Zoom Communications Inc (NASDAQ:ZM) Reports Q2 Fiscal 2026 Earnings Beat on Margins, Despite Revenue Miss

Zoom Communications Inc (NASDAQ:ZM) reported second-quarter fiscal 2026 results that presented a mixed picture relative to analyst expectations, triggering notable after-hours market movement. The video communications specialist posted revenue of $1.22 billion, falling short of the $1.23 billion consensus estimate, while non-GAAP earnings per share of $1.53 comfortably exceeded the projected $1.41.

Financial Performance Versus Estimates

The company's revenue growth of 4.7% year-over-year marked its strongest performance in eleven quarters, though it narrowly missed analyst targets. This slight revenue shortfall was overshadowed by significant earnings strength, with GAAP EPS surging 65.7% to $1.16 and non-GAAP EPS increasing 10% to $1.53. The earnings beat was driven by substantial operating margin expansion, with GAAP operating margin improving by 9 percentage points year-over-year to 26.4% and non-GAAP operating margin reaching 41.3%.

Market Reaction and Price Action

Following the earnings release, Zoom shares experienced notable after-hours volatility, initially climbing approximately 6% in extended trading. This positive reaction suggests investors are focusing more on the earnings beat and margin expansion than the slight revenue miss. The market appears to be rewarding the company's improved profitability and strong bottom-line performance, particularly given the challenging competitive landscape in communication software.

Enterprise Strength and Customer Metrics

Zoom's enterprise segment demonstrated robust performance with revenue growing 7% year-over-year to $730.7 million, outpacing the company's overall growth rate. The company added significant large customers, with organizations contributing over $100,000 in trailing twelve-month revenue increasing 8.7% to 4,274. The enterprise net dollar expansion rate stood at 98%, indicating solid retention and expansion within its existing customer base.

Balance Sheet and Capital Return

The company maintained a strong financial position with $7.8 billion in cash, cash equivalents, and marketable securities. Zoom continued its share repurchase program, buying back approximately 6.0 million shares during the quarter, bringing total repurchases under the current authorization to 27.4 million shares. This capital return strategy provides additional support for shareholder value.

Forward Guidance Versus Analyst Expectations

Management provided raised guidance for the full fiscal year, now expecting revenue between $4.825 billion and $4.835 billion, compared to analyst estimates of $4.95 billion. The company projected non-GAAP EPS between $5.81 and $5.84 for the full year, which aligns closely with consensus estimates. For the third quarter, Zoom anticipates revenue between $1.210 billion and $1.215 billion, below analyst projections of $1.25 billion, while guiding for non-GAAP EPS between $1.42 and $1.44 versus the $1.41 estimate.

Free cash flow guidance was increased to a range of $1.74 billion to $1.78 billion for the full year, indicating confidence in the company's cash generation capabilities despite the revenue guidance that fell somewhat short of analyst expectations.

Strategic Positioning and AI Focus

CEO Eric Yuan emphasized the company's focus on AI-driven innovation, stating that "AI is transforming the way we work together, and Zoom is at the forefront." The company appears to be positioning itself as an AI-first collaboration platform, though this transition comes amid increased competition in the communication software space.

For more detailed earnings analysis and future estimates, readers can review additional information on Zoom's earnings and estimates page.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Readers should conduct their own research and consult with a qualified financial advisor before making investment decisions.