EPS of $0.81 increased by 19.3% from previous year
Gross margin of 76.3%
Net income of 254.60M
""We delivered another solid quarter, showcasing the power of our platform and innovation engine in helping customers navigate short-term challenges with greater efficiency while positioning them for long-term success."" - Eric Yuan
Zoom Video Communications Inc (ZM) Q1 2026 Financial Analysis: Growing Through Innovation in a Competitive Landscape
Executive Summary
Zoom Video Communications Inc. delivered a solid performance in Q1 2026, with total revenue reaching approximately $1.175 billion, reflecting a 3% year-over-year increase, and beating management's guidance. The company's enterprise revenue contributed significantly, growing by 6% year-over-year and representing 60% of total revenue. Management emphasized the successful integration of AI innovations and ongoing product developments aimed at enhancing customer productivity and reducing operational costs. Despite external challenges in the macroeconomic environment, the metrics indicate resilience, especially in customer retention and growth in high-value sectors. The company remains committed to expanding its AI capabilities and leveraging its unified communication platform to drive future growth.
Through strategic investments and robust performance indicators, Zoom projects a cautious yet optimistic outlook for FY 2026, expecting revenue between $4.8 billion and $4.81 billion. Investors should note the strong cash position as well as management’s proactive stance on enhancing shareholder value amidst evolving market dynamics.
Key Performance Indicators
Revenue
1.17B
QoQ: -0.80% | YoY:2.93%
Gross Profit
896.31M
76.30% margin
QoQ: -0.05% | YoY:11.08%
Operating Income
241.59M
QoQ: 59.06% | YoY:-12.53%
Net Income
254.60M
QoQ: -30.79% | YoY:17.70%
EPS
0.84
QoQ: -30.42% | YoY:19.29%
Revenue Trend
Margin Analysis
Key Insights
Total Revenue: $1.175 billion, up 3% YoY.
Enterprise Revenue: $706.3 million, up 6% YoY.
Online Business Churn: Improved to 2.8%, the lowest first quarter churn rate.
Gross Profit: $896.3 million (Gross Profit Margin: 76.3%), slightly lower YoY due to AI investments.
Operating Income: $241.6 million (Operating Margin: 20.5%), marking a significant 59.1% increase QoQ.
Financial Highlights
1. Revenue Growth:
- Total Revenue: $1.175 billion, up 3% YoY.
- Enterprise Revenue: $706.3 million, up 6% YoY.
- Online Business Churn: Improved to 2.8%, the lowest first quarter churn rate.
2. Profitability Ratios:
- Gross Profit: $896.3 million (Gross Profit Margin: 76.3%), slightly lower YoY due to AI investments.
- Operating Income: $241.6 million (Operating Margin: 20.5%), marking a significant 59.1% increase QoQ.
- Non-GAAP Diluted EPS: $1.43, beating EPS guidance by $0.12.
3. Cash Flow Position:
- Operating Cash Flow: $489 million, representing an operating cash flow margin of 41.6%.
- Free Cash Flow: $463 million with a free cash flow margin of 39.4%.
Management Notes:
- Eric Yuan, CEO: "Adoption of Zoom AI Companion continues to grow, with monthly active users up nearly 40% quarter over quarter. Our innovations are not just features but are redefining modern work and delivering major cost savings and productivity gains."
- Michelle Chang, CFO: "We are pleased to raise our full-year revenue guidance by $15 million, reflecting the ongoing strength in both our Online and Enterprise businesses despite the uncertain macroeconomic environment."
"We delivered another solid quarter, showcasing the power of our platform and innovation engine in helping customers navigate short-term challenges with greater efficiency while positioning them for long-term success."
— Eric Yuan
"We continue providing tremendous AI value at no additional cost to users with a paid license, we're now monetizing through Custom AI Companion."
— Eric Yuan
Forward Guidance
Management has raised the revenue outlook for FY 2026 to a range of $4.8 billion to $4.81 billion, signifying an expected growth rate of approximately 3% YoY at the midpoint. This outlook considers positive trends in enterprise adoption but is tempered by caution regarding the overall macroeconomic conditions. The Q2 revenue is projected between $1.195 billion and $1.200 billion, maintaining the steady growth trajectory. Management's guidance reflects the resilience of core offerings while investing in AI capabilities which they believe will be the cornerstone for future growth.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ZM Focus
76.30%
N/A
N/A
N/A
AI
59.80%
-83.20%
-7.18%
-13.30%
SHOP
49.50%
8.60%
-6.17%
-45.34%
CRM
76.30%
18.70%
2.57%
42.54%
WDAY
75.40%
2.93%
1.31%
151.21%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Zoom Video Communications Inc. presents a sound investment opportunity for those looking toward the technology sector, fueled by ongoing digital transformations and increasing demand for AI-driven business solutions. The company’s proactive approach to integrating AI innovations, combined with a strong balance sheet and improving customer metrics, supports a favorable long-term investment narrative. However, potential investors should remain vigilant regarding macroeconomic risks and competitive pressures that could impact future growth.
Key Investment Factors
Growth Potential
Zoom's investments in AI and its unified communications platform position it well for future growth, particularly in the healthcare and enterprise sectors where demand for integrated solutions is increasing.
Profitability Risk
Potential risks include a cautious macroeconomic environment that could impact enterprise spending and the challenges of maintaining competitive pricing against rivals adding similar capabilities.
Financial Position
Zoom's strong cash position, with over $7.8 billion in cash and investments, provides it with the flexibility to innovate and manage operational expenses while continuing capital returns to shareholders.
SWOT Analysis
Strengths
Strong financial position with significant cash reserves.
Innovative product suite enhanced by AI capabilities.
Record low churn rate in customer retention, showcasing strong customer loyalty.
Weaknesses
Higher operating expenses due to significant investment in AI and product development.
Dependency on enterprise revenue which is subject to macroeconomic changes.
Opportunities
Growing demand for integrated communication solutions in sectors like healthcare and remote work.
Expansion of AI functionalities can attract new customers and improve monetization.
Threats
Intense competition from established tech players in video conferencing and communication.