Here's our initial take on Zoom Communications' (ZM -1.70%) fiscal year 2025 fourth-quarter results.
| Metric | Q4 FY24 | Q4 FY25 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $1.15 billion | $1.18 billion | +3% | Beat |
| Earnings per share (adjusted) | $1.42 | $1.41 | -1% | Beat |
| Operating cash flow | $351.2 million | $424.6 million | +21% | n/a |
| Enterprise customer net dollar expansion rate | 101% | 98% | -300 BPS | n/a |
Zoom's growth problems in recent quarters continued through the end of fiscal 2025 (ended Jan. 31, 2025). One of the leading companies in providing video communications software and services for businesses large and small reported another quarter of paltry growth, with Q4 revenue up just over 3% year over year.
Zoom also reported continued weakness and churn in its enterprise business. While enterprise revenue was up 6% year over year, and the number of customers spending $100,000 annually increased 7%, there is clear weakness more broadly. Since transitioning some of its enterprise customers to online sales at the end of last fiscal year, Zoom's enterprise customer count growth has almost ground to a halt, up about 1% since the end of the first quarter, while its net dollar expansion rate for enterprise customers has fallen to 98%, indicating that the overall spending from Enterprise customers is shrinking, based on annualized recurring revenue.
In other words, by all appearances, Zoom may be having trouble retaining some enterprise customers and is steadily counting more and more on a concentrated group of its largest customers. We have seen the percentage of revenue from customers that spend $100,000 or more per year increase from 29% at the beginning of fiscal 2024 to 31% at the end of last quarter.
As a result, Zoom says that it will no longer report its enterprise customer count beginning next quarter, though it will provide the info in footnotes through the end of the fiscal year. It's notable that the company has chosen to stop reporting a metric that's not going very well.
The good news is that despite clear challenges with growth and customer retention, Zoom's profit and cash engine is firing quite well. Operating income has continued to grow at a faster rate than revenue, as has operating cash flow. Free cash flow has also continued apace, giving the company a steadily increasing cash pile on the balance sheet.
One of the things that management and the board chose to do with that cash was buy back shares, with the company reporting it repurchased 15.9 million shares of stock during the full fiscal year. Here's the rub: Even with this increased repurchase action, Zoom's diluted share count actually increased by almost 6.5 million shares.
Zoom's share price is down about 1% in after-hours trading ahead of management's earnings call. Zoom's results, while not particularly compelling, were a little better than the low expectations investors had. Its guidance for next fiscal year calls for slightly slower revenue growth than last year and for adjusted earnings per share to fall.
Zoom investors have been a patient bunch, waiting for the company to find the next accelerant to its growth, whether an acquisition, a move into a new product segment, or putting its nearly $8 billion in cash to work via aggressive buybacks. But so far, it has done very little besides just plodding along, at least based on customer counts and revenue.
The good news is that management also hasn't acted rashly in ways to destroy capital. Looking forward, we'll be watching Zoom's efforts to integrate more artificial intelligence (AI) features across its platform, including AI agents along with its AI Companion platform, Contact Center, and Workplace platform. Whether these simply help the company retain customers or return to customer growth remains to be seen.
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