Earnings call transcript: Zoom Q4 2025 earnings beat forecasts, stock dips

Zoom Video Communications (NASDAQ:ZM) Inc. reported stronger-than-expected earnings for the fourth quarter of 2025, with earnings per share (EPS) surpassing forecasts. The company, which InvestingPro analysis shows maintains excellent financial health with a "GREAT" overall score, saw its stock decline by 1.84% in after-hours trading despite matching revenue expectations. According to InvestingPro data, the stock currently appears undervalued based on its Fair Value analysis, making it an interesting watch for value investors.

Key Takeaways

• Zoom’s EPS of $1.41 exceeded the forecast of $1.30.
• Revenue for Q4 2025 was $1.184 billion, aligning with predictions.
• Stock price dropped 1.84% to $79.61 in after-hours trading.
• Enterprise revenue grew by 6%, now constituting 60% of total revenue.
• Free cash flow increased by 25% year-over-year to $416 million.

Company Performance

Zoom demonstrated robust performance in Q4 2025, with total revenue increasing by 3% year-over-year. The enterprise segment was a key driver, contributing significantly to the company’s revenue growth. Zoom’s strategic focus on enterprise customers and AI advancements has positioned it well in a competitive market.

Financial Highlights

• Revenue: $1.184 billion, up 3% year-over-year
• EPS: $1.41, exceeding the forecast of $1.30
• Non-GAAP Gross Margin: 78.8%
• Non-GAAP Income from Operations: $468 million, up 5% year-over-year
• Free Cash Flow: $416 million, a 25% increase from the previous year

Earnings vs. Forecast

Zoom’s EPS of $1.41 beat the forecasted $1.30, marking a positive surprise of approximately 8.5%. This beat aligns with the company’s trend of surpassing earnings expectations, reinforcing investor confidence in its financial management and strategic initiatives.

Market Reaction

Despite the earnings beat, Zoom’s stock declined by 1.84% in after-hours trading, closing at $79.61. This movement contrasts with its 52-week high of $92.8, indicating potential investor concerns despite positive financial results. The stock’s decline may reflect broader market trends or specific investor reactions to the company’s guidance and future outlook.

Outlook & Guidance

For fiscal year 2026, Zoom projects revenue between $4.785 billion and $4.795 billion, representing a 2.7% growth. The company plans to continue investing in AI and platform expansion, with a focus on the enterprise market and AI-powered innovations.

Executive Commentary

CEO Eric Yuan highlighted the company’s achievements in AI, stating, "FY ’twenty five was an incredible year, marked by major advancements in AI." CFO Michelle Chang emphasized the value of Zoom’s AI vision, saying, "We are excited about the differentiated AgenTek AI vision and the value that it provides to our customers."

Risks and Challenges

• Potential market saturation in the online business segment.
• Macroeconomic pressures could impact enterprise spending.
• Increased competition in AI-powered workplace collaboration.
• Dependence on successful AI product integration and adoption.
• Fluctuations in stock-based compensation affecting financial metrics.

Q&A

During the earnings call, analysts focused on Zoom’s AI capabilities as a future growth driver. Questions also addressed the company’s approach to transparent AI pricing and its emphasis on the enterprise market. Analysts expressed interest in Zoom’s contact center as a significant growth opportunity. With a beta of -0.01, InvestingPro data shows Zoom’s stock typically moves independently of market trends, offering potential portfolio diversification benefits. For comprehensive analysis including future growth projections and risk assessments, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.

Full transcript - Zoom Video Communications Inc (ZM) Q4 2025:

Meeting Operator/Moderator: You have joined the meeting as an attendee and will be muted throughout the meeting. I’ll hand things over to Charles Abeslage, Head of Investor Relations. Charles, over to you.

Charles Abeslage, Head of Investor Relations, Zoom: Thank you, Kelsey. Hello, everyone, and welcome to Zoom’s earnings video webinar for the fourth quarter and full fiscal year 2025. I’m joined today by Zoom’s founder and CEO, Eric Yuan and Zoom’s CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be 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 and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP 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 GAAP. During this call, we will make forward looking statements, including statements regarding our financial outlook for the first quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from the macroeconomic environment, our market position, stock repurchase program, opportunities, go to market initiatives, growth strategy and business aspirations and product initiatives, including future products and future releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today and actual results we differ materially. These forward looking statements are subject to risks and other factors that could affect our performance and financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10 K and quarterly reports on Form 10 Q. Zoom assumes no obligation to update any forward looking statements we may make on today’s webinar.

With that, let me turn the discussion over to Eric.

Eric Yuan, Founder and CEO, Zoom: Thank you, Charles. Thank you, everyone, for joining us today. FY ’twenty five was an incredible year, marked by major advancements in AI. The evolution of Zoom into an AI first work platform, spending phone, team chat, events, docs and more, and a strong momentum in contact center and work available. A key highlight has been the rapid adoption of our AI capabilities.

Growth in monthly active users of Zoom AI companion accelerated to 68% quarter over quarter, demonstrating the real value AI is providing customers. Zoom AI combining has emerged as a driving force behind our transformation into an AI philosophy company, enabling our customers to discover enhanced productivity opportunities. We are always looking ahead moving forward and reimagining what’s possible to enable frictionless work. And now, we look forward to having our customers fully realize the benefits of agenda AI and discover what’s possible with AI agents. As part of AI combining two point zero, we added advanced authentic capabilities, including memory, reasoning, orchestration and a similar integration with Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) services.

In April, we are launching custom AI companion add on to automate workplace tasks through custom agents. This will personalize AI to fit customer needs, connect with their existing data and work seamlessly with their third party tools. We are also enhancing Zoom Workplace for clinicians with an upgraded AI companion that will enable clinical note taking capabilities and specialized medical features for healthcare providers starting in March. Additionally, we are upgrading our business services by introducing more agentic capabilities. Zoom Virtual Agent will soon expand reasoning abilities to handle complex tasks while maintaining conversational context for more natural and helpful outcomes.

We are uniquely positioned to succeed in organic AI for several reasons. Zoom is a system of engagement for our users with recent information in ongoing conversations. This exceptional context along with user engagement allows us to drive greater value for customers. Our federated AI approach lets us combine the best models for each task. We can use specialized small language models where appropriate, while leveraging large models for more complex reasoning, driving both quality and cost efficiency.

Zoom is known for making complex technology simple for users. We manage the complexity of AI models while keeping the experience intuitive, powerful and connected with popular third party apps. We believe our strategic approach positions us favorably to help bring value to the customer. We are focused on delivering physical value while building toward an ambitious vision of AI that truly amplifies human potential for the customers. Our AI First Work platform continues to gain momentum, driven by our core strength in meetings and expanding portfolio of integrated solutions such as the phone, TV chat, events and Zoom Docs, whiteboard and Zoom Rooms.

We see this in the results. Zoom Workplace had a big win with Amazon (NASDAQ:AMZN) in Q4. Within Zoom Workplace, Zoom Phone continues to see strong traction with both new customers and expansions. We build upon our strength in retail, healthcare and education, which delivered seven of our top 10 Zoom Phone deals this quarter. The recent Mitel partnership opens up access to Mitel’s seventy million global end users and demonstrates how our open ecosystem approach is resonating with customers seeking flexible deployment models and the toys.

Zoom Team Chat continues to serve as a collaboration hub across our platform. The recent redesign of the sidebar has enhanced navigation and productivity, while our new workflow automation capabilities are driving deeper platform engagement. Beyond Zoom team chat, we are seeing encouraging adoption across our broader portfolio. Zoom Docs uses more than doubled quarter over quarter. Together with Viable, which was a customer’s choice recipient in the 2024 Garden of Peer Insights Voice of the Customer Report for video collaboration applications.

Zoom Team Chat and Zoom Docs are critical components of our AI first platform vision that expand our system of engagement and allow customers to do more with AI. Both contact center and WorkWavell delivered exceptional results this quarter. In contact center, we achieved our largest ARR deal in history with a Fortune 100 U. S. Tech company for over 15,000 agents, demonstrating our ability to win and deliver for the most demanding enterprise customers.

The number of contact center customers with over $100,000 in ARR grew over 100% year over year with wins both displacing on prem and the leading CCAR vendors. Our AI first approach is resonating strongly. The majority of our deals are now in the higher tier elite or premium packages, validating the power and customer appeal of our comprehensive AI and workforce engagement capabilities. WorkVideo also had a record quarter, driven by strength across all regions. The total number of Work Weibo (NASDAQ:WB) customers grew 89% year over year, accelerating from 79% in Q3.

We signed three deals over $1,000,000 in ARR, each with major global brands. Our strategic partnership as a preferred migration partner for major workplace has been a strong contributor to this momentum. These solutions are critical components of our AI First Work Platform vision. Contact Center extends our platform from employee engagement to customer engagement, while WorkWave will broadens our employee collaboration to internal engagement and culture. Together, they exemplify our strategy of sortable expansion into high growth areas where we can deliver differentiated value through our platform approach, AI leadership and rapid innovation for the customer.

As we look ahead to FY ’twenty six, we are focused on our key strategic priorities, expanding our AI capabilities to drive customer value, rapidly innovating within Zoom workplace and building upon momentum in new products such as contact center and WorkRevivo. Despite ongoing macro challenges and uncertainties, we are encouraged that our value proposition and the total cost of ownership are gaining traction in the market. Our innovation engine is firing on all cylinders. Our platform strategy is working and we have significant opportunities and growth vectors to accelerate upon. Now, on top of the record setting contact center wins I just highlighted, let me share some more amazing wins in Q4.

We are excited to offer Zoom for Amazon employees and further strengthen our long standing relationship with AWS as our preferred cloud provider. This builds on the success we’ve achieved helping customers easily procure and deploy Zoom through AWS marketplace. Let me also thank Delta Airlines (NYSE:DAL), who this year is the first U. S. Airline to celebrate its centennial for choosing WorkWeibo as their employee communications and engagement platform.

Upon the sunsetting of mega workplace, Delta strategically chose to migrate to Workvivo. As a part of a multiyear deal, Workvivo will serve Delta’s entire global workforce, reinforcing their strong company culture with omni channel reach and key features like live streaming, employee recognition and a comprehensive engagement analytics. Let me also thank Cloud Software (ETR:SOWGn) Group, a global mission critical enterprise software leader as one of our newest CX clients

: to the Zoom

Eric Yuan, Founder and CEO, Zoom: family. Recognizing the simplicity and ease of use of our unified platform, they operate for the Zoom contact center and Zoom virtual agent to modernize the way they communicate and collaborate with their customers. These incredible wins across workplace and business services validated our strategy of delivering a full platform of modern integrated AI powered solutions to drive meaningful business value and outcomes for customers. Now, let me hand over to Michelle, who will take us through the financial results. Thank you.

Michelle Chang, CFO, Zoom: Thank you, Eric, and hello, everyone. I’m excited to be with you again and share that we beat our top line and profitability guidance. In Q4, total revenue grew approximately 3% year over year to $1,184,000,000 4 million dollars above the high end of our guidance. Total (EPA:TTEF) revenue adjusted for constant currency grew approximately 4% to $1,188,000,000 9 million dollars above the high end of our constant currency guidance range. Our enterprise revenue grew approximately 6% year over year and now makes up 60% of our total revenue, up two points year over year.

We are continuing to see signs of stability in our online business. In Q4, average monthly churn was 2.8%, a 20 basis point improvement year over year and our lowest ever churn rate in the fourth quarter. In our enterprise business, we saw 7% year over year growth in the number of customers contributing more than $100,000 in trailing twelve months revenue. These customers now make up 31% of our total revenue, up one point year over year. Our trailing twelve month net dollar expansion rate for enterprise customers in Q4 remained flat year over year at 98%.

The total number of enterprise customers at the end of Q4 was approximately 192,600. As we said previously, enterprise customer count is more reflective of our go to market motion rather than a direct measure of our enterprise business performance. We will continue to do migrations between our two go to market motions in order to best serve our customers as we did last year. And as such, going forward into the next fiscal year, we will no longer include this metric in our prepared remarks or SEC filings. To provide ongoing transparency, we will include it in the earnings deck appendix throughout FY ’twenty six.

We still believe that enterprise revenue growth and KPIs such as net dollar expansion are better reflections of the future business and expect future migrations to have minimal impact on these metrics. Now back to the financial results. Pivoting to our growth internationally, our Americas revenue grew 4% year over year, EMEA grew 2% and APAC grew 3%. On a constant currency basis, EMEA grew 2% and APAC grew 5% year over year. Moving to our non GAAP results, which as a reminder excludes stock based compensation and associated payroll taxes, acquisition related expenses, net gains on strategic investments and all associated tax effects.

Non GAAP gross margin in Q4 was 78.8%, slightly lower than Q4 of last year, primarily due to strategic investments in AI, partially offset by efficiency gains. The results in Q4 were in line with our prior commentary and we continue to reiterate our goal of reaching 80 gross margin over the long term. Non GAAP income from operations grew 5% year over year to $468,000,000 exceeding the high end of our guidance by $20,000,000 Non GAAP operating margin for Q4 improved to 39.5%, up 81 basis points from Q4 of last year, even amongst continued investment in AI, our platform and our emerging growth businesses. Non GAAP diluted net income per share in Q4 was $1.41 on approximately $317,000,000 non GAAP diluted weighted average shares outstanding. This result was $0.11 above the high end of our guidance and $0.01 lower than Q4 of last year, primarily due to higher income tax and unrealized foreign exchange losses.

Turning to the balance sheet. Deferred revenue at the end of the period grew 7% year over year to $1,350,000,000 outperforming the 5% to 6% we estimated last quarter. The growth was driven by continued refinement of discounting practices as well as ongoing business growth. For Q1, we expect deferred revenue to be up 4% to 5% year over year. Looking at both our build and unbilled contracts, our RPO increased 6% year over year to approximately $3,800,000,000 We expect to recognize 59% of total RPO as revenue over the next twelve months.

That is up from 58% in Q4 of last year. Operating cash flow in the quarter increased 21% year over year to $425,000,000 Free cash flow grew 25% year over year to $416,000,000 Operating cash flow and free cash flow margins in the quarter expanded to 35.935.2% respectively. We ended the quarter with approximately $7,800,000,000 in cash, cash equivalents and marketable securities excluding restricted cash. Under our $2,700,000,000 share buyback authorization, in Q4, we purchased 4,300,000.0 shares for $355,000,000 increasing our repurchases quarter over quarter by $53,000,000 and contributing to the reduction of common share outstanding in Q4. Pivoting from Q4, I wanted to share a few of our full year FY ’twenty five highlights.

Total revenue grew 3% and total enterprise revenue grew 5% year over year, both of which accelerated in the second half. Our free cash flow grew 23% year over year to $1,800,000,000 We also achieved a non GAAP operating margin of 39.4%, a 20 basis improvement from FY 2024. And finally, we made significant progress on stock based compensation, down to 20% of revenue, representing a three point reduction year over year and slightly ahead of the pace of reduction that we discussed at Syntopia. And we repurchased 15,900,000.0 shares for $1,100,000,000 contributing to the reduction of common stock outstanding in FY ’twenty five. Now turning to guidance.

In Q1, we expect revenue to be in the range of $1,162,000,000 to $1,167,000,000 This represents approximately 2% year over year growth at the midpoint or 2.6% year over year growth on a constant currency basis. As a reminder, Q1 of FY ’twenty six has one fewer day than the prior year. We expect non GAAP operating income to be in the range of $440,000,000 to $445,000,000 representing an operating margin of 38% at the midpoint. Our outlook for non GAAP earnings per share is $1.29 to $1.31 based on approximately $316,000,000 shares outstanding. And as a reminder, future share repurchases are not reflected in the share count and EPS guidance.

For the full year of FY ’twenty six, we expect revenues to be in the range of $4,785,000,000 to $4,795,000,000 which represents approximately 2.7% year over year growth at the midpoint or 3.1% year over year growth on a constant currency basis. We expect our non GAAP operating income to be in the range of $1,850,000,000 to $1,860,000,000 representing an operating margin of approximately 39% at the midpoint. Our outlook for non GAAP earnings per share for FY ’twenty six is $5.34 to $5.37 based on approximately $318,000,000 shares outstanding. For FY ’twenty six, we expect free cash flow to be in the range of $1,680,000,000 to $1,720,000,000 We’re proud of our progress in FY ’twenty five and we’re excited about the differentiated AgenTek AI vision and the value that it provides to our customers. We’re going to continue to invest thoughtfully in our priorities that we’ve outlined, while maintaining our focus on profitability and cash flow generation.

We’re excited and incredibly grateful to the trust and support of the entire Zoom team, our customers and our investors. Kelsey, please queue the first question.

Meeting Operator/Moderator: Thank you so much, Michelle. And as Michelle mentioned, we will now move into taking your questions. Our first question is going to come from Kash Rankin with Goldman Sachs. Kash, would you go ahead. Thank you so much.

Kash Rankin, Analyst, Goldman Sachs: Hi. Thank you so much. Congrats on finishing up the fiscal year. Eric, a question for you. You’ve certainly made a lot of pivotal advances positioning the company to be very AI first.

It shows up in the quarter to quarter usage of Zoom Companion, the Amazon deal that you won. Congratulations. As you look ahead, do you think the AI capabilities could when do you think the AI capabilities could become a tailwind for your business in that it starts to drive, accelerate maybe the underlying platform and the AI features are additive to the revenue growth rate. We’re still stable, but could this set the stage up for better than stable growth? Thank you so much.

Eric Yuan, Founder and CEO, Zoom: Yes, Ketur, that’s a great question. Just to double down on AI investment, it’s always our top priority, right, for a while, right? I think it’s happening already, meaning, if you look at our low end SMB customer online buyers, AI company is part of that at no additional cost, made our service very sticky. And of those customers give very basic example like a meeting summary, right? As it works so well, more and more customers found the value, actually for sure they are going to enjoy using our service model, right?

That’s for low end. For high end, for sure, and we understand that today’s AI companion and additional cost, we cannot monetize. However, in April, we are going to announce the customized air campaign for enterprise customers, we can monetize. But the most important thing is for building the services. Take a contact center, for example, why we are winning because a lot of AI features like AI expert assist, AI, a lot of features built into our quality management and so on and so forth.

For all those business services, that’s another great way for us to monetize AI. For workplace, for enterprise customer air company, low end and also really make up a service sticky and improve the value, essentially, customers realize we’re adding more and more services, more and more value. Guess (NYSE:GES) what? They are going to a stevy zoom plus usage also will be higher. That’s our strategy to leverage AI.

Meeting Operator/Moderator: We’ll move on to Samad Samana with Jefferies.

: Hi, good evening. And I’ll echo Kash’s kind of words as well. It’s good to see all the progress that Zoom is making. I guess on the AI side, I want to follow-up on that. Eric, when you think about there’s new AI based products, but how is AI impacting the decision by larger customers in particular to adopt maybe the existing components of the platform and thinking about expanding, leveraging Zoom in advance of the AI features that are being released?

And maybe just to dovetail then to cheat and ask two and one. Michel, what are you assuming around AI investments and are those kind of fully embedded into guidance for the year? So those are my two questions.

Eric Yuan, Founder and CEO, Zoom: Yes. So I can address the first part of your AI question. So you look at it from a customer or even partner perspective, right? So almost a vendor, almost every vendor, right, is trying to pitch their AI story. Our customers are very smart.

Our customers really don’t understand what’s the value the AI added to their business, right? So, they would like us to take kind of test the area services, especially look at the value and the cost, right? And look at our AI company, listen, all those AI combining core features today at a new additional cost, right? And customers really like it because the quarter is getting better and better every quarter and very useful, right? Not like some other competitors, right?

You talk about their AI strategy and customers realize that, wow, it’s very expensive and the total cost of ownership is not getting better because of the value is not great, but also it’s not free and they always try to increase price. That’s the reason why for us to leverage our AI technology to build this the trusted relationship with customer. And I think that we are going to win in the long run because you do not want to tell a customer, hey, we have AI feature now, you need to pay more, right? You need to do this or that. That’s not right.

So that’s the reason why we shared our AI strategy, roadmap, features, pricing, everything with our customers transparently, reflected by the AI combined usage, we need more and more customer trust. Zoom has a very good AI AI functionalities and also the trust of Zoom, they are now going to try to customer crazy price, right? I think that will also be the long term winning.

Michelle Chang, CFO, Zoom: And then maybe just to add on with how to think about AI and what’s in our guide. I would say from a top line perspective, the trends that we’re seeing in stemming churn as well as the contact center elite revenue that Eric talked about, those are in our plans. We certainly have revenue in our plans for the more H2 focused SKUs like Custom AI, Companion, but those will still be obviously be ramping and not a dominant thing. And then in terms of the investment, we said last time that this would be one of our three investments and it’s baked into the guidance.

Eric Yuan, Founder and CEO, Zoom: Great. Thank you both so much.

Meeting Operator/Moderator: Ryan McWilliams with Barclays (LON:BARC) has the next question.

Charles Abeslage, Head of Investor Relations, Zoom: Hey, guys. Good to see you. Greetings from Switzerland. This is a new one for me. I’m out of here asking a question on earnings call.

Michelle, two for you. Lots of growth opportunities for Zoom. How would you rank the top three drivers for Zoom’s net new revenue in fiscal twenty twenty six between like contact center, AI, Zoom phone, etcetera? And then as you build up the full year guide, how should we think about what it implies from contributions from the enterprise customer segment and the online growth rate.

Michelle Chang, CFO, Zoom: Perfect. So let me maybe answer the first one and then I’ll round back to the other one, Ryan, and hope you’re well in Switzerland. But I would say, when you look at the full year guide that we gave of 2.7 when you factor sort of FX and leap year, it gets much more in 3.3% range. So just as context, within that, I would say that we’ve assumed that online will be flat to slightly down and that enterprise will really be the dominant growth driver. So in terms of how to think about the top three, I think I would answer it like this.

Look, certainly, let me go to the core, Ryan, where like our core business and when I talk about core, it’ll sort of be inclusive of Chrome. We are pleased with what we’re seeing in terms of record churn. And also, I would say, we’re seeing the same in our enterprise business. So where downfalls had sort of peaked in the start of ’twenty five, we’re now seeing sequential improvement every single quarter, which is great. And so we certainly have an expectation and those are big dollars.

Then I would go to sort of our adjacent path flowing TAM like contact center and WorkVivo and both are certainly important to us where we’ll be working to continue to grow kind of customer and the successes that we’ve seen both upmarket and extend those down through channel. And in particular, you sort of asked an AI question, so let me leave that one in, which is just the connection again that our contact center revenue is really being driven by that elite SKU, which is our top 140 SKU, which includes not only inbound to outbound, but AI as well.

Meeting Operator/Moderator: We’ll move on to Meta (NASDAQ:META) Marshall with Morgan Stanley (NYSE:MS).

Samad Samana, Analyst, Jefferies: Great. Thank you. Maybe just a quick question on just what kind of go to market investments you guys are making kind of as you broaden the portfolio and as you kind of see what has more traction with customers, particularly when it comes to contact center? And maybe just asking on the big deal that was one, just kind of what was the go to market motion with winning kind of that large customer? Thanks.

Michelle Chang, CFO, Zoom: Do you want me to Yes, go ahead. I was going to answer broad things and maybe you can layer in from a deal perspective. Does that sound good? All right. So it’s nice to see you again as well.

What I would say in terms of our priorities for our go to market, maybe the first one that I would call out is just to continue the move up market that we’ve been seeing. We have really seen progress in contact center and WorkXevo in that space, but also in phone and others. So first priority go to market wise would certainly be to move our enterprise continue to move our enterprise business up market. Second thing really important to us, we’ve talked about it before, is integral to phone and contact center, but also moving further down in our customer breadth, which is really accelerating the channel. And then I would say probably third to that is returning our online business to growth.

While I sort of said the guide was flat down, the ambition, of course, is to return it to growth. So that’s how I think about our top three priorities. Eric, do you want to comment on the field?

Eric Yuan, Founder and CEO, Zoom: Yes. So yes, maybe to add on what Michelle said in terms of doubling down our channel, the business, look at our contact center in Q, top 10 deals and contact center, six out of those 10 deals are driven by the channel partners. So, and we are going to and kind of investing more, right, to make sure that the channel partner can contribute more to our content center growth.

Samad Samana, Analyst, Jefferies: Great. Congrats on this large scale.

Eric Yuan, Founder and CEO, Zoom: Thank you.

Meeting Operator/Moderator: And the next question comes from Alex Zukin with Wolfe Research.

Charles Abeslage, Head of Investor Relations, Zoom: Congrats on a great quarter. Maybe just two parter, right? So first, to the extent, Eric, that you can talk about the demand environment post election, the difference between the two segments in online and enterprise. And maybe talk about what you’re seeing in SMB? What you’re seeing I’ve gotten questions about federal exposure and all the Doge headlines.

So just talk about you mentioned in the script that it’s still choppy, it’s still uncertain. So maybe put a finer point on that. And then what kind of got you over the line with Amazon in terms of winning that deal? And you’re now at a point where kind of two of the MAG7 are deeply partnered and entrenched with Zoom, where to some extent they were effectively competing with one or two of your products beforehand. So what is kind of happening and how do you kind of see the opportunity to turn those into almost also distribution channels?

You mentioned the Delta example with Workvivo. Amazon, I imagine, has a number of Chime customers that now maybe are opportunities.

Eric Yuan, Founder and CEO, Zoom: So, Michelle, how about I address the Sacrema? You addressed in the first one. Yes. So,

Meeting Operator/Moderator: look, I would say,

Michelle Chang, CFO, Zoom: I would characterize what we’re seeing in the macro environment as mixed but stable. To the positive on the enterprise side, we’re seeing a lot of upmarket momentum and you can see it in our results. I mentioned earlier, so I won’t repeat it again, but sequential improvement in the down sells on the enterprise side. Also on the online, we’re seeing record low churn rates in both Q3 and Q4. So those you can look at and say positive.

But certainly, you open the headlines and you see elements of layoffs and ambitious or sort of volatile times, if you will, in the news. And so, I would say that’s sort of behind our sentiment that things are still mixed.

Eric Yuan, Founder and CEO, Zoom: Yes. So regarding the Amazon deal, as you all know, right, Amazon was using the time, which was acquisition down many years ago, right? So and you look at the video conferencing, and that is becoming more and more important. Again, Zoom not only just video conferencing, the full workplace platform, a lot of other services even in the conference room system, right. So, M and A, they are evaluating all those services.

They want to find the best product to serve their employee needs, right? So, Amazon, great company, does care for the employee experience, right? By looking into all the services, right? So, for sure, Zoom is the best choice, right? So they would like to deploy the Zoom, right, to improve their communication and collaboration, the needs.

That is kind of for all those companies, right, really care about employee experience, I think they all will select Zoom as a vendor. So speaking of distribution, we already started working together with Amazon. I think there’s a huge opportunity ahead of us how to leverage the Amazon marketplace to drive our top line growth. We already see some early signs of success. We’re working together with Amazon team more and more to drive again, this is part of a channel partnership, right?

It’s Amazon workplace is doing very well for a lot of other companies, right? So, we also want to be part of that as well. So, that’s a win win, I think.

Meeting Operator/Moderator: Thanks, Alex. And Evercore’s Peter Levine has the next question.

Michael Turrin, Analyst, Wells Fargo (NYSE:WFC): Thank you for taking my questions here. So in April when the AI customization, the AI companion comes available,

Charles Abeslage, Head of Investor Relations, Zoom: I think it’s $11

Michael Turrin, Analyst, Wells Fargo: or $12 a seat. Can you maybe help us understand how you’re thinking about like what’s the real use case? And then in terms of adoption, like what are you envisioning in terms of how many employees within an organization would actually need this type of application? And then second for you, Eric, you do see the headlines around even in our world and banking where a lot of people force me back five days a week. Maybe just help us understand like how are you thinking about that?

Does that at all prohibit your customers maybe thinking about expanding? But just would love to know kind of your thoughts on if this back to office five days a week becomes more of a reality?

Eric Yuan, Founder and CEO, Zoom: Yes, I think five days working week is for financial institutions. I think I fully understand, right, because it’s very important, like kind of in person and meetings for sure, there’s a lot of benefit, I fully understand. But also at the same time, and like for every large financial institutions, you always have employees across the country and also a lot of international branch offices as well. And you talk to the customers, partners, you still use Zoom, right? I think internal usage, right, like might be kind of up and down.

But overall, and on a truth like Zoom, it’s still very important to be a business collaboration truth. I do not have any concern. I truly respect every company decision either fully remote or five days in office or hybrid. We sort of the thing for each company, right? So we just want to help our customers to enable and no matter which way they go and then make sure they have a best collaboration and communication tools, right, to help them improve their productivity.

Michelle, you want to address the first one?

Michelle Chang, CFO, Zoom: Yes. Maybe I’ll let you talk about the use cases. But, Peter, in regards to your question about what are sort of the assumptions or what’s the targeting in our head with the $12 custom AI companion SKU. I would say starting with enterprise customers, obviously, the easiest place to sort of hunt on that is up our own customer base and talk about that, but certainly not just limited to that. But we’ll be probably giving a lot more, I would say, at Enterprise Connect, which you can see on that, the thing there.

But I would say, we’ve assumed some degree of monetization in FY ’twenty six. I think you’ll see more of it in ’twenty seven. And we think that the $12 price point is going to be a really compelling TCO story for our customers really differentiated from what others in the market are pricing up.

Eric Yuan, Founder and CEO, Zoom: Yes. So regarding the customer combining use cases, high level is we give a customer flexibility to customize their needs. I give a few examples like one feature like we have a Zoom service called a video clip. We are going to support the standard template, right, how to support every customer, they have a customized template for each of the users, this is part of a combining studio, right, and also all kinds of third party integration, right, and they like they prefer, right, some of those kind of third party application integration with their data, with their knowledge, with their dictionary, a lot of things, right. Each company is different, they would not get customized, so we can leverage our company in studio to work together with the customer to support their needs and also at the same time we can monetize.

Michael Turrin, Analyst, Wells Fargo: Thank you very much. Thank you, Peter.

Meeting Operator/Moderator: We’ll now hear from Mark Murphy with JPMorgan.

Samad Samana, Analyst, Jefferies: Thank you. And I will echo Kash’s congrats on finishing the fiscal year. Eric, I wanted to try to get your thoughts, your perspective on DeepSeek and any potential you see for lower inferencing costs in AI models if DeepSeq is something that you’re testing out? And Michelle, looking at how strong the cash flow production is, can you speak to the cost or margin profile for the AI products? And what type of gross margin profile you see you maybe are thinking would be coming into the AI companion as well?

Eric Yuan, Founder and CEO, Zoom: Yes. So, Lark, yes, I can address your first question regarding the DeepSeq. And I think a few weeks ago, right, I did publish a LinkedIn post about my thought about the DeepSeq after the earning call, I will forward that LinkedIn post. For high level, I think given this is open source, I really like to be called open source, right? If you look at it from vendors like us, kind of we build obligation layer and the AI technology, we also build our own large language model, a lot of techniques, news, a lot of optimizations on Swarth we all can learn from.

This is good for the application and the vendors like us. And as you can follow large language models, I also like to take a lot more for example, right, also kind of look at the DeepSec and also by the way, look at even for hardware vendors like Media, Broadcom (NASDAQ:AVGO), MD also good for Zoom as well. The reason why there is a lot of demand for GPUs, right, and normally they serve those very large cloud vendors first, because we bought a lot. Like for Zoom, probably we are not on the top priority, maybe second priority, and a lot of other companies behind us with large cloud vendors, they don’t want to buy way more. However, the huge demand, we want to buy more.

And after that, a lot of other companies also want to buy more. Overall, I think it’s good for Airband. And also the cost for like from hardware side, large lending model, the application, reference, everything. As As you look at that, we will drive the cost down. That’s why overall, that’s beautiful industry because it’s open source, right?

And so and that’s my take on that.

Michelle Chang, CFO, Zoom: And then, Mark, maybe your question about kind of how to think about the margins. We’re not going to obviously give in any guidance or probably going forward any AI specific margins. But I would say that we look at those very closely and our margins for every active user are coming down in line with what our expectations would be, if not more. What I would say maybe more broadly to maybe address where I think you may be going with the question is that we’re very pleased with our margin finish in FY ’twenty five. And while we don’t guide to the margin in ’twenty six, I would say we feel good that our increased usage in AI and our spend there is going to be offset by efficiencies such that we should be able to see in FY ’twenty six some acceleration of margin in line with sort of not up to the 80% but holding very true, I guess, Mark, to the principles that we set in our long term margins.

Eric Yuan, Founder and CEO, Zoom: And Michelle, thank you for that. But just to clarify, I think

Samad Samana, Analyst, Jefferies: you said margins for active users are coming down. Did you mean the cost profile is coming up? Yes. Cost. Yes.

Eric Yuan, Founder and CEO, Zoom: Thank you so much. Thank you, Mike.

Meeting Operator/Moderator: Our next question will come from Michael Turrin with Wells Fargo.

Michael Turrin, Analyst, Wells Fargo: Hey, thanks very much, Lisa.

Charles Abeslage, Head of Investor Relations, Zoom: See everyone. I was intending to continue on the margin question. So there’s a little bit of a follow on here. But Michel, first from a full year guide, can you just speak to the delta between implied operating and free cash flow margin? What’s driving that for the upcoming year?

And maybe just going back to margin trajectory, Zoom has had higher targets that suggest margins may come down as investments go up. You’re guiding for just slight compression on the operating margin side. So maybe just how you’re thinking about the trade offs if that still holds or what could shift that at all if you don’t mind? Thanks very much.

Michelle Chang, CFO, Zoom: Perfect. So let me start with what I think is more tactical, but Michael, by all means, correct me if I’m misunderstanding your question. On the free cash flow, for ’twenty five, we’re certainly seeing quite the strong growth. There’s obviously timing elements of that that can pull forward relative to ’twenty six. Our expectation on ’twenty six is that you still continue to see that OI growth, but you’re impacted by timing differences as well as different interest conditions and tax conditions.

So it’s kind of how I would have investors think about free cash flows. In terms of your operating income and kind of how we think about it long term, I actually think you key to that beautifully, which is, look, we are going to be first and foremost about revenue growth, so we are also going to balance that with profitability. And our long term guide, we gave sort of what I would call as a wide margin of possibility of things that we would do. And really what Eric and I have been centered on is giving clear and clean prioritized business priorities to investors, so you know where we’re investing in. And then really, look, we are going to invest when we see growth, but we’re also going to be just pushing an ongoing frame of efficiency.

And I think you really see that in our ’26 guide, and I think you should expect to see similar.

Charles Abeslage, Head of Investor Relations, Zoom: Thanks very much.

Meeting Operator/Moderator: Moving on to Arjun Bhatia with William Blair.

Charles Abeslage, Head of Investor Relations, Zoom: Perfect. Thank you so much. Eric, I have one for you and Michel, one for you. Eric, you mentioned Agentik AI. As you’re moving more towards AgenTek and you’re adding agents to your platform, how do you think about just evolving your pricing model?

Does that fall under the broader AI companion? Or do you anticipate having different pricing approach for Agennta capabilities? And then, Michel, it seems like you’re just having a lot of traction with enterprise. It seems like that part of the business is going well. When do you think we should see NRR start to inflect and maybe what are the puts and takes there going into FY ’twenty six?

Thank you.

Eric Yuan, Founder and CEO, Zoom: Yes. So regarding the Adjunct Sync capabilities, today, you look at Zoom AI combined $2, it’s already authentic, right? So essentially, look at it for one point zero zero to two point zero zero, we already embrace the authentic framework, right? So like we have a workplace agent and also have been as a services agent, I mean, like a part of a contact center, we also can support a third party agent as well. And meaning, this is more like a technology natural evolution from JAI to AgenTek framework, where every company is doing that, we are doing that as well, because this is very important and the new technology, new framework and a lot of agents were built by us and the revenue Zoom Air company studio, customers who can build it.

I do not think we need to have a special SKU, right, because this is part of our the Zoom AI companion studio, right, and to offer customers an agenda capabilities.

Michelle Chang, CFO, Zoom: And then maybe on your comments on the guide, I just continue to reiterate that that full year guide has some headwinds of foreign exchange and leave here sort of without 2.7 when you factor them in 3.3. I’ll reiterate my comments on online sort of the expectation is that it’s flat to slight decline and that really enterprises what we expect to carry the growth. And in terms of the elements of what we expect to carry the growth and it would be an acceleration, but it’s the same things we’ve been talking about and frankly seen throughout FY ’twenty five, pushing up market, gaining channel traction and seeing churn and down sells moderate and then certainly growing into our land and expand motions even further with Workvivo and Contact Center.

Charles Abeslage, Head of Investor Relations, Zoom: Okay, perfect. Thank you.

Meeting Operator/Moderator: James Fish with Piper Sandler has the next question.

Charles Abeslage, Head of Investor Relations, Zoom: Hey, guys. Thanks for the question here. Building off of a bunch of the prior ones, but as we think about a shift more towards AI contribution, are we shifting more towards a consumption model rather than a seat model over time? And why wouldn’t we see margin compression longer term? Or how are you guys kind of thinking about balancing fee based pricing and consumption based pricing?

And also working off of Turin’s prior question, you are guiding for a free cash flow conversion rate that is beneath what you guys just did and you mentioned, Michelle, some pull forward. So how should we think about what sort of pull forward in the cash flow that wouldn’t be repeating or why we wouldn’t be closer to a sort of 100% free cash flow conversion at times?

Michelle Chang, CFO, Zoom: Yes. I can start with that. Let’s see, your first question was sort of around how to think about margins and business models and why we don’t see compression. And what I would say is that what we expect to see is similar to what you saw in FY ’twenty ’5, which is we’re seeing obvious increase in costs from our AI and that we have an ongoing methodical kind of efficiency list to offset. And we certainly expect that broadly to continue into FY ’twenty six.

So I think we feel good about our ability to kind of moderate that. Maybe other things I would talk about, Eric mentioned in his prepared remarks, but we really think the federated approach that we have to AI is an important element to being able to both give better quality of results, but also improves cost, meaning being able to match the right model at the right cost to the right action that needs to be done for customer value. So that’s really how we’re thinking about managing things broadly. There’s other things we do more holistically where we can offset stuff that’s maybe not in AI in our margins, things like colos, etcetera, that we’ve talked about previously. And then your question around free cash flow, I sort of understood of why don’t we see more of an increase similar in line with what we saw in ’twenty five, so let me answer that.

First of all, in FY ’twenty five, we have interest rates that were growing off of a large base as well as we saw billings and positive operating income. As we go into ’twenty six, we’re going to see different interest rate conditions, different tax conditions, as I mentioned, but still that same growth from operating income. So really, it’s sort of the timing thing. The other thing that I might mention that we’ve not talked as explicitly about is our broad guide, be it in revenue or operating income, continues to use a consistent methodology to what Zoom’s used before, kind of that prudent consistent where we aspire to beat.

Meeting Operator/Moderator: Thanks, James. We’ll move on to Tom Blakey with Cantor Fitzgerald.

Michael Turrin, Analyst, Wells Fargo: Great. Thank you for taking my questions. Maybe just seems like everybody else is doing too. I’ll try to sneak two in, Eric and Michelle. On the CCaaS side, great successes here.

I was wondering if you could talk a little bit more about that longer term plan to get CCaaS up to 10% of revenue in line with the Zoom phone timeline, maybe that’s being pulled in a little bit here with the successes in the higher tiers, Eric? And then maybe on WorkVivo, again, just solid numbers, great traction last year. Wondering with the meta workplace migration opportunity, if you wanted to just maybe double click on that, maybe this is for Michelle, if you may be seeing there’s still enough runway there that continue that type of growth accelerant can continue in fiscal ’twenty six and not become more of a headwind, that’d be helpful. Thank you so much.

Eric Yuan, Founder and CEO, Zoom: Yes. So Tom, regarding the chronic center contribution to our top line, growth for sure, there’s always our aspiration to contribute to leverage the contact center contributing more. I think the timing wise is perfect. There’s a lot of indirect customers still deploy on prem solution. Take this largest ARR win.

So So that Fortune 100 U. S. Tech companies, they were using on prem solutions, right? And when they decided to migrate it to cloud based version, for sure, they wanted to look at all the cloud vendors, they want to make sure the native to build the cloud, the solution with also all the innovations, AI is part of that. That’s the reason why we are in much better position, right?

And also, the product front, we have high confidence. On On the go to market side, we also needed to double down on the channel, a lot of things are doing very well, also reflected by more than 50% of top 10 deals in Q4 also driven by the channel partners. As long as the focus on the innovation with AI and all the features, right, drive the velocity and at the same time and listen to customers and double down go to market side, I think we are going to be in much better position. This is a growing and the AI driven content market. Yes.

Michelle Chang, CFO, Zoom: And maybe I’ll hit your Work Vivo and then some broad comments about the two products together. From a Work Vivo, like you said, we feel great, record burn record bookings, excuse me, 89% growth in customer, so all very durable things. Certainly, meta, and we called that out in our prepared remarks, is driving a lot of that. But I’ll remind you that we had non meta growth before, and so we feel good about our ability to drive both, frankly. And then we’re not going to give guidance.

You have our overall revenue guidance. You have kind of the color and context on the enterprise versus online split. But I would say that the elements, the kind of underlying durable elements of what drove ’25, we expect to be present in ’26.

Meeting Operator/Moderator: Bank of America’s Michael Funk has the next question.

Michael Turrin, Analyst, Wells Fargo: Great. Thank you. Thank you, Eric. Thank you, Michelle. You must be proud of what you’ve achieved last two years.

I wanted to level set the discussion around revenue growth though because the previous narrative was a march towards mid single digit revenue growth. You’re still guiding below that for fiscal ’twenty six. So, one of the better, Steve, if the strategy may be shifted to customer stickiness, meaning bundling and discounting, or if the other factors are at play here, maybe online churns being a little bit higher, maybe macro has been more difficult, maybe you’re waiting to have more monetizable AI solutions. But want to better understand kind of level set that revenue growth forecast for longer term because previously it was discussed as the mid single digit target?

Michelle Chang, CFO, Zoom: I’ll maybe take that one, Eric, and then feel free to jump in. But I would say I don’t think there’s been a change relative to that. Meaning, if you go to the core of our business, like our guide and our performance reflect the same thing, which is we are seeing sequential improvements in down sell in enterprise. We’re seeing record level churn low churn, excuse me, in online. And then the elements that will drive ’26 are the same move up market, broaden channel from a go to market perspective, from a product perspective, growth in phone, growth in WorkVivo, growth in contact center.

So I really don’t see it as a shift in approach. And from a macro perspective, we’ve also seen like macro conditions.

Michael Turrin, Analyst, Wells Fargo: Okay. And maybe a quick math question, Michelle, maybe it’s a rounding thing, but look at the revenue from over 100,000 customers year over year simply taking a percentage of revenue, a number of customers. It looks to be declining slightly. Is there a change or a shift in the 100,000 customers? Is there different product set that you’re selling into them?

Or is my basic math incorrect?

Michelle Chang, CFO, Zoom: Our over 100,000 trailing twelve month customers grew 7%. Am I misunderstanding your question?

Michael Turrin, Analyst, Wells Fargo: Yes. If I simply take a percentage of revenue from those customers and then divide it by the number of customers, I get to a lower amount of revenue per customer than a year ago. Maybe we can take it offline if that’s a better view.

Michelle Chang, CFO, Zoom: I’m happy to take it in the next follow-up for that.

Michael Turrin, Analyst, Wells Fargo: Okay. Thank you very much.

Michelle Chang, CFO, Zoom: The big picture, so people have the sentiments, we feel good about our traction in that market.

Meeting Operator/Moderator: Moving on to Rishi Jaluria with RBC Capital Markets.

Samad Samana, Analyst, Jefferies: Wonderful. Thanks so much for taking my question. I’ll keep it to one, just given timing. Eric, I appreciate that you’re talking about Zoom chat and highlighting that in your prepared remarks. Can you talk a little bit about where you’re getting some of the traction and what’s the impact that you’re seeing in your customer base, whether it’s better churn, whether it’s better expansion rates, adoption of other adjacent products?

Any color there would be helpful. Thank you.

Eric Yuan, Founder and CEO, Zoom: Thank you, Luis. You talked about our Zoom team check, right? So, yes. So, you look at maybe one of the deals I want to share with you, like in Q4, right? We ran a big deal in the manufacture, the market, right, like 30,000 seats, Zoom workplace seats and also the 12,000 Zoom team chat users, right.

Because the reason why customer when we talk to the customer’s entire Zoom workplace suite and realized Zoom team chat is part of that, is at a no additional cost. And look at the functionality and a lot of features and innovations, why not? This one is standardized Zoom, right? Essentially, when customers realize the power of Zoom GenuTech, they are all very interested, right. That’s the reason why you look at some startup companies, right, they also look at, given that they do not have a lot of the capital, right, and when they deploy Zoom, they also found our Zoom team chat.

So again, from product perspective, it’s pretty cool product service because we already had that for a long time. Just from marketing perspective, a lot of customers did not know that, right? So that’s the reason why we need to figure out a way to fix that problem. Again, this is the power of the entire Zoom workplace suite. Team chat is part of that.

Many customers deployed the meetings and the phones, they did not realize, if Team chat is already part of that, why not use that, right? So and shame on us, we need to fix that into the marketing problem or maybe adoption problem, right? Again, that’s our radar screen to address that.

Michelle Chang, CFO, Zoom: Maybe I’d also highlight, Rishi, just a current example that just stuck with me, which is we saw a recent customer in a Compute versus Microsoft with 12,000 users, and they commented that the chat and the kind of inclusive value was integral to their decision. So we are well, it’s still early days and we’re working on it. We’re excited by what we see.

Kash Rankin, Analyst, Goldman Sachs: All right.

Samad Samana, Analyst, Jefferies: Very helpful. Thanks, Eric. Thanks, Michel.

Eric Yuan, Founder and CEO, Zoom: Thank you. By the way, Rishi, you also can use Zoom TeamChat as well. We can connect over Zoom with TeamChat. So yes.

Samad Samana, Analyst, Jefferies: That’s very good. I appreciate that.

Eric Yuan, Founder and CEO, Zoom: Yes, very easy to add an excellent contact. Yes. Thank you, Rishi. Thanks.

Meeting Operator/Moderator: We have time for one additional question, which will come from C. T. Panagkaraki with Mizuho (NYSE:MFG). Please go ahead.

C.T. Panagkaraki, Analyst, Mizuho: Hi. Thanks for squeezing me in. I’ll go back to the contact center. Eric, if you wear your General Manager hat for contact center, and if you look at phone, after two, three years, we saw the inflection point. Now contact center has

Eric Yuan, Founder and CEO, Zoom: been

C.T. Panagkaraki, Analyst, Mizuho: now almost like two, three years since we launched. Is this a year for contact center? Or do you think there’s some kind of it’s a demand side, customers still trying to pause and looking at the AI strategy, there’s some kind of delay there. And also we see like Avaya now is not going to support the AXP customer less than 200 fixed customers. So how do you see contact center opportunity in terms of inflection?

When do you think it will be like porn?

Eric Yuan, Founder and CEO, Zoom: Yes. First of all, we do see the momentum, right? And in Q3, in terms of a number of seats, larger the deal, Q4 in terms of ARR, so larger the deal. More and more customers realize, wow, Zoom contact center works so well. Look at all the innovation, the scalability and integration with other core services, I think also plus AI.

I think we just needed to focus on execution, market opportunity there. We look at our top 10 deals, right, I think if I recall correctly, six or seven to replace the existing in the cloud vendors, right? And then the key is really because given two years ago, I’ve announced that, right? So given the shorter period of time and customers, they do not realize we have that. Again, this is a marketing problem.

We’ve got to fix that, but we have high confidence on the product side. And I think we do see the momentum now. Hopefully, this year, we can make even more progress compared to like the Zoom phone growth trajectory. We want to beat that, right? So that’s always our aspiration.

Charles Abeslage, Head of Investor Relations, Zoom: Great.

Michelle Chang, CFO, Zoom: And then, Sidi, please bear your note. So, it was seven of ten, seven coming from cloud, three coming from on prem, and the six of 10 is the momentum in our channel.

Eric Yuan, Founder and CEO, Zoom: Yes.

Meeting Operator/Moderator: Thanks, Sidi. And again, everyone, that does conclude our Q and A session for today. Eric, Michel, any concluding closing remarks?

Eric Yuan, Founder and CEO, Zoom: Yes. Thank you all for your time. Really appreciate it.

Meeting Operator/Moderator: Thank you. You bet. Thanks everyone. And again, this does conclude today’s earnings webinar. As always, we thank you all for joining us.

We look forward to seeing you next quarter. Take care. Take care.

Eric Yuan, Founder and CEO, Zoom: Thank you.

Meeting Operator/Moderator: Goodbye.

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