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Zoom Video Communications - $ZM - Earnings Analysis: Strong growth in Enterprise revenue and improvements in online churn rates.

By sagebytes in Technology —

Business Model

Zoom generates revenue through subscriptions to its platform and related services, targeting both enterprise and online customers.

Revenue Sources

  • Enterprise revenue: Subscriptions sold through direct sales, resellers, and strategic partners.
  • Online revenue: Subscriptions sold directly to customers through the Zoom website.

Revenue Distribution by Channel

  • Enterprise channel contributes approximately 60% of total revenue, up from 58% year-over-year.

Income Statement Analysis

  • Revenue increased by 3.3% year-over-year, driven by growth in Enterprise revenue which makes up 60% of total revenue.
  • GAAP Operating margin improved significantly to 19.0% from 14.7% in the prior year, indicating improved profitability.
  • GAAP Net income increased by 23.10% year-over-year due to revenue growth and operational efficiencies.
  • Basic and diluted EPS increased by 22.45% and 22.11% respectively year-over-year.

Balance Sheet Analysis

  • Total assets increased by 10.66%, reflecting overall growth and investments.
  • Total Stockholders' Equity increased by 11.42%, indicating improved financial health and retained earnings.
  • Liabilities increased by 7.48% primarily to support operational growth and deferred revenue obligations.

Cash Flow Analysis

  • Net cash provided by operating activities increased by 20.9%, showcasing improved operational efficiency.
  • Net cash used in investing activities significantly decreased, primarily due to changes in marketable securities activity.
  • Net cash used in financing activities was primarily driven by repurchases of common stock.

Capital Allocation

Zoom is allocating capital towards R&D, strategic investments, and share repurchases. They repurchased approximately 4.3 million shares in Q4 FY25. They are also investing heavily in AI and plan to launch Custom AI Companion in April. A remaining $1.6 billion is authorized for share repurchases.

Management Commentary

In FY25, Zoom AI Companion emerged as the driving force behind our transformation into an AI-first company.

Both Contact Center and Workvivo had incredible years capped by excellent Q4s in terms of strategic logo wins, upmarket momentum and broader customer growth.

We delivered a robust 5.8-point expansion in FY25 GAAP operating margin driven by increased focus on prioritizing investments and controlling share-based compensation.

Despite ongoing macro challenges and uncertainties, we are encouraged that our value proposition and the total cost of ownership are gaining traction in the market.

Overall Sentiment: Overall management sentiment is cautiously optimistic, with a focus on innovation, strategic growth areas, and disciplined financial management amidst a mixed macroeconomic environment.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.