Zoom Reports 39% Cash Flow Jump in Q2

Zoom Video Communications (ZM 1.54%), best known for its video conferencing software and now expanding into unified communications, released its second quarter fiscal 2026 results on August 21, 2025. The company reported higher revenue, stronger non-GAAP earnings, and sharply improved non-GAAP margins compared to both its own past guidance and Wall Street expectations. Revenue came in at $1,217.2 million, above both the $1,211.12 million analyst consensus (non-GAAP) and the company’s forecasted range. Non-GAAP earnings per share (EPS) registered at $1.53, ahead of the $1.39 estimate. Free cash flow (non-GAAP) grew 39.1% year over year compared to Q2 FY2025. Overall, the quarter reflected significant progress in profitability, ongoing cash generation, and continued momentum in its core Enterprise segment.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2026 earnings report.

About the business and focus areas

Zoom builds cloud-based collaboration tools, including video meetings, team chat, cloud phone systems, and developer application programming interfaces (APIs). Its products are designed to support flexible work, from large-scale webinars to all-in-one communications platforms for enterprises and small businesses. The company's mission is to power human connection by making communications frictionless across locations and devices.

Recently, the business has prioritized expanding its core video capabilities, developing artificial intelligence (AI) tools, broadening integrations, and scaling internationally. Key drivers of success include its Enterprise segment performance, maintaining strong security and privacy standards, and advancing features like AI Companion, a generative AI assistant embedded in Zoom’s work platform. Continued engagement and retention among enterprise customers, the ability to upsell new tools, and expanding in international markets are also central to long-term growth.

Quarterly highlights and financial performance

During Q2 FY2026, Zoom saw a 4.7% year-over-year increase in GAAP revenue. That growth was driven mainly by the Enterprise segment, which generated $730.7 million in revenue, up 7.0% year over year. The number of Enterprise customers spending more than $100,000 annually climbed to 4,274, up 8.7% from the prior year.

The Online segment, which services smaller businesses and individual users, contributed $486.6 million—up 1.4% year over year. Online customer retention remained stable, with monthly customer churn holding steady at 2.9%. Notably, 74.9% of recurring revenue in the Online business now comes from customers with 16 months or more of continual service, which rose 0.5 percentage points year over year.

Operating margin expanded to 26.4%, up from 17.4% in Q2 FY2025. The company also delivered $508.0 million in free cash flow (non-GAAP), a 39.1% year-over-year increase. Net income (GAAP) rose to $358.6 million. The company repurchased approximately 6.0 million shares as part of an ongoing buyback program, which has now retired 27.4 million shares to date. This activity partially offset ongoing dilution from stock-based compensation, which is still a sizable component of the company’s compensation expenses.

Zoom continued to build out its AI-first work platform, centering its efforts on AI Companion. This product is a digital assistant for meetings, developed with both Zoom-designed and third-party AI models. According to CEO Eric Yuan, AI features now come at no extra charge to paid users, unlike many competitors. AI Companion powers tasks like meeting summaries, scheduling, and workflow automations. Zoom’s federated AI approach underpins this strategy, aiming for both productivity gains and cost reductions. Custom AI Companion, designed for enterprises with specialized needs, has seen growing demand, but its revenue contribution is not expected to be material until later periods.

Zoom Phone, which is its cloud-based phone system, and the Contact Center software continue to show momentum. The company maintains a strong security posture, holding to end-to-end encryption and a policy of not using customer data for AI training. While there were no major updates on product security, these measures remain crucial for customer trust.

However, the impact of these development initiatives was not broken out in this quarter’s financial metrics. International expansion continues to be a company focus, with localization efforts such as translated captions in over 35 languages and strategic channel partnerships outside the U.S. However, the latest release did not provide detailed international growth data.

While operational progress was evident, challenges persist. The Enterprise net dollar expansion rate held at 98%, below the 100% benchmark that signals expansion within existing accounts is keeping up with any churn. Persistent stock-based compensation, totaling about 17% of revenue in Q1 FY2026, remains a significant expense. Additionally, competition remains strong, especially from providers bundling communications tools into broader productivity suites.

Looking forward: Guidance and outlook

For Q3 FY2026, management guided GAAP revenue in the range of $1,210 to $1,215 million. This forecast suggests nearly flat revenue compared to the just-reported quarter—a pattern that is typical for this point in the company’s fiscal year. Non-GAAP operating income is expected to be $465 to $470 million, and non-GAAP EPS is expected to fall to $1.42 to $1.44.

Full-year guidance was raised: management now expects revenue of $4,825 to $4,835 million, up from the prior range, and free cash flow (non-GAAP) of $1.74 to $1.78 billion. Non-GAAP operating income is now forecast at $1,905 to $1,915 million, and non-GAAP EPS in the range of $5.81 to $5.84. The company has $724.7 million remaining on its authorized share repurchase plan as of July 31, 2025. ZM does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.