Video communications platform Zoom (ZM.US) delivered a subdued revenue outlook for the third quarter, disappointing investors who had hoped its expanding product portfolio would drive stronger growth. In Q2, revenue rose 4.9% year-over-year to $1.277 billion, narrowly beating the analyst consensus of $1.27 billion. Adjusted net income came in at $464 million, down 1.5% from $471 million in the same period last year, while adjusted earnings per share of $1.55 surpassed the expected $1.48.

Despite the better-than-expected quarterly performance, the Q3 guidance fell short. The company projects Q3 revenue between $1.275 billion and $1.280 billion, with a midpoint of $1.2775 billion, below the $1.28 billion consensus. Adjusted EPS for Q3 is forecast at $1.46 to $1.48, with a midpoint of $1.47, also under the $1.50 average analyst estimate. For the full fiscal 2027, Zoom expects revenue of $5.085 billion to $5.095 billion, with a midpoint of $5.090 billion, aligning with expectations. Adjusted EPS guidance for the year is $6.08 to $6.12, with a midpoint of $6.10, exceeding the $6.05 consensus.

Management Commentary

Eric Yuan, Founder, President, CEO, and Chairman, noted continued momentum in fiscal 2027. Total revenue grew 4.9%, with enterprise revenue up 7.8%—the fastest growth in three years. This acceleration reflects focused execution on three priorities: enhancing the workplace experience through AI, scaling AI-first customer experience, and driving growth of new AI products. The progress demonstrates the company's success in realizing its AI-first "system of action" vision, helping clients reduce costs and create greater business value.

AI is increasingly embedded throughout the communication and collaboration lifecycle. Monthly active users of AI features in the Workplace grew 125% year-over-year. Engagement is expanding from passive conversation summaries to proactive queries and workflow building, transforming insights into action. One of the largest US tech companies renewed its Zoom Workplace contract, adding $1.9 million in annual recurring revenue (ARR), driven by strong adoption of Zoom Meetings and Rooms, the AI vision, and integration capabilities with Google Workspace.

Zoom Phone continues to demonstrate value, growing mid-teens ARR, serving as both a natural add-on to Workplace and a driver of broader platform adoption. A major US wealth management firm upgraded to Workplace Enterprise Premier with a full Zoom Phone deployment, replacing multiple vendors. QXO, a large North American building products distributor, selected Zoom Phone for approximately 8,000 employees, bundled with Zoom Contact Center, to unify UCaaS and CCaaS systems and integrate with Microsoft Teams and CRM systems.

Employee experience products also saw strong progress. A leading US insurance company expanded its use of Workvivo, marking one of its largest deals to date, with Workvivo ARR surpassing $100 million. The launch of Workvivo HQ, an AI-native digital headquarters built on Zoom's AI technology, consolidates communication, knowledge, and action for employees. Global luxury retail brand On chose Workvivo HQ and will deploy Workvivo HQ Agent to enable thousands of frontline employees to access information faster.

Customer experience represents a clear example of platform strategy translating into growth and direct AI monetization. Zoom CX ARR continued growing at a high-double-digit rate year-over-year, with a record number of million-dollar ARR deals. Nine of the top ten Zoom CX deals included paid AI features, reflecting growing demand for automated, human-assisted, and intelligent systems. Zoom Virtual Agent (ZVA) saw rapid adoption, with customers up over 250% year-over-year. ZVA's voice and chat bots resolve issues, complete multi-step workflows, and escalate with full context when needed.

A major US bank selected ZVA while expanding its ZCC Elite deployment to handle surging help desk volume. A leading enterprise software company chose ZVA Voice as a natural extension of Zoom Phone to modernize customer experience. A large US cybersecurity firm selected Zoom Contact Center to replace multiple vendors, securely unifying UCaaS and CCaaS based on their use of Zoom Video and enabling seamless voice-to-video escalation. Zoom was named a "Leader" in IDC MarketScape for agentic CCaaS.

In horizontal AI, Zoom launched ZoomMate in June, delivering AI-first productivity tools, agentic search, and agentic workflows. The University of Newcastle in Australia, an existing full-platform customer, added ZoomMate to enhance collaboration. For vertical workflows, Zoom Revenue Accelerator (ZRA) showed strong performance with paid customers up 41% year-over-year. The Common Room acquisition, completed in mid-July, adds buyer intelligence to create a more complete end-to-end revenue intelligence and orchestration solution. Okta expanded their Common Room contract to leverage AI-driven buyer intelligence.

Michelle Chang, CFO, reported Q2 total revenue of $1.28 billion, up 4.9% year-over-year (4.7% in constant currency), exceeding guidance by $7 million. Enterprise revenue grew 7.8%, representing 62% of total revenue. Online business average monthly churn was 2.9%, flat year-over-year. Customers contributing over $100,000 in trailing twelve-month revenue grew 8% year-over-year, now representing 33% of total revenue. Enterprise net dollar expansion rate was 99%, up 1 percentage point year-over-year.

Regionally, Americas revenue grew 6%, EMEA 2%, and APAC 4%. Non-GAAP gross margin was 79.1% compared to 79.8% in the prior year period. Non-GAAP operating income rose 1% to $510 million, with a 40.0% operating margin. Non-GAAP diluted EPS increased to $1.55. Deferred revenue at quarter-end was $1.56 billion, up 6% year-over-year. Remaining performance obligations (RPO) grew 14% year-over-year to approximately $4.5 billion, driven by a 25% increase in non-current RPO. Operating cash flow was $495 million, and free cash flow was $472 million. The company ended the quarter with $7.2 billion in cash, cash equivalents, and marketable securities.

Q3 and FY2027 Guidance

For Q3, revenue is expected between $1.275 billion and $1.280 billion, representing 3.9% growth at the midpoint. Non-GAAP operating income is projected at $510 million to $515 million, with an operating margin of 40.1%. Non-GAAP EPS guidance is $1.46 to $1.48. For full fiscal 2027, revenue guidance was raised to $5.085 billion to $5.095 billion, representing 4.5% growth at the midpoint. Non-GAAP operating income is expected between $2.065 billion and $2.075 billion. Full-year non-GAAP EPS guidance was raised to $6.08 to $6.12. Free cash flow guidance was raised to $1.78 billion to $1.82 billion.

Q&A Session Highlights

Addressing Phone demand, Michelle Chang noted strong replacement dynamics with all top ten deals involving replacements. The company sees continued strength in verticals and international markets, plus ongoing UCaaS and CCaaS convergence. Phone increasingly serves as a pathway for other AI monetization, including ZRA, ZoomMate, and Zoom Virtual AI Receptionist deals. Integration with Teams is also gaining traction.

Regarding RPO strength, Chang attributed it to the overall enterprise business performance, including product diversification, AI monetization, upmarket expansion, and reduced churn. The 7.8% growth rate, even with a 60 basis point headwind from white-label churn, reflects net dollar expansion turning the corner. Larger, longer-term AI-related deals are accompanying deeper customer relationships.

On record million-dollar deals, Chang noted growth is driven by both Contact Center seats and AI add-ons. The company continues to gain market share in Contact Center, driven by AI and success in the upmarket segment. Regarding gross margin, the team has maintained industry-leading levels despite some increased AI usage costs, benefiting from a federated AI approach that optimizes model selection and cost management.

On ZVA consumption patterns, Chang explained the company supports multiple pricing models—per-user, consumption-based, outcome-based, and hybrid approaches—matching market dynamics and customer interests. Regarding online business pricing, Zoom raised prices approximately 6% cumulatively without seeing meaningful churn. Customer stability, especially among those with 16+ months tenure, has been strong.

On Phone growth potential, Chang cited approximately 130 million cloud seats and 150 million equivalent on-premise seats as addressable market. Ten of the top ten Phone deals involved replacements, and five included Contact Center. For Contact Center, some deals come from Phone customers (three of top ten included Phone), while others are net new, often entering through ZVA or full-platform adoption.

Regarding enterprise growth acceleration, Chang explained the NDE improvement to 99% reflects product diversification, with Phone, Contact Center, and AI monetization as key drivers. Enterprise growth comes from both new logos and expansion, supported by channel investments and upmarket momentum. Eric Yuan added that Contact Center benefits from agentic capabilities, as evidenced by the IDC MarketScape leadership recognition.

On the Common Room acquisition, Yuan highlighted its strategic value in accelerating the ZRA product portfolio, with strong engineering, product, and sales integration. Chang noted Common Room, while Zoom's largest acquisition at $250 million, is early-stage and has minimal impact on the $5 billion revenue base but significant potential for the "system of action" vision.

Regarding competitive dynamics in Contact Center, Yuan emphasized Zoom's unique position with UCaaS, CCaaS, and ZVA capabilities combined with proprietary ASR technology. The federated AI approach, voice quality, and enterprise trust provide differentiation. Market participation validates growth opportunities, and Zoom's innovation speed supports continued share gains.

On ZVA as a standalone product, Yuan noted customers may adopt ZVA regardless of whether they use other Zoom products, as it represents a new market opportunity. Six of the top ten ZVA deals included Contact Center, with some customers starting with ZVA and expanding. Chang added that seven of top ten Contact Center deals were Elite (AI-assisted) and four included ZVA, illustrating multiple paths to growth.

On the online business, Chang described Q2 performance as solid with low churn, but the company adjusted full-year guidance from slight growth to flat due to top-of-funnel dynamics, as customer discovery shifts from search to AI. Zoom is actively addressing this through product expansion and conversion optimization.

On data utilization for AI, Yuan emphasized Zoom's commitment to data accessibility, opening context layers and APIs via MCP (Model Context Protocol) while also offering Zoom's AI services like ZoomMate. This dual approach positions Zoom as essential infrastructure for customer AI strategies.

On new pricing models, Yuan noted consumption-based and outcome-based pricing primarily applies to new AI products like ZVA, with flexibility to support customer preferences. As AI token costs evolve, outcome-based pricing is expected to grow in adoption. Chang added that RPO trends reflect durable drivers including larger, longer-term deals and upmarket expansion.

On voice AI opportunities, Yuan highlighted Zoom's ASR model as among the best, with API released for consumption-based usage. With TTS development underway, Zoom aims to offer a full-featured voice AI suite.

On custom avatars, Chang shared that setup takes under two minutes with human oversight. Yuan noted rapid technology improvements, with newer versions of the avatar technology performing better than earlier ones.

On Contact Center milestones, Chang said the company will announce updates at appropriate times rather than at every $100 million increment. Since surpassing $100 million ARR, growth has remained high-double-digit. The enterprise inflection point comprises product diversification, AI monetization, upmarket expansion, channel development, and declining churn.

On capital expenditure, Chang explained the lowered guidance reflects extending one data center asset's life by two years, contributing approximately $40 million to free cash flow. Fiscal 2026 was an unusually low CapEx year, and Zoom is not a capital-intensive business.

On workplace seat growth, Chang noted online churn remains low at 2.9%, with customers having 16+ months tenure growing 75%. Enterprise churn dollars declined year-over-year. Chang acknowledged Common Room is included in revenue guidance but declined to quantify its contribution, noting it's early-stage with minimal impact relative to the $5 billion base.

On Workvivo cross-sell opportunities, Yuan expressed excitement about winning deals with non-Zoom customers and upselling to existing enterprise customers. The AI-driven Workvivo HQ positions the product well for driving company culture and employee engagement.

On full-year guidance, Chang characterized it as a beat-and-raise of 7.5% to 9% in constant currency, with 4.5% growth at midpoint. The white-label churn represents a 40 basis point headwind. The enterprise growth inflection, driven by product diversification, AI, upmarket expansion, and low churn, provides confidence. The company adjusted online expectations to flat from slight growth based on Q2 top-of-funnel dynamics while maintaining low churn rates.