Summary
Zoom Video Communications reported a huge second quarter of fiscal year 2021. Revenue was $663.52 million for the quarter ended July 31, 2020. That was up $517.69 million, or 355.0%, from the prior-year quarter. Year-to-date revenue was $991.69 million, up $723.87 million, or 270.3%, from the six months ended July 31, 2019. Gross profit reached $471.25 million, up 299.6% from the prior-year quarter. Operating income rose to $188.10 million from $2.26 million. Net income was $185.99 million, up from $5.54 million. Diluted EPS was $0.63, up from $0.02. The mix shifted sharply: gross margin fell to 71.0% from 80.9%, while operating margin rose to 28.3% from 1.6%. The gross margin decline reflects higher costs to support massive usage, including third-party cloud hosting and free Basic accounts.
Cash generation followed the income statement. Operating cash flow was $401.35 million for the quarter, up from $31.17 million a year earlier. For the six months ended July 31, 2020, operating cash flow was $660.31 million, up from $53.41 million. Capital expenditures were $27.98 million in the quarter, up from $14.04 million, and $35.25 million year to date, up from $20.94 million. Deferred revenue, current portion, was $714.52 million as of July 31, 2020, up from $163.59 million a year earlier. Remaining performance obligations were $1.42 billion, up from $457.60 million. The deferred revenue and RPO balances show that customers are committing to Zoom at a much larger scale.
Non-GAAP results and customer metrics highlight the operating leverage. Non-GAAP income from operations was $277.0 million, up from $20.7 million in the prior-year quarter. Non-GAAP operating margin was 41.7%. Non-GAAP net income was $274.8 million, and non-GAAP diluted EPS was $0.92. Zoom ended the quarter with approximately 370,200 customers with more than 10 employees, up approximately 458% from a year earlier. The company had 988 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 112%. The trailing 12-month net dollar expansion rate for customers with more than 10 employees was above 130% for the 9th consecutive quarter. International demand also expanded: the rest of world represented 31% of total revenue for the three months ended July 31, 2020, compared with 20% a year earlier.
Guidance points to more growth, but with a churn warning. For the third quarter of fiscal year 2021, Zoom expects non-GAAP income from operations between $225.0 million and $230.0 million and non-GAAP diluted EPS between $0.73 and $0.74, with approximately 300 million non-GAAP weighted average shares outstanding. For the full fiscal year 2021, the company expects non-GAAP income from operations between $730.0 million and $750.0 million and non-GAAP diluted EPS between $2.40 and $2.47, with approximately 300 million non-GAAP weighted average shares outstanding. Management raised its full-year revenue outlook and said that outlook assumes increased churn in the second half of the fiscal year compared with historic churn levels, because a higher percentage of customers purchased monthly subscriptions in the first quarter.
Risks are tied to the same surge that drove results. COVID-19 lockdowns pushed organizations, schools, and individuals onto Zoom, but a significant portion of the increased usage came from free Basic accounts, which generate no revenue and still require added capacity. Zoom temporarily removed the 40-minute limit for meetings with more than two endpoints on free Basic accounts for more than 100,000 K-12 school domains worldwide. That helped adoption, but it also pressured gross margin. The company also warns that paying customers and new users may decline once shelter-in-place measures are released. Other risks include competition, a limited operating history, interruptions or outages at co-located data centers, and failures in internet infrastructure or broadband access.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $663.5M | $328.2M | +102.2% | $145.8M | +355.0% |
| Gross profit | $471.2M | $224.5M | +109.9% | $117.9M | +299.6% |
| Gross margin | 71.0% | 68.4% | +2.6 pp | 80.9% | -9.9 pp |
| Research & development | $42.7M | $26.4M | +61.9% | $15.1M | +183.9% |
| Sales & marketing | $159.2M | $121.6M | +30.9% | $79.7M | +99.8% |
| General & administrative | $81.2M | $53.1M | +52.9% | $21.0M | +287.7% |
| Total operating expenses | $283.1M | $201.1M | +40.8% | $115.7M | +144.8% |
| Operating income (loss) | $188.1M | $23.4M | +704.4% | $2.3M | +8204.8% |
| Operating margin | 28.4% | 7.1% | +21.2 pp | 1.6% | +26.8 pp |
| Net income (loss) | $186.0M | $27.1M | +586.9% | $5.5M | +3256.6% |
| Net margin | 28.0% | 8.3% | +19.8 pp | 3.8% | +24.2 pp |
| Diluted EPS | $0.63 | $0.09 | +$0.54 | $0.02 | +$0.61 |
| Customers | 66,300 | 58,500 | +13.3% | — | — |
Risks
Unprecedented COVID-19 usage, including a significant portion from free Basic accounts that generate no revenue, required costly capacity expansion and reliance on third-party cloud hosting. Gross margin declined to 71.0% in FY2021 Q2 from 80.9% in FY2020 Q2, down 9.8 pp, and may remain pressured.
The pandemic shifted the customer mix from largely businesses and enterprises to a mix including consumers and small businesses, which could result in higher non-renewal rates than historically experienced. Many free hosts may never upgrade to paid plans, and usage may decline once shelter-in-place measures are lifted.
Zoom competes with Microsoft Teams, Google Meet, Cisco Webex, and consumer-facing platforms, and competition may intensify in the smaller and consumer segment. Price-sensitive demand and competitor bundling of lower-priced or free products could force price cuts or higher marketing spend.
Security vulnerabilities and meeting disruptions have occurred and may increase with unprecedented first-time users who lack full IT support. The filing cites a July 2019 researcher report and a March 2020 macOS vulnerability, and such events could lead to negative publicity, litigation, regulatory action, and customer loss.
Evolving privacy laws including GDPR, CCPA, and COPPA, plus the July 2020 invalidation of the EU-US Privacy Shield and uncertainty over Standard Contractual Clauses, could restrict personal data transfers from Europe. This could increase fines, compliance costs, and customer demand risk.
Service depends on co-located data centers and third-party cloud providers including AWS, Oracle Cloud, and Microsoft Azure. Capacity constraints, outages, and current shortages of parts such as servers could cause delays, customer loss, credits, or higher variable cloud costs.
Negative publicity around privacy, security, and meeting disruptions during COVID-19 could harm the Zoom brand and user confidence. If users view Zoom as a video point solution rather than a platform, market position may suffer when competitors introduce new products.
Headcount grew from 2,240 full-time employees as of July 31, 2019 to 3,427 as of July 31, 2020, straining management and culture. Competition for software developers and sales personnel is intense, and post-IPO equity liquidity may reduce employee motivation to stay.
APAC and EMEA collectively represented 31% and 20% of total revenue for the three months ended July 31, 2020 and 2019, and 29% and 20% for the six months ended July 31, 2020 and 2019. International growth exposes Zoom to regulatory, employment, data-transfer, and management challenges across multiple jurisdictions.
As of July 31, 2020, holders of Class B common stock held 82.3% of voting power, and founder Eric Yuan controlled approximately 40.0%. This concentrated control limits other stockholders' influence and may adversely affect the market price of Class A common stock.
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 Q2 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.