Zoom $ZM Q2 FY2026 revenue rises 4.7% as enterprise deals climb, but stock compensation stays high at 50% of net income

Zoom’s Earnings Spotlight: Revenue Momentum and the Lingering Shadow of Stock-Based Compensation

Zoom Communications has delivered a robust set of quarterly results, underscoring a resurgence in revenue growth amid a stabilising enterprise segment. With revenue expanding by 4.7% year-over-year to $1.22 billion in the second quarter of fiscal 2026, the company outperformed analyst expectations and raised its full-year guidance. This performance, driven by key enterprise client wins and AI-enhanced offerings, signals a potential inflection point for the videoconferencing giant. However, investors must contend with persistent high levels of stock-based compensation, which, while improving, still accounts for roughly half of net income—a metric that demands scrutiny in assessing true profitability.

Revenue Growth Accelerates Amid Enterprise Strength

The latest earnings report from Zoom, released on 21 August 2025, highlights a return to meaningful top-line expansion. Total revenue reached $1.22 billion, marking a 4.7% increase from the prior year and beating consensus estimates of $1.20 billion. This growth rate represents the strongest in 11 quarters, a notable turnaround from the post-pandemic slowdown that plagued the company. Enterprise revenue, a critical driver, climbed 7.0% to $730.7 million, fuelled by expansions among large clients and new additions.

Among the standout developments, Zoom secured significant contracts with high-profile enterprise customers, including HubSpot and F5. These wins exemplify the company’s push into integrated communication solutions, blending video, chat, and now AI-driven tools. HubSpot, a leader in customer relationship management software, and F5, a specialist in application delivery networking, join a growing roster of over 4,274 enterprise clients contributing more than $100,000 in trailing-12-month revenue—a figure up 8.7% year-over-year. Such additions not only bolster recurring revenue but also enhance Zoom’s net dollar expansion rate, which stood at 107% for enterprise customers, indicating upsell opportunities within existing accounts.

Analysts attribute this momentum to hybrid work trends and Zoom’s integration of artificial intelligence. The company’s AI Companion tool, for instance, has seen monthly active users surge fourfold year-over-year, positioning Zoom as a frontrunner in AI-augmented collaboration. This has helped stabilise churn in the online segment while driving enterprise adoption. Zoom’s raised full-year revenue guidance to $4.83 billion to $4.84 billion, from a prior range of $4.81 billion to $4.82 billion, reflects confidence in sustained demand.

Profitability Metrics and the Stock-Based Compensation Conundrum

On the bottom line, Zoom reported non-GAAP earnings per share of $1.53, surpassing expectations of $1.38 and contributing to a net income of $359 million, up 63.8% year-over-year. Free cash flow also impressed at $508 million, a 39.1% increase, underscoring operational efficiency. GAAP operating margins expanded to 26.4%, with non-GAAP margins hitting 41.3%—figures that highlight cost discipline in a competitive landscape.

Yet, a closer examination reveals a persistent issue: stock-based compensation (SBC). In the quarter, SBC expenses represented approximately 50% of net income, a marked improvement from 104% in the comparable period last year. This reduction stems from moderated equity grants and a maturing workforce, but the absolute level remains elevated compared to peers in the software sector. For context, historical trends show Zoom’s SBC as a percentage of revenue hovering around 20-25% in recent years, down from peaks during its hyper-growth phase in 2020-2021, when quarterly revenue exploded from $328 million in Q1 fiscal 2020 to over $1 billion by Q2 fiscal 2022.

High SBC is not unique to Zoom; it’s a hallmark of tech firms using equity to attract talent in Silicon Valley’s competitive labour market. However, when SBC constitutes such a significant portion of reported profits, it can distort perceptions of underlying earnings power. Adjusted for SBC, Zoom’s profitability metrics would appear less rosy, potentially impacting valuation multiples. Investors should note that this practice dilutes shareholder equity over time—Zoom’s shares outstanding have increased by about 5-7% annually in recent years, per historical filings.

Comparing to industry benchmarks, companies like Microsoft or Salesforce typically see SBC at 10-15% of net income, allowing for more straightforward cash flow assessments. Zoom’s trajectory suggests progress, but until SBC normalises further—perhaps to below 30% of net income—sceptics may argue that the company’s earnings quality lags behind its revenue headlines.

Market Reaction and Valuation Context

Following the earnings release, Zoom’s shares traded at $73.17 on Nasdaq, reflecting a 1.01 point gain from the previous close of $72.16, amid post-market activity on 21 August 2025. This places the stock within a 52-week range of $64.41 to $92.80, with a year-to-date change of approximately 4.32%. The forward price-to-earnings ratio stands at 13.83 based on expected EPS of $5.29, while the current-year P/E is 13.03 on EPS of $5.61—multiples that appear attractive relative to the broader tech sector’s average of around 25-30.

Market sentiment, as gauged by analyst ratings, leans positive with an average score of 2.3 (Buy). This optimism is echoed in commentary noting Zoom’s enterprise strength and AI initiatives as key positives. However, some caution persists around macroeconomic headwinds, such as potential slowdowns in corporate IT spending.

Looking ahead, analyst-led forecasts project revenue growth of 3-5% for fiscal 2026, with models suggesting EPS could reach $5.81-$5.84, aligning with Zoom’s updated guidance. If enterprise expansion continues and AI tools drive further adoption, these estimates may prove conservative. Conversely, any resurgence in competition from Microsoft Teams or Cisco could pressure margins.

Implications for Investors

For long-term investors, Zoom’s quarter illuminates a company transitioning from pandemic darling to enterprise staple. The addition of clients like HubSpot and F5 underscores a defensible moat in unified communications, while revenue acceleration hints at escaping the growth trough of 2022-2024. Yet, the SBC overhang serves as a reminder to prioritise adjusted metrics; free cash flow per share, for instance, offers a cleaner lens, standing at roughly $1.95 for the quarter.

In a broader context, Zoom’s story reflects evolving trends in the software-as-a-service space, where AI integration is becoming table stakes. With a market capitalisation of $22.14 billion and a price-to-book ratio of 2.49, the stock trades at a discount to historical averages, potentially offering value if profitability trends hold. Dry humour aside, one might say Zoom is finally “unmuting” its growth potential—though investors would do well to ensure the compensation “echo” doesn’t drown out the signal.

• Enterprise Focus: Prioritise companies with strong recurring revenue models, as Zoom’s 107% net expansion rate demonstrates resilience.
• SBC Scrutiny: Always adjust for equity compensation in tech valuations to avoid overpaying for diluted earnings.
• AI Catalyst: Monitor adoption metrics for tools like Zoom AI Companion, which could accelerate upsell cycles.

Zoom’s path forward hinges on balancing innovation with fiscal prudence. As hybrid work endures, the company is well-positioned, but sustained SBC discipline will be key to unlocking shareholder value.

References

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