Summary
Zoom reported third quarter fiscal 2023 revenue of $1,101.9 million, up 4.9% from the prior-year quarter. Gross profit rose 6.6% to $831.2 million. Gross margin was 75.4%, up 1.2 percentage points from the prior-year quarter. The bottom line moved in the opposite direction. GAAP operating income was $66.5 million, down 77.1%. GAAP operating margin was 6.0%, down 21.6 percentage points. GAAP net income fell 85.8% to $48.4 million. Diluted EPS was $0.16, down 85.6%. On a non-GAAP basis, income from operations was $380.9 million and non-GAAP operating margin was 34.6%. Non-GAAP net income was $323.2 million, or $1.07 per diluted share.
Cash generation slowed during the quarter. Operating cash flow was $295.3 million, down 25.2%. Capital expenditures were $22.7 million, up 14.8%. Free cash flow, a non-GAAP measure, was $272.6 million, compared with $374.8 million in the prior-year quarter. The balance sheet showed current deferred revenue of $1.31 billion, up 12.6%. Remaining performance obligations were $3.25 billion, up 32.1%. For the first nine months of fiscal 2023, operating cash flow was $1.08 billion, down 22.7%, and capital expenditures were $75.6 million, down 32.4%.
Customer metrics offered a mixed picture. Zoom ended the quarter with approximately 209,300 Enterprise customers, up 14% from the same quarter last fiscal year. The trailing 12-month net dollar expansion rate for Enterprise customers was 117%, compared with 139% a year earlier. The company had 3,286 customers contributing more than $100,000 in trailing 12 months revenue, up approximately 31%. Online average monthly churn was 3.1%, down 60 basis points from the same quarter last fiscal year. Management pointed to product launches from Zoomtopia, including Zoom Mail and Zoom Calendar, plus new partnerships that are expected to support the modern work experience.
Guidance covers the fourth quarter of fiscal 2023 and the full fiscal year. For the fourth quarter, non-GAAP income from operations is expected to be $316.0 million to $326.0 million, and non-GAAP diluted EPS is expected to be $0.75 to $0.78 on approximately 301 million weighted average shares. For the full fiscal year, non-GAAP income from operations is guided to $1.490 billion to $1.500 billion, and non-GAAP diluted EPS to $3.91 to $3.94 on approximately 304 million weighted average shares. Management also said free cash flow is expected to be at the high end of a $1 billion to $1.15 billion range, assuming Section 174 R&D capitalization requirements are repealed or deferred by Congress.
Risks remain significant. Zoom said unfavorable foreign currency reduced revenue by $24 million in the quarter and $48 million over the nine months. It also cited the Russia-Ukraine war, which affected EMEA revenue, while noting that customers in Russia, Belarus, and Ukraine represented less than 1% of net assets and total consolidated revenue. The MD&A warned that revenue growth has declined and is expected to generally decline because of factors such as higher market penetration, increased competition, slower demand as the COVID-19 pandemic tapers, and broader macroeconomic conditions. Research and development, sales and marketing, and general and administrative expenses are all expected to increase both in absolute dollars and as a percentage of revenue for the rest of the fiscal year. Those cost trends, along with online churn and currency pressure, are the main items to watch.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.10B | $1.10B | +0.2% | $1.05B | +4.9% |
| Gross profit | $831.2M | $825.8M | +0.7% | $779.8M | +6.6% |
| Gross margin | 75.4% | 75.1% | +0.3 pp | 74.2% | +1.2 pp |
| Research & development | $195.9M | $172.6M | +13.5% | $98.5M | +98.9% |
| Sales & marketing | $427.7M | $400.5M | +6.8% | $293.7M | +45.6% |
| General & administrative | $141.0M | $131.1M | +7.6% | $96.7M | +45.8% |
| Total operating expenses | $764.7M | $704.1M | +8.6% | $488.9M | +56.4% |
| Operating income (loss) | $66.5M | $121.7M | -45.4% | $290.9M | -77.1% |
| Operating margin | 6.0% | 11.1% | -5.0 pp | 27.7% | -21.6 pp |
| Net income (loss) | $48.4M | $45.8M | +5.7% | $340.4M | -85.8% |
| Net margin | 4.4% | 4.2% | +0.2 pp | 32.4% | -28.0 pp |
| Diluted EPS | $0.16 | $0.15 | +$0.01 | $1.11 | -$0.95 |
| Customers | 2,507 | 2,278 | +10.1% | 433,700 | -99.4% |
Risks
The filing states revenue growth rate has declined and is expected to generally decline due to tapering COVID-19 pandemic, higher market penetration, increased competition, and business maturation. Revenue rose 4.9% in the quarter and 8.1% year to date, but management expects growth to slow.
High inflation, recessionary conditions, and foreign currency fluctuations may reduce demand. MD&A reports unfavorable foreign currency impact of $24 million and $48 million on revenue for the three and nine months ended October 31, 2022, respectively.
The market is competitive and price sensitive, with competitors including Microsoft Teams, Google Meet, Cisco Webex, and consumer platforms. The launch of Zoom Contact Center may increase competition with Five9, Genesys, and NICE inContact.
The business depends on retaining and upselling customers and converting free hosts to paid plans, but many pandemic-era free users may never upgrade. Online customer revenue declined 9% in the quarter and 7% year to date, and the trailing 12-month net dollar expansion rate for Enterprise customers fell to 117% from 139%.
Past security vulnerabilities and incidents have led to negative publicity, regulatory scrutiny, and class action lawsuits alleging misleading statements about data privacy and security. Risks remain from nation-state actors, ransomware, and customer delays in installing updates.
Operations in China and data practices have caused regulatory scrutiny, including a 2019 service shutdown in China and DOJ subpoenas from EDNY and NDCA regarding foreign government interactions and user data. Investigations are ongoing and could result in fines, penalties, or reputational harm.
Expenses have increased significantly, including total stock-based compensation expense of $302.8 million in the quarter versus $114.8 million in the prior-year quarter. Operating margin decreased to 6.0% from 27.7% in the quarter, down 21.6 pp, and management expects expenses to continue increasing.
Increased investment in sales to large organizations may lengthen sales cycles and create greater deployment challenges, pricing concessions, and higher upfront costs with less predictable timing.
Headcount grew from 6,269 full-time employees as of October 31, 2021 to 8,422 as of October 31, 2022. Competition for software developers and sales personnel is intense, and stock price volatility may make equity compensation less attractive and increase turnover.
Service depends on co-located data centers and third-party clouds, and the filing notes past partial outages and potential capacity constraints. Reliance on public cloud providers for short-term capacity may increase variable costs.
Strategic investments in public and private companies can cause volatility in results. Losses on strategic investments, net were $(6.9) million in the quarter versus gains of $122.4 million in the prior-year quarter, and $(78.0) million year to date versus gains of $154.5 million in the prior-year period.
The Russia-Ukraine war impacted EMEA revenue for the three and nine months ended October 31, 2022, though customers in Russia, Belarus, and Ukraine represented less than 1% of net assets and total consolidated revenue. Worsening sanctions or global disruptions could materially impact the business.
SaaS KPIs
All quarters →Non-GAAP Operating Margin
Free Cash Flow
Online Average Monthly Churn
Enterprise Customers
Customers Contributing More Than $100,000 in Trailing 12 Months Revenue
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q3 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.