Zoom Q3 Earnings Beat, Enterprise Customers Drive Revenues

Zoom’s ZM third-quarter fiscal 2025 adjusted earnings of $1.38 per share beat the Zacks Consensus Estimate by 5.34% and increased 7% year over year.

Zoom’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 17.81%.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Revenues of $1.178 billion beat the consensus mark by 1.23% and increased 3.6% year over year on strong growth from Enterprise customers. Adjusting for foreign currency impact, revenues in constant currency were $1.177 billion, up 3.6% year over year.

Quarter Details

Enterprise revenues were $698.9 million, up 5.8% year over year and representing 59.3% of total revenues. Customers contributing more than $100,000 in revenues in the trailing 12 months grew 7.1% to 3,995. These customers accounted for 31% of revenues.

The number of Enterprise customers at the end of the fiscal third quarter was approximately 192,400. In the quarter, the percentage of total Online MRR pertaining to Online customers with a continued term of service of at least 16 months was 74.1%, increasing 90 bps year over year.

The company reported a trailing 12-month net dollar expansion rate for Enterprise customers of 98%. 

In the quarter, Zoom saw amazing traction with Workvivo, reaching 3 new Workvivo customers with more than $1 million in ARR and including the largest deal till date with a Fortune 10 company. Workvivo was named Meta Platforms’ only preferred migration partner for its customers as it retires Workplace from Meta. Workvivo customers increased 72% year over year due to the Meta partnership.

ZM witnessed additional traction in Zoom Contact Center as it surpassed 1,250 Zoom Contact Center customers, representing more than 82% year-over-year growth. Zoom Contact Center landed a record 20,000-seat deal in EMEA. 

During the fiscal third quarter, Zoom launched AI Companion 2.0, along with paid add-ons, to the platform to drive product differentiation.

Non-GAAP Operating Details

Non-GAAP gross margin in the fiscal third quarter was 78.9% compared to 79.7% in the year-ago period, mainly due to investments in AI innovation.

Research and development expenses increased 13.28% year over year to $222.98 million. Sales and marketing expenses declined 3.4% to $361.7 million, while general and administrative expenses increased 0.8% to $126.1 million.

Non-GAAP operating income rose 2.4% to $457.7 million year over year. The operating margin came in at 38.9% compared with the year-ago quarter’s operating margin of 39.3%.

Balance Sheet

Total cash, cash equivalents and marketable securities, as of Oct. 31, 2024, were $7.7 billion. As of July 31, 2024, cash, cash equivalents and marketable securities were $7.5 billion.

Net cash provided by operating activities was $483.2 million for the fiscal third quarter, down 2% year over year. Free cash flow was $457.7 million, up 1% year over year.

Guidance

Zoom expects fourth-quarter fiscal 2025 revenues between $1.175 billion and $1.180 billion.

Non-GAAP earnings per share are expected in the range of $1.29-$1.30.

For fiscal 2025, Zoom expects revenues in the range of $4.656-$4.661 billion.

Non-GAAP earnings per share are expected in the band of $5.41-$5.43.

Zacks Rank & Other Key Picks

Zoom carries a Zacks Rank #2 (Buy) at present. Shares of ZM have gained 23.1% in the year-to-date period.

Some other top-ranked stocks from the broader Computer and Technology sector are Fortinet FTNT, Meta Platforms META and Reddit Inc. RDDT. Fortinet sports a Zacks Rank #1 (Strong Buy), while Meta Platforms and Reddit Inc. carry a Zacks Rank #2 each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortinet shares have returned 60.7% in the year-to-date period.

The Zacks Consensus Estimate for the company’s long-term earnings is pegged at $17.8 per share. 

Meta Platforms shares have returned 58.7% in the year-to-date period.

The Zacks Consensus Estimate for the company’s long-term earnings is pegged at $20.1 per share. 

Reddit Inc. shares have returned 193.5% in the year-to-date period.

The Zacks Consensus Estimate for the company’s long-term earnings is pegged at $36 per share.

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