Zoom's Q3 2025-2026 Earnings Call: Contradictions Emerge on Long-Term Growth, AI Monetization, and Macro Impact

Date of Call: None provided

Financials Results

• Revenue: $1.23B, up 4.4% YOY (4.2% constant currency)
• EPS: $1.52 non-GAAP diluted, $0.14 higher YOY, $0.08 above guidance
• Gross Margin: 80% non-GAAP, up 117 bps YOY
• Operating Margin: 41.2% non-GAAP, up 234 bps YOY

Guidance:

• Q4 revenue expected $1.23B–$1.235B (~4.1% YOY at midpoint)
• Q4 non-GAAP operating income $477M–$482M (~38.9% margin at midpoint)
• Q4 non-GAAP EPS $1.48–$1.49 (≈305M shares)
• FY26 revenue $4.852B–$4.857B (~4.1% YOY at midpoint)
• FY26 non-GAAP operating income $1.955B–$1.96B (~40.3% margin) and EPS $5.95–$5.97 (≈308M shares)
• FY26 free cash flow $1.86B–$1.88B; Board authorized incremental $1B share repurchase

Business Commentary:

* Revenue Growth and Enterprise Expansion: - Zoom's total revenue grew 4.4% year-over-year to $1.23 billion in Q3 FY '26, with enterprise revenue representing 60% of total revenue, up 1 point year-over-year. - This growth was primarily driven by a 9% year-over-year increase in the number of customers contributing more than $100,000 in trailing 12-month revenue and a 98% trailing 12-month net dollar expansion rate for enterprise customers.

• AI Integration and Product Momentum:
• AI adoption continued to surge, with AI Companion 3.0 seeing more than 4x year-over-year growth, reflecting increased demand for AI-driven productivity tools.

• This growth is supported by the integration of AI across Zoom's meetings, phone, chat, whiteboard, and web platforms, enhancing user experience and productivity.

• Customer Experience (CX) and AI Differentiation:

• Customer experience delivered a phenomenal quarter with ARR continuing to grow in the high double digits.

• Nine of the top ten CX deals involved paid AI services, demonstrating AI's role in differentiating Zoom's solutions and driving customer engagement.

• Stabilization and Churn Reduction in Online Business:

• Average monthly churn in the online business was 2.7%, in line with Q3 of the previous year, marking an all-time low.
• This stabilization is attributed to effective cost management and improved collection processes, indicating a positive shift in online customer retention.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "We delivered strong results this quarter...evolving from a communications leader to an AI-first platform." Reported revenue +4.4% YOY to $1.23B, non-GAAP EPS of $1.52 (beat guidance), raised FY26 revenue and profitability guidance, and Board authorized an incremental $1B buyback — signals confidence and momentum.

Q&A:

• Question from Tyler Radke (Citi): How should we think about Q4 as a jumping-off point into next year, pricing actions taken this year, and steps required to return to ~10% long-term growth?
  Response: No FY27 guidance yet; long-term growth focus is enterprise-led expansion, stabilization of churn, product diversification and moving upmarket; pricing clarity will come in February.

• Question from Michael Funk (Bank of America): Can you explain pressure on enterprise net dollar expansion and whether you're seeing post-COVID seat-based contraction?
  Response: Net dollar expansion has stabilized after six quarters; no material seat-count contraction this quarter and overall macro demand remains strong.

• Question from Rishi Jaluria (RBC Capital Markets): Should we expect M&A to be mostly small tech tuck-ins or are transformational deals possible?
  Response: M&A strategy remains disciplined and strategic, focused primarily on small-to-medium technology tuck-ins (e.g., Bonsi, BrightHire).

• Question from Josh Baer (Morgan Stanley): Can you walk through growth sustainability for Zoom Phone, CX, Workvivo and other vectors?
  Response: AI is driving durable growth across vectors: Zoom Phone mid-teens ARR growth, CX high double-digits, Workvivo strong logos — early momentum suggests sustainability.

• Question from Ryan MacWilliams (Wells Fargo): Does faster AI-era product development allow more product density or new categories?
  Response: Yes — AI materially accelerates innovation and feature delivery, enabling faster product density and new services; management is doubling down on product efforts.

• Question from Patrick Walravens (Citizens): How does the Salesforce win work and what changes for Salesforce users?
  Response: Salesforce adopted Zoom Custom AI Companion to integrate with its agentic framework, driving productivity by surfacing actionable insights and deeper platform integration.

• Question from Aleksandr Zukin (Wolfe Research): How are you monetizing AI across the business and any shift in deferred revenue between quarters?
  Response: AI monetization is broad—new SKUs for AI Companion, vertical products (Contact Center, Virtual Agent), and embedded features; deferred revenue ended at the upper end with no material shifts to call out.

• Question from Timothy Horan (Oppenheimer): Which productivity app integrations are most critical and where are you in that process?
  Response: Zoom integrates across major ecosystems (Google, Microsoft) and enterprise platforms (Salesforce, ServiceNow, Atlassian) and continues expanding integrations per customer demand.

• Question from Seth Gilbert (UBS): Were Q3 free cash flow gains driven by any onetime items?
  Response: FCF benefits were driven by durable but partly one-time improvements in collections/DSO; the changes are sustainable but the pace won't keep accelerating.

• Question from James Fish (Piper Sandler): Does BrightHire signal broader mission-critical workflow expansion and what about contract duration trends?
  Response: BrightHire extends Zoom into mission-critical HR workflows as a strategic add; contract duration varies quarter-to-quarter but RPO rose due to large CX/AI deals and remains stable-to-longer for those products.

• Question from Arti Vula (JPMorgan on for Mark Murphy): Are you seeing relative strength in the mid-market and legacy migrations to Zoom?
  Response: Yes — mid-market is a sweet spot with strong adoption; mid-market customers embrace tech and are driving migrations and product uptake.

• Question from Chad Tiba (Citi): How did the broader demand environment evolve during the quarter and what are expectations for the rest of the year?
  Response: Demand improved in Q3 (customers >$100k grew 9%); broad consistent demand across enterprise and online; guidance assumes Q3-like conditions.

• Question from Jackson Ader (KeyBanc): As you shift to enterprise, when will non-revenue metrics (billings, RPO, AI usage) outgrow revenue growth?
  Response: Non-revenue/product metrics—especially AI usage and product momentum—are already outpacing revenue growth and are primary leading indicators.

• Question from Peter Levine (Evercore): Is BrightHire an on-ramp into HR and what other segments are targets for platform expansion?
  Response: BrightHire is an on-ramp into select HR use cases; Zoom targets department- and vertical-specific mission-critical applications where AI and data add clear value.

• Question from Thomas Blakey (Cantor Fitzgerald): Thoughts on consumption-based CX pricing and clarification on online growth commentary for Q4?
  Response: Virtual agents naturally fit consumption-based models (ZVA is already consumptive); the company is exploring outcome-based pricing; online revenue is tweaked slightly higher versus prior 'flattish' expectation.

• Question from William Power (Baird): Where are you on contact center go-to-market, partner reach, and international rollout?
  Response: Contact center GTM is channel-led (9/10 top deals via partners), expanding international channel investment, and also leveraging product-led growth for SMB developers.

• Question from Alinda Li (William Blair on for Arjun Bhatia): Which customers adopt Custom AI Companion and what incremental value do they get versus the free companion?
  Response: Custom AI Companion is initially targeted at large enterprises for complex integrations and data/model customization; SMB SKUs are planned to extend availability.

• Question from Andrew King (Rosenblatt Securities on for Catherine Trebnick): How is the revamped channel partner program performing and helping wins via partner-led professional services?
  Response: Channel program is performing strongly—pipeline +30%, over half of large phone deals and majority of large CX deals are partner-driven—partners aid deployment and wins.

• Question from Peter Weed (Bernstein): How does BrightHire impact upsell vs TAM expansion and revenue upside?
  Response: BrightHire addresses an estimated ~$3B unpenetrated TAM, provides clear AI monetization scenarios and both upsell opportunities within existing customers and expansion into new accounts.

Contradiction Point 1

Long-term Growth and Pricing Strategy

It involves differing perspectives on the company's long-term growth strategy and pricing approach, which are crucial for investor expectations.

How should we approach pricing for next year, and what are the milestones for 10% long-term growth? - Tyler Radke (Citi)

20251125-2026 Q3: Long-term growth will be driven by stabilization of churn, product diversification, and moving upmarket. These are the key elements investors should consider. - Michelle Chang(CFO)

How should we assess next year's growth, considering Q4's strong outlook and prior online business price hikes? What are the stepping stones to achieving 10% long-term growth? - Tyler Radke (Citigroup Inc., Research Division)

2026Q3: Long-term growth drivers are churn stabilization, upmarket moves, and product innovation. Pricing updates will be shared in February if applicable. - Michelle Chang(CFO)

Contradiction Point 2

AI Monetization and Product Strategy

It addresses the company's strategy for monetizing AI capabilities and expanding product offerings, which are central to its growth and competitive positioning.

Can you clarify AI monetization and deferred revenue guidance? - Aleksandr Zukin (Wolfe Research)

20251125-2026 Q3: AI is a foundation for monetization, with potential across our product portfolio. We expect to make significant progress with AI monetization in coming quarters. - Eric Yuan(CEO)

How is AI monetization being realized, and what explains the deferred revenue guidance? - Aleksandr Zukin (Wolfe Research, LLC)

2026Q3: AI monetization across products with new SKUs, virtual agent, and BrightHire acquisition. Deferred revenue as expected, no shift. - Eric Yuan(CEO) and Michelle Chang(CFO)

Contradiction Point 3

AI Monetization and Integration

It involves the strategic approach and timeline for monetizing AI capabilities, which are crucial for the company's growth and competitive positioning.

Could you clarify guidance on AI monetization and deferred revenue? - Aleksandr Zukin (Wolfe Research)

20251125-2026 Q3: AI is a foundation for monetization, with potential across our product portfolio. We expect to make significant progress with AI monetization in coming quarters. - Eric Yuan(CEO)

What are the AI Companion vertical-specific wins and what do they indicate about customer needs? - Meta A. Marshall (Morgan Stanley, Research Division)

2026Q2: We are seeing customers accelerating their AI adoption in anticipation of a fall release of AI Companion 2.0 and will start monetization of AI in the back half of this year. - Eric Yuan(CEO)

Contradiction Point 4

AI Companion Adoption and Usage

It reflects differing perspectives on the adoption and usage of AI Companion features, which are central to the company's product strategy.

Can you discuss Zoom Phone's ARR growth, customer experience's high double-digit growth, and Workvivo's rapid growth? - Josh Baer (Morgan Stanley)

20251125-2026 Q3: AI usage is growing rapidly, with custom AI companions increasing 4x year-over-year. - Eric Yuan(CEO)

What ROI are customers seeing from the AI Companion 2.0? What IT budget trends are you seeing for collaboration? - Peter Marc Levine (Evercore ISI Institutional Equities)

2026Q2: AI Companion 2.0 supports meeting lifecycle, enhancing productivity. Usage increased 4x year-over-year. - Eric Yuan(CEO)

Contradiction Point 5

Macro Impact on Business Performance

It involves differing observations and expectations regarding the impact of macroeconomic conditions on business performance.

Can you break down the pressure on net dollar expansion and are you seeing post-COVID seat-based decline? - Michael Funk (Bank of America)

20251125-2026 Q3: We're seeing strong macro demand and no significant seat pressures. - Michelle Chang(CFO)

When did macroeconomic factors begin affecting business performance? - Tyler Radke (Citigroup)

2026Q1: We saw deal pauses and elongations throughout Q1, with enterprise volume occurring towards the end of the quarter. - Michelle Chang(CFO)