TLDR
- Zoom Communications (ZM) stock surged over 5.5% in premarket trading after beating Q2 earnings expectations with $1.53 EPS vs $1.37 estimate
- Revenue grew 4.7% year-over-year to $1.217 billion, marking the highest revenue growth in 11 quarters
- RBC Capital raised price target from $95 to $100 with Outperform rating following the strong quarterly results
- Company raised full-year guidance across all metrics, with revenue outlook of $4.825-4.835 billion vs $4.838 billion consensus
- Enterprise customers spending over $100,000 annually increased 8.7% to 4,274, showing continued business momentum
Zoom Communications stock climbed more than 5.5% in Friday’s premarket session after the video conferencing company delivered its strongest quarterly performance in nearly three years. The San Jose-based firm beat Wall Street expectations across the board while posting its highest revenue growth rate since early 2022.
The company reported adjusted earnings of $1.53 per share for its fiscal second quarter, beating analyst estimates of $1.37 per share. Revenue climbed 4.7% year-over-year to $1.217 billion, surpassing the $1.20 billion consensus forecast.
Founder and CEO Eric Yuan highlighted the quarter’s performance in a statement. “We delivered an across-the-board strong Q2 marked by achieving our highest year-over-year revenue growth in 11 quarters and expanding GAAP operating margin year over year by 9 percentage points,” Yuan said.
The earnings results triggered what retail investors on Stocktwits called an “extremely bullish” reaction. Message volume on the platform’s Zoom stock stream reached “extremely high” levels as traders responded to the unexpected strength.
One bullish watcher predicted the stock could run 30% to 40% on Friday given the surprisingly strong results. “Nobody was expecting this, today it can run 30-40%,” the trader posted on Stocktwits.
Enterprise Growth Drives Performance
The company’s enterprise business showed particular strength during the quarter. Customers contributing more than $100,000 in trailing 12-month revenue grew 8.7% year-over-year to 4,274.
The trailing 12-month dollar expansion rate for enterprises stood at 98%. Online average churn remained steady at 2.9%, unchanged from the prior year period.
These metrics suggest Zoom is successfully retaining and expanding its relationship with larger corporate clients. The company has been working to diversify beyond its core video conferencing platform into areas like contact center services and artificial intelligence.
Guidance Boost Exceeds Expectations
Management raised its full-year outlook across multiple metrics following the strong quarter. The company now expects revenue between $4.825 billion and $4.835 billion for fiscal 2026.
This guidance roughly aligned with the consensus estimate of $4.838 billion. However, the adjusted earnings per share guidance for both the full year and third quarter exceeded analyst expectations.
Yuan expressed confidence in the raised outlook. “With our robust performance, we are happy to raise our full year outlook for revenue, non-GAAP operating income, as well as free cash flow, which we now expect to be in the range of $1.74 billion to $1.78 billion,” he said.
Analyst Response and Price Target Updates
RBC Capital Markets responded to the results by raising its price target on Zoom from $95 to $100 while maintaining an Outperform rating. The firm called the quarter “solid Q2 results” that exceeded consensus across all key metrics.
RBC noted this marked Zoom’s highest revenue growth in 11 quarters on a reported basis. When measured on a constant currency basis, it represented the company’s best growth in eight quarters.
The analyst firm expressed optimism about Zoom’s growth strategy moving forward. RBC particularly highlighted the company’s Contact Center as a Service business and AI capabilities, noting encouraging signs of early traction in these areas.
Goldman Sachs maintained its Neutral rating with an $87 price target following the results. Citizens JMP also kept its Market Perform rating while acknowledging the stronger-than-expected performance.
Stock Performance Context
Zoom’s stock has struggled this year, declining over 10% and underperforming both the broader market and technology sector. The company remains well below its pandemic peak of $588.84 reached in October 2020 when work-from-home mandates drove massive adoption of its platform.
The stock’s recent performance reflects investor concerns about growth sustainability as the initial pandemic boost faded. However, Thursday’s results suggest the company may be finding its footing with a more diversified business model.
The company’s non-GAAP operating margin reached 41.3% in the quarter, beating the consensus estimate of 38.8%. This represented an improvement from the previous quarter’s 39.8% margin, demonstrating operational efficiency gains.
Free cash flow also exceeded expectations by 29%, providing additional validation of the company’s financial health. The revenue growth of 4.7% marked Zoom’s largest revenue beat in four quarters, according to analyst reports.
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