Summary
Zoom Video Communications reported revenue of $1.10 billion for the second quarter of fiscal 2023, up 7.6% from the prior-year quarter. It was the fifth straight quarter above one billion dollars. Year-to-date revenue reached $2.17 billion, up 9.9%. Gross profit for the quarter was $825.85 million, up 8.6%, and gross margin rose to 75.1% from 74.4%. Management credited the margin gain to efficiencies from expanded internal data center capacity, which reduced third-party cloud hosting costs.
Profitability fell sharply. Operating income for the quarter was $121.74 million, down 58.7%, and operating margin dropped to 11.1% from 28.8%. Net income came in at $45.75 million, down 85.6%, and diluted EPS of $0.15 compared with $1.04 in the prior-year quarter. Expenses were the problem. Research and development, sales and marketing, and general and administrative costs all rose, driven by headcount and stock-based compensation. Non-GAAP results looked better. Non-GAAP operating margin was 35.8%, and non-GAAP income from operations was $393.7 million. Non-GAAP net income was $323.5 million, or $1.05 per diluted share.
Customer metrics held up. Zoom ended the quarter with approximately 204,100 Enterprise customers, up 18% from the same quarter last fiscal year. The trailing 12-month net dollar expansion rate for Enterprise customers was 120%, against greater than 130% a year earlier. Customers contributing more than $100,000 in trailing 12 months revenue reached 3,116, up approximately 37%, and they accounted for 26% of total revenue. Zoom Phone reached nearly 4 million seats, up more than 100% year over year, and management said it set a record for licenses sold in the quarter. Remaining performance obligations were $3.21 billion, up 36.9%, and deferred revenue, current portion, was $1.35 billion, up 16.6%. Revenue from the rest of world (APAC and EMEA) was 31% of the total.
Cash generation slowed. Net cash provided by operating activities was $257.21 million for the quarter, down 45.0%, and $783.36 million year to date, down 21.8%. Adjusted free cash flow, a non-GAAP measure the company defines as operating cash flow less purchases of property and equipment plus litigation settlement payments, net, was $222.1 million versus $455.0 million in the prior-year quarter. Capital expenditures were $27.83 million for the quarter, up 114.5%. The company also closed its acquisition of Solvvy, a customer support automation vendor, in May 2022.
Guidance covers the third quarter of fiscal 2023 and the full fiscal year. For the third quarter, Zoom guided non-GAAP income from operations to $325.0 million to $330.0 million and non-GAAP diluted EPS to $0.82 to $0.83, on roughly 306 million weighted average shares. For the full fiscal year 2023, the company projected non-GAAP income from operations of $1.440 billion to $1.450 billion and non-GAAP diluted EPS of $3.66 to $3.69. It reiterated an expected non-GAAP operating margin of approximately 33% for the full fiscal year.
Risks lean toward the macro side. The CFO tied the revenue outcome to the strengthening U.S. dollar, the performance of the online business, and sales weighted to the back end of the quarter. Management cited high inflation, recessionary conditions, and foreign currency fluctuations, and said the Russia-Ukraine war weighed on EMEA revenue. A tapering COVID-19 pandemic could reduce paid hosts as users return to offices and schools, and the company flagged competition from other communications platforms. The gap between remaining performance obligations growth and deferred revenue growth is one to watch as the sales mix shifts toward larger enterprise deals.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.10B | $1.07B | +2.4% | $1.02B | +7.6% |
| Gross profit | $825.8M | $812.0M | +1.7% | $760.2M | +8.6% |
| Gross margin | 75.1% | 75.6% | -0.5 pp | 74.4% | +0.7 pp |
| Research & development | $172.6M | $144.3M | +19.6% | $82.3M | +109.6% |
| Sales & marketing | $400.5M | $362.8M | +10.4% | $271.2M | +47.7% |
| General & administrative | $131.1M | $117.8M | +11.2% | $112.1M | +16.9% |
| Total operating expenses | $704.1M | $624.9M | +12.7% | $465.6M | +51.2% |
| Operating income (loss) | $121.7M | $187.1M | -34.9% | $294.6M | -58.7% |
| Operating margin | 11.1% | 17.4% | -6.4 pp | 28.8% | -17.8 pp |
| Net income (loss) | $45.8M | $113.7M | -59.7% | $317.1M | -85.6% |
| Net margin | 4.2% | 10.6% | -6.4 pp | 31.0% | -26.9 pp |
| Diluted EPS | $0.15 | $0.37 | -$0.22 | $1.04 | -$0.89 |
| Customers | 2,278 | 1,999 | +14.0% | 370,200 | -99.4% |
Risks
Risk Factors state that revenue growth rate has begun to decline and is expected to generally decline in future periods; MD&A reports trailing 12-month net dollar expansion rate for Enterprise customers was 120% as of July 31, 2022 compared with greater than 130% as of July 31, 2021. Revenue rose 7.6% for the quarter ended July 31, 2022 compared with the prior-year quarter.
MD&A says high inflation, recessionary environments, and foreign currency fluctuations can cause uncertainty and may impact future demand; for the quarter ended July 31, 2022, total revenue was lower than anticipated in part due to the strengthening U.S. dollar. The Russia-Ukraine war also impacted EMEA revenue for the quarter.
Risk Factors and MD&A state that user growth rate may continue to slow or decline as the COVID-19 pandemic tapers, particularly as users return to work or school, and tapering may result in a decline in paid hosts and users. A significant portion of increased usage came from free Basic accounts that do not generate revenue.
Risk Factors describe competitive markets with Microsoft Teams, Google Meet, Cisco Webex, and others, and note price sensitivity and bundling pressure. Zoom faces competitors with greater resources and may need to cut prices or increase spending to retain customers.
Risk Factors state security incidents have occurred in the past and may occur in the future, with prior vulnerabilities disclosed by researchers, negative publicity, class action litigation, and regulatory investigations. Zoom also had to issue software updates and customers may not install them, leaving exposure.
Risk Factors disclose DOJ subpoenas from EDNY and NDCA seeking information on interactions with foreign governments, China data storage and access, and Tiananmen commemorations, plus prior Chinese government suspension of service in September 2019. These investigations are ongoing and could result in fines, penalties, and reputational harm.
Risk Factors state that as Zoom increases sales to large organizations, sales cycles could lengthen and deployment challenges could raise upfront sales costs and unpredictability. Revenue from customers contributing more than $100,000 of trailing 12 months revenue represented 26% of total revenue for the quarter ended July 31, 2022 compared with 20% for the prior-year quarter.
Risk Factors cite intense competition for employees, the ongoing 'great resignation,' and that stock price volatility may make equity awards less attractive and contribute to turnover or hiring difficulties. Headcount grew from 5,725 full-time employees as of July 31, 2021 to 8,044 as of July 31, 2022.
MD&A reports losses on strategic investments, net of $34.7 million for the quarter ended July 31, 2022 and $71.1 million for the six months ended July 31, 2022, driven by unrealized losses on publicly traded equity securities. Fair value adjustments flow through the statement of operations and can add volatility.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Enterprise Customers
Adjusted Free Cash Flow
Adjusted Free Cash Flow Margin
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q2 FY2023 (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.