Zoom’s Earnings Call: Strong Growth Amid Challenges

Zoom Video Communications, Inc. Class A ((ZM)) has held its Q1 earnings call. Read on for the main highlights of the call.

Zoom Video Communications, Inc. recently held its earnings call, revealing a strong quarter marked by significant achievements, including notable growth in AI Companion usage, a revenue and earnings beat, and record low churn rates. Despite facing macroeconomic pressures affecting the enterprise outlook and slight declines in gross and operating margins, the overall sentiment was positive, with the highlights outweighing the challenges.

AI Companion Growth

Zoom’s AI Companion experienced a remarkable increase in monthly active users, growing by nearly 40% quarter over quarter. This surge in usage underscores strong customer enthusiasm and adoption of the AI Companion, highlighting its importance in Zoom’s product suite.

Revenue and Earnings Beat

Zoom reported a total revenue of $1.175 billion for Q1 FY ’26, marking a 3% year-over-year increase and exceeding guidance by $8 million. Additionally, non-GAAP income from operations rose by 2% year-over-year to $467 million, surpassing guidance by $22 million, showcasing robust financial performance.

Strong Performance in Zoom Phone and Contact Center

Zoom Phone revenue saw growth in the mid-teens, while the number of Zoom Contact Center customers increased by 65% year-over-year. Significant upsells and new deals contributed to high double-digit growth, reflecting the strength of these offerings in the market.

Record Low Customer Churn

The average monthly churn in Q1 was 2.8%, representing a 40 basis point improvement year-over-year and marking the lowest ever churn rate for a first quarter. This achievement highlights Zoom’s ability to retain its customer base effectively.

Share Buyback Acceleration

Zoom accelerated its share buyback plan, purchasing 5.6 million shares for $418 million in Q1. This move demonstrates the company’s commitment to returning value to shareholders and confidence in its financial health.

Increase in Enterprise Revenue

Enterprise revenue grew approximately 6% year-over-year, now accounting for 60% of total revenue, up 2 percentage points from the prior year. This growth indicates a strengthening position in the enterprise segment.

Macroeconomic Challenges Impacting Enterprise Outlook

Zoom acknowledged a more challenging and uncertain macroeconomic environment affecting its enterprise business. This has led to a more cautious revenue outlook for this segment, reflecting the broader economic pressures.

Slight Decline in Non-GAAP Gross Margin

The non-GAAP gross margin was 79.2%, slightly lower than the previous year due to ongoing investments in AI. This decline highlights the cost of innovation and expansion in AI capabilities.

Lower Operating Margin

The non-GAAP operating margin for Q1 was 39.8%, down 23 basis points from the previous year. This decrease was impacted by changes in bonus structures and investments in AI, indicating strategic financial decisions to support growth.

Forward-Looking Guidance

Zoom provided an optimistic outlook for the future, despite some macroeconomic challenges. The company anticipates Q2 revenue between $1.195 billion to $1.2 billion, with non-GAAP operating income expected to range from $460 million to $465 million. For the full fiscal year ’26, Zoom raised its revenue guidance to $4.8 billion to $4.81 billion, reflecting a 3% year-over-year growth at the midpoint, and increased its non-GAAP earnings per share outlook to $5.56 to $5.59.

In summary, Zoom’s earnings call painted a positive picture of the company’s performance, with strong revenue growth, product adoption, and customer retention. Despite facing macroeconomic challenges, Zoom’s strategic initiatives and financial health position it well for future growth, as reflected in its optimistic guidance.