Summary
Zoom Video Communications delivered a quarter of extraordinary growth in fiscal 2021 first quarter. Revenue was $328.2 million, up 169% from the prior-year quarter. Gross profit was $224.5 million, up 129.3%. GAAP operating income was $23.4 million, up from $1.6 million. GAAP net income was $27.1 million, up from $2.2 million. Diluted EPS was $0.09, up from $0.00. The surge came as COVID-19 pushed organizations, schools, and healthcare institutions to move meetings, classes, and care online.
Customer metrics show the breadth of that shift. Zoom ended the quarter with about 265,400 customers with more than 10 employees, up approximately 354% year over year. It had 769 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 90%. The trailing 12-month net dollar expansion rate for customers with more than 10 employees was above 130% for the 8th consecutive quarter. Those customers with more than 10 employees are a subset of the broader paid base, and the metric isolates business buyers from the wave of smaller and free accounts.
Gross margin was 68.4%, down from 80.2%. The decline stemmed from higher incremental cost from third-party cloud hosting and a higher percentage of usage from free users. The company temporarily removed the 40-minute time limit for meetings with more than two participants from free Basic accounts for K-12 schools in certain countries. That free usage adds cost without adding revenue, and management says the recent usage increase has adversely impacted gross margin and may continue to do so. Operating margin was 7.1%, up from 1.3%. Non-GAAP income from operations was $54.6 million, up from $8.2 million. Non-GAAP net income was $58.3 million, and non-GAAP diluted EPS was $0.20.
Cash generation was strong. Operating cash flow was $259.0 million, up from $22.2 million. Capital expenditures were $7.3 million, up from $6.9 million. Free cash flow, a non-GAAP measure, was $251.7 million, compared with $15.3 million. Current deferred revenue was $523.2 million, up from $137.3 million. Remaining performance obligations were $1.10 billion.
Guidance is for the second quarter of fiscal 2021 and the full fiscal year 2021. For the second quarter, total revenue is expected to be between $495.0 million and $500.0 million, and non-GAAP income from operations is expected to be between $130.0 million and $135.0 million. Non-GAAP diluted EPS is expected to be between $0.44 and $0.46, with approximately 299 million non-GAAP weighted average shares outstanding. For the full fiscal year, total revenue is expected to be between $1.775 billion and $1.800 billion, non-GAAP income from operations is expected to be between $355.0 million and $380.0 million, and non-GAAP diluted EPS is expected to be between $1.21 and $1.29, with approximately 300 million non-GAAP weighted average shares outstanding. Management says the full-year revenue outlook assumes increased churn in the second half of the fiscal year compared with historic churn levels because a higher percentage of customers bought monthly subscriptions in the first quarter.
The risks are tied to the pandemic's durability and the company's ability to hold onto new users. Zoom says there is no assurance that it will gain more paying customers or that new and existing users will keep using the service after the COVID-19 pandemic has tapered. It may see a decline in paying customers and new users when shelter-in-place measures are released and individuals no longer work or attend school from home. Other named risks include competition, a limited operating history, an expectation that the company will not sustain its revenue growth rate, and possible service interruptions, delays, or outages from co-located data centers or internet infrastructure failures. In May 2020, Zoom announced the acquisition of Keybase, a secure messaging and file-sharing company, to add end-to-end encryption expertise.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $328.2M | $188.3M | +74.3% | $122.0M | +169.0% |
| Gross profit | $224.5M | $155.7M | +44.2% | $97.9M | +129.3% |
| Gross margin | 68.4% | 82.7% | -14.3 pp | 80.2% | -11.8 pp |
| Research & development | $26.4M | $20.7M | +27.7% | $13.8M | +91.5% |
| Sales & marketing | $121.6M | $100.9M | +20.5% | $64.0M | +89.8% |
| General & administrative | $53.1M | $23.6M | +125.3% | $18.5M | +187.1% |
| Total operating expenses | $201.1M | $145.2M | +38.5% | $96.3M | +108.7% |
| Operating income (loss) | $23.4M | $10.6M | +121.6% | $1.6M | +1401.9% |
| Operating margin | 7.1% | 5.6% | +1.5 pp | 1.3% | +5.8 pp |
| Net income (loss) | $27.1M | $15.3M | +76.5% | $2.2M | +1122.9% |
| Net margin | 8.3% | 8.2% | +0.1 pp | 1.8% | +6.4 pp |
| Diluted EPS | $0.09 | $0.06 | +$0.03 | $0.00 | +$0.09 |
| Customers | 58,500 | — | — | 184 | +31693.5% |
Risks
A significant portion of the COVID-19 usage increase came from free Basic accounts that generate no revenue while requiring higher operating costs, and gross margin decreased to 68.4% in FY2021 Q1 from 80.2% in FY2020 Q1. The company also warns that paying customers or usage may decline after shelter-in-place measures are released.
The surge in usage has required expanding co-located data centers and third-party cloud hosting, increasing variable costs and the risk of service interruptions; Zoom experienced a partial outage in May 2020. Inability to add capacity timely could lose customers and harm results.
Zoom faces intensifying competition from Microsoft Teams, Google Meet, Cisco Webex, and consumer platforms such as Amazon, Apple, and Facebook, many with greater resources, bundling, or lower-priced and free offerings. Price sensitivity and new products like Zoom Phone increase competitive pressure.
Security vulnerabilities and incidents have occurred, including a March 2020 macOS vulnerability report, and COVID-19 brought unprecedented numbers of first-time users without full IT support and negative publicity over meeting disruption, security, and privacy. This can cause customer loss, litigation, and regulatory action.
Expanding privacy laws such as GDPR, CCPA, COPPA, and Nevada SPI Law impose compliance costs and litigation risk, and multiple putative class actions have already been filed against Zoom. Increased usage and scrutiny during COVID-19 could worsen compliance challenges.
The customer base shifted from largely businesses and enterprises to a mix including consumers, which could result in higher non-renewal rates than historical levels, and a majority of free Basic hosts may never upgrade to paid plans. User growth is expected to slow or decline after the pandemic tapers.
Zoom has a sizable R&D team in China and faces U.S./China trade tensions, tariffs, data residency requirements, and Brexit-related uncertainty. New Phoenix and Pittsburgh R&D centers could raise operating expenses and pressure operating margins.
Headcount grew from 1,958 full-time employees as of April 30, 2019 to 2,854 as of April 30, 2020, straining management and culture, while competition for software developers and sales personnel is intense. Recruiting and retaining key employees is critical to growth.
The dual-class structure gives Class B holders 87.2% of voting power as of April 30, 2020, with founder Eric Yuan controlling approximately 33.9%, limiting other stockholders' influence. This concentration could affect decisions and market valuation.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Customers with More Than 10 Employees
Customers Contributing More Than $100,000 in TTM Revenue
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.