Zoom Communications, Inc. (ZM) shares are sliding in premarket trading Wednesday after the company delivered a solid second-quarter beat but tempered enthusiasm with softer-than-expected third-quarter guidance.
Zoom's Q2 Beat Gets Overshadowed by Soft Guidance, Stock Slips
MarketDash
Zoom reported strong Q2 results with revenue and EPS beats, but its Q3 outlook came in below expectations, sending shares down in premarket trading.
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Earnings Snapshot
The company reported revenue of $1.28 billion for the second quarter, beating the consensus estimate of $1.27 billion. Adjusted earnings came in at $1.55 per share, topping analyst expectations of $1.48 per share.
Adjusted gross margin was 79.1%, down from 79.8% a year earlier, as the company expanded its AI portfolio and customer adoption. Adjusted operating income rose 1% year over year to $510 million, while operating margin declined to 40.0% from 41.3% a year ago.
Deferred revenue grew 6% YoY to $1.56 billion, above the expected 2%-3% growth, while RPO rose 14% to about $4.5 billion, driven by 25% growth in non-current RPO.
Operating cash flow reached $495 million with a 38.7% margin, while free cash flow was $472 million in the quarter.
Zoom ended the quarter with $7.2 billion in cash, equivalents and marketable securities and repurchased 3.7 million shares for $352 million. Under its $4.7 billion buyback plan, it has repurchased 44.2 million shares for $3.4 billion.
Key Metrics
Revenue rose 4.9% year over year to $1.28 billion, $7 million above the high end of guidance, while Enterprise revenue grew 7.8% to 62% of total revenue.
Enterprise customers generating over $100,000 in trailing-12-month revenue increased 8%, with Net Dollar Expansion at 99%. International revenue grew 6% in the Americas, 2% in EMEA and 4% in APAC.
Workplace AI Monthly Active Users jumped 125% Y/Y, while Zoom Phone ARR grew in the teens.
Workvivo surpassed $100 million in ARR and secured a major insurer deal. Zoom CX ARR grew at a high-double-digit rate, with paid AI included in nine of its top 10 deals.
Virtual Agent customers surged over 250%, Revenue Accelerator paid customers rose 41%, and Zoom completed its Common Room acquisition in July.
Outlook
For the third quarter, Zoom expects revenue in the range of $1.275 billion to $1.28 billion, versus estimates of $1.282 billion. The company anticipates adjusted earnings of $1.46 to $1.48 per share, below the $1.50 per share analysts were looking for.
The company raised its fiscal 2027 guidance. It now expects full-year revenue of $5.085 billion to $5.095 billion, versus estimates of $5.09 billion. This reflects stronger-than-expected Enterprise growth partly offset by flat Online revenue.
Zoom now sees full-year adjusted earnings of $6.08 to $6.12 per share versus estimates of $6.08 per share.
Free cash flow guidance was also raised to $1.78 billion-$1.82 billion on strong first-half FCF and lower planned capex. The EPS outlook excludes future share repurchases.
Management expects revenue to exceed $5 billion while maintaining its focus on profitability, cash flow and shareholder returns.
ZM Price Action: Zoom Communications shares were down 7.10% at $93.75 during premarket trading on Wednesday.
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