Zoom Communications, Inc. Q1 FY2026 earnings

Zoom Communications opened fiscal 2026 with modest top-line growth and much better operating leverage. Total revenue for the first quarter ended April 30, 2025 was $1,174.7 million, up 2.9% from the prior-year quarter. The mix keeps tilting toward larger accounts. Enterprise revenue rose 5.9% year over year, while Online revenue slipped 1.2%. New customers supplied 66.3% of the Enterprise increase, with existing customers making up the rest.

Profitability improved faster than sales. GAAP income from operations was $241.6 million, up 19.0% from the prior-year quarter, and GAAP operating margin was 20.6%, up 2.8 percentage points. Gross profit of $896.3 million rose 3.3% and gross margin was 76.3%, up 0.2 percentage points. A $4.1 million drop in stock-based compensation inside cost of revenue helped the margin. GAAP net income was $254.6 million, up 17.7%, and diluted EPS was $0.81, up 17.4% from the prior-year quarter. On a non-GAAP basis, income from operations was $467.3 million and operating margin was 39.8%, down from 40.0% a year earlier. Non-GAAP diluted EPS was $1.43, up 6.0%.

Cash generation declined. Net cash provided by operating activities was $489.3 million, down 16.8% from the prior-year quarter. Capital expenditures, shown as purchases of property and equipment of $25.9 million, rose 40.0%. Free cash flow, which the company defines as operating cash flow less those purchases, was $463.4 million. Management tied the operating cash flow decline mainly to first quarter estimated federal and state tax payments that landed later in the prior fiscal year.

Backlog measures grew faster than revenue. Deferred revenue, current, was $1,409.2 million as of April 30, 2025, up 5.5% year over year. Remaining performance obligations were $3.88 billion, up 5.8%. Cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $7.8 billion. Zoom repurchased and retired 5,561,920 shares for $418.0 million in the quarter, up from 4.3 million shares in the fourth quarter, and still had $1.2 billion of repurchase authorization available as of April 30, 2025.

Customer metrics remain mixed. Zoom ended the quarter with 4,192 customers contributing more than $100,000 in trailing 12 months revenue, up 8.0% from a year earlier. The trailing 12-month net dollar expansion rate for Enterprise customers was 98%, down from 99% a year ago, a sign that seat expansion at existing accounts is not offsetting downsells in key markets. Online average monthly churn was 2.8%, down 40 basis points from the prior-year quarter, and 74.2% of Online MRR came from customers with at least 16 months of continuous service, up 40 basis points.

Guidance for the second quarter of fiscal 2026 puts non-GAAP income from operations at $460.0 million to $465.0 million and non-GAAP diluted EPS at $1.36 to $1.37 on roughly 310 million weighted average shares. For the full fiscal year 2026, the company expects non-GAAP income from operations of $1.865 billion to $1.875 billion, non-GAAP diluted EPS of $5.56 to $5.59, and free cash flow of $1.680 billion to $1.720 billion. The EPS and share count ranges exclude any impact from the $1.2 billion of remaining repurchase authorization.

The risk section of the 10-Q points to familiar pressures. Geopolitical conflicts, tariffs and escalating trade tensions, inflation, interest rate swings, and foreign currency volatility are all cited as sources of demand uncertainty. They have stretched sales cycles and pushed customers to scrutinize IT budgets. Higher market penetration, tougher competition, and the maturation of the business also weigh on growth. With the Enterprise net dollar expansion rate sitting at 98%, the 2.9% total revenue growth depends heavily on new logos and on products such as Contact Center, Revenue Accelerator, and Workvivo.