Zoom Communications, Inc. Q2 FY2027 earnings

Zoom Communications reported second quarter fiscal 2027 total revenue of $1,277.2 million, up 4.9% from the prior-year quarter. Constant currency growth was 4.7%. Growth is coming increasingly from larger accounts. Enterprise revenue rose 7.8% year over year, a rate the chief executive described as the strongest for that segment in three years, while Online revenue rose 0.6%. MD&A reports that Enterprise customers produced 61.7% of total revenue in the quarter, against 60.0% a year earlier, and that the Enterprise increase split 42.3% from new customers and 57.7% from existing ones. Online customers were 38.3% of the mix.

Margins moved the wrong way on a GAAP basis. Gross margin was 77.2%, down from 77.6%, as AI-related consumption pushed third-party hosting costs higher; lower co-located data center costs partly offset that. GAAP operating income was $314.3 million, down from $321.7 million, and GAAP operating margin was 24.6%, down from 26.4%. Non-GAAP operating income was $510.3 million, up from $503.2 million, while the non-GAAP operating margin slipped to 40.0% from 41.3%. Research and development expense rose 17.5%, driven by AI investment and headcount. Sales and marketing expense fell 2.5% after a change in the amortization period for deferred contract acquisition costs. General and administrative expense rose 27.7%, lifted by the absence of an $18.0 million prior-year reversal of an SEC investigation accrual.

GAAP net income of $1,542.4 million, or $5.15 per diluted share, is not a clean read on the business. It compares with $358.6 million, or $1.16 per diluted share, a year earlier. The jump reflects a large unrealized gain on strategic investments, which MD&A traces mainly to a $1,612.7 million increase in the fair value of the Anthropic stake. Non-GAAP net income, which excludes that gain, was $464.0 million, or $1.55 per diluted share, against $471.3 million, or $1.53. For the six months, GAAP net income was $1,968.1 million, against $613.2 million, and revenue was $2,516.2 million, up 5.2%.

Cash generation was softer. Operating cash flow was $494.8 million, down 4.1% from $515.9 million, and capital expenditures rose to $22.4 million from $8.0 million. Free cash flow, which the company defines as operating cash flow less purchases of property and equipment, was $472.4 million, down from $508.0 million. Operating cash flow was $1,016.4 million for the six months, up 1.1%. Cash, cash equivalents and marketable securities totalled $7.2 billion at July 31, 2026. Backlog grew faster than revenue. Current deferred revenue was $1.55 billion, up 5.8%, and remaining performance obligations were $4.54 billion, up 14.1%. Customers spending more than $100,000 in trailing 12 month revenue reached 4,625, up 8.2%, and the trailing 12 month net dollar expansion rate for Enterprise customers rose to 99% from 98%. Online average monthly churn held at 2.9%, and Online customers with at least 16 months of continuous service accounted for 75.6% of Online MRR, up 70 basis points. The company repurchased about 3.7 million shares in the quarter and had $1.3 billion of authorization remaining.

Guidance for the third quarter of fiscal 2027 sets total revenue and constant currency revenue in the same range. Non-GAAP income from operations is expected between $510.0 million and $515.0 million, and non-GAAP diluted EPS between $1.46 and $1.48 on approximately 301 million weighted average shares outstanding. For the full fiscal year 2027, updated guidance puts non-GAAP income from operations between $2.065 billion and $2.075 billion, non-GAAP diluted EPS between $6.08 and $6.12 on approximately 301 million weighted average shares outstanding, and free cash flow between $1.780 billion and $1.820 billion. Full year revenue guidance was refreshed as well, with a constant currency range alongside the reported range. The EPS and share count figures exclude about $1.3 billion of authorized share repurchases still available at July 31, 2026. Management lists familiar risks: macroeconomic and geopolitical uncertainty, tariffs and trade tensions, interest rate and currency swings, longer sales cycles with large organizations, competition, the pace of AI product adoption, and possible outages at co-located data centers or in internet infrastructure. The Anthropic stake cuts both ways for GAAP earnings, and the AI-related hosting consumption that pressured gross margin looks likely to keep building as new products launch.