Zoom's Enterprise Growth and Churn Management: A Sustainable Turnaround?

In the ever-evolving landscape of enterprise communication, Zoom Video Communications (ZM) has emerged as a pivotal player, leveraging artificial intelligence (AI) to redefine collaboration tools and customer retention. As of Q2 2026, Zoom reported $1.22 billion in revenue, with enterprise revenue growing 7% year-over-year to $732.9 million—accounting for 60% of total revenue. This performance, coupled with a 98% net dollar expansion rate for enterprise customers and a stable churn rate of 2.9%, raises a critical question: Is Zoom's turnaround sustainable, or is it a temporary rebound in a crowded market?

The Enterprise Engine: Growth and Retention

Zoom's enterprise segment has become the cornerstone of its financial resilience. The company's AI-driven strategy, particularly the AI Companion 2.0 and Virtual Agent 2.0, has not only enhanced user experience but also deepened customer relationships. For instance, a Fortune 200 tech company deployed Zoom's Custom AI Companion for 60,000 employees, automating workflows and integrating with internal AI bots. Such use cases underscore Zoom's ability to transform from a communication tool to an AI-native productivity platform.

The net dollar expansion rate of 98% indicates that existing enterprise customers are not only staying but also increasing their spending. This metric is a strong indicator of customer satisfaction and the perceived value of Zoom's offerings. Meanwhile, the 2.9% churn rate—flat compared to the prior year—suggests that Zoom has effectively mitigated attrition risks, even as competitors like Microsoft Teams and Google Meet intensify their AI-driven campaigns.

Competitive Dynamics: AI as a Differentiator

Zoom's agentic AI capabilities—enabling cross-functional task orchestration—set it apart from rivals. While Microsoft Teams integrates Copilot for content creation and scheduling, and Google Meet leverages Gemini for real-time collaboration, Zoom's focus on task automation and contextual reasoning aligns with enterprise demands for efficiency. For example, Zoom's Virtual Agent 2.0 has already delivered cost savings for clients like SecureOne, replacing manual answering services with AI-driven voice solutions.

However, the competitive landscape remains fluid. Microsoft's ecosystem advantage (Office 365 integration) and Google's Gemini-powered tools pose significant threats. Zoom's 57% market share in video conferencing, while robust, is under pressure as rivals bundle AI features into broader productivity suites. The recent collapse of Zoom's Mitel partnership further highlights the fragility of third-party integrations in a fragmented market.

Financial Health and Long-Term Sustainability

Zoom's FY2025 financials reveal a company in transition. Free cash flow surged to $1.81 billion, a 22.89% year-over-year increase, driven by $1.01 billion in net income and $813.29 million in operating income. These figures reflect disciplined cost management and operational leverage, particularly as AI tools reduce overhead.

The company's R&D investment—18.14% of total revenue in FY2025—ensures its AI innovations remain cutting-edge. This reinvestment is critical for sustaining growth in a market where differentiation hinges on technological edge. Zoom's Rule of 40 score (a metric combining growth and profitability) exceeds 30, outperforming peers like RingCentral (28x P/E) and Microsoft (35x P/E). A P/E ratio of 23.5x and P/S ratio of 5.18x suggest the market is undervaluing Zoom's AI-driven margin expansion.

Risks and Opportunities

Despite its strengths, Zoom faces headwinds. Economic uncertainties could dampen enterprise spending, while rapid technological shifts demand continuous innovation. Regulatory scrutiny around data privacy and AI ethics also looms. However, Zoom's $7.8 billion cash position (as of Q2 2026) provides flexibility for strategic acquisitions, R&D, or shareholder returns. The company has already repurchased $2.5 billion in stock in 2025, signaling confidence in its long-term value.

Investment Thesis: A High-Conviction GARP Play

Zoom's agentic AI strategy, combined with its expanding enterprise customer base and strong free cash flow generation, positions it as a compelling GARP (Growth-At-A-Reasonable-Price) investment. While the UCaaS market is competitive, Zoom's early mover advantage in AI-native tools and its 64% revenue contribution from customers with more than 10 employees suggest durable growth.

For investors, the key is to monitor AI monetization progress and customer retention trends. If Zoom can scale its $12/month Custom AI Companion offering and maintain its 98% net dollar expansion rate, its market leadership could solidify. However, risks such as Microsoft's Copilot integration and Google's Gemini ecosystem warrant caution.

Conclusion

Zoom's enterprise turnaround is not merely a short-term rebound but a strategic repositioning toward AI-driven productivity. While challenges persist, the company's financial discipline, innovation pipeline, and market share resilience make it a high-conviction play for investors seeking exposure to the AI-native enterprise software revolution. For those with a medium-term horizon, Zoom's stock offers a compelling blend of growth potential and valuation discipline, provided the company continues to execute its AI monetization and retention strategies effectively.