Zoom Video Communications Inc. (ZM) exceeded expectations in its fiscal 2025 fourth-quarter earnings report, but its cautious outlook for the coming year sent shares tumbling.
The company posted adjusted earnings per share (EPS) of $1.41, surpassing Wall Street’s estimate of $1.30, while revenue increased 3.3% year-over-year to $1.18 billion, aligning with forecasts. However, shares fell nearly 8% in early trading as investors reacted to a weaker-than-expected revenue outlook for fiscal 2026.
Zoom anticipates first-quarter revenue between $1.16 billion and $1.17 billion, missing analysts’ consensus estimate of $1.18 billion. Full-year revenue guidance also disappointed, with projections between $4.79 billion and $4.8 billion, slightly below expectations of $4.81 billion. While the company continues to generate strong operating cash flow—rising 21.7% to $1.95 billion—its modest growth projections left investors unimpressed.
AI Investments and Enterprise Growth: A Long-Term Play
To maintain relevance in a post-pandemic world, Zoom has been heavily investing in artificial intelligence (AI). Its AI Companion tool saw a 68% sequential increase in monthly active users during the fourth quarter. CEO Eric Yuan emphasized Zoom’s transition into an AI-driven company, integrating features like AI-powered meeting summaries and automated workplace tasks. The company plans to roll out Custom AI Companion add-ons in April, offering tailored automation for enterprise clients.
Despite these efforts, Zoom’s growth remains sluggish. While enterprise revenue increased 6% year-over-year to $706.8 million, the net dollar expansion rate among enterprise customers dropped to 98%, signaling declining spending among existing clients. Additionally, the number of enterprise customers generating over $100,000 in annual revenue grew just 7%, suggesting stagnation in customer acquisition.
Stock Struggles and Analyst Concerns
Zoom’s stock has struggled since its pandemic-era peak of $568.34 in October 2020, losing 86% of its value as demand normalized. Analysts remain cautious, with BofA (BAC) Securities and J.P. Morgan (JPM) maintaining neutral ratings due to sluggish revenue growth. Stifel lowered its price target from $90 to $85, citing a lack of significant catalysts for growth despite advancements in AI and customer engagement tools.
Zoom’s stock has struggled since its pandemic-era peak of $568.34 in October 2020, losing 86% of its value as demand normalized. Analysts remain cautious, with BofA (BAC) Securities and J.P. Morgan (JPM) maintaining neutral ratings due to sluggish revenue growth. Stifel lowered its price target from $90 to $85, citing a lack of significant catalysts for growth despite advancements in AI and customer engagement tools.
The company’s reluctance to pursue large-scale acquisitions also raises questions. Management favors smaller, strategic deals like its Workvivo acquisition rather than transformative mergers. While analysts at Wolfe Research see this as a prudent strategy, others believe Zoom must take bolder steps to reignite growth.
Future Outlook: Can AI Drive a Turnaround?
While Zoom remains profitable and continues to expand its AI capabilities, the company faces an uphill battle in proving that these innovations can drive meaningful revenue acceleration. With limited exposure to the public sector and macroeconomic headwinds affecting enterprise spending, investors are waiting for a breakthrough. Until Zoom can demonstrate sustained growth beyond single-digit percentages, its stock may remain under pressure.
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