Zoom’s AI Bet Pays Off: Q1 Earnings Beat Expectations Despite Squeezed Margins

Wall Street shrugs off margin pressure as Zoom’s AI-driven growth narrative takes center stage. Another case of ’growth over profits’—because that’s always worked out in tech, right?

Revenue climbs on enterprise adoption, but can they monetize the AI hype before the music stops?

TLDR

• Q1 2026 revenue grew 3% Y/Y to $1.175 billion.
• AI Companion usage jumped 40% quarter-over-quarter.
• Zoom Phone posted mid-teens revenue growth.
• Q1 non-GAAP EPS beat guidance at $1.43.
• Full-year guidance raised for revenue and EPS.

Zoom Communications Inc. (NASDAQ: ZM) traded at $82.02 as of 3:55 PM EDT on May 21, 2025, down 0.30%.

Zoom Communications Inc. (ZM)

The video conferencing firm reported Q1 2026 earnings that met expectations, raised guidance, and highlighted growing AI integration despite a cautious enterprise outlook.

Total revenue ROSE 3% year-over-year to $1.175 billion, beating guidance by $8 million. Enterprise revenue grew 6% and now comprises 60% of the total.

Zoom Communications, $ZM, Q1-26. Results:
🟢 +1.4% Post-Market

📊 Adj. EPS: $1.43 🟢
💰 Revenue: $1.17B 🟢
📈 Net Income: $254.6M
🔎 Zoom exceeded both revenue and profit guidance, with strong momentum in enterprise products and accelerated share repurchases. pic.twitter.com/MWlO5Fqbwp

— EarningsTime (@Earnings_Time) May 21, 2025

AI Companion Sees Strong Adoption

Zoom’s AI Companion tool saw a 40% quarter-over-quarter surge in monthly active users, signaling rapid adoption. While monetization remains in early phases, the company sees long-term potential in custom features.

Zoom Contact Center customers grew 65% year-over-year, presenting strong upsell opportunities for products like Zoom VIRTUAL Agent. Zoom Phone also delivered mid-teens revenue growth, suggesting share gains in a competitive market.

Margins Narrow as AI and Bonuses Impact Costs

Non-GAAP gross margin came in at 79.2%, slightly below last year due to AI investments. The long-term target remains 80%.

Non-GAAP income from operations rose 2% year-over-year to $467 million, while operating margin declined slightly to 39.8%, impacted by increased compensation and AI development costs.

Net income per share stood at $1.43, exceeding guidance by $0.12.

Guidance Boosted Despite Enterprise Caution

Zoom raised full-year revenue guidance to between $4.8 billion and $4.81 billion. Non-GAAP operating income is now projected at $1.865 billion to $1.875 billion, with earnings per share expected between $5.56 and $5.59.

For Q2 2026, Zoom forecasts revenue of $1.195 billion to $1.2 billion and EPS of $1.36 to $1.37.

While macroeconomic pressures persist, the company is seeing elongated sales cycles and more scrutiny from U.S. enterprise clients.

Strong Balance Sheet and Buybacks

Operating cash FLOW in Q1 was $489 million, representing a 41.6% margin. Free cash flow was $463 million.

Zoom ended the quarter with $7.8 billion in cash, cash equivalents, and marketable securities. The company repurchased 5.6 million shares for $418 million, signaling confidence in its financial health.

Zoom continues to navigate market headwinds while leaning into AI and enterprise solutions for long-term growth. Its next earnings date is expected between August 19 and August 25, 2025.

Despite recent gains, Zoom’s long-term returns lag the S&P 500, with a five-year decline of 52.05% compared to the index’s 97.93% growth, highlighting past performance challenges.