ZM Earnings Preview: Watch the transition into AI-first workplace platform
2min read Zoom Video Communications (ZM) reports its Q3 FY25 results after the market close on November 25. Analysts expect adjusted EPS of $1.31 on revenue of $1.16 billion, both reflecting modest year-over-year growth. Investors will pay close attention to enterprise revenue, projected by Jefferies at $686.5 million (3.9% growth year-over-year), and the online segment, where revenue stability after eight quarters of decline has been a positive development. Non-GAAP operating margin guidance of 37.9% is another key metric, with potential upside given recent beats. CapEx trends will also be under scrutiny, especially as AI investments have elevated these expenses.
One major theme is Zoom's transition into an AI-first workplace platform, highlighted at its recent Zoomtopia conference. Innovations such as AI Companion 2.0 and the upcoming paid custom AI Companion add-ons represent potential catalysts for long-term growth. These offerings, aimed at enhancing productivity and user experience, could help Zoom deepen customer retention and drive incremental revenue. However, with the AI Companion currently free and add-ons still in early stages, their near-term impact may be limited. The company’s success in monetizing AI and expanding adoption will be critical.
Investors are also evaluating competitive pressures in the collaboration tools and UCaaS space, where rivals like Microsoft Teams and Cisco Webex pose challenges. Zoom's enterprise segment, now 59% of revenue, has shown resilience, with churn improving to 2.9%, the lowest rate in its history. Upselling additional products like Zoom Phone and Contact Center has been a growth lever, with 13% of enterprise customers now purchasing three or more products. However, continued pricing pressure and competition could weigh on margins and growth.
Finally, with new CFO Michelle Chang recently joining from Microsoft, expectations for financial discipline and potential shifts in strategy are high. Some analysts, including Jefferies, believe Zoom may leverage its $7.6 billion cash balance for strategic M&A, though buybacks could also be a focus. Investors will watch for commentary on the company’s capital allocation priorities, especially given the $1.5 billion share repurchase authorization in place.
As Zoom continues its pivot from a pandemic-era growth story to a diversified enterprise software player, tonight’s earnings will provide insights into the company’s progress. Key themes include its AI-driven innovation strategy, enterprise momentum, and efforts to counter competitive headwinds, all of which will shape investor sentiment moving forward.
Zoom Video Communications (ZM) delivered a solid Q2 report, with adjusted EPS of $1.39 surpassing the $1.21 consensus estimate and marking a 3.7% year-over-year increase. Revenue grew 2.1% year-over-year to $1.16 billion, narrowly beating expectations. The revenue uptick was driven by a 4% increase in enterprise sales and a 7% rise in customers contributing over $100,000 in trailing twelve-month revenue. Despite the growth, gross margins contracted by 170 basis points to 78.6%, reflecting higher investments in AI and data center upgrades. Management expects margins to stabilize near 80% over the next two quarters.
Zoom's Q2 beat also fueled a slight increase in its FY25 guidance. The company now forecasts adjusted EPS of $5.29-$5.32, up from $4.99-$5.02, and revenue of $4.63-$4.64 billion, up from $4.61-$4.62 billion. Zoom attributed its growth to product expansions such as Zoom Workplace and Contact Center, alongside improvements in AI capabilities. However, geographic performance was uneven, with revenue in the Americas rising 3%, EMEA remaining flat, and APAC declining 2%, underscoring lingering macroeconomic challenges in overseas markets.
The Q2 results signal progress in Zoom's post-pandemic recovery, but the pace remains modest, with revenue growth hovering in the low single digits. While initiatives like AI integration and enterprise expansions show promise, sustained momentum will depend on further innovation and global demand improvements. Tonight's Q3 earnings report will offer additional insight into Zoom's growth trajectory and the efficacy of its strategic initiatives heading into FY25.