Zoom Q2 Earnings Surpass Estimates, Revenues Increase Y/Y

Zoom (ZM) reported robust fiscal Q2 2026 results, with adjusted EPS of $1.53, up 10.1% year-over-year, and revenues of $1.22 billion, up 4.7%, both exceeding consensus estimates. Growth was primarily driven by the Enterprise segment, which saw revenues increase 7% to $730.7 million, while online revenues grew a more modest 1.4%. The company also demonstrated improved profitability with a non-GAAP operating margin of 41.3% and strong free cash flow of $508 million, providing Q3 and full fiscal year 2026 guidance that anticipates continued revenue growth.

Analysis

Zoom Communications reported a solid second-quarter fiscal 2026, beating consensus estimates with adjusted EPS of $1.53 (up 10.1% YoY) and revenues of $1.22 billion (up 4.7% YoY). The growth narrative is bifurcated: the crucial Enterprise segment, now 60% of total revenue, grew a healthy 7% to $730.7 million, while the Online segment saw a marginal 1.4% increase. A key positive signal is the 8.7% growth in customers contributing over $100,000 annually, indicating success in moving upmarket. However, this is tempered by a trailing 12-month net dollar expansion rate for Enterprise customers of 98%, suggesting that spending from the existing enterprise base has slightly contracted. Operationally, the company demonstrated impressive efficiency, expanding its non-GAAP operating margin by 210 basis points to 41.3% and generating a robust $508 million in free cash flow. While the Q3 revenue guidance of $1.210-$1.215 billion points to flat sequential performance, the full-year outlook and strong profitability metrics underscore a successful transition toward a more mature, cash-generative business model, supported by a substantial $7.8 billion cash position.

Key Decisions for Investors

• Investors should weigh the company's strong profitability, exceptional free cash flow generation, and success in acquiring large new customers against the headwinds of slowing overall revenue growth and a sub-100% enterprise net dollar expansion rate.
• The most critical metric to monitor in coming quarters is the net dollar expansion rate for Enterprise customers; a return to above 100% would signal a significant positive shift in the growth trajectory by demonstrating renewed upselling momentum.
• Given the flat sequential revenue guidance for Q3, the investment thesis hinges on the company's ability to maintain its high operating margins and leverage its $7.8 billion cash balance for strategic growth initiatives or shareholder returns.