um, you know, owned that point solution space.
And have now expanded other areas uh the new new names Zoom communication not captures at all, you know, your phone now you have contact center adding AI on top arguably.
Even edging in to work management with with some of the products that you're you're rolling out so.
You know, the delineation is less clear now between yourself and competitors in other areas, so.
How do you think about attacking the market? Is, is it purely based on product or how important is price as you try to win new business.
Yeah, so that's a great question. I think, uh, you know, our philosophy, you know, from day one, always a better product, a better price, and a better service, right? Now, first of all, you know, our cores read about the product experience.
And make sure you know the customer like us, you know, look at it recently Goner peer peer inside report.
Right? The Zoom is the only one.
In the leader section.
You know, that's the reason why the customer like us and because they truly like of a product, because of that, you know, we introduced a lot of other new product, essentially give a customer sweet.
And we call that, you know, workplace, you know, the, the AI first the work platform.
At the same now look at the price, you know, a year ago, if I recall correctly, right, it's maybe more than that now. We increased price for online, and we do not see any issues, you know, and the user really like our product.
Now I used to be, you know, customers, they, they bought up a point solutions like many years ago meetings and phones, and also the whiteboard allows also support product. Now, they prefer our platform approach.
Right? And you could entire platform, you know, they, you know, they can't love it more uh service from Zoom. And at the same time, and with the AI and no additional cost, the customer tries to our Zoom brand and more sticky, and down the road A with the customer AI company or of other innovations, for sure, and, uh, you know, we can monetize it more. Essentially, we do not want to do something similar to, you know, the, the some competitors, right? You, you, you kind of be stuck your competitors.
We call that for free and then every year they increased price, increase price. We don't want to do that. We want to build a long term of trust, give it some time, the class realized Zoom not only very stable, ease of use, and also we introduce a more and more services. They would like to consolidated into the Zoom platform. From that perspective, I think more opportunities for us to monetize as a platform player. And in order to mention AI as well, so.
That's our strategy. Yeah.
Great thank you Eric.
Thank you, Michael. I appreciate it.
We will now hear from Samad Samana with Jeffreys.
Hi, good evening, and I, I'll echo the the the congrats on the next quarter, uh, maybe on, on a work vivo I know meta announced that it would be sunsetting the at a workplace product and it would be in stages over 25 and 26 and it's dear customers customers to work thevo. Can you have a think about how you think about that ramp you've had good momentum there customers grew 72% year over year. Can you quantify maybe how much of the growth is coming from meta and how we should think about that momentum going forward.
Yeah, great question. So, uh, Michelle, feel free to chime in. I think, uh, you know, we acquired a work level, I think 2 years ago, and because, you know, look at the employee engagement. That's very important. This is part of a Zoom work platform. I think that company, that team is much better position. They have very scalable, very cool, you know, uh, the, the product. That's the reason why I uh acquired them. And also, you know, a few quarters ago, right? And the matter, you know, script, you know, focus on the AI a lot of other.
they decided to, you know, and, uh, you know, retire, you know, workplace product. For sure, there's some other vendors over there as well. But you know, based on the customer feedback because the uh the, the, the product maturity, right? They decided to go with the Zoom as a partnership, right? So meaning, you know, work available is exclusive pattern, right? They also build a migration tools that have customer who deployed workplace, you know, the, the product for, for, for, uh for me and replace that.
with the work people. You look at our top deals, I think almost all of those deals and uh because of metal migration.
And also I think we have also very strong pipeline as well. Again, that's not a small company. We do not focus on, you know, SMB. There's very large integrated customer, some of the Zoom workplace customer already. Some even not a Zoom, uh, workplace customer. But it's, they also deployed Zoom work we. I think the pipeline is very strong and very promising. And also, we also want to innovate more on work available, double down on that, I think give us more opportunity and to further grow that business, you know, I think you look at
the, you know, the, the gross rate and a quarter over quarter year over year, it's pretty, you know, exciting. And uh we, I think that, you know, business can contribute more to our business down the road.
Maybe just to add in from my standpoint, um, yes, the meta partnership is, is driving the growth. We're not gonna quantify it or, or speak to it, but I think if you look at a lot of the underlying metrics that we set in our prepared remark. They tell them more holistic story, uh, for work people growth. And a lot of the things that we've been focused on, you know, from geo expansion to partner dynamics to, you know, um, getting those large customers as well as Brad and they build up a lot of the natural.
things, uh, that Zoom has strength in certain industries, uh, like retail as well as frontline. So I think yes, uh, the, the Meta partnership is part of that and there are some durable dynamics to under or underscore a lot of the things that Eric talked about.
Great, thank you both so much for the time.
Thank you.
The next question will come from Tyler Radtke with City.
Thank you. Hey Eric, hey Michelle, uh, I wanted to direct my question to Michelle. Uh, congrats again on the, the first earnings call here is the CFO of Zoom.
Uh, I wanted to ask how you think about margins, uh, so if we if we look at Q3, uh, the operating margins were were down very slightly year over year I think Q4, uh, they're guided to be down about 1 point year over year, uh, if, if you round up.
How should we think about the the path to long term operating margins, I think you're still a couple points above uh the high end of that long term guide that you put out at analyst Day, should we expect to get back to that long term operating margins next year just give us a sense for the path there and then maybe just if you could give your own philosophy too around how you uh evaluate uh expenses. What what are some of the things that you look for just in terms of uh ROI in case you know you're.
Your framework is maybe different than um you know how things were done at Zoom before. Thank you.
Perfect. Uh, great question and thank you very much, Tyler. Um, so I would say, I think it's important to to reemphasize what we're investing in.
Um, we're investing in AI. We're investing in our emerging growth, uh, businesses and we're investing in the platform as I think it sort of sets up, you know, the, the frame that I'll have, I don't think it's that different than maybe, you know, the frame that uh Kelly and Eric had before, which is we're gonna invest for top line growth and we're gonna invest for our strategy going forward. And so look, our, our guidance um approach remains the same. I said that before. Um, we gave, as you noted, a long term guide.
give FY 26 guidance, but in terms of my philosophy, I think it's gonna be, you know, a lot of where Eric and I are going to spend our time is how do we really make sure that every dollar that Zoom is spending is going towards those things that I mentioned and going towards top line growth. And so, um, look, we'll employ other ways of capital allocation, but in terms of, you know, internal capital allocation. I think it's going through each thing, questioning the return, questioning the alignment to.
strategic value and making sure that as a culture, you know, we have the disciplined approach of really looking at our expenses and having a culture of driving, uh, savings to offset the investments that we know we're gonna need to make.
Yeah, just uh quickly add on to what Michelle side teller. I think that you look at our company check record. It's, especially as the, you know, the, the way for us to manage the cost is very disciplined approach. They give, you know, even 1 or 2 quarters, you see like more investment, you know, on, let's say, on, on, on COVID side, you know, I'm, I'm very, very, you know, proud of our world-class devil ops team led by, led by our president of Proto Bill Chan. You know, here's team, they always know.
How to automate for optimize, you know, a lot of the quarter savings, you know, I, that's 11 area I normally, I do not spend any time because I have high confidence that a team. They can always come up with some ways and to further reduce the, the, the costs, right? And even for AI you know where to open my eyes. I think I have a very high confidence, you know, even one or two quarters more investment or something like that. I personally feel like a team can, you know, come up with some better ideas.
You know, further reduce the cost, so.
Thank you, thank you, Michelle and Eric, we have time for one additional question. It's going to come from Mark Murphy with JP Morgan.
But thank you so much. Great to see you.
Um, Eric, I was wondering if you can, uh, perhaps speak to the customer interest that.
You're seeing to integrate data from their own internal uh repositories into AI companion because um I believe that triggers the $12 you know, per user per month monetization or it's one of the important triggers.
Um, I, I would think that.
That is also gonna drive some real product stickiness and, you know, value that would ratchet higher so.
Um, I'm, I'm just curious how many customers are showing that interest.
Uh, what kind of scenarios they can design and and and therefore maybe how to think through the monetization, you know, potential at that price point. Yeah, so Mark is great, great question. So that's the reason why we introduced the, you know, customized AI companion or A studio because, you know, a few quarters ago, and, uh, you know, we talked the many inprise customers. They share with us feedback, right? So they like AI company. Also, they want to make sure, hey, you know, the, some customers, they already build that.
own, you know, AI large language model, you know, how to fed that into our federated AI approach and some customers, they have very large content, you know, like a northern base, you know, how to connect with that. You know, some customers they have what's, you know, the, the, with the, you know, other uh beginning systems, right? You know, like a service now adolescent, and the working day, a lot of bars and HubSpot by how to connect with those uh uh data sources, right? And also even from employee perspective, right, you know, they won't have
you know, customize avatar in the le AI you know, to, to, as a personal coach as well. So, meaning those customers, they have a customized requirements to support those classified requirements. We need to make sure we have AI infrastructure and the technology ready, right? That's the reason why, you know, we introduced the AI company, you know, a customized area companion. The goal is really working together with in customers to tailor for each enterprise customer. That's the reason why it's not a
agree. I think the, the, the, the feedback from the Zootopia is very positive, because again, those features are not, you know, not built by our, you know, just several product managers, engineers think about let's do that. We already solicited the feedback from uh from our enterprise companies before, you know, those features that I think can truly satisfy their needs.
And maybe Mark if I could add in, I think that um you have some really powerful differentials here, um, in terms of our approach, the democratization of AI and kind of the core skews and letting people kind of try it and get to experiences. I think we'll, we'll provide an important on rap and then I would say our open um platform approach, you know, when you start looking at bringing in custom things or connecting with other data sources. I think that in addition to a price point, which is very uh
which is more reachable, if you will, um, for customers are gonna be important, uh, competitive differentiators for going forward.
Excellent, thank you so much.
So KOC, this is, this is the last question. That was the last question, Eric. I'll turn it back to you for closing if you'd like. I think first of all, thank you all for your time. Uh, this is the first call I miss your first earning call. I think very similar in the, you know, the transition from a a Cali and to Michelle. And I feel, Michelle, this feel like it's not your first call, feel like you already join the Zoom call for many times before, right? So, thank you, you know, uh, for Kelly's great work over the past many years.
Uh, Michelle, thank you. And uh again, thank you for all the investors. I really appreciate your time. See you all and the next earning call in um February. Thank you. Thanks Eric and Michelle and again everyone that concludes today's earnings release. We always thank you all for your participation and again from our family to yours, may you and yours have a safe and happy holiday season. Take care until next quarter.