Summary
Zoom closed the third quarter of fiscal 2024 with revenue of $1,136.7 million, up 3.2% from the prior-year quarter. That top line was enough to lift reported profitability across the board. Gross profit was $865.7 million, up 4.2%, and gross margin rose to 76.2% from 75.4% a year earlier, helped by the shift from third-party cloud hosting to internal data centers. GAAP operating income jumped 154.7% to $169.4 million, and GAAP operating margin reached 14.9%, up from 6.0%. Net income was $141.2 million, or $0.45 per diluted share, against $48.4 million and $0.16 in the year-ago quarter.
The mix tells a more complicated story. Enterprise revenue rose 7.5% year over year, while Online revenue declined 2.4%. Enterprise customers accounted for 58.1% of total revenue in the quarter, per the 10-Q, against 55.7% a year earlier. Zoom ended the quarter with roughly 219,700 Enterprise customers, up 5.0%, and 3,731 customers contributing more than $100,000 in trailing 12-month revenue, up approximately 13.5%. Expansion inside the base is slowing, though. The trailing 12-month net dollar expansion rate for Enterprise customers was 105% as of October 31, 2023, versus 117% a year earlier. Online average monthly churn improved to 3.0%, which the company described as down 10 basis points from the same quarter last fiscal year, and 73.2% of Online MRR came from customers with at least 16 months of service, up 250 basis points.
Cash generation was the standout. Operating cash flow was $493.2 million for the quarter, up 67.0%, and capital expenditures were $40.0 million, up 76.2%. Free cash flow, which the company defines as operating cash flow less purchases of property and equipment, was $453.2 million, up 66.2%. Total cash, cash equivalents and marketable securities stood at $6.5 billion on October 31, 2023. Cost discipline explains much of the margin gain. Sales and marketing expense fell 12.5%, general and administrative expense fell 11.3%, and research and development expense rose 0.5%. The restructuring plan announced in February 2023, which cut about 15% of the workforce, was completed as of July 31, 2023.
On a year-to-date basis, revenue was $3.38 billion, up 3.2%, net income was $338.6 million, up 63.0%, and operating income was $356.7 million, down 4.9%. Operating cash flow for the nine months was $1.25 billion, up 15.7%. Management raised its outlook for the full fiscal year 2024. Full-year revenue is guided to $4.506 billion to $4.511 billion, alongside non-GAAP income from operations of $1.740 billion to $1.745 billion and non-GAAP diluted EPS of $4.93 to $4.95 on roughly 308 million weighted average shares. For the fourth quarter, the company guides revenue of $1.125 billion to $1.130 billion and non-GAAP diluted EPS of $1.13 to $1.15 on roughly 312 million weighted average shares. Full-year free cash flow is expected in the range of $1.34 billion to $1.35 billion, up approximately 13% year over year.
Several pressures sit underneath the headline growth. The 10-Q flags high inflation, elevated interest rates, potential recessionary conditions, elongated sales cycles and a decrease in customers' overall corporate spending. Foreign currency was a headwind: the strengthening U.S. dollar reduced revenue by $3.9 million in the quarter and $32.6 million over the nine months. Competition, market volatility and the conflicts in Ukraine and Israel also appear in the risk discussion, with customers in those regions representing approximately 1% of net assets and total consolidated revenue. Backlog signals are mixed. Current deferred revenue of $1.30 billion was down 0.8% year over year, while remaining performance obligations of $3.57 billion were up 10.0%, so contracted but unbilled work is growing even as near-term billings slip.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2024 | Q2 FY2024 | QoQ | Q3 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.14B | $1.14B | -0.2% | $1.10B | +3.2% |
| Gross profit | $865.7M | $872.1M | -0.7% | $831.2M | +4.2% |
| Gross margin | 76.2% | 76.6% | -0.4 pp | 75.4% | +0.7 pp |
| Research & development | $196.8M | $191.8M | +2.6% | $195.9M | +0.5% |
| Sales & marketing | $374.4M | $373.4M | +0.3% | $427.7M | -12.5% |
| General & administrative | $125.1M | $129.3M | -3.2% | $141.0M | -11.3% |
| Total operating expenses | $696.4M | $694.5M | +0.3% | $764.7M | -8.9% |
| Operating income (loss) | $169.4M | $177.6M | -4.6% | $66.5M | +154.7% |
| Operating margin | 14.9% | 15.6% | -0.7 pp | 6.0% | +8.9 pp |
| Net income (loss) | $141.2M | $182.0M | -22.4% | $48.4M | +192.0% |
| Net margin | 12.4% | 16.0% | -3.6 pp | 4.4% | +8.0 pp |
| Diluted EPS | $0.45 | $0.59 | -$0.14 | $0.16 | +$0.29 |
| Customers | 3,286 | 3,116 | +5.5% | 2,507 | +31.1% |
Risks
High inflation, elevated interest rates, potential recession, U.S. federal government shutdown risk, and recent bank failures create uncertainty. MD&A states these conditions have led to elongated sales cycles and a decrease in customers' overall corporate spending, and foreign currency movements had a $3.9 million negative impact on revenue for the quarter and $32.6 million for the nine months ended October 31, 2023.
Risk factors emphasize that AI and machine learning are changing competition, with established companies including Microsoft Teams and Google Meet bundling video functionality and new AI-powered collaboration tools potentially making Zoom's platform obsolete. Zoom introduced Zoom AI Companion, which increased hosting costs and requires ongoing investment in AI features.
As Zoom increases sales to large organizations, sales cycles have lengthened and could continue to lengthen due to size, approval requirements, and negotiation processes. MD&A cites elongated sales cycles and greater deployment challenges, leading to higher upfront sales costs and greater unpredictability in results.
Trailing 12-month net dollar expansion rate for Enterprise customers was 105% as of October 31, 2023 and 117% as of October 31, 2022. Revenue from Online customers declined 2.4% for the quarter and 4.7% for the nine months ended October 31, 2023, while Online average monthly churn was 3.0% for the quarter and 3.1% for the nine months.
Zoom has experienced security incidents and vulnerabilities in the past, including the July 2019 researcher blog and March 2020 macOS vulnerabilities, and faces securities class action litigation alleging false statements about data privacy and security. Because many customers worldwide rely on the platform, a compromise could simultaneously affect a significant number of customers and create catastrophic liability.
A majority of free hosts, including those who subscribed during the COVID-19 pandemic, may never upgrade to a paid Zoom Meeting plan. Risk factors state user growth rate may slow or decline during the pandemic recovery, and revenue growth rate may decline in future periods due to higher market penetration, competition, and slowing demand.
The February 2023 Restructuring Plan reduced the workforce by approximately 15% and was completed as of July 31, 2023. Risk factors cite employee attrition beyond intended reductions, adverse effects on morale, diversion of management attention, and the possibility that expected cost savings and margin improvements are not achieved, with restructuring expenses already affecting R&D and G&A.
Zoom has a sizable number of research and development personnel in China and faces increased scrutiny from U.S.-China geopolitical and national security tensions. The Chinese government has at times turned off Zoom's service in China without warning, and international revenue from APAC and EMEA decreased as a percentage of total revenue amid macroeconomic and foreign currency pressures.
General and administrative expense for the nine months ended October 31, 2023 increased 16.5%, including a $33.5 million increase in legal expense including litigation settlements. Risk factors cite evolving privacy, data protection, cybersecurity notice laws, and SEC reporting requirements that could increase compliance costs and lead to fines or enforcement actions.
Losses on strategic investments, net increased 269.3% to $25.5 million for the quarter ended October 31, 2023 compared to the prior-year quarter, mainly due to changes in values of publicly held securities. Fair value adjustments flow through the statement of operations, adding volatility to reported financial results.
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
Percentage of total Online MRR from Online customers with continual term of service of at least 16 months
Summary, forecast, risks and KPIs are extracted from Zoom Communications, Inc.'s SEC filings for Q3 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.