Zoom (NasdaqGS:ZM) Q4 2026 Earnings call February 25, 2026 05:00 PM ET Speaker3 Hello, everyone, and welcome to Zoom's Q4 FY 2026 earnings release webinar. I will now hand things over to Charles Evislage, Head of Investor Relations. Charles, over to you. Thank you, Catherine. Hello, everyone, welcome to Zoom's earnings video webinar for the fourth quarter and full fiscal year 2026. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Our earnings release was issued today af ...

Core Viewpoint - Zoom's strategic investment in Anthropic positions it favorably in the AI sector, potentially leading to significant shareholder value as Anthropic's valuation increases [1][2][3] Investment Strategy - Zoom Ventures made a strategic investment in Anthropic in May 2023, which has since become a leading competitor in AI, enhancing Zoom's investment narrative [2][3] - The investment in Anthropic allows Zoom to be viewed as a deep-value holding company rather than just a software utility, providing a backdoor entry into the private AI market [3][5] Financial Position - Zoom holds approximately $7.9 billion in cash and marketable securities, with zero debt, providing a strong financial cushion [6][8] - Analysts are using a sum-of-the-parts valuation method, indicating that Zoom is trading at a discount compared to its software peers [6][7] Valuation Insights - The current market cap of Zoom is around $27 billion, with the core business operations valued at approximately $19.5 billion after accounting for cash and the estimated value of the Anthropic stake [8] - The presence of cash and the AI stake offers a margin of safety, limiting downside risk and justifying a significant portion of the stock price [7][14] Competitive Advantage - The partnership with Anthropic serves as a defensive strategy against competitors like Microsoft, allowing Zoom to leverage AI capabilities without incurring high costs [9][10] - Zoom's federated AI approach enables it to provide premium AI features at no additional cost, enhancing subscription value and reducing customer churn [11][12] Evolving Investment Thesis - The investment thesis for Zoom has shifted from a speculative growth play in 2020 to a value-oriented investment in 2026, reflecting its transformation into a mature platform with diversified assets [13][15] - Despite facing growth headwinds, Zoom's substantial cash reserves and disciplined capital allocation create an attractive risk-reward profile for investors [14][15]

Investment Overview - Zoom's investment in Anthropic in 2023 is estimated to be worth between $2 billion and $4 billion, according to analysts from Baird [1] - The investment is seen as a potential "hidden gem" for Zoom, especially as the company seeks to enhance its revenue growth [3] Partnership Details - In May 2023, Zoom Ventures announced a partnership and investment in Anthropic, although the specific value of the investment was not disclosed [2][4] - A filing with the SEC indicated that Zoom made $51 million in strategic investments during the quarter [2] Valuation and Returns - Baird analysts estimate that most of Zoom's investment went to Anthropic, which is currently valued at $350 billion, suggesting a potential return of 78 times the initial investment [3] - Anthropic is reportedly aiming to raise $10 billion in a funding round that would further solidify its valuation at $350 billion, nearly double its previous valuation [5] Financial Performance - Anthropic's valuation increased significantly from $183 billion in a Series F funding round in September 2025, where it raised $13 billion [6] - The company's run-rate revenue surged from approximately $1 billion at the beginning of 2025 to over $5 billion by August, with its Claude Code tool generating over $500 million in revenue [6] AI Integration - Zoom plans to integrate Anthropic's AI assistant, Claude, into its platform, starting with the Zoom Contact Center [4] - In March, Zoom announced enhancements to its AI Companion, making it more agentic [7]

Summary of the Conference Call on US Software Industry Outlook for 2026 Industry Overview - The conference call focuses on the US Software industry, particularly the impact of AI on budgets and spending trends for 2026 [1][3][5]. Key Insights and Arguments 1. **Budget Growth and IT Spending**: - The 4Q25 CIO Survey indicates a significant acceleration in IT budget growth, with expectations of a +3.3% increase over the next 12 months, up from +1.9% in the previous quarter [3][18]. - There is a strong likelihood of a budget flush at the end of 2025, which is expected to positively impact companies like ServiceNow (NOW) and HubSpot (HUBS) [18][11]. 2. **AI Demand and Capacity**: - Demand for AI capabilities is anticipated to outpace current capacity, with a focus on scaling AI solutions within enterprises [5][23]. - The year 2025 was characterized by experimentation with AI, and 2026 is expected to see significant expansion in use cases that deliver high ROI [5][23]. 3. **Company Ratings and Growth Drivers**: - Zoom (ZM) and Palantir (PLTR) have been upgraded to Buy ratings due to improved growth visibility and strong catalysts [6][8]. - ZM is projected to achieve over 5% top-line growth, driven by its Contact Center and Custom AI Companion, while PLTR is expected to see a +51% year-over-year revenue growth, primarily from the US Commercial sector and government spending [8][9]. 4. **Market Dynamics and Risks**: - Despite the positive outlook for AI, there are ongoing concerns regarding the terminal value of application software, which may continue to pressure valuations [4][29]. - The software market is experiencing significant disruption risks from AI, particularly affecting traditional application vendors [29]. 5. **Investment Priorities**: - Data Analytics, Generative AI, and Data Warehousing have become the top investment priorities, reflecting the shift towards AI-driven solutions [18][26]. - Companies like Snowflake (SNOW), MongoDB (MDB), Microsoft (MSFT), and Oracle (ORCL) are favored for their AI capabilities and consumption models [26]. Additional Important Points - **Performance Metrics**: - The performance of various software companies in 2025 showed significant disparities, with PLTR achieving 147% sales growth, while others like HubSpot (HUBS) faced a decline of 43% [12][46]. - The overall sentiment indicates that while some companies are positioned well for growth, others are struggling with multiple compression and lower growth expectations [45][47]. - **Future Expectations**: - The environment for 2026 is expected to remain volatile, with a focus on growth in value, cyclical, and small/mid-cap names [30]. - Anticipated rate cuts in 2026 may positively impact software investments, particularly in AI, due to lower borrowing costs [34]. This summary encapsulates the key themes and insights from the conference call, highlighting the evolving landscape of the US Software industry as it adapts to AI advancements and changing budget dynamics.

Core Insights - Zoom has launched the Zoom Solopreneur 50 List (ZSP50), a recognition and grant program aimed at celebrating independent entrepreneurs who are leveraging AI to enhance their business operations [1][2] Program Details - Nominations for the ZSP50 are open until February 13, 2026, allowing individuals to nominate themselves or others [2] - The program will honor 50 solopreneurs across the U.S. who are making significant impacts through their independent ventures [2][7] - Honorees will be announced in Q2 2026 and will receive exposure through Zoom's platforms, access to a community of peers, and eligibility for financial grants [8] AI Integration - AI is increasingly becoming a core capability for solopreneurs, with 64% of surveyed small businesses stating they could not operate without it [4] - 91% of small businesses reported a return on AI investments within one year, with significant benefits in cost reduction (82%), customer acquisition (91%), and retention (87%) [4] - Solopreneurs are able to quickly adopt AI tools, allowing for real-time testing and application of new capabilities [5][6] Market Context - There are over 30 million small businesses in the U.S., with 82% operating without employees, highlighting the growing trend of solopreneurship [3] - The ZSP50 aims to recognize individuals across various sectors, including technology, wellness, media, and social impact, who operate without full-time employees [7]

Core Message - Zoom has launched a new brand campaign titled "Zoom Ahead," developed in collaboration with Colin Jost's No Notes Productions, which humorously critiques ineffective technology while advocating for user-friendly solutions [1][3]. Group 1: Campaign Details - The "Zoom Ahead" campaign will debut on December 31 during the U.S. College Football Playoffs, featuring a hero spot titled "I Use Zoom!" that emphasizes the desire for technology that works effectively [1]. - The campaign will include high-profile placements, such as a Super Bowl pre-show on February 8, and will be supported by various digital, social, and experiential activations throughout Spring 2026 [1]. Group 2: User Feedback and Recognition - Recent Q3 FY26 NPS data indicates that Zoom's AI-first platform has received over 22,000 responses with an industry-leading score of 58, with more than 70% of users praising its simplicity and 40% citing reliability [2]. - Zoom has been recognized as a Customers' Choice in the Gartner Peer Insights™ "Voice of the Customer" report and is one of only two companies positioned in both the UCaaS and CCaaS Magic Quadrants [2]. Group 3: Brand Positioning - The campaign's messaging resonates with audiences by humorously addressing the frustration with subpar tools, reinforcing that "Zoom" has become synonymous with productivity [3]. - The campaign marks the first official use of "Zoom" as a verb in advertising, highlighting its strong brand recognition compared to competitors [3]. Group 4: Product Evolution - Zoom is evolving beyond a meetings app to an AI-first workplace platform designed for user needs, featuring a comprehensive portfolio that includes communication, collaboration, productivity, customer experience, and sales & marketing tools [5]. - The platform aims to transform business collaboration with powerful, safe, and secure tools that align with modern work practices [5].

Core Insights - Zoom is focusing on AI for its contact center offerings, which is showing positive results with increased customer interest in both autonomous and human-assisted AI tools [3][4] - New customers for Zoom's contact center include SolarWinds and LegalShield, who are transitioning to a unified AI-powered platform [3] - The company is exploring alternative cost models for its AI contact center services, moving towards an outcome-based model for Zoom Virtual Agent [5] Financial Performance - Zoom reported $1.2 billion in revenue for Q3 2026, reflecting a year-over-year increase of 4.4% [5] - The online average monthly churn rate was 2.7% for the quarter [5] Customer Experience Growth - The customer experience segment, including Zoom Contact Center, experienced high double-digit growth in annual recurring revenue during the quarter [7] - Nine out of the ten largest customer experience deals involved AI solutions, highlighting the significance of AI in Zoom's offerings [7] - The company views customer experience as a critical long-term growth area, with AI innovations enhancing both team collaboration and customer engagement [7]

Financial Data and Key Metrics Changes - Total revenue for Q3 FY2026 grew 4.4% year-over-year to $1.23 billion, exceeding guidance by $15 million [13] - Enterprise revenue increased by 6.1% year-over-year, accounting for 60% of total revenue, up 1 percentage point year-over-year [13] - Non-GAAP gross margin improved to 80%, up 117 basis points from the previous year, driven by cost optimization [14] - Non-GAAP income from operations grew 11% year-over-year to $507 million, exceeding guidance by $37 million [14] - Non-GAAP diluted net income per share increased to $1.52, $0.08 above guidance and $0.14 higher than the previous year [15] - Operating cash flow grew 30% year-over-year to $629 million, representing a margin of 51.2% [16] - Free cash flow margin increased to 50%, up 11 percentage points year-over-year [16] Business Line Data and Key Metrics Changes - AI Companion adoption surged more than four times year-over-year, indicating strong demand for AI-driven solutions [8] - Team Chat monthly active users rose 20% year-over-year, enhancing asynchronous work capabilities [8] - Workvivo logos grew nearly 70% year-over-year to 1,225, indicating strong performance in employee experience offerings [9] - Zoom Phone surpassed 10 million paid seats, marking significant growth in unified communications [9] Market Data and Key Metrics Changes - Americas revenue grew 5% year-over-year, EMEA grew 3%, and APAC grew 4% [14] - The number of enterprise customers contributing over $100,000 in trailing 12-month revenue grew by 9% year-over-year [13] Company Strategy and Development Direction - The company aims to evolve into an AI-first platform for work and customer experience, focusing on three priorities: enhancing core products with AI, driving growth of new AI products, and scaling AI-first customer experience [7] - The acquisition of BrightHire is part of the strategy to enhance collaboration and customer engagement through AI [10] - The company is committed to disciplined growth while investing in AI and maintaining strong profitability [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's durability and the growing value delivered to customers [7] - The company anticipates continued strength in customer experience and AI differentiation as key growth drivers [11] - Management expects revenue for Q4 FY2026 to be in the range of $1.23 billion to $1.235 billion, representing approximately 4.1% year-over-year growth [17] Other Important Information - Deferred revenue at the end of Q3 grew 5% year-over-year to $1.44 billion [15] - The board authorized an incremental $1 billion share repurchase, reflecting confidence in the company's financial position [18] Q&A Session Summary Question: How should we think about growth heading into next year? - Management indicated that enterprise will continue to be the predominant growth driver, with a focus on stabilization and product diversification [23][24] Question: Can you discuss the pressure on net dollar expansion and seat-based contraction? - Management noted that while there are some seat pressures, overall macro demand remains strong, and net dollar expansion is stabilizing [28] Question: What is the company's approach to M&A going forward? - Management stated that future M&A will be thoughtful and disciplined, focusing on small to medium-sized investments that align with strategic goals [34] Question: Can you elaborate on the growth sustainability of Zoom Phone and customer experience? - Management highlighted strong growth in Zoom Phone and customer experience, driven by AI integration and customer demand [40][41] Question: How is the company integrating with other productivity software? - Management confirmed strong integrations with major ecosystems like Google and Microsoft, and emphasized the importance of customer feedback in driving integration efforts [67] Question: Were there any one-time benefits to free cash flow this quarter? - Management clarified that improvements in the collection process contributed to free cash flow, but these changes are sustainable rather than one-time [73][74] Question: How does the BrightHire acquisition fit into the broader platform expansion strategy? - Management indicated that BrightHire aligns with the strategy to leverage AI in mission-critical business workflows, particularly in HR [83][107]

Financial Data and Key Metrics Changes - Total revenue for Q3 FY2026 grew 4.4% year over year to $1.23 billion, exceeding guidance by $15 million [13] - Enterprise revenue increased by 6.1% year over year, accounting for 60% of total revenue, up 1 percentage point year over year [13] - Average monthly churn was 2.7%, matching last year's Q3 and marking an all-time low [13] - Non-GAAP gross margin improved to 80%, up 117 basis points year over year due to cost optimization [14] - Non-GAAP income from operations grew 11% year over year to $507 million, exceeding guidance by $37 million [14] - Non-GAAP diluted net income per share increased to $1.52, $0.08 above guidance and $0.14 higher than last year [15] - Operating cash flow grew 30% year over year to $629 million, with a margin of 51.2% [16] - Free cash flow margin increased to 50%, up 11 points year over year [16] Business Line Data and Key Metrics Changes - AI Companion adoption surged more than four times year over year, indicating strong demand for AI-driven solutions [8] - Team Chat monthly active users rose 20% year over year, enhancing asynchronous work capabilities [8] - WorkVivo logos grew nearly 70% year over year to 1,225, indicating strong performance in employee experience offerings [9] - Zoom Phone surpassed 10 million paid seats, with consistent ARR growth in the mid-teens [9] Market Data and Key Metrics Changes - Americas revenue grew 5% year over year, EMEA grew 3%, and APAC grew 4% [14] - Customer experience segment saw high double-digit ARR growth, with nine of the top ten CX deals involving paid AI solutions [11] Company Strategy and Development Direction - The company aims to evolve into an AI-first platform for work and customer experience, focusing on three priorities: elevating core products with AI, driving growth of new AI products, and scaling AI-first customer experience [7] - The acquisition of BrightHire is part of the strategy to enhance collaboration and customer engagement through AI [10] - The company is committed to disciplined growth while investing in AI and maintaining strong profitability [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's durability and the growing value delivered to customers [7] - The outlook for Q4 revenue is projected to be in the range of $1.23-$1.235 billion, representing approximately 4.1% year-over-year growth [17] - The company raised its full-year revenue guidance to $4.852-$4.857 billion, indicating a positive growth trajectory [18] Other Important Information - The board authorized an incremental $1 billion share repurchase, reflecting confidence in the company's financial health [18] - Deferred revenue grew 5% year over year to $1.44 billion, with expectations for continued growth in Q4 [15] Q&A Session Summary Question: Outlook for Q4 and pricing strategy for next year - Management indicated that they are not yet at the planning stage for FY2027 guidance, but enterprise growth will continue to be a key driver [22] Question: Pressure on enterprise net dollar expansion and seat-based contraction - Management noted that net dollar expansion is stabilizing, and while some seat pressures exist, overall macro demand remains strong [28] Question: Future M&A strategy - Management reiterated a disciplined approach to M&A, focusing on small to medium-sized acquisitions that align with strategic goals [33] Question: Sustainability of growth in Zoom Phone and customer experience - Management highlighted strong growth in Zoom Phone and customer experience, driven by AI integration and customer demand [41] Question: Integration with other productivity software - Management confirmed ongoing integrations with major productivity tools like Google and Microsoft, emphasizing the importance of customer feedback [66] Question: Free cash flow performance - Management acknowledged improvements in the collections process contributing to free cash flow, which is expected to remain durable [72] Question: Expansion into HR and other business workflows - Management confirmed that the BrightHire acquisition is part of a broader strategy to expand into mission-critical business workflows [82]

Financial Data and Key Metrics Changes - Total revenue grew 4.4% year over year to $1.23 billion, exceeding guidance by $15 million [12] - Enterprise revenue increased by 6.1% year over year, accounting for 60% of total revenue [12] - Non-GAAP gross margin improved to 80%, up 117 basis points from the previous year [13] - Non-GAAP diluted net income per share rose to $1.52, $0.14 higher than Q3 of last year [14] - Operating cash flow grew 30% year over year to $629 million, with a margin of 51.2% [16] Business Line Data and Key Metrics Changes - AI Companion adoption surged more than four times year over year, indicating strong demand for AI-driven solutions [6] - Team Chat monthly active users increased by 20% year over year [6] - WorkVivo logos grew nearly 70% year over year to 1,225 [7] - Zoom Phone surpassed 10 million paid seats, marking significant growth in unified communications [7] Market Data and Key Metrics Changes - Americas revenue grew 5% year over year, EMEA grew 3%, and APAC grew 4% [13] - The number of enterprise customers contributing over $100,000 in trailing 12-month revenue grew by 9% year over year [12] Company Strategy and Development Direction - The company aims to evolve into an AI-first platform for work and customer experience, focusing on elevating core products with AI and driving growth of new AI products [5] - The acquisition of BrightHire is part of the strategy to enhance collaboration and customer engagement through AI [9] - Customer experience is identified as a fast-growing business segment, with high double-digit ARR growth [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's durability and the ongoing demand for AI solutions [5] - The company anticipates continued growth in enterprise revenue and a slight increase in online business for the full year [22] - Management highlighted the importance of stabilizing churn and diversifying products as key growth drivers [24] Other Important Information - The board authorized an incremental $1 billion share repurchase, reflecting confidence in the company's financial health [18] - Deferred revenue grew 5% year over year to $1.44 billion, with expectations for continued growth [15] Q&A Session Summary Question: How should we think about growth heading into next year? - Management indicated that they are not yet at the planning stage for FY2027 guidance, but enterprise growth will continue to be a key driver [22] Question: Can you discuss the pressure on net dollar expansion and seat-based contraction? - Management noted that net dollar expansion is stabilizing, and while some seat pressures exist, overall demand remains strong [27] Question: What is the outlook for M&A in the future? - Management reiterated a disciplined approach to M&A, focusing on small to medium-sized acquisitions that align with strategic goals [32] Question: Can you elaborate on the growth sustainability of Zoom Phone and customer experience? - Management highlighted strong growth in Zoom Phone and customer experience, driven by AI integration and customer demand [38] Question: How is the company addressing the demand for integration with other productivity software? - Management confirmed ongoing integration efforts with major ecosystems like Google and Microsoft, while also adapting to AI-driven customer demands [58] Question: Were there any one-time benefits to free cash flow this quarter? - Management clarified that improvements in the collections process contributed to free cash flow, which is expected to be sustainable [61]