EPS of $1.16 increased by 67.6% from previous year
Gross margin of 77.6%
Net income of 358.59M
"AI Companion monthly active users have grown over 4x year-over-year, with millions using our AI to boost business value throughout the meeting lifecycle and beyond." - Eric S. Yuan
Zoom Video Communications, Inc. (ZM) QQ2 2026 Earnings Analysis: AI-Driven Growth, Robust Profitability, and Strategic Momentum
Executive Summary
Zoom delivered a solid QQ2 2026 performance, underscoring the durability of its software-as-a-service model while accelerating AI-enabled differentiation. Total revenue of $1.217 billion rose 4.7% year over year (4.4% in constant currency), with the Enterprise segment accounting for 60% of revenue and continuing to outgrow Online. Non-GAAP gross margin improved to 79.8% (+128 bps YoY), and non-GAAP operating margin expanded to 41.3% (+216 bps), driven by disciplined cost management and the ongoing shift of investments toward AI capabilities. Free cash flow reached $508 million (up 39% YoY) on a 42.4% operating cash flow margin, and the company ended the quarter with a substantial liquidity position (~$7.8 billion in cash, cash equivalents, and marketable securities) while continuing a buyback program totaling $463 million for 6 million shares in the quarter. Management highlighted strong AI momentum, with AI Companion MAUs up more than 4x year-over-year and Enterprise-driven AI workflows expanding across meetings, contact center, and customer experience. Management also signaled a constructive, albeit dynamic, macro backdrop with raised full-year guidance for FY26 and continued emphasis on AI-driven product differentiation and platform cohesion.
Key accelerants include: (1) AI Companion and customized AI capabilities expanding beyond meeting summaries into pre- and post-meeting workflows and cross-product automation; (2) stronger displacement-driven CCaaS growth and high-end AI features under Zoom Contact Center Elite; (3) strategic partnerships (PwC, AWS Marketplace expansion) that broaden go-to-market reach; and (4) sustained profitability and strong FCF supporting a robust capital return program. Investors should monitor the trajectory of AI-related operating costs versus efficiency gains, the rate of enterprise win-rate expansion, the evolution of RPO and deferred revenue, and the pace of AI-driven monetization in targeted SKUs (e.g., Custom AI Companion) amid a competitive AI and collaboration landscape.
Key Performance Indicators
Revenue
1.22B
QoQ: 3.62% | YoY:4.71%
Gross Profit
944.06M
77.56% margin
QoQ: 5.33% | YoY:7.59%
Operating Income
321.74M
QoQ: 33.17% | YoY:58.98%
Net Income
358.59M
QoQ: 40.84% | YoY:63.73%
EPS
1.19
QoQ: 42.51% | YoY:67.61%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1.217B in Q2 FY '26, up 4.7% YoY; 4.4% in constant currency (YoY and FX performance corroborated by management commentary). In the four-quarter view, revenue YoY growth rates were 4.7% and QoQ growth was 3.62% according to supplemental metrics.
Net Income / EPS: Net income $358.592M; non-GAAP diluted EPS $1.53 per share; GAAP EPS not disclosed in the provided figures. Weighted-average shares outstanding ~301.8M (non-GAAP diluted ~308.2M).
- Revenue: $1.217B in Q2 FY '26, up 4.7% YoY; 4.4% in constant currency (YoY and FX performance corroborated by management commentary). In the four-quarter view, revenue YoY growth rates were 4.7% and QoQ growth was 3.62% according to supplemental metrics.
- Gross Profit: $944.062M, gross margin 79.8% (up 128 bps YoY).
- Operating Income: $321.735M; non-GAAP operating income $503M, non-GAAP operating margin 41.3% (up 216 bps YoY).
- Net Income / EPS: Net income $358.592M; non-GAAP diluted EPS $1.53 per share; GAAP EPS not disclosed in the provided figures. Weighted-average shares outstanding ~301.8M (non-GAAP diluted ~308.2M).
- Cash Flow: Operating cash flow $516M (margin 42.4%); free cash flow $508M (margin 41.7%), up 39% YoY.
- Balance Sheet: Cash, cash equivalents, and marketable securities ~ $7.8B; net cash position implied by netDebt of -$1.167B; deferred revenue end period $1.48B; RPO ~$4.0B, with ~61% expected to be recognized as revenue in the next 12 months.
- Share Repurchase: Executed buyback of 6.0M shares for $463M (up from prior quarter); total buybacks under the $2.7B program.
- Guidance: Q3 revenue guidance of $1.21B–$1.215B (~3% YoY at midpoint); non-GAAP operating income guidance $465M–$470M (OPM ~38.6% at midpoint); non-GAAP EPS guidance $1.42–$1.44 (based on ~307M shares). FY26 revenue guidance raised to $4.825B–$4.835B; non-GAAP operating income guidance $1.905B–$1.915B; non-GAAP EPS guidance $5.81–$5.84; free cash flow guidance $1.74B–$1.78B.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.22B
4.71%
3.62%
Gross Profit
944.06M
7.59%
5.33%
Operating Income
321.74M
58.98%
33.17%
Net Income
358.59M
63.73%
40.84%
EPS
1.19
67.61%
42.51%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and AI: Eric Yuan highlighted AI Companion MAUs up 4x YoY, with adoption extending beyond meeting summaries to pre-meeting planning, post-meeting task management, and AI-enabled workflows across Zoom Docs and Zoom Phone. He signaled ongoing innovation, including a planned Zoomtopia reveal of new AI capabilities and a broader agentic AI framework (3.0) to automate workflows across Zoom products.
- Customer wins and monetization: The management emphasized large enterprise deployments (e.g., nearly 60,000 employees for a Fortune 200 tech firm using AI Companion; ATPI deploying Contact Center Elite with AI capabilities; Hubspot expanding to Zoom Workplace on AWS Marketplace) and a displacement-led competitive win trajectory in CCaaS and Zoom Phone (5-year, 7-figure ARR deal displacing Cisco). The COO/CFO stressed the value proposition of a unified, better-together platform and the importance of AI-driven outcomes for customer engagement.
- Margin discipline and cash generation: Michelle Chang highlighted durable gross margin around 80% and ongoing cost optimization, including cloud-to-colocation migration and efficient AI cost management. Commentary also noted that some small, one-time benefits influenced Q2 margins and that durable improvements come from cost controls and AI cost management while maintaining R&D investments in AI.
- Guidance and macro context: Zoom raised FY26 guidance, underscoring confidence in AI-driven contribution and enterprise-driven growth, even within a dynamic macro environment. The team emphasized that online revenue would remain flat, with most growth driven by Enterprise adoption and deal momentum in AI-enabled products.
- Operational excellence and ecosystem: The company cited awards and industry recognition (UC Today Awards, Forrester Wave) and a broadening ecosystem (PwC collaboration; AWS Marketplace) as indicators of the company’s expanding go-to-market corridors and channel strength.
AI Companion monthly active users have grown over 4x year-over-year, with millions using our AI to boost business value throughout the meeting lifecycle and beyond.
— Eric S. Yuan
Non-GAAP gross margin in Q2 was 79.8%, up 128 basis points from Q2 of last year, primarily due to cost optimization efforts.
— Michelle Chang
Forward Guidance
- Near-term outlook: Q3 revenue guidance of $1.21B–$1.215B implies roughly 3% YoY growth at the midpoint, with non-GAAP operating income of $465M–$470M and non-GAAP EPS of $1.42–$1.44 on ~307M shares. The company reaffirmed and slightly raised annual guidance for FY26 (revenue $4.825B–$4.835B; non-GAAP operating income $1.905B–$1.915B; non-GAAP EPS $5.81–$5.84; free cash flow $1.74B–$1.78B).
- Growth drivers and achievability: The acceleration of AI Companion (and the Custom AI Companion offering) supports higher ARPU potential and cross-sell across Meetings, Phone, and Contact Center. The pace of enterprise deals, displacement of incumbent CCaaS providers, and the PwC collaboration are meaningful tailwinds. However, the transition is contingent on cost discipline, successful integration of AI capabilities, and limited macro headwinds.
- Risks and monitoring: Key risk factors include ongoing macro uncertainty, FX fluctuations (notably a larger impact in EMEA), customer churn in Online, competitive pricing pressures, and the need to convert AI pilots into durable, multi-year contracts. Investors should monitor RPO progression, the mix of online vs. enterprise revenue, development costs associated with AI, and the pace of monetization of Custom AI Companion across large accounts.
- Key factors to monitor: AI-enabled ARR growth and monetization trajectory, gross margin trajectory as AI investments scale, the contribution of CCaaS and Zoom Phone to long-duration ARR, and the durability of enterprise deal velocity into FY27. Investors should also watch for additional product announcements at Zoomtopia that could sharpen the AI moat and expand cross-sell opportunities.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ZM Focus
77.56%
N/A
N/A
N/A
AI
61.30%
-79.80%
-7.68%
-11.93%
SHOP
51.10%
11.80%
1.86%
121.79%
CRM
76.80%
19.10%
2.48%
43.65%
WDAY
75.50%
5.32%
1.58%
114.13%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Zoom enters a multi-year AI-led growth cycle underpinned by a high-margin, cash-generating platform and a growing suite of AI-enabled capabilities across Meetings, Phone, and Contact Center. The QQ2 results validate a resilient SaaS model with accelerating AI adoption, favorable enterprise dynamics, and a substantial balance sheet to fund continued buybacks and R&D. The key catalysts include AI Companion 3.0 and 2.0 innovations showcased at Zoomtopia, greater monetization of Custom AI Companion, and the PwC collaboration driving large-scale enterprise wins. On the flip side, investors should monitor macro volatility, FX exposure (particularly in EMEA), the pace of AI-driven monetization versus cost growth, and the rate at which CCaaS and Contact Center Elite convert into durable ARR.
Overall, the stock warrants a constructive view given Zoom’s AI moat, enterprise traction, and strong liquidity, with an emphasis on tracking progression of AI-driven ARR, gross margin sustainability, and the durability of enterprise deal velocity into FY27. Valuation considerations should balance Zoom’s growth runway against competitive intensity and the tempo of AI-enabled monetization across the broader collaboration software ecosystem.
Key Investment Factors
Growth Potential
High potential from AI-driven platform strategy (AI Companion being the backbone for multiple Zoom products), continued CCaaS expansion with Elite AI features, and increasing cross-sell into enterprise accounts via a unified experience (Meetings, Phone, Contact Center, and Workplace). The Custom AI Companion option provides a pathway to deeper content integration, knowledge-base connectivity, and tailored meeting templates, enabling higher ARPU and stickiness with large customers.
Profitability Risk
Key risks include macro demand volatility, FX headwinds (notably in EMEA), potential churn in the Online segment, and competitive pricing/availability of AI features from hyperscale platforms. The monetization of newer AI SKUs (2.0/Custom AI Companion) remains y/y levered to large customer deployments and execution of enterprise sales motions. Execution risk around AI cost inflation and integration challenges could pressure margins if not offset by efficiency gains.
Financial Position
Strong liquidity and balance sheet health: ~$7.8B in cash, cash equivalents, and marketable securities; net cash position implied by netDebt of -$1.17B. Solid free cash flow generation (~$508M in Q2, +39% YoY) supports a substantial buyback program (6M shares for $463M in Q2) and ongoing capital return. RPO of ~$4.0B and deferred revenue of ~$1.48B provide revenue visibility and durability.
SWOT Analysis
Strengths
Leading-edge AI-enabled collaboration platform with AI Companion as a platform backbone across Meetings, Phone, and Contact Center.
High gross margins and strong free cash flow generation supporting a robust buyback program.
Large enterprise traction with displacement of incumbent CCaaS providers and growing AI-enabled value in customer experience (Elite SKU, ZVA, etc.).