Zoom: Revenue and profits beat guidance

Zoom video communications (ZM 12.97%)a major video conferencing service provider, released its financial results for the second quarter of fiscal year 2025 on August 21. The company reported steady but modest growth supported by strong financial management and continued product innovation.

Revenue for the quarter totaled $1.163 billion, beating management’s guidance of $1.145 billion to $1.150 billion and reflecting a 2.1% year-over-year increase. Zoom also reported non-GAAP income from operations at $455.5 million, well above the estimated range of $415 million to $420 million. Non-GAAP diluted earnings per share (EPS) came in at $1.39, beating guidance of $1.20 to $1.21.

Overall, the quarter showcased Zoom’s resilient cash flow and operating efficiency, even as it faced challenges in growing revenue.

Overview of Zoom video communications

Launched in 2011, Zoom Video Communications is renowned for its online video conferencing platform, which has become integral for businesses and personal use during the pandemic. The company enables sharing of video, voice, chat and content to various endpoints.

Recently, Zoom has focused on enterprise growth and customer retention, evident from enterprise revenue growth of 3.5% to $682.8 million. The company boasts approximately 191,600 enterprise customers, with those contributing more than $100,000 in annual revenue growing 7.1%. However, online revenue was flat year-over-year at $479.7 million, signaling a plateau in the segment.

Quarterly highlights

Zoom’s latest earnings release highlights some key achievements and developments. Total revenue of $1,163 slightly beat expectations, while non-GAAP operating income of $455.5 million exceeded management’s high-end guidance, showing improved cost management and operational efficiency.

Operating cash flow saw a notable increase to $449.3 million, a 33.7% increase over the previous year. Free cash flow also increased by 26.2%, reflecting Zoom’s improved cash generation capabilities.

Customer values ​​showed encouraging signs. Average monthly online revenue rate hit an all-time low of 2.9%, indicating strong customer retention. Despite this, the online segment did not see an increase in revenue, maintaining the same level as the previous year. However, the number of enterprise customers grew healthy, with revenue from this segment increasing by 3.5% year-on-year.

Zoom has continued to drive product innovation, particularly by integrating AI features into its platform to improve the user experience. The introduction of AI Companion aims to increase productivity and highlights Zoom’s commitment to leading technology in the workplace. Zoom Contact Center also showed impressive traction with high-profile customers and saw its largest single order transaction to date.

CEO Eric S. Yuan noted the significant traction of Zoom Contact Center, which was instrumental in winning several high-value competitive bids. This reflects Zoom’s strategic focus on expanding and deepening its enterprise customer base with robust solutions that seamlessly integrate with existing enterprise workflows.

Financially, Zoom’s balance sheet remains strong. The company repurchased 4.8 million shares last quarter, underscoring its commitment to returning value to shareholders. As of July 31, Zoom had $1.54 billion in cash and cash equivalents and $5.98 billion in marketable securities, supporting continued investment in innovation and expansion.

Looking ahead

Looking ahead, management provided guidance for the third quarter with revenue estimates ranging from $1.160 billion to $1.165 billion. Non-GAAP income from operations is expected to be between $438 million and $443 million. Non-GAAP diluted EPS is expected to be in the range of $1.29 to $1.31.

For the full fiscal year 2025, revenue is now expected to be between $4.63 billion and $4.64 billion, up slightly from previous forecasts of $4.61 billion to $4.62 billion. Non-GAAP operating income is expected to fall between $1.79 billion and $1.8 billion, with non-GAAP diluted EPS projected in the range of $5.29 to $5.32. Free cash flow is expected to be between $1.58 billion and $1.62 billion.

Investors should closely monitor Zoom’s ability to sustain its enterprise growth and further integrate AI to drive new user experiences. Zoom Contact Center expansion and AI-based innovations will be key areas to watch as they influence future customer retention and revenue growth.