Zoom outperforms in Q3, raising forecasts despite stock slip

Zoom Communications Inc. has exceeded financial expectations for the third quarter of fiscal year 2025, showcasing resilience and strategic growth in a competitive technology landscape. Despite delivering a stellar performance with significant gains in revenue and earnings, the company faced a post-earnings stock decline attributed to profit-taking by investors.

The San Jose-based company reported a net income of $207.1 million, equating to 66 cents per share, marking a notable increase from $141.2 million, or 45 cents per share, in the corresponding period last year. Adjusted earnings, which exclude stock-based compensation and other expenses, surged to $1.38 per share, comfortably outpacing analysts’ projections of $1.31.

Zoom’s total revenue climbed 3.6% year over year to $1.18 billion, surpassing Wall Street’s forecast of $1.16 billion. Growth was driven primarily by the enterprise division, which saw a 5.8% increase in revenue to $698.9 million. Online revenue, although flat year over year, remained a stable contributor at $478.7 million.

Strong outlook and strategic initiatives

Zoom’s management offered a positive outlook for the fiscal fourth quarter, forecasting revenue between $1.175 billion and $1.18 billion, alongside adjusted earnings of $1.29 to $1.30 per share. These projections were slightly higher than Wall Street estimates, signaling confidence in sustained performance. For the full fiscal year, Zoom raised its revenue expectations to a range of $4.656 billion to $4.661 billion, accompanied by non-GAAP earnings per share of $5.41 to $5.43.

CEO Eric S. Yuan highlighted the company’s commitment to innovation during its annual Zoomtopia event, emphasizing the launch of AI Companion 2.0 and industry-specific AI customization. These advancements are central to Zoom’s strategy to position itself as an AI-first work platform, aiming to enhance productivity for its enterprise customers. Yuan also noted record-breaking achievements, including a significant contract with over 20,000 seats for Zoom Contact Center in Europe, and Workvivo’s largest deal to date with a Fortune 10 company.

Customer growth and operational performance

The company’s enterprise customer base continued to expand, with 3,995 customers contributing over $100,000 in trailing 12-month revenue—an increase of 7.1% from the prior year. The average churn rate among online customers reached a historic low of 2.7%, reflecting improved customer retention. Additionally, Zoom’s robust operational metrics included a GAAP operating margin of 15.5% and a non-GAAP margin of 38.9%.

Zoom ended the quarter with a strong liquidity position, holding $7.7 billion in cash and marketable securities. Its Board of Directors authorized an additional $1.2 billion for share repurchases, bringing the total buyback authorization to $2.0 billion. These measures underscore the company’s confidence in its long-term growth trajectory and commitment to returning value to shareholders.

Challenges and market positioning

Despite these positive indicators, Zoom’s stock experienced a 5.5% drop in after-hours trading. Analysts suggest that the decline may be linked to market profit-taking rather than concerns over the company’s fundamentals. However, Zoom faces ongoing competition from rivals like Microsoft Teams and Cisco Webex, necessitating continual innovation to maintain its edge.

The recent rebranding from Zoom Video Communications Inc. to Zoom Communications Inc. reflects the company’s broader ambitions beyond video conferencing. With a strategic focus on artificial intelligence, enterprise solutions, and integrated workplace services, Zoom is positioning itself as a key player in the evolving tech ecosystem.

Expert analysis: sustainable growth amid competition

Industry analysts believe that Zoom’s emphasis on AI and enterprise solutions will support its transition from a pandemic-era success story to a sustainable growth entity. The company’s diverse portfolio and strong cash reserves provide a solid foundation for future investments in technology and market expansion. However, continued success will depend on its ability to innovate while navigating economic uncertainties and competitive pressures.