Summary
Zoom's fiscal 2022 second quarter produced $1,021.5 million in revenue, up 54% from the prior-year quarter, the company's first billion dollar quarter. Management traced the gain to new customer subscriptions, roughly 74% of the increase, and expansion within existing customers, about 26%. Gross profit rose 61% to $760.2 million. Gross margin reached 74.4%, up 3.4 percentage points, helped by better use of expanded data center capacity and lower rates from third-party cloud hosting providers. Free Basic accounts and more than 125,000 K-12 school domains still consume capacity without generating revenue, a pressure point management continues to flag.
Profitability held. GAAP operating income was $294.6 million, up 56.6%, and the GAAP operating margin was 28.8%. Net income rose 70.5% to $317.1 million. Diluted earnings per share came to $1.04, up 65.1%. On a non-GAAP basis, income from operations was $424.7 million and the non-GAAP operating margin was 41.6%. Non-GAAP net income was $415.1 million, or $1.36 per diluted share. The gap between the two sets of numbers is mostly stock-based compensation and related payroll taxes, along with acquisition-related costs and charges tied to a charitable donation of common stock.
Cash generation remained a strength. Operating cash flow was $468.0 million for the quarter, up 16.6%, while capital expenditures were $13.0 million, down 53.6%. Free cash flow, defined as operating cash flow less purchases of property and equipment, was $455.0 million. Over the first six months, operating cash flow reached $1.00 billion, up 51.6%, and capital expenditures were $92.0 million, up 161.1%, as investment in data center and office capacity stepped up. Six-month revenue was $1.98 billion, up 99.4%.
Deferred revenue, current portion, finished the quarter at $1.15 billion, up 61.6%. Remaining performance obligations were $2.35 billion, up 65.7%. Both point to a backlog that is still building.
Customer metrics show traction upmarket. Zoom ended the quarter with 2,278 customers contributing more than $100,000 of trailing 12 month revenue, up approximately 131%. Customers with more than 10 employees totaled about 504,900, up approximately 36%. The trailing 12 month net dollar expansion rate for that group stayed above 130%, the 13th consecutive quarter above that mark. Those larger accounts produced 20% of total revenue, up from 17% a year earlier, and revenue from APAC and EMEA was 33% of the total.
Guidance leans on the profit line. For the third quarter of fiscal 2022, non-GAAP income from operations is expected between $340.0 million and $345.0 million and non-GAAP diluted EPS between $1.07 and $1.08 on approximately 309 million non-GAAP weighted average shares. For the full fiscal year 2022, non-GAAP income from operations is expected between $1.500 billion and $1.510 billion and non-GAAP diluted EPS between $4.75 and $4.79 on approximately 308 million shares. Revenue guidance for both the third quarter and the full fiscal year was also provided.
The risk list is longer than the guidance. Zoom warns that tapering of the pandemic, especially as vaccines become widely available, could reduce paid hosts and users as people return to offices and schools. Competition among communications platforms remains intense, and the company has a limited operating history to lean on when forecasting demand. Delays or outages at co-located data centers, or failures in internet and broadband infrastructure, could undermine the reliability that underpins the brand. The pending acquisition of Five9, structured at 0.5533 shares of Class A common stock for each Five9 share and expected to close in the first half of calendar 2022, adds integration and regulatory risk. Heavier spending on research, sales and marketing, and general and administrative functions is expected to continue in absolute dollars for the rest of the fiscal year.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.02B | $956.2M | +6.8% | $663.5M | +54.0% |
| Gross profit | $760.2M | $691.2M | +10.0% | $471.2M | +61.3% |
| Gross margin | 74.4% | 72.3% | +2.1 pp | 71.0% | +3.4 pp |
| Research & development | $82.3M | $65.2M | +26.3% | $42.7M | +92.6% |
| Sales & marketing | $271.2M | $245.7M | +10.4% | $159.2M | +70.4% |
| General & administrative | $112.1M | $154.1M | -27.2% | $81.2M | +38.0% |
| Total operating expenses | $465.6M | $464.9M | +0.2% | $283.1M | +64.5% |
| Operating income (loss) | $294.6M | $226.3M | +30.2% | $188.1M | +56.6% |
| Operating margin | 28.8% | 23.7% | +5.2 pp | 28.4% | +0.5 pp |
| Net income (loss) | $317.1M | $227.5M | +39.4% | $186.0M | +70.5% |
| Net margin | 31.0% | 23.8% | +7.3 pp | 28.0% | +3.0 pp |
| Diluted EPS | $1.04 | $0.74 | +$0.30 | $0.63 | +$0.41 |
| Customers | 370,200 | 265,400 | +39.5% | 66,300 | +458.4% |
Risks
MD&A states that a significant portion of increased usage comes from free Basic accounts and the removal of the 40-minute limit for more than 125,000 K-12 domains, which generate no revenue while requiring expanded capacity. It warns there is no assurance that paid hosts or usage will continue after COVID-19 tapers and that increased usage has adversely affected and may continue to adversely affect gross margin.
Risk factors state revenue growth rate is expected to generally decline due to higher market penetration, increased competition, slowing demand after COVID-19 tapers, and business maturation. MD&A also says there is no assurance the company will experience an increase in paid hosts after the pandemic.
The pandemic shifted the customer base from largely businesses and enterprises to a mix of businesses, enterprises, and consumers, which could result in higher non-renewal rates than historically experienced. MD&A confirms the company expects higher rates of non-renewals due to this shift.
The market is competitive and rapidly changing, with competitors including Microsoft Teams, Google Meet, Cisco Webex, and consumer platforms. Price sensitivity and competitor bundling, free or lower-priced products could force price cuts, discounts, or higher marketing spend.
Interruptions, delays, or outages in co-located data centers and reliance on public cloud providers could impair service delivery, require credits or penalties, and harm customer retention. Capacity needs, including shortages for parts such as servers, may force greater use of public cloud and higher variable costs.
Security incidents have occurred and may occur again. COVID-19-driven first-time users without full IT support led to negative publicity over meeting disruptions and encryption, and the company has faced class action and derivative lawsuits plus DOJ subpoenas, creating risks of fines, litigation, and reputational harm.
Operations in China and a sizable R&D footprint there expose the company to regulatory scrutiny, including the Chinese government turning off its service in September 2019 and EDNY and NDCA subpoenas in June and July 2020 regarding foreign government interactions and user data. A negative outcome could cause substantial fines, penalties, reputational harm, and loss of customers.
Increasing sales to large organizations lengthens sales cycles due to significant evaluation and negotiation processes, and may bring deployment challenges, pricing concessions, and higher up-front sales costs without assurance of sales.
APAC and EMEA represented 33% of revenue for the quarter ended July 31, 2021 and for the six months ended July 31, 2021. International expansion brings compliance, data localization, tax, trade, and geopolitical risks, and recent expansion into Singapore and India may increase operating expenses and talent challenges.
Headcount grew from 3,427 full-time employees as of July 31, 2020 to 5,725 as of July 31, 2021, straining management, culture, and internal processes. Competition for software developers and sales personnel is intense, and many employees were hired recently and have never been to an office location.
The pending acquisition of Five9 announced on July 16, 2021 is subject to Five9 stockholder approval and regulatory approvals. Integration may divert management attention, increase costs, and fail to achieve expected benefits.
Government sales bring additional risks, including FedRAMP certification requirements and a Biden Administration Executive Order requiring additional information technology security measures. Failure to meet these requirements could increase compliance costs or impair the ability to work with the U.S. government and result in lost revenue.
If users view Zoom primarily as a video conferencing point solution rather than a broader communications platform, or have a negative perception of its privacy and security, the company's market position may be harmed. Maintaining and enhancing the brand may become increasingly difficult and expensive as competition increases.
As of July 31, 2021, holders of Class B common stock held 70.2% of voting power, and founder Eric S. Yuan controlled approximately 29.6% of voting power. This concentrated control limits other stockholders' ability to influence corporate matters and could adversely affect the market price of Class A common stock.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Customers Contributing More Than $100,000 in Trailing 12 Months Revenue
Customers with More Than 10 Employees
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q2 FY2022 (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.