Zoom (ZM) Q2 2026 earnings review
Revenue Growth Accelerates to 2-Year High; Enterprise Strength Drives Raised FY26 Outlook
Zoom delivered its strongest quarter in nearly three years, with revenue growth accelerating to 4.7% YoY, well ahead of guidance. The performance was driven by an accelerating Enterprise segment (+7% YoY) and a surprising return to growth in the Online business (+1.4%). This top-line strength, combined with best-in-class profitability (41.3% non-GAAP operating margin) and robust free cash flow ($508M), enabled management to raise full-year guidance for revenue, operating income, and free cash flow. While the core platform shows renewed momentum, the Enterprise net dollar expansion rate remains a persistent concern, stuck at 98% for the fourth consecutive quarter.
🐂 Bull Case
Total revenue growth of 4.7% marks the fastest rate in 11 quarters, reversing a multi-quarter trend of deceleration and signaling a potential inflection point for the business.
The core Enterprise segment, now 60% of revenue, accelerated to 7.0% YoY growth, driven by large customer wins and platform adoption. This segment is the clear engine for future growth.
Zoom continues to deliver elite profitability, with a 41.3% non-GAAP operating margin and 41.7% free cash flow margin, allowing for aggressive share buybacks ($463M in Q2) and continued investment in AI.
🐻 Bear Case
The Enterprise net dollar expansion rate remains stuck at 98%, indicating that churn and seat reductions from existing customers are still offsetting upsell and cross-sell efforts.
Despite the strong Q2 beat, guidance for Q3 revenue implies a deceleration to ~3.0% YoY growth, tempering excitement that Q2 marks the start of a sustained re-acceleration.
⚖️ Verdict: 🟢
Bullish. The revenue re-acceleration after a prolonged slowdown is a significant positive development, driven by genuine strength in the core Enterprise segment and stabilization in the Online business. While the sub-100% net dollar expansion rate remains a valid concern, the momentum in new products like Contact Center and strong new logo acquisition appear to be more than offsetting this weakness for now. The company's elite profitability and cash flow provide a strong foundation and flexibility.
Key Themes
Contact Center Emerges as a Key Growth Engine
Zoom's Contact Center is rapidly gaining market share, with the number of customers spending over $100k in ARR growing an impressive 94% YoY to 229. Management noted that its top 10 deals in the quarter were all displacements of leading competitors (both cloud and on-premise), with customers like ATPI choosing Zoom for its integrated voice/CCaaS offering and advanced AI capabilities. This validates the product's competitiveness and its position as a primary future growth driver.
AI Companion Drives Platform Stickiness and Competitive Wins
The strategy of offering the feature-rich AI Companion for free is paying dividends. Monthly active users have grown over 4x year-over-year, which management links to improved customer retention, evidenced by a record-low 2.9% average monthly churn in the Online segment. This value proposition is also a key competitive differentiator, cited as a reason for winning a 7-figure deal with F5, which 'boomeranged' back to Zoom from a competitor due to higher productivity and lower TCO.
Net Dollar Expansion Rate Remains Stuck Below 100%
A key data point contradicting the positive growth narrative is the Enterprise net dollar expansion rate, which was stable at 98% for the fourth consecutive quarter. This indicates that despite strong new customer wins, the company is still experiencing a net reduction in spending from its existing enterprise customer base due to seat-count reductions or downgrades. This continues to be a headwind to overall growth.
Online Business Reverses Decline
After three quarters of YoY declines, the Online segment returned to positive growth of 1.4%. This turnaround is attributed to record-low churn (2.9%) and the successful implementation of a price increase. The stabilization of this segment, which represents 40% of revenue, provides a much healthier foundation for the company's overall growth profile.
Guidance Suggests Q2 Strength May Not Be Sustained
While Q2 revenue growth accelerated sharply to 4.7%, guidance for Q3 points to a deceleration back to ~3.0% YoY. This raises questions about the sustainability of the Q2 performance and suggests it may have benefited from some one-time items or pull-forwards, rather than marking the beginning of a sustained trend of re-acceleration.
Macro Environment Showing Signs of Improvement
In Q1, management had flagged 'sales elongation' and 'more scrutiny' in some large deals. In Q2, the CFO noted a 'partial abatement' of that scrutiny. While the overall economic environment remains 'dynamic,' this commentary suggests that the enterprise spending environment has become slightly more favorable, contributing to the strong Q2 results.
AI Monetization Path is Long-Term
While the free AI Companion is driving engagement, direct revenue from AI is in its infancy. Management highlighted a large deal for the paid 'Custom AI Companion' add-on but reiterated that revenue from these new AI products will not be a significant contributor until Fiscal 2027. The company is bearing the investment cost now for a future payoff.
Other KPIs
Stable. Zoom's cash generation remains elite. The company produced $508M in FCF, up 39% YoY, driven by strong profitability and favorable timing of tax payments. The full-year FCF guidance was raised to a midpoint of $1.76 billion, underscoring the durability of the business model and funding aggressive share repurchases.
Accelerating. The company significantly increased the pace of its buyback, repurchasing 6.0 million shares in Q2, up from 5.6 million in Q1. This demonstrates management's confidence in the business and a strong commitment to returning capital to shareholders, supported by its $7.8 billion cash balance.
Stable. Total RPO grew 5% YoY, indicating a stable backlog of contracted future revenue. Approximately 61% of this is expected to be recognized as revenue over the next 12 months. The growth rate, while modest, is consistent with the overall business stabilization.
Guidance
Decelerating. The midpoint of $1.2125B implies approximately 3.0% YoY growth. This represents a sequential deceleration from Q2's 4.7% growth rate, suggesting the Q2 outperformance may not be fully sustained in the immediate next quarter.
Accelerating slightly. The raised midpoint of $4.83B implies 3.5% YoY growth for the full year, an increase from the 2.7% guided initially and an acceleration from the 3.1% growth achieved in FY25. This shows increased confidence for the second half of the year.
Stable. The full-year operating margin guidance of 39.5% (at midpoint) is consistent with the prior guide and FY25 results. This indicates disciplined cost management is successfully offsetting investments in AI and new products.
Improving. The guidance was raised from a prior midpoint of $1.70B to $1.76B. This is a strong signal of management's confidence in the company's profitability and ability to efficiently convert profits to cash.