Zoom Shifts Focus to AI as Growth Slows but Profits Stay Strong in FY 2025

Zoom's AI-Powered Evolution: Solid Margins, Slowing Growth, and a Strategic Shift Toward the Future

Zoom’s Financial Year 2025: A Business in Transition

Zoom’s FY25 financial results confirm what many in the industry have anticipated: the company is no longer the pandemic-fueled hypergrowth machine it once was. Instead, it is evolving into a cash-rich, AI-driven enterprise software business with steady, if unspectacular, growth. With $4.665 billion in total revenue (up 3.1% YoY) and a strong 41.7% operating cash flow margin, the fundamentals are solid, but the real story lies in its strategic pivot—away from raw customer growth and toward AI integration, enterprise engagement, and efficiency.

Steady Revenue, but a Stark Divide Between Enterprise and Online Segments

Zoom’s revenue growth has significantly cooled from its pandemic-era surge, but the business remains healthy. The key revenue drivers reveal an essential shift in the company’s strategy:

Enterprise Revenue: $2.754 billion (+5.2% YoY) – This segment is now Zoom’s primary growth driver, highlighting its shift toward serving large organizations.
Online Revenue: $1.911 billion (+0.2% YoY) – This near-flat growth raises concerns about market saturation and competition in the SMB and consumer segments.
Q4 Total Revenue: $1.184 billion (+3.3% YoY) – Modest growth but in line with market expectations.

The increasing reliance on enterprise customers signals that Zoom’s growth strategy is now tied to large-scale contracts, rather than broad-based user adoption. The stagnation in online revenue demands attention: is this an intentional move to prioritize enterprise customers, or is Zoom facing competitive pressure from Microsoft Teams and Cisco Webex?

Profitability and Cash Flow: Zoom’s Silent Strength

While revenue growth has slowed, profitability remains Zoom’s strongest asset. The company continues to demonstrate disciplined cost management and a highly scalable business model:

GAAP Operating Margin: 17.4% (+580 bps YoY) – Significant expansion, showcasing efficiency improvements.
Non-GAAP Operating Margin: 39.4% (+20 bps YoY) – Among the best in the industry.
Operating Cash Flow: $1.945 billion (+21.7% YoY) – A testament to its ability to generate cash, providing flexibility for investments and share buybacks.
Net Income: $1.01 billion (up from $637.5 million in FY24) – A strong increase, bolstering investor confidence.

With $7.8 billion in cash and marketable securities, Zoom has a substantial war chest that could be used for acquisitions, AI investments, or stock repurchases. This positions the company well, even as growth slows.

AI Companion: The Centerpiece of Zoom’s Next Chapter

One of the biggest signals from Zoom’s earnings report was its relentless focus on AI. CEO Eric Yuan has positioned Zoom AI Companion as the future growth driver, with promises that AI will unlock “a whole day’s worth of work savings” for professionals.

Key AI Developments:

AI Companion 2.0 – Expanding AI capabilities to automate meetings, emails, and document generation.
AI Studio – A new, monetizable AI customization tool priced at $12 per user per month, marking Zoom’s first step toward AI revenue streams.
Integration Across the Zoom Ecosystem – AI is being embedded into Zoom Meetings, Zoom Phone, and Zoom Contact Center, aiming to create a seamless work platform.

However, monetization remains a work in progress. AI Companion is currently free for paid Zoom users, meaning its contribution to revenue is still uncertain. The key for Zoom will be proving AI's impact on customer retention, upsell potential, and long-term enterprise spending.

Customer Metrics: Enterprise Retention vs. Strategic Reporting Shift

Zoom continues to retain and grow its high-value customers:

Customers contributing >$100k in revenue: 4,088 (+7.3% YoY) – A positive sign for enterprise momentum.
Net Dollar Expansion Rate: 98% – Healthy, but just below the gold standard of 100%+.
Online churn: 2.8%, down 20 bps YoY – Lower churn suggests customer loyalty is improving.

However, a major reporting shift is happening. Zoom announced that starting in FY26, Enterprise customer count will no longer be a primary metric, citing overlap with Online customers. This is a crucial development:

It suggests Zoom’s internal segmentation of customers is evolving and may be less relevant.
Some investors speculate this move may be an attempt to obscure slowing Enterprise customer growth.
Going forward, revenue-based metrics will likely take center stage.

FY26 Outlook: Moderate Growth and Strong Profitability

Zoom’s FY26 guidance reinforces the narrative of steady, disciplined performance rather than breakout growth:

Revenue guidance: $4.785 - $4.795 billion (+2.5-2.8% YoY) – A continuation of moderate expansion.
Q1 FY26 revenue: $1.162 - $1.167 billion – Flat to slightly down, signaling possible seasonality or softer demand.
Free Cash Flow: $1.68 - $1.72 billion – A slight dip, but still robust.

The forecast is steady but uninspiring, suggesting that unless AI initiatives scale quickly, Zoom’s revenue trajectory will remain in the low single digits.

Investor Takeaways: AI-Driven Upside vs. Growth Limitations

Zoom is no longer a high-growth company, but it is becoming a cash-generating machine with a strategic AI pivot. Investors need to weigh:

Strengths:

✅ High profitability and free cash flow. ✅ Enterprise revenue growth and retention remain solid. ✅ Strong AI narrative, with new monetization pathways. ✅ A massive cash position offering strategic flexibility.

Concerns:

⚠️ Revenue growth is slowing, particularly in Online segments. ⚠️ AI monetization is still in early stages—unclear revenue impact. ⚠️ Customer segmentation reporting changes could obscure trends. ⚠️ Strong competitors (Microsoft, Cisco) are also investing heavily in AI.

Final Analysis: Is Zoom a Buy?

Zoom’s earnings beat expectations slightly, but investor sentiment remains cautious. The market is balancing its strong margins and cash flow against the reality of slower revenue growth. For investors, Zoom represents:

A value play for those who prioritize profitability and stability.
A speculative AI bet for those who believe AI Companion can unlock new revenue streams.
A mature tech company that may need acquisitions or major innovation to reignite growth.

Zoom’s transition to an AI-first enterprise software company is well underway. The next year will determine whether AI delivers the necessary growth boost—or if Zoom settles into the role of a steady, but unremarkable, SaaS cash machine.