Summary
Zoom's second quarter of fiscal 2024, ended July 31, 2023, produced revenue of $1,138.7 million, up 3.6% year over year, and gross profit of $872.1 million, up 5.6%. Revenue in constant currency rose 4.5%. The mix keeps tilting toward larger accounts: Enterprise revenue rose 10.2% while Online revenue fell 4.3%. Enterprise customers generated 57.9% of total revenue in the quarter, against 54.4% a year earlier. Gross margin improved to 76.6%, up 1.5 percentage points, which management attributed to greater efficiency as internal data center capacity expanded.
Operating leverage looked strong on the quarterly income statement. GAAP operating income of $177.6 million rose 45.9%, and the operating margin of 15.6% rose 4.5 percentage points. Net income of $182.0 million rose 297.8%, and diluted EPS of $0.59 was up from $0.15 a year earlier. Part of that improvement sat below the operating line, in gains on strategic investments and higher other income, which management tied to investment yield and foreign currency. Non-GAAP figures strip out stock-based compensation and litigation settlements, among other items. Non-GAAP operating margin was 40.5%, and non-GAAP diluted EPS was $1.34.
The first half of the fiscal year tells a different story. Six-month revenue of $2,244.0 million rose 3.3%, and net income of $197.4 million rose 23.8%, with diluted EPS of $0.65, up 25.0%. Operating income over the same six months fell 39.3% to $187.4 million, and the year-to-date operating margin of 8.3% was down 5.9 percentage points. The restructuring plan announced in February 2023, which cut about 15% of the workforce and was completed as of July 31, 2023, along with litigation settlements, weighed on first-half operating results.
Cash generation held up better in the quarter than it did over six months. Operating cash flow was $336.0 million, up 30.6%, and capital expenditures were $46.6 million, up 67.4%. Free cash flow, a non-GAAP measure equal to operating cash flow less purchases of property and equipment, was $289.4 million, up 26.2%. For the six months, operating cash flow was $754.5 million, down 3.7%, and free cash flow was $686.0 million, against $730.5 million a year earlier. Backlog growth stayed modest: current deferred revenue was flat at $1.35 billion, while remaining performance obligations of $3.50 billion rose 9.1%.
Customer metrics show steady enterprise traction while the Online business keeps shrinking. Zoom ended the quarter with approximately 218,100 Enterprise customers, up 6.9%, and 3,672 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 17.8%. The trailing 12-month net dollar expansion rate for Enterprise customers was 109%, down from 120%. Online average monthly churn was 3.2%, down 40 basis points year over year, and 72.8% of total Online MRR came from customers with at least 16 months of continual service, up 340 basis points.
Guidance covers the third quarter of fiscal 2024 and the full fiscal year 2024. For the third quarter, non-GAAP income from operations is guided to $400.0 million to $405.0 million and non-GAAP diluted EPS to $1.07 to $1.09 on approximately 309 million weighted average shares. For the full fiscal year, non-GAAP income from operations is guided to $1.685 billion to $1.695 billion and non-GAAP diluted EPS to $4.63 to $4.67 on approximately 308 million weighted average shares. Management also issued revenue guidance for both periods in as-reported and constant currency terms, and noted that a reconciliation of non-GAAP guidance to GAAP measures is not available without unreasonable effort. Management flags high inflation, potential recession, bank failures and foreign currency swings as sources of uncertainty. It also points to elongated sales cycles and a decrease in overall corporate spending. A stronger dollar reduced revenue by $10.2 million in the quarter and by $28.7 million over six months. Named risks include competition, slowing demand, higher market penetration and the maturation of the business. The war in Ukraine adds uncertainty to EMEA results, though customers in Russia, Belarus and Ukraine represented less than 1% of net assets and total consolidated revenue.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.14B | $1.11B | +3.0% | $1.10B | +3.6% |
| Gross profit | $872.1M | $841.4M | +3.6% | $825.8M | +5.6% |
| Gross margin | 76.6% | 76.1% | +0.5 pp | 75.1% | +1.5 pp |
| Research & development | $191.8M | $209.3M | -8.3% | $172.6M | +11.1% |
| Sales & marketing | $373.4M | $422.5M | -11.6% | $400.5M | -6.8% |
| General & administrative | $129.3M | $199.9M | -35.3% | $131.1M | -1.3% |
| Total operating expenses | $694.5M | $831.7M | -16.5% | $704.1M | -1.4% |
| Operating income (loss) | $177.6M | $9.7M | +1723.2% | $121.7M | +45.9% |
| Operating margin | 15.6% | 0.9% | +14.7 pp | 11.1% | +4.5 pp |
| Net income (loss) | $182.0M | $15.4M | +1078.3% | $45.8M | +297.8% |
| Net margin | 16.0% | 1.4% | +14.6 pp | 4.2% | +11.8 pp |
| Diluted EPS | $0.59 | $0.05 | +$0.54 | $0.15 | +$0.44 |
| Customers | 3,116 | 2,916 | +6.9% | 2,278 | +36.8% |
Risks
High inflation, recessionary or uncertain environments, bank failures, and foreign currency volatility may reduce customer spending and demand. MD&A reports unfavorable foreign currency impact reduced revenue by $10.2 million in the quarter and $28.7 million year to date, and notes elongated sales cycles and decreased overall corporate spending.
Sales to large organizations bring longer evaluation and negotiation cycles, and MD&A states Zoom recently experienced elongated sales cycles. These dynamics raise upfront sales costs and make results less predictable.
Risk factors warn that new entrants and established companies with greater resources providing AI and machine learning communication tools could intensify competition and make Zoom's platform obsolete. Zoom is investing in Zoom AI, but market acceptance and return on that investment remain uncertain.
Zoom faces competition from Microsoft Teams, Google Meet and G Suite, Cisco Webex, GoTo, RingCentral, and others, some of which bundle video at lower or no additional cost. Risk factors note pricing pressure could force price cuts or higher marketing spending.
Zoom has significant research and development personnel in China and received DOJ subpoenas from EDNY and NDCA regarding foreign government interactions, user data storage and access, and Tiananmen Square commemorations. These ongoing investigations could result in fines, penalties, reputational harm, and loss of customer confidence.
Zoom states security measures have been compromised in the past and may be again, and its platform and services have had vulnerabilities. Security incidents, privacy concerns, and related litigation or regulatory actions could harm reputation and cause customers to stop using the platform.
Trailing 12-month net dollar expansion rate for Enterprise customers declined to 109% as of July 31, 2023 from 120% as of July 31, 2022. Slower expansion within existing enterprise customers could weigh on future revenue growth.
Online customers represented 42.1% of revenue in the quarter versus 45.6% in the prior-year quarter, and revenue from Online customers declined 4.3% in the quarter. Risk factors state customers may not renew, may downgrade, or may never upgrade from free plans.
The February 2023 restructuring plan reduced the workforce by approximately 15% and was completed as of July 31, 2023. Risks include employee attrition beyond the intended reduction, lower morale, diversion of management attention, and failure to achieve targeted benefits.
Zoom depends on co-located data centers and third-party cloud providers including AWS, Oracle Cloud, and Microsoft Azure. Past partial outages and potential capacity shortages could cause credits, penalties, customer terminations, and higher variable costs.
Competition for software developers, sales personnel, and executives is intense, and restructuring actions may worsen turnover. A perceived decline in equity award value or difficulty hiring could impair execution.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Online Average Monthly Churn
Enterprise Customers
Free cash flow margin
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q2 FY2024 (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.