Zoom Communications reported a dramatic increase in fiscal second-quarter GAAP net income, but gains on strategic investments more than explained the headline profit, rather than a comparable increase in operating earnings.
GAAP net income reached $1.54 billion, or $5.15 per diluted share, compared with $358.6 million, or $1.16 per diluted share, in the prior-year quarter. Zoom’s non-GAAP reconciliation showed $1.61 billion of net gains on strategic investments during the quarter, an amount larger than the company’s entire reported GAAP net income.
The contrast is visible in Zoom’s adjusted results. Non-GAAP net income was $464 million, or $1.55 per diluted share, compared with $471.3 million, or $1.53 per diluted share, a year earlier. In other words, GAAP profit more than quadrupled while adjusted net income declined slightly.
The underlying business still grew. Total revenue increased 4.9% to $1.28 billion, while constant-currency revenue increased 4.7%. Enterprise revenue rose 7.8% to $787.5 million, its strongest growth rate in three years, while Online revenue increased 0.6% to $489.7 million.
GAAP operating income was $314.3 million compared with $321.7 million a year earlier, and GAAP operating margin declined to 24.6% from 26.4%. Non-GAAP operating income increased modestly to $510.3 million from $503.2 million, while non-GAAP operating margin was 40%.
Zoom’s AI initiatives are becoming a more important part of its enterprise growth strategy. The company said its AI-first Customer Experience portfolio produced high-double-digit annual recurring revenue expansion, with the customer count for Zoom Virtual Agent up 256% year over year.
The company is also broadening its AI product portfolio through products including ZoomMate, My Notes, AI Productivity Suite, ZVA Receptionist and Workvivo HQ Agent, along with acquisitions such as Common Room and BrightHire.
Customers generating more than $100,000 in trailing 12-month revenue increased 8.2% to 4,625. Enterprise net dollar expansion improved to 99% from 98%, while Online monthly churn held at 2.9%.
Cash generation remained substantial but declined from the prior-year period. Operating cash flow was $494.8 million compared with $515.9 million, and free cash flow declined to $472.4 million from $508 million.
For fiscal 2027, Zoom expects revenue of $5.085 billion to $5.095 billion, non-GAAP operating income of $2.065 billion to $2.075 billion, and free cash flow of $1.78 billion to $1.82 billion.
KEY QUOTES:
“Our AI-first Customer Experience portfolio continues to scale, delivering high-double-digit ARR expansion, driven in part by strong adoption of Zoom Virtual Agent, whose customer count increased 256% year over year.”
Eric S. Yuan, Founder and CEO of Zoom Communications
