Zoom Video Communications, Inc. (NASDAQ:ZM) Q3 2025 Earnings Call Transcript

Zoom Video Communications, Inc. (NASDAQ:ZM) Q3 2025 Earnings Call Transcript November 25, 2024

Zoom Video Communications, Inc. beats earnings expectations. Reported EPS is $1.38, expectations were $1.31.

Operator: Well, hello, everyone, and welcome to Zoom’s Q3 FY2025 earnings release webinar. As a reminder, today’s webinar is being recorded. And now I will hand things over to Charles Ffaj, Head of Investor Relations. Charles, over to you.

Charles Ffaj: Thank you, Kelsey. Hello, everyone, and welcome to Zoom’s earnings video webinar for the third quarter of fiscal year 2025. I’m joined today by Zoom’s Founder and CEO, Eric Yuan, and Zoom’s CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the investor relations page at investors.zoom.us. Also, on this page, you’ll be able to find a copy of today’s prepared remarks and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. During this call, we will make forward-looking statements, including statements regarding our financial outlook for the fourth quarter and full fiscal year 2025, our expectations regarding financial and business trends, impacts from the macro and economic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy, and business aspirations, and product initiatives, including feature product and feature releases, and the expected benefits of such initiatives.

These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and our financial results, which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today’s webinar. And with that, let me turn the discussion over to Eric.

Eric Yuan: Thank you, Charles. Thank you, everyone, for joining us today. In early October, we hosted Zoomtopia, our annual customer and innovation event, and it was an amazing opportunity to showcase all that we have been working on for our customers. We had a record-breaking virtual attendance and unveiled our new vision: an AI-first work platform for human connection. This marks an exciting milestone as we extend our strengths as a unified communication and collaboration platform into becoming an AI-first work platform. Our goal is to empower customers to navigate today’s work challenges, streamline information, prioritize tasks, and make smarter use of time. At Zoomtopia, we took meaningful steps towards that vision with the release of AI Companion 2.0, further showcasing all the things that customers have come to expect from Zoom: a breakneck pace of innovation, customer obsession, and reliable, easy-to-use products.

This release builds upon the quality of Zoom AI Companion 1.0 across features like meeting summary, meeting query, and smart compose, and brings it together in a way that evolves beyond a task-specific AI towards a generative AI. This major update allows the AI Companion to see a broader window of context, synthesize information from internal and external sources, and orchestrate action across the platform. AI Companion 2.0 raises the bar for AI, demonstrating to customers that we understand their needs. They want AI to enhance their existing workflows, not disrupt them. They want AI to deliver exceptional results for their entire teams, and they want to experience the value firsthand before incurring additional spend. We highlighted many customers at Zoomtopia.

Praniti Lakhwara, CIO of Zscaler, provided a great example of how Zoom AI Companion helped democratize AI and enhance productivity across the organization without sacrificing security and privacy. It wasn’t just Zscaler. The RealReal, HBC, ExxonMobil, and Lake|Flato Architects shared similar stories about Zoom’s secure, easy-to-use solutions helping them thrive in the age of AI and flexible work. Building on our vision for democratizing AI, we introduced a roadmap of expanding AI products that create additional value through customization, personalization, and alignment to specific industries or use cases. The Customer AI Companion add-on, which will be released in the first half of next year, aims to meet our customers where they are in their AI journey by plugging into other databases, integrating with third-party apps, and personalizing experiences like a customer AI avatar and AI coaching.

Additionally, we announced that we also have Customer AI Companion paid add-ons for healthcare and education, available as early as the first quarter of next year. These AI-first, industry-tailored solutions will build upon the remarkable traction and customer love we have in these industries and allow us to deliver AI solutions that meet our customers’ unique needs, from the lecture hall to the doctor’s office. We also announced the Zoom Workplace for frontline workers, available in the first half of 2025, with a goal of extending our success in Zoom Workplace further into the extremely large but underserved frontline worker market. We will first target frontline-rich industries where we have a strong installed base and have gained substantial learnings, such as retail, healthcare, and manufacturing.

This mobile-centric solution will address the unique work style of frontline workers with features like AI-generated shift summaries, on-shift communications, work management, insights, and more. Contact Center and WorkVIVO are key pillars of our strategy to extend from our core strengths into natural adjacencies, and I’m very pleased to share that both had amazing quarters. We secured our largest-ever contact center customer at over 20,000 seats, demonstrating our ability to compete at the high end, expand further into the enterprise market, and win with the channel. In fact, our top four contact center deals in the quarter came from the channel, which speaks to our progress leveraging this amazing resource to extend our success across geographies and industries.

We also saw incredible traction with WorkVIVO, as we landed three net new WorkVIVO customers with over $1 million in ARR, including the largest deal to date with a Fortune 10 company. We’re very happy to see that both Contact Center and WorkVIVO benefit as a natural upsell to our massive base of Zoom Workplace customers, and we are encouraged to see these products bringing brand new customers to Zoom, becoming bridges for Zoom Workplace to expand. The success of this bidirectional land-and-expand motion demonstrates our better-together platform vision is resonating well with customers looking for a full AI-first work platform, bridging the worlds of customer and employee experience. Now let me recognize some of our amazing customers. Thank you, Agencia Tributaria, Spain’s national revenue service, for their extraordinary expansion in Q3.

Over two years ago, Agencia, like many other customers, became convinced of the constraints of their on-prem phone system and deployed 30,000 Zoom Phone seats. After Zoom Phone rapidly delivered the value, scale, enhanced efficiency, and service quality during a demanding tax season in 2022, they moved to consider our Total Experience omnichannel solutions to further elevate their taxpayer services. This resulted in an incredible, record-setting Zoom Contact Center deal with over 20,000 seats in conjunction with Zoom Workplace, delivering a complete Zoom experience for both employees and taxpayers. Thank you, Agencia, for your trust and partnership. Thank you to ServiceNow, the AI platform to bring its transformation, for expanding its relationship with Zoom.

Already a power user of Zoom Workplace, in Q3, ServiceNow adopted WorkVIVO and expanded its Zoom Phone footprint. As announced at Zoomtopia, we are deepening the integration of ServiceNow’s Now Assist with Zoom AI Companion to boost our generative AI product offerings and deliver advanced workflow synergies for our customers. It was an honor having Chairman and CEO Bill McDermott, who is also a member of Zoom’s board of directors, join us at Zoomtopia. Thanks, Bill. We look forward to continuing our strong partnership. Let me also thank Redfin, a leading international fintech and proptech company, for choosing Zoom. They came to us as a brand new customer through a trusted channel partner and identified Zoom as the best solution to transform the way they engage customers with their innovative property payments software services.

Redfin opted for the Zoom Total Experience, including Zoom Contact Center, Zoom Revenue Accelerator, and Zoom Workplace Business Plus, in order to enhance customer experience, elevate agent productivity and happiness, and realize major cost efficiencies from streamlined operations. Finally, let me thank Athenahealth, a leading provider of network-enabled software and services for medical practices and health systems, for integrating Zoom’s meeting SDK into their AthenaOne electronic health record. By leveraging Zoom’s cutting-edge video technology, Athenahealth is empowering its network of over 160,000 providers to deliver seamless virtual care through telehealth. We’re so pleased to see more customers adopting our Zoom Workplace and business services products in order to reap the benefits of our modern, natively integrated, AI-powered technologies.

Before handing it off to Michelle, I’m very excited to share that earlier today, we announced our new corporate name, Zoom Communications Inc. This change reflects our evolution into an AI-first work platform for human connection and our vision for long-term growth. Now over to our new CFO, Michelle Chang.

Michelle Chang: Thank you, Eric, and hello, everyone. It was great to meet many of you at Zoomtopia. I’m excited to be taking you through earnings for the first time, and I look forward to partnering with you all going forward. To kick us off, I’m pleased to announce that we beat our top-line and profitability guidance in Q3. In line with our previous statements, year-over-year revenue growth troughed in Q2 and showed improvement in Q3, driven by positive trends in both enterprise and online. Here are a few highlights from our quarter. We saw progress towards our AI-first vision with Zoom AI Companion monthly active users growing 59% quarter over quarter. And as Eric mentioned, we saw great traction expanding into adjacent markets, with growth in WorkVIVO and Contact Center.

The number of WorkVIVO customers grew 72% year over year, driven in part by the strength of our Meta partnership. The number of Zoom Contact Center customers surpassed 1,250, up more than 82% year over year. Now let’s dive into the financial results. In Q3, total revenue grew approximately 4% year over year to $1.178 billion. This result was $13 million above the high end of our guidance. Our enterprise revenues grew approximately 6% year over year, reflecting a continued shift to enterprise, which now makes up 59% of our total revenue, up one point year over year. We’re pleased with this continued stabilization in online amidst ongoing macro conditions. In Q3, we saw improvement. An average monthly churn decreased to 2.7%, down 30 basis points year over year.

This is our lowest ever reported churn. In our enterprise business, we saw 7% year-over-year customer growth in the upmarket, as we ended the quarter with just shy of 4,000 customers contributing more than $100,000 in trailing twelve-month revenue. These customers now make up 31% of our revenue, up two points year over year. Our trailing twelve-month net dollar expansion rate for enterprise customers in Q3 came in at 98%. The number of enterprise customers at the end of Q3 was approximately 192,400. As we’ve mentioned in prior quarters, the number of enterprise customers distinguishes between our two go-to-market motions and will fluctuate with shifts in our focus, and as such, has become a less valuable measurement of company performance over time.

Pivoting to our growth internationally, our Americas revenue grew 4% year over year, EMEA grew 5%, and APAC was flat. On a constant currency basis, EMEA grew 3%, and APAC grew 2% year over year. Moving to our non-GAAP results, which as a reminder, excludes stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and associated tax effects. Non-GAAP gross margin in Q3 was 78.9%, as compared to 79.7% in Q3 of last year. The year-over-year reduction was primarily due to investments in AI. For the full year of FY2025, we continue to expect our gross margin will be approximately 79%. Non-GAAP income from operations came in at $458 million, exceeding the high end of our guidance of $443 million as we continue to make progress managing expenses while investing in AI, our platform, and emerging products.

This translates to a 38.9% non-GAAP operating margin for Q3 as compared to 39.3% in Q3 of last year. Non-GAAP diluted net income per share in Q3 was $1.38 on approximately 314 million non-GAAP diluted weighted average shares outstanding. This result was seven cents above the high end of our guidance and nine cents higher than Q3 of last year. Turning to the balance sheet, deferred revenue at the end of the period grew 5% year over year to $1.38 billion, driven by the continued refinement of discounting practices as well as lengthening billing terms. In Q4, we expect deferred revenue to be up 5 to 6% year over year. Looking at both our billed and unbilled contracts, our RPO increased 5% year over year to approximately $3.74 billion. We expect to recognize 61% of the total RPO as revenue over the next twelve months, up from 58% in Q3 of last year.

Operating cash flow in the quarter decreased 2% year over year to $483 million. Free cash flow grew 1% year over year to $458 million. Operating cash flow and free cash flow margins in the quarter were 41% and 38.9%, respectively. We ended the quarter with approximately $7.7 billion in cash, cash equivalents, and marketable securities, excluding restricted cash. Under the preexisting $1.5 billion share buyback plan, in Q3, we purchased 4.4 million shares for $302 million, increasing our repurchases quarter over quarter by $14 million. At the end of Q3, we repurchased 11.6 million shares for $739 million. Turning to guidance, in Q4, we expect revenue to be in the range of $1.175 to $1.18 billion, which at the midpoint represents approximately 2.7% year-over-year growth.

We expect non-GAAP operating income to be in the range of $443 to $448 million, representing an operating margin of 37.8% at the midpoint. As we continue to prioritize efficiencies across our operations, our outlook for non-GAAP earnings per share is $1.29 to $1.30, based on approximately 315 million shares outstanding. We are also pleased to raise our top-line and profitability outlook for the full year of FY2025. We now expect revenue to be in the range of $4.656 to $4.661 billion, which at the midpoint represents approximately 2.9% year-over-year growth. Our total revenue guidance assumes a continuation of mixed macroeconomic environment. We expect our non-GAAP operating income to be in the range of $1.813 to $1.818 billion, representing an operating margin of 39% at the midpoint.

Our outlook for non-GAAP earnings per share for FY2025 is $5.41 to $5.43, based on approximately 315 million shares outstanding. With the free cash flow results in Q3 and the increased outlook for operating income in FY2025, we now expect free cash flow to be towards the high end of our previously provided range of $1.58 to $1.62 billion for the full year. As indicated in the earnings press release today, we are also excited to announce our board has authorized an incremental $1.2 billion share repurchase. This reinforces our board and management team’s confidence in Zoom and enables us to further leverage our strong cash flow and balance sheet to drive shareholder returns. The incremental authorization brings our total buyback to approximately $2 billion, which we expect to execute by the end of fiscal 2026.

In conclusion, we believe our results and our guidance underscore the progress that we’ve made driving top-line growth, strong financial management, and shareholder returns. We’re excited about our differentiated AI platform vision to deliver value for our customers and incredibly grateful for the trust and support of the entire Zoom team, our customers, and our investors. Kelsey, please queue the first question.

Q&A Session

Operator: Thank you so much, Michelle. And as Michelle mentioned, we will now move into the Q&A session. So when I call your name, please turn on your video and unmute yourselves. And as a reminder, in an effort to hear from everyone, we please ask that you limit yourself to one question. Our first question will come from Meta Marshall with Morgan Stanley.

Meta Marshall: Great. Thanks so much. Congrats on the quarter. Maybe for you, Eric. I just wanted to get a sense coming out of Zoomtopia, you know, what you were hearing from customers just about where their strongest interest is on AI and kind of where they’re looking for you to kind of take the roadmap to address some of their needs.

Eric Yuan: Yeah, Meta, those are great questions. The theme of Zoomtopia this year was about AI. We launched the AI Companion 1.0 last year, and with more and more customers, they enable AI. Also, at Zoomtopia, we mentioned that there are over four million accounts already enabled with AI Companion. Given the quality, ease of use, and no additional cost, customers really appreciate Zoom AI Companion. However, after one year, they also want to understand the direction and any new things coming from us. The feedback from our customers at Zoomtopia about Zoom AI Companion 2.0 was extremely positive. They look at our innovation speed and the lot of features built into AI Companion 2.0, again, at no additional cost. At the same time, enterprise customers also wanted some flexibility.

That’s why we introduced the customized AI Companion and AI Companion Studio, which will be available in the first half of next year, and we can monetize. Overall, customers really trust Zoom. We continue improving the AI quality, like meeting summary, and compared to Zoom meeting summary quality versus any other competitors, I have high confidence customers like our solution and quality. Also, a lot of new, innovative features, and customers really enjoy AI Companion 2.0. By the way, in the last three months, our AI monthly active users are already up almost 60%. That’s a very positive sign. Overall, customers really like Zoom AI Companion and appreciate us not charging for AI Companion at no additional cost. That’s very good news for us.

Meta Marshall: Great. Thanks.

Operator: Thank you. We will now hear from Kash Rangan with Goldman Sachs.

Kash Rangan: Hi. Thank you very much. I’ll echo the congratulations, and congrats to you, Michelle, on your first earnings conference call with Zoom. Eric, we had the pleasure of attending Zoomtopia as well. I’m curious, where are the budgets for AI coming from? Is it from a separate pool from your customers, or are they taking budgets out of existing budgets? Also, a follow-up question on the macro. After a ton of customer conversations post the elections, do you sense that there is slightly higher animal spirits, better appetite to spend on tech, and on Zoom’s products in particular? Thank you so much.

Eric Yuan: Yeah, Kash, thank you. And it looks like you are driving. So, regarding AI costs, every company is thinking about where to allocate the budget. Should they get more money or funds to support AI? Every company is different. Some internal customers have a new budget, some consolidate into fewer vendors, and some save money from other areas and shift the budget towards embracing AI. Given our strengths in quality plus no additional cost, Zoom is in a much better position, particularly when customers look at all the vendors when they try to consolidate. AI cost is not small. Some competitors charge per user per month, $30. Look at Zoom, better quality at no additional cost. That’s why, in terms of total cost of ownership, customers look at Zoom and think we are in a much better position.

Otherwise, if each software service vendor charges for AI, every business has to spend more. That’s why they trust Zoom, and I think we are in a much better position. Regarding the second question, it’s too early to tell. Every company looks at the macroeconomic environment, and as we all know, it’s getting better. In terms of AI regulation, it’s also too early to tell. But overall, every company is very optimistic about doubling down on embracing AI. They look at vendors they trust with better quality and total cost of ownership. That’s why I truly believe Zoom is much better positioned.

Michelle Chang: Maybe if I can add in, Kash, maybe unasked but an important note is our forecast assumes macro conditions and spending conditions relative to what we saw in Q3.

Operator: Alright. We’ll go ahead and move on to Arjun Bhatia with William Blair.

Arjun Bhatia: Perfect. Thank you. And congrats on the reacceleration here. Eric, maybe if we can switch gears a little bit to Contact Center. You have that 20,000-seat deal with the Spanish Revenue Service, I believe, this quarter. That’s a very large deal, very impressive. Can you just maybe elaborate a little bit on what were some of the major factors that drove Zoom to win a deal like that? What was the process like? How competitive was it? And what were some of the differentiating factors that you saw in that that you can maybe replicate in other Contact Center deals?

Eric Yuan: Yeah, great question. Given that I still wear the hat of Zoom Contact Center and our General Manager, I really like your question. A few things. First of all, they are already a customer. They deployed, if I recall correctly, more than 30,000 Zoom Phone seats before. During a very busy tax season, Zoom delivered great performance. They really trust Zoom. When they look at Zoom Contact Center, they know our backend architecture is scalable. They look at our feature set. As I mentioned over the past few quarters, about PCI, FedRAMP, workforce management, quality management, and social channel, they know our pace of innovation is amazing. Because of architecture, trust, features, and scalability, we have no problem from the very beginning supporting a very large contact center agent deployment.

When we build an architecture, it’s not like other vendors who have to have a surgery to support up to 10,000 or 20,000 from day one. Our architecture is already very scalable. That’s why customers are very happy to deploy the Zoom Contact Center. From our perspective, it feels like a large deal, 20,000 agents. But when you talk with our product engineer team, they say, “Hey, we already supported that deal from an architectural perspective on day one.” Given more and more customers recognize the potential of Zoom and look at our pace of innovation, especially with AI, I think we’re well-positioned to win more deals like that.

Arjun Bhatia: Thank you.

Eric Yuan: Thank you.

Operator: Our next question is going to come from Patrick Walravens with JMP Securities.

Patrick Walravens: Patrick, you are muted.

Patrick Walravens: I’m unmuted now. Can you hear me?

Operator: Yes.

Patrick Walravens: Okay, great. Congratulations. Michelle, I think I’m going to focus on you if that’s alright. Can you just tell us again why you took this job? What you found so far? And then maybe you obviously haven’t guided for next year yet, and you’re early in your tenure, but maybe any points that you would share with us in terms of how to think about next year?

Michelle Chang: Yeah, great. Thank you for the question. Let me go back and just remind people I came to Zoom, I think in part because of the iconic brand and the established leadership in meetings. But as Eric and I began our conversations over the interview process, I got more and more excited about where I saw Zoom going as an AI-first platform company. I could see a lot of the seeds of growth being planted and starting to come to fruition. So I got very excited about that. My learning since has been delightful, honestly, to see the customer love and the pace of innovation. You’d heard about it before, but to be amongst it has been a delight. My focus as a CFO is really going to be on top-line growth, as you noted, getting the top-line revenue growth further accelerating, certainly continuing to manage margins and expenses as Kelly has.

And then maybe the last part I’d say that I think you saw us re-up here today is capital allocation with our buyback. In terms of how to guide for FY2026, look, we will officially guide as we always have in the next guidance period. So I’ll save my comments until then.

Patrick Walravens: Okay, great. Thank you.

Operator: James Fish with Piper Sandler has the next question.

James Fish: Hey, guys. Thanks for the question. Maybe, Eric, for you, on the AI side, you guys are talking about AI investments obviously impacting the gross margins. You talked about that last quarter. But where do we think about the AI investments actually going into? Is it sort of the backend infrastructure or thinking about it more on the Companion side and more modules? How are you feeling about the AI portfolio for Contact Center generally? Then just, Michelle, for you, on the lengthening billing terms, we’re starting to see a difference between RPO and billings for sure, but a big divergence really on the current and non-current RPO trends this quarter. Can you just walk us through what happened there despite the comment on the net billing terms? Thanks.

Eric Yuan: Yeah, James, great question. I can address your first one. Look at AI. We have to invest more in a few areas. One is our Zoom Workplace platform. We have to invest in more talents, deploy more GPUs, and also use more cloud-based GPUs as well as we keep improving the AI quality and innovate on AI features. That’s for Workplace. At the same time, we are going to introduce the customized AI Companion and AI Studio. Next year, not only do we offer the free service for AI Companion, but those enterprise customizations certainly can help us in terms of monetization. At the same time, we leverage the technology we build for Workplace and apply that to the Contact Center, like Zoom Virtual Agent and other Contact Center features.

We can share the same AI infrastructure, and a lot of technological components can also be shared at Zoom Contact Center, where the AI Companion is not free. The Contact Center is different. We can monetize. Essentially, we build the same common AI infrastructure architecture, and the Workplace customized AI Companion we can monetize. Contact Center also can monetize. More and more, now, like today, we keep investing more and more, and soon we can also monetize more as well. That’s why we do not worry about cost in the long run at all. I mean, the AI investment because, with the monetization coming in, it certainly can help us more. So far, we feel very comfortable.

Michelle Chang: And, James, maybe to answer your question on RPO and specifically why we see the current piece go up, we are seeing just to convert and lengthening billing terms, so we’re encouraged by that as an indicator both in online and enterprise of our customers’ dedication to Zoom. In particular, our current, as you know, went up 10%. The way that I would have you think about that is when we have coterminous contracts, we tend to see as we sell outside of that expiry cycle, that current volume go up temporarily before it goes to long term. So net-net, a positive thing is to expand the portfolio with our customers.

Operator: And we will now hear from Alex Zukin with Wolfe Research.

Alex Zukin: Hey, guys. Congratulations on a solid quarter. Maybe just I’ll say one and a half questions. On the monetization side, Eric, as you’re starting to see AI Companion additions and interactions start to scale, as you think about the kind of ultimate monetization opportunity of AI in terms of the broader portfolio, how, when, where should we see it? Is it through selling Contact Center that’s more AI-native into the overall base? Is it the verticalization of the AI Companion 2.0? Is it a better AI Companion expanding? Just give us a flavor for the how and the when. And, Michelle, if I look at forward KPIs, I see enterprise billings growing double digits again. I see CRPO growing double digits again. I see churn for the online business basically getting lower every quarter by 20 to 30 basis points. Why shouldn’t we kind of extrapolate that as the online business stable flat, enterprise business accelerating from here?

Michelle Chang: Eric, do you want to go into monetization? I’m happy to tag in too on the KPIs.

Eric Yuan: Then I can address the first one later.

Michelle Chang: Yeah, so to answer your question, and, Alex, obviously, we’re not going to guide to 2026 and tell everyone. But I would say we feel good about the beat to forecast. We feel good about the implied raise to Q4. And we feel good about the overall acceleration. If you look at our H2 growth, it’s above H1. So net-net, in terms of what we’ve said and what we’ve guided, it’s delivering on what we said. And then you kind of go to the underlying KPI and you look at it, and I think there’s a lot of strong fundamentals. So look, I’m not going to confirm the numbers that you gave, but I think maybe one way to think about the models for revenue is we’ve given a Q4 revenue growth guide, I believe the midpoint of that growth rate probably represents a reasonable proxy for how to think about revenue growth into FY2026.

Eric Yuan: Yeah, Alex, by the way, we’ll share more in detail in the Q4 earnings call. You will see the deadline by 2026. By the way, you mentioned online. Remember, two years ago, FY2023, when I look at the online business, it declined by 8%. A year ago, 4%. Now this year, flat. You see the trend is very positive. So back to the question of AI monetization, we already monetize AI today. But not for the Workplace product, for the upgrading services. Like Contact Center. Like Zoom Revenue Accelerator. Like the newly coming services like Zoom Workplace for frontline workers, for educators, for healthcare, those products tailored for vertical industries. At the same time, also focus on enterprise. I think it’s maybe the second half of next year.

And, you know, for the because the customer might AI Companion and AI Companion Studio, not be available in the first half of next calendar year. I think a lot of monetization opportunities. But also at the same time, not only do we monetize AI Companion, but also we leverage AI Companion to further build a relationship with the customer. Like a customer look at it today, the Zoom platform. On the one hand, ease of use is stable, secure, but, plus, AI, a greater performance quality at no additional cost. I think more and more we do see that some customers last two quarters switched to the Zoom platform. I’ll give one example. In Q3, we won a very large insurance company, and if I recall correctly, they own 20,000 seats. They chose the Zoom Workplace platform.

For sure, there’s some big competitor there, so-called for free. When they analyze their employee like our Zoom service, they analyze the total cost Zoom AI Companion also at no additional cost. That’s one of the key reasons why they selected Zoom as their collaboration platform. So that’s a very big win in Q3.

Alex Zukin: Perfect. Thank you, guys.

Eric Yuan: Thank you, Alex.

Michelle Chang: And then, oh, back to your question. In online, kind of the way that I would think about Q4 is sort of flat to slightly down. And then certainly, because I get this question a lot, the ambition for online is growth. Just want to make sure I answered your online question.

Operator: Thanks again, Alex. And we will move on to Siti Panigrahi with Mizuho.

Siti Panigrahi: Great. Thank you. Michelle, congrats on your first earnings call. You talked about your focus to reaccelerate top-line growth. Can you guys hear me?

Operator: Yes, we can hear you.

Siti Panigrahi: Okay, good. It’s good to see the platform momentum, your NRR, and now you talk about multiple products like Phone, Contact Center, WorkVIVO, Customer AI Companion. A lot of different products you are talking about that will layer in growth. So as you look forward to next year, which products are you more excited about, and how do you rank these products when it comes to layering the growth to the core platform?

Michelle Chang: Yeah, it’s such a great question. I guess I would start with just sort of the foundation of Zoom, and then I’ll kind of build out in my answer. So look, the foundation of Zoom was obviously the meetings. We’re working very hard to move that to platform. And, you know, we’re excited by the deceleration of seat down sells that we’re seeing, excited by the competitive wins that we’re seeing, excited by the online churn rates. So kind of in our foundation as we bring in AI, as Eric has said many times, at no additional cost, or we bring, you know, we build out the portfolio of Workplace. We’re excited at sort of what that could mean to the foundation of our business. And then certainly, as we think about growth factors from there, part of that Workplace platform is a shift to Phone, which has been a significant growth driver for us.

That will certainly continue. And then I would say the products that we’re seeing the momentum in today, we call them or I call them our emerging products, in Contact Center and WorkVIVO. I think they’ll continue to be durable elements for product growth going forward. And then over time, I think you’ll see more of that AI monetization and some of the things that we announced at Zoomtopia. But like any products, those will come in with time. And you asked a lot about product growth, but I guess I would also call out that I think there’s a lot of growth factors that we still can grow from in terms of our international growth, our channel expansion, or continuing to go upmarket. There’s a lot of really great proof points of when we get customers in on the Workplace, it decreases churn, you know, that accelerates revenue growth with our land and expand.

So I think there’s a lot of, you know, beyond sort of the traditional product levers of growth, a lot more we can dip into.

Siti Panigrahi: Thank you. Thanks for that color.

Operator: Alan Varkovsky with Scotiabank has the next question.

Alan Varkovsky: Hey, guys. Thanks for taking the questions here, and I’ll echo the congrats on a strong quarter. Michelle, it looks like the deferred revenue growth in the quarter came in right as you guys were expecting, which is a slight change of pace from the beats we’ve seen there. There are a number of large deals you highlighted in the quarter, like the Contact Center deal with over 20,000 seats. Can you just walk us through the puts and takes there in the quarter? Perhaps give us a refresh about the level of conservatism you’re embedding in your Q4 guide of deferred revenue growth being 5 to 6%.

Michelle Chang: Yeah, so first of all, I would say, you know, we guided that it’ll be 5 to 6%. We grew 5% in Q3, and we guided to 5 to 6%. So just to reorient everyone, the dynamics of what’s driving that are tightening of discounting and lengthening of billing terms. We expect those to obviously continue into Q4. So, you know, in terms of what may be, you know, how to think about it in terms of our guidance philosophy, I would say it has very much the same. So I’ve continued a guidance philosophy similar to what has been had historically at Zoom.

Alan Varkovsky: Okay, thanks, guys. Congrats. The other thing that I would mention, nothing different to what Zoom has said historically is that revenue is ultimately the better measure and indicator for our business, you know, given some fluctuations that you’ll see from quarter to quarter in deferred revenue. So that’s really what I would point people to.

Operator: And Bank of America’s Michael Funk has the next question.

Michael Funk: Yeah, great. Thank you all for the time. One for you, Eric. So, you know, you really created the iconic brand with Zoom Video, you know, owned that point solution space, and have now expanded into other areas. The new name, Zoom Communications, now captures it all. You know, you have Phone now, you have Contact Center, adding AI on top, arguably even edging into work management with some of the products that you’re rolling out. So, you know, the delineation is less clear now between yourself and competitors in other areas. So how do you think about attacking the market? Is it purely based on product, or how important is price as you try to win new business?

Eric Yuan: Yeah, so that’s a great question. I think, you know, our philosophy from day one has always been a better product, a better price, and a better service. First of all, our customers care about the product experience. We make sure they know the customer likes us. Look at the recent Gartner Peer Insights report. Zoom is the only one in the leader section. That’s the reason why the customer likes us, because they truly like our product. Because of that, you know, we introduced a lot of other new products. Essentially, we gave a customer suite, and we call that, you know, Workplace, the AI-first work platform. At the same time, we look at the price. A year ago, if I recall correctly, we increased the price for online, and we do not see any issues.

The users really like our product. Now, actually, customers used to buy our point solutions like many years ago, meetings and phone. And also the Envoy board, allows also a point product. And now prefer our platform approach. And then you got an entire platform. You know, they can leverage more services from Zoom. And at the same time, with the AI at no additional cost, the customer trusts the Zoom brand more, sticky and down the road with a customer AI Companion or other innovations. For sure, we can monetize them all. Essentially, we do not want to do something similar to, you know, there are some competitors. You get stuck with your competitors. They call that up for free. And then every year, they increase the price. We don’t want to do that.

We want to build long-term trust. Given some time, the customer realizes Zoom not only is very stable, ease of use, and also we introduce more and more services, they would like to consolidate into the Zoom platform. From that perspective, I think more opportunities for us to monetize as a platform player and in order to mention AI as well. So that’s our strategy.

Michael Funk: Great. Thank you, Eric.

Eric Yuan: Thank you, Michael. Appreciate it.

Operator: We will now hear from Samad Samana with Jefferies.

Samad Samana: Hi. Good evening, and I’ll echo the congrats on the next quarter. Maybe on WorkVIVO, I know Meta announced that it would be sunsetting a Meta Workplace product, and it would be in stages over 2025 and 2026, and it’s steering customers toward WorkVIVO. Can you guys help us think about how you’re thinking about that ramp? You’ve had good momentum there. Customers grew 72% year over year. Can you quantify maybe how much of the growth is coming from Meta and how we should think about that momentum going forward?

Eric Yuan: Yeah, great question. So, Michelle, feel free to chime in. I think, you know, we acquired WorkVIVO, I think, two years ago, and because, you know, look at the employee engagement. That’s very important as part of a Zoom work platform. I think that a company that a team is much better positioned. They have a very scalable, very cool product. That’s the reason why I acquired them. Also, you know, a few quarters ago, right? And Meta, you know, focused on AI, a lot of other things. They decided to retire the Workplace product. For sure, there’s some other vendors out there as well. Based on the customer feedback, because of the product maturity, they decided to go with Zoom as a partner. So meaning, you know, WorkVIVO is an exclusive partner.

They also build migration tools to help customers who deployed WorkVIVO-based products for Meta and replace that with WorkVIVO. You look at our top deals, I think almost all of those deals are because of Meta migration. And also, I think we have a very strong pipeline as well. Again, that’s not a small company. Do not focus on SMB. This is a very large integrated customer. Some of the Zoom Workplace customers already, some even not Zoom Workplace customers. But they also deploy Zoom WorkVIVO. I think the pipeline is very strong and very promising. And also, we also want to innovate more on WorkVIVO. Double down on that, think it was more opportunity and to further grow that business. You know, I think if you look at the growth rate and quarter over quarter, year over year, it’s pretty exciting.

And we think that benefits can contribute more to our down the road.

Michelle Chang: Maybe just to add in from my standpoint, yes, the Meta partnership is driving the growth. We’re not going to quantify it or speak to it. But I think if you look at a lot of the underlying metrics that we said in our prepared remarks, they tell a more holistic story for WorkVIVO growth and a lot of the things that we’ve been focused on. You know, from geo expansion to partner dynamics to, you know, getting those large customers as well as breadth, and they build up a lot of the natural things that Zoom has strength in certain industries, like retail as well as frontline. So I think, yes, the Meta partnership is part of that. And there are some durable dynamics to underscore a lot of the things that Eric talked about.

Samad Samana: Great. Thank you both so much for the time.

Operator: The next question will come from Tyler Radke with Citi.

Tyler Radke: Thank you. Hey, Eric. Hey, Michelle. I wanted to direct my question to Michelle. Congrats again on the first earnings call here as CFO of Zoom. I wanted to ask how you think about margins. So if we look at Q3, the operating margins were down very slightly year over year. I think Q4 they’re guided to be down about one point year over year, if you round up. How should we think about the path to long-term operating margins? I think you’re still a couple of points above the high end of that long-term guide that you put out at analyst day. Should we expect to get to that long-term operating margin next year? Just give us a sense for the path there. And then maybe just if you could give your own philosophy too around how you evaluate expenses. What are some of the things that you look for just in terms of ROI in case, you know, your framework is maybe different than, you know, how things were done at Zoom before. Thank you.

Michelle Chang: Perfect. Great question, and thank you very much, Tyler. So I would say I think it’s important just to reemphasize what we’re investing in. We’re investing in AI. We’re investing in our emerging growth businesses, and we’re investing in the platform. As I think it sort of sets up the frame that I’ll have, I don’t think it’s that different than maybe the frame that Kelly and Eric had before. We’re going to invest for top-line growth, and we’re going to invest for our strategy going forward. So look, our guidance approach remains the same. I said that before. We gave, as you noted, long-term guidance that had that operating margin lower than where we are today because of those investments. I just want to emphasize that is a long-term margin scenario and so not something that you should take for FY2026.

And again, we’ll come back in February and give FY2026 guidance. But in terms of my philosophy, I think it’s going to be, you know, a lot of where Eric and I are going to spend our time is how do we really make sure that every dollar that Zoom is spending is going towards those things that I mentioned and going towards top-line growth. And so look, we’ll employ other ways of capital allocation, but in terms of internal capital allocation, I think it’s going through each thing, questioning the return, questioning the alignment to strategic value, and making sure that as a culture, you know, we have the disciplined approach of really looking at our expenses and having a culture of driving savings to offset the investments that we know we’re going to need to make.

Eric Yuan: Yeah, just to quickly add on to what Michelle said, I think you look at our track record. It’s especially as the way for us to manage the cost is a very disciplined approach. Even one or two quarters, you see more investment on, let’s say, on COGS side. I am very, very proud of our world-class DevOps team led by our President of Product, Bill Chappell. Here and this team, we always know how to automate further a lot of cost savings. That’s one area I normally do not spend any time because I have high confidence that a team can always come up with some ways to further reduce the cost. Even for AI, they know where to optimize. I think I have very high confidence. Even one or two quarters more investment or something like that, I personally feel like a team can come up with some better ideas to further reduce the cost.

Tyler Radke: Thank you.

Operator: Michelle and Eric, we have time for one additional question. It’s going to come from Mark Murphy with JPMorgan.

Mark Murphy: Thank you so much. Great to see you. Eric, I was wondering if you can perhaps speak to the customer interest that you’re seeing to integrate data from their own internal repositories into AI Companion because I believe that triggers the $12 per user per month monetization, or it’s one of the important triggers. I would think that that is also going to drive some real product stickiness and value that would ratchet higher. So I’m just curious how many customers are showing that interest, what kind of scenarios they can design, and therefore maybe how to think through the monetization potential at that price point.

Eric Yuan: Yeah, Mark, it’s a great question. So that’s the reason why we introduced the customized AI Companion or AI Companion Studio because a few quarters ago, we talked to many enterprise customers. They shared with us feedback. They like AI Companion, but they also want to make sure, hey, some customers already build their own AI large language model. How to federate that into our federated AI approach? Some customers have very large content, like a knowledge base. How to connect with that? Some customers have other backend systems, like ServiceNow, Atlassian, Workday, HubSpot, how to connect those data sources. Even from an employee perspective, they want to have a customized avatar in the Live With AI to act as a personal coach as well.

So those customers have customized requirements. To support those customer requirements, we need to make sure we have AI infrastructure and technology ready. That’s the reason why we introduced the AI Companion, a customized AI Companion. The goal is really to work together with enterprise customers to tailor for each enterprise customer. That’s the reason why it’s not free. I think the feedback from Zoomtopia is very positive. Because, again, those features are not built by our several product managers and engineers. We already solicited feedback from our enterprise customers before those features, and I think they can truly satisfy their needs.

Michelle Chang: And maybe, Mark, if I could add in. I think that Zoom has some really powerful differentials here. In terms of our approach, the democratization of AI and kind of the core SKUs and letting people kind of try it and get to experience it, I think will provide an important on-ramp. And then I would say our open platform approach, you know, when you start looking at bringing in custom things or connecting with other data sources, I think that in addition to a price point, which is more reachable for customers, are going to be important competitive differentiators for us.

Mark Murphy: Excellent. Thank you so much.

Eric Yuan: So, Kelsey, is this the last question?

Operator: That was the last question, Eric. I’ll turn it back to you for closing if you’d like.

Eric Yuan: I think, first of all, thank you all for your time. This is the first earnings call I’ve had, your first earnings call. I think it’s very similar in the transition from Kelly to Michelle. And I feel, Michelle, this feels like it’s not your first earnings call. It feels like you’ve already joined a Zoom earnings call many times before. So thank you for Kelly’s great work over the past many years. Michelle, thank you. And, again, thank you to all the investors. I really appreciate your time. See you all at the next earnings call in February. Thank you.

Operator: Alright. Thanks, Eric and Michelle. And again, everyone, this concludes today’s earnings release. We always thank you all for your participation. And again, from our family to yours, may you and yours have a safe and happy holiday season. Take care until next quarter.