Zoom Communications, Inc.

Overview

Zoom Communications sells cloud-based collaboration software, primarily video meetings, phone (Zoom Phone), and contact center products, on a subscription basis. Customers range from individual "online" users paying monthly to large enterprises on annual contracts. The company makes money by charging recurring subscription fees, with enterprise customers increasingly the growth engine. S6

Financials

Revenue came in at $4,868.8 million in FY2026, up 4.4% from $4,665.4 million in FY2025, which itself grew 3.1% from $4,527.2 million in FY2024. S6 That is steady but modest growth for a company of this size.

Gross margin improved to 77.0% in FY2026 from 75.8% in FY2025, a meaningful step in the right direction. S6 Operating income reached $1,124 million versus $813 million in FY2025, a 38% jump driven by disciplined cost cuts across every major expense line. S7 R&D spending was $844.9 million, down 0.9% year over year despite heavy AI investment. S6 Sales and marketing fell 2.7% to $1,388.3 million, and G&A dropped 11.2% to $392.9 million (helped by a $36 million reversal of a prior SEC investigation accrual). S6

Net income was $1,900.1 million, up 88% from $1,010.2 million in FY2025 and $637.5 million in FY2024. S6 However, roughly $969.8 million of that came from fair value gains on strategic investments in private companies, not the core business. S6 Strip that out and operating profit tells the cleaner story.

Operating cash flow was $1,989.0 million and free cash flow was $1,924.1 million, both genuinely strong. S6 The company holds $7.8 billion in cash, equivalents, and marketable securities. S6 Cash and equivalents alone were $1,273 million. S7 There is essentially no debt concern here.

On capital return: Zoom repurchased $1,628 million worth of shares (about 20.4 million shares) in FY2026. S7 The board has authorized a total of $3.7 billion in buybacks since early 2024, with $986.7 million of authorization remaining. S6 No dividends are paid. S5 Stock-based compensation was $760.8 million in FY2026, down from $931.3 million in FY2025, which is a positive trend but still high relative to revenue (roughly 15.6%). S6

Deferred revenue stands at $1,437 million combined, and remaining performance obligations total $4,185 million, with 57% expected to convert to revenue within 12 months. S7 That is solid forward visibility.

Business segments

Zoom operates as a single business segment. Revenue is reported in two customer categories: Enterprise (60.3% of revenue in FY2026, up from 59.0% in FY2025) and Online (39.7%, down from 41.0%). S6 Enterprise is the larger and growing piece; Online is shrinking as a share of the mix.

Trajectory

Mostly better, with some nuance. Margins are expanding: gross margin went from 75.8% to 77.0% in one year. S6 Operating income jumped 38% while revenue grew only 4.4%, meaning management is extracting more profit from each dollar of revenue. S6S7 Free cash flow of $1,924.1 million is one of the highest in the software industry on a per-revenue basis. S6

The enterprise customer count is growing, from 3,810 customers with more than $100,000 in ARR in FY2024 to 4,088 in FY2025 to 4,468 in FY2026. S6 Enterprise revenue now represents 60.3% of total, up from 59.0%. S6 Online churn improved slightly to 2.8% from 2.9%. S6

The challenge is that top-line growth is still modest. Revenue grew 4.4% in FY2026 after 3.1% in FY2025. S6 The net dollar expansion rate for enterprise customers fell to 98%, meaning existing enterprise customers are, on net, spending slightly less than the prior year, dragged down by seat count reductions and macroeconomic caution. S6 That is worth watching because it signals customers are not expanding their usage at the rate needed to accelerate growth.

The company is betting on AI features and new products (Zoom Phone, Contact Center) to reignite growth. So far, the cost discipline story is strong; the revenue reacceleration story is still unproven.

Industry Metrics

Competition

• Microsoft Teams and Google Meet are the most formidable competitors. They bundle video and messaging into operating systems and productivity suites that hundreds of millions of people already use, often at no incremental cost to the customer. Zoom explicitly flags that competitors have "greater brand recognition, larger budgets, more resources, and existing customer relationships." S2
• Cisco Webex competes in the enterprise video and collaboration space, while RingCentral, 8x8, Five9, Genesys, and NICE inContact compete in the phone and contact center market where Zoom is trying to grow. S2
• Amazon, Apple, and Facebook are also named as competitors, highlighting the risk that hyperscale platform companies control the operating systems and app stores Zoom depends on for distribution. S2
• Zoom's differentiation rests on ease of use, a broad platform spanning meetings, phone, webinars, and contact center, and now AI-powered features. However, the company acknowledges pricing pressure from lower-cost or free alternatives and the risk that competitors offering bundled products could undercut Zoom's value proposition. S2

Leadership & Ownership

Founder and CEO Eric S. Yuan holds 7.1% of total capital stock but controls 37.7% of total voting power because his Class B shares carry 10 votes each. S5 Class B shareholders collectively control 51.8% of voting power as of January 31, 2026. S5 This means Yuan has effective control of the company despite a minority economic stake, which is typical for a founder-led tech firm but means other shareholders have limited ability to influence governance.

On insider ownership more broadly, Yuan's stake is meaningful and aligns his financial interests with shareholders to a degree, though the dual-class structure limits accountability. The SEC concluded its investigation into Zoom with no enforcement action on July 30, 2025, which removes a meaningful overhang. S4 No new CEO, CFO, or major board departures are flagged in the filing. The CISO, Sandra McLeod, reports to the COO. S5 Leadership appears stable.

The filing notes that all executive officers are at-will employees. S3 Stock-based compensation has been falling, which reduces equity dilution pressure but could also affect talent retention if the stock price remains volatile.

Outlook

• AI as the next growth driver: Zoom is embedding generative AI features (including AI Companion, built partly on top of models from OpenAI and Anthropic) across its platform. S2 These features are currently offered at no additional charge, meaning Zoom is absorbing the cost now and betting on upsell and retention value later. Management is investing $844.9 million in R&D with AI as a central focus. S6
• Enterprise deepening: The strategy is to move upmarket, grow the $100K-plus customer base (now 4,468), and expand from meetings into phone and contact center. Enterprise revenue now represents 60.3% of total. S6 Each new product sold into an existing enterprise account raises switching costs and average contract value.
• Aggressive capital return: With $7.8 billion in liquid assets and no debt concerns, management is returning capital aggressively. S6 The board has authorized multiple tranches of buybacks totaling $3.7 billion since early 2024, with $1.628 billion spent in FY2026 alone. S7 This signals confidence in the business and reduces the share count over time.
• Operational efficiency as a structural improvement: Every major cost line fell year over year in FY2026. S6 Management appears committed to running a leaner organization while still funding product investment, which should continue expanding margins if revenue holds.

Red Flags

• MEDNet dollar expansion rate for enterprise customers fell to 98% in FY2026 from 101% in FY2024, meaning the installed base is contracting slightly on net. S6 If this does not recover, it caps revenue growth regardless of new customer additions.
• MEDStock-based compensation remains very high at $760.8 million, roughly 15.6% of revenue. S6 While this is down from $931.3 million in FY2025, it meaningfully dilutes shareholders and overstates the quality of GAAP net income relative to cash earnings. S6
• MEDNet income of $1,900.1 million includes $969.8 million in gains on strategic investments in privately held companies. S6 These are fair value changes, not cash, and are volatile and non-recurring. Core operating income of $1,124 million is the more reliable profitability measure. S7
• MEDDOJ investigations from 2020 regarding interactions with foreign governments, Chinese government data access, and related matters remain ongoing with no resolution disclosed. S4 The company warns of potential "substantial fines, penalties, or other financial exposure" and "material reputational harm." S4
• MEDA significant portion of the R&D organization is located in China. S3 U.S.-China geopolitical tension creates operational and reputational risk that is hard to quantify but real. Management acknowledges that government interference with China-based R&D would "adversely impact product development and service delivery capability." S3
• LOWEric Yuan controls 37.7% of voting power while owning 7.1% of capital stock via dual-class shares. S5 Minority shareholders have limited ability to influence governance decisions.

Verdict

Zoom is a mature, highly profitable subscription software business generating nearly $2 billion in annual free cash flow from $4.9 billion in revenue, with a fortress balance sheet of $7.8 billion in liquid assets and no meaningful debt. S6 The core challenge is reigniting top-line growth: revenue is advancing at 4 to 5 percent per year and the enterprise net expansion rate is below 100%, which means the company needs its AI and Contact Center bets to start translating into new spending from both existing and new customers. S6 For an investor, the thesis is straightforward: you are buying a cash-generative, founder-led platform at a period of low growth, and you need to believe that AI adoption and product expansion will push growth back toward high single digits before competition from Microsoft and Google further commoditizes the core video meeting market.