Zoom Communications (ZM -8%) is experiencing a decline towards four-month lows, despite surpassing Q4 earnings expectations and aligning Q1 and FY26 adjusted EPS with consensus. The weaker-than-expected revenue forecasts for the upcoming quarter and FY26 have prompted investors to sell, as macroeconomic and structural challenges persist.

In a challenging economic environment where businesses are cutting back on spending, the push for federal employees to return to the office is reducing the potential customer base for video conferencing. CEO Eric Yuan remains optimistic, highlighting Zoom's expanded toolset developed since the pandemic to compete in a world that may return to more in-office work.

• Zoom AI Companion, with accelerating user growth of 68% sequentially in Q4, is a key component of Zoom's transformation into an AI-first company. It integrates with Microsoft (MSFT, Financial) and Google (GOOG, Financial) services. Custom AI Companion add-ons launching in April will automate workplace tasks with custom AI agents tailored to customer needs.
• Zoom's portfolio includes Zoom Phone, Team Chat, Events, Docs, Whiteboard, and Rooms, contributing to a significant win with Amazon (AMZN, Financial) in the quarter. Enterprise revenue grew by 6% year-over-year, outpacing overall growth of 3.3% to $1.18 billion, making up 60% of total sales. Customers contributing over $100K in TTM revenue increased by 7% in the Enterprise segment.
• Non-GAAP gross margins slightly declined to 78.8% year-over-year due to strategic AI investments, with a long-term margin goal of 80%. Non-GAAP operating margins increased by 81 basis points to 39.5% year-over-year, supporting a double-digit earnings beat in Q4.
• Revenue forecasts were disappointing, with expected Q1 revenue of $1.162-1.167 billion, a slight decrease from Q4, and FY25 revenue of $4.785-4.795 billion, a 2.7% year-over-year increase at the midpoint. Despite no sales compression since massive growth in 2020, the substantial revenue pull-forward during the pandemic has kept growth moderate.

Zoom is investing in tools like Zoom Rooms and Whiteboard to differentiate from being solely a video conferencing company. The strategy of using AI as a customizable tool rather than a one-size-fits-all solution is promising. However, investors are frustrated with slow growth, especially in the AI era, which has greatly benefited other tech firms. Until Zoom can generate stronger demand, its stock may struggle to see significant gains.