Earnings call transcript: Zoom Video Q2 2025 beats estimates, stock dips

Zoom Video Communications (ZM) reported strong fiscal Q2 2025 results, exceeding analyst expectations with an EPS of $1.53 and revenue of $1.22 billion, driven by a 7% year-over-year increase in enterprise revenue and growing adoption of its AI-powered solutions. Despite the earnings beat, the stock saw a 1.05% decline in aftermarket trading. The company raised its full-year 2026 revenue guidance, signaling confidence in continued growth, underpinned by robust profitability metrics and a 39% year-over-year increase in free cash flow, as it leverages AI innovation to expand its product ecosystem and market share, particularly in its Contact Center offerings.

Analysis

Zoom Video Communications (ZM) reported a strong fiscal second quarter for 2026, exceeding market expectations with revenue growing 4.7% year-over-year to $1.22 billion and EPS beating forecasts by nearly 11% at $1.53. This performance marks the company's fastest revenue growth rate in eleven quarters, driven by the continued strength of its Enterprise segment, which grew 7% YoY and now constitutes 60% of total revenue. Key growth engines are becoming more defined, particularly within the Zoom Contact Center (CCaaS) offering, which saw the number of customers with over $100k in ARR grow 94% YoY, with nine of the top ten deals being displacements of leading cloud competitors. This demonstrates a significant competitive moat and product-market fit. Profitability remains a core strength, with non-GAAP operating margin expanding 216 basis points to 41.3% and free cash flow growing 39% YoY to $508 million, funding an accelerated $463 million share buyback in the quarter. Despite these robust results and a raised full-year revenue and profit guidance projecting 3.5% growth, the stock's 1.05% decline in aftermarket trading suggests investor expectations may remain elevated or focused on the moderate near-term growth outlook, with Q3 guidance pointing to 3% YoY growth. The explicit focus on AI, evidenced by a four-fold increase in AI Companion monthly active users, is positioned as the primary long-term catalyst, though management indicates substantial monetization from new AI products is a fiscal 2027 story.

Key Decisions for Investors

• Investors should recognize the company's successful transition to a profitable, enterprise-focused platform, with strong free cash flow and an aggressive buyback program providing a valuation floor.
• Monitor the growth and competitive displacement rates within the Contact Center and Zoom Phone segments, as these are the primary near-term drivers for top-line re-acceleration beyond the current low-single-digit guidance.
• While AI adoption metrics are impressive, note management's guidance that significant direct monetization from new AI products is a fiscal 2027 catalyst, requiring patience for the long-term growth narrative to materialize.
• The negative stock reaction to a strong earnings beat and raise may signal a valuation disconnect or market skepticism, potentially offering an entry point for those confident in the long-term platform strategy but warranting caution about near-term price momentum.