Zoom’s Q1 Earnings Signal a Turnaround—But Can It Last?

Zoom Communications delivered its Q1 FY2026 earnings on May 21, marking a pivotal moment in its post-pandemic transition. While the results offered a glimpse of resilience, the question remains: Is this a durable turnaround or a fleeting rebound? Let’s dissect the numbers, risks, and strategic bets shaping Zoom’s future.

The Earnings Snapshot: A Fragile Recovery

Zoom reported total revenue of $1.17 billion, a 2.9% year-over-year increase, narrowly missing Wall Street’s $1.16 billion consensus. The enterprise segment, now accounting for 60% of revenue, grew 5.9% to $705 million, fueled by large contracts with Amazon and Delta Airlines. Meanwhile, the online SMB/individual segment shrank 1.2%, reflecting ongoing struggles in a maturing market.

The headline numbers mask deeper dynamics. Zoom’s count of $100k+ enterprise customers rose 8% to 4,192, signaling strong retention of high-value clients. However, the net dollar expansion rate—a critical gauge of upselling—slipped to 98%, hinting at softness in existing accounts’ spending. This is a red flag: If enterprise customers aren’t increasing their spend, Zoom’s growth engine could stall.

Margin Gains and Shareholder Returns: A Silver Lining

While revenue growth is tepid, Zoom’s profitability remains robust. Non-GAAP operating margins expanded to 39.8%, up 80 basis points year-over-year, thanks to infrastructure efficiency and cost discipline. The company also repurchased 5.6 million shares in Q1, signaling confidence in its valuation.

The stock has oscillated between $90 and $130 since Q1 2024, reflecting investor indecision about its post-pandemic path. The Q1 miss sent shares down 2% in after-hours trading—a reaction to slowing growth, not disaster.

The Bigger Picture: Enterprise and AI as Lifelines

Zoom’s survival hinges on two strategies:
1. Enterprise Upselling: The Contact Center platform, which grew over 100% YoY in large deals, is displacing legacy vendors like Cisco. A Fortune 100 tech firm’s 15,000-agent contract exemplifies this momentum.
2. AI-Driven Innovation: The AI Companion tool’s monthly active users surged 68% QoQ, with plans to integrate Microsoft and Google services. CEO Eric Yuan calls this a “value multiplier,” but revenue conversion remains unproven.

Risks Lurking in the Shadows

• Remote Work Decline: As JPMorgan, Amazon, and the U.S. federal workforce shift back to offices, Zoom’s core video conferencing demand is waning. The company now relies on Workvivo (HR tools) and Revenue Accelerator (sales enablement) to diversify.
• Competitor Pressure: Microsoft Teams, now embedded in 70% of Fortune 500 companies, is a formidable threat. Cisco’s Webex and Google Workspace are also nipping at Zoom’s heels.
• SMB Fragility: 30% of Zoom’s revenue comes from small businesses, which may abandon premium plans as hybrid work fades.

The Verdict: Turnaround or Temporary Fix?

Zoom’s Q1 results are a mixed bag. The enterprise segment’s resilience and margin discipline are positives, but the online segment’s decline and the 98% net expansion rate are worrisome. The company’s pivot to AI and enterprise software is the right move, but execution matters.

Investors should ask: Can Zoom convert AI Companion’s user growth into revenue? Will Contact Center and Workvivo justify its $28 billion valuation? The answers will determine whether this quarter’s results mark a sustainable turnaround or a fleeting rebound.

Final Take: Position for the Long Game

Zoom is no longer a pandemic-era disruptor but a defensive enterprise software play. Its balance sheet and cash flow (free cash flow up 25% YoY to $463 million) provide a cushion. However, investors should proceed with caution, allocating only a small portion of their tech portfolio to Zoom.

The stock’s current valuation—17x forward revenue—is reasonable if enterprise growth holds, but risky if SMBs abandon ship. The next 12 months will test whether Zoom can reinvent itself in a post-video-conferencing world.

Final call: Hold for now, but keep an eye on AI monetization and enterprise expansion rates.