Zoom's Voice Strategy Evolves: Is Phone Now a Core Growth Driver?

Zoom Phone is a key driver for Zoom's enterprise growth, reporting mid-teens Annual Recurring Revenue growth in Q2 FY26 and a 7% year-over-year increase in enterprise revenue to $730.7 million, propelled by AI-powered features and successful displacements of legacy systems in large accounts. While facing significant competition from Microsoft and Alphabet in cloud telephony, Zoom is expanding its enterprise customer base and AI tool adoption. However, ZM shares have appreciated only 3.8% year-to-date, underperforming the broader tech sector, despite trading at a forward 12-month P/S of 5.22x, below the industry average.

Analysis

Zoom Communications is demonstrating significant momentum in its enterprise segment, primarily driven by the accelerating adoption of its Zoom Phone product. This division posted mid-teens Annual Recurring Revenue growth in Q2 FY26, contributing to a 7% year-over-year increase in total enterprise revenue to $730.7 million, which now represents 60% of the company's total revenue. Key to this success is Zoom's ability to displace legacy systems in large, multinational accounts, evidenced by a recent seven-figure annual recurring revenue deal replacing Cisco. Further strengthening its position is the integration of AI tools, which are driving platform stickiness, as shown by a 30% sequential increase in monthly active users of these features. Despite these strong operational fundamentals and a Zacks #1 Rank, the company faces intense competition from Microsoft and Alphabet, whose integrated ecosystems present a formidable challenge. This competitive overhang is likely reflected in the stock's performance, which has appreciated only 3.8% year-to-date, substantially underperforming the broader tech sector's 18.2% gain. The stock's valuation, at a forward 12-month Price/Sales ratio of 5.22x, is below the industry average of 5.77x, suggesting the market is pricing in these competitive risks despite positive analyst estimate revisions for the upcoming quarter.

Key Decisions for Investors

• Investors should weigh Zoom's robust enterprise fundamentals, including strong Zoom Phone growth and increasing AI adoption, against its significant stock underperformance relative to the tech sector.
• Carefully monitor the competitive landscape, as market share gains by Microsoft Teams Phone or Google Voice within large enterprises represent the primary risk to Zoom's growth trajectory and valuation multiple.
• Focus on upcoming enterprise revenue results, as the consensus estimate for Q3 implies a growth deceleration to 4.6% from 7% in Q2, a critical data point that will test the current growth narrative.
• Given the valuation discount to its industry peers, investors confident in Zoom's ability to maintain its competitive edge may see an opportunity, but should be wary of the poor 'D' Value Score.