Summary
Zoom Video Communications reported third-quarter fiscal 2021 revenue of $777.2 million, up 367% year over year. GAAP income from operations was $192.2 million, swinging to a profit from a prior-year operating loss. GAAP operating margin was 24.7%, up 25.7 percentage points from the prior-year quarter. GAAP net income was $198.6 million, and diluted EPS was $0.66. On a non-GAAP basis, income from operations was $290.8 million, operating margin was 37.4%, and net income was $297.2 million, or $0.99 per diluted share.
The growth came with a clear margin trade-off. Gross margin fell to 66.7%, down 14.8 percentage points from the prior-year quarter. The company said the decline reflected higher incremental costs from third-party cloud hosting, integrated PSTN services, and co-located data centers as usage surged. A large share of that usage came from free Basic accounts, including more than 125,000 K-12 school domains where Zoom temporarily removed the 40-minute limit. Cost of revenue increased faster than revenue, and management noted that the recent usage mix has adversely impacted gross margin and may continue to do so.
Customer metrics stayed strong. Zoom ended the quarter with approximately 433,700 customers with more than 10 employees, up approximately 485% from the same quarter last fiscal year. It had 1,289 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 136%. The trailing 12-month net dollar expansion rate for customers with more than 10 employees was above 130% for the 10th consecutive quarter. International revenue from APAC and EMEA represented 31% of total revenue in the quarter, up from 19% a year earlier.
Cash generation accelerated. Operating cash flow was $411.5 million in the quarter, up 564.4% year over year. Capital expenditures were $23.3 million, up 223.3%. Free cash flow, a non-GAAP measure, was $388.2 million compared with $54.7 million in the prior-year quarter. Current deferred revenue was $835.8 million, up 348%. Remaining performance obligations were $1.63 billion, up 215.5%. For the first nine months, revenue was $1.77 billion, up 307%, and operating cash flow was $1.07 billion, up 829.3%. Net income for the nine-month period was $411.7 million.
Guidance points to continued expansion but with a churn warning. For the fourth quarter of fiscal 2021, Zoom expects revenue between $806.0 million and $811.0 million, non-GAAP income from operations between $243.0 million and $248.0 million, and non-GAAP diluted EPS between $0.77 and $0.79, with approximately 306 million non-GAAP weighted average shares outstanding. For the full fiscal year 2021, revenue is expected between $2.575 billion and $2.580 billion, non-GAAP income from operations between $865.0 million and $870.0 million, and non-GAAP diluted EPS between $2.85 and $2.87, with approximately 300 million non-GAAP weighted average shares outstanding. The full-year revenue outlook represents an approximately 314% increase year over year. Management said the revenue outlook assumes increased churn in the fourth quarter compared with historic levels because a higher percentage of customers purchased monthly subscriptions.
Risks remain substantial. Zoom faces competition from other communications platform providers, continued uncertainty around the duration and impact of COVID-19, and the possibility that paid hosts and users decline as the pandemic tapers and vaccinations become widely available. The company also flagged delays or outages at co-located data centers, failures in internet infrastructure or broadband access, and the challenges of international expansion. Management expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars and as a percentage of revenue for the rest of the fiscal year. On the product side, Zoom made end-to-end encryption available globally for meetings with up to 200 participants, announced OnZoom and Zoom Apps, and expanded Zoom Phone availability to 26 new countries and territories, bringing the total to 44.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $777.2M | $663.5M | +17.1% | $166.6M | +366.5% |
| Gross profit | $518.5M | $471.2M | +10.0% | $135.7M | +281.9% |
| Gross margin | 66.7% | 71.0% | -4.3 pp | 81.5% | -14.8 pp |
| Research & development | $42.6M | $42.7M | -0.4% | $17.6M | +142.3% |
| Sales & marketing | $190.2M | $159.2M | +19.5% | $96.0M | +98.0% |
| General & administrative | $93.5M | $81.2M | +15.1% | $23.8M | +292.7% |
| Total operating expenses | $326.2M | $283.1M | +15.2% | $137.4M | +137.4% |
| Operating income (loss) | $192.2M | $188.1M | +2.2% | -$1.7M | +11549.8% |
| Operating margin | 24.7% | 28.4% | -3.6 pp | -1.0% | +25.8 pp |
| Net income (loss) | $198.6M | $186.0M | +6.8% | $2.2M | +8884.3% |
| Net margin | 25.6% | 28.0% | -2.5 pp | 1.3% | +24.2 pp |
| Diluted EPS | $0.66 | $0.63 | +$0.03 | $0.01 | +$0.65 |
| Customers | 74,100 | 66,300 | +11.8% | — | — |
Risks
A significant portion of increased usage during the COVID-19 pandemic is from free Basic accounts and K-12 school domains with removed time limits, which generate no revenue. Management expects the revenue growth rate to generally decline in future periods, especially once the pandemic tapers and users return to work or school.
A majority of free hosts, including those who recently subscribed to the free plan during the COVID-19 pandemic, may never upgrade to a paid Zoom Meeting plan. The company removed the 40-minute time limit for more than 125,000 K-12 school domains worldwide, adding capacity costs without corresponding revenue.
Gross margin was 66.7% for FY2021 Q3, down from 81.5% for FY2020 Q3, and 68.6% year to date, down from 80.9%. The decline was driven by higher incremental costs from third-party cloud hosting and a higher percentage of usage from free users.
The market is highly competitive and price sensitive, with Microsoft Teams, Google G Suite and Meet, Cisco Webex, LogMeIn GoToMeeting, Avaya, RingCentral, 8x8, and consumer platforms such as Amazon, Apple, and Facebook. Competitors may offer lower-priced or free products, bundle broader suites, or use lower-cost customer acquisition strategies.
Security compromises have occurred in the past, including a July 2019 report on video-on features and a March 2020 report of macOS vulnerabilities that could allow root access. COVID-driven first-time users led to meeting disruptions and negative publicity, and the company faced putative class action and shareholder derivative lawsuits in April and June 2020.
Increased usage requires expanded co-located data center and public cloud capacity, and the risk factor cites current shortages for certain parts such as servers. Reliance on public cloud providers including Amazon Web Services and Oracle Cloud may result in higher variable costs; capital expenditures were $23.26 million in FY2021 Q3, up 223.3%.
The customer base shifted toward consumers and smaller customers during the pandemic, with customers with 10 or fewer employees expanding. Revenue from customers contributing more than $100,000 of trailing 12 months revenue represented 18% of total revenue for FY2021 Q3, down from 31% for FY2020 Q3, and 20% year to date, down from 32%.
Increasing sales to large organizations typically lengthens the sales cycle and creates deployment challenges, as large organizations demand additional features, support services, pricing concessions, and security controls. The company may spend substantial time and money on sales efforts without assurance of corresponding sales or broad deployment.
A sizable number of research and development personnel are based in China, exposing the company to governmental, regulatory, market, and media scrutiny regarding the actual or perceived integrity of its platform or data security. International operations face privacy, data protection, telecommunications, anti-corruption, trade, and tax risks, including digital services taxes.
Full-time headcount grew from 2,409 as of October 31, 2019 to 3,871 as of October 31, 2020, with many employees hired recently and never having visited an office. Competition for software developers and sales personnel is intense, and maintaining the happiness-centric and transparent culture may become more difficult.
SaaS KPIs
All quarters →Customers with More Than 10 Employees
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q3 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.