Q1 2025 Summary
Published Feb 25, 2025, 9:51 PM UTC- Accelerating enterprise revenue growth and billings growth, driven by strong performance in emerging products like Zoom Phone and Zoom Contact Center, along with declining operating expenses, indicating improving profitability.
- Positive trends in customer metrics, including historical low churn rates, stabilizing pricing, and a shift towards longer-term billing arrangements, demonstrating customer satisfaction and confidence.
- Strong potential in AI integration across the platform, with AI Companion features adding value at no additional cost, and plans to monetize new AI-driven services like Ask AI, suggesting new revenue streams and competitive differentiation.
- Zoom anticipates that Q2 FY'25 will be the low point in year-over-year growth, indicating a slowdown in near-term growth momentum.
- The net dollar expansion rate for enterprise customers remained at 99% in Q1 FY'25, below 100%, suggesting challenges in driving incremental revenue from existing enterprise customers.
- The pace of new enterprise customer additions is slowing as growth focuses more on selling into the existing installed base rather than acquiring new customers, potentially signaling market saturation in the enterprise segment.
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Enterprise Growth Outlook
Q: Will enterprise growth trough in Q2 and then accelerate?
A: Yes, we expect enterprise growth to follow a similar trend as the entire company, with Q2 being the low point from a year-over-year growth perspective and a reacceleration in the back half of the year. We're confident in our full-year guidance after considering our sales pipeline, online trends, churn performance, and initiatives. -
Competitive Environment and Pricing
Q: How is the competitive landscape and pricing pressure evolving?
A: We did not see significant price pressure last quarter. While competitors like Microsoft bundle solutions, customers appreciate our service quality and are willing to pay for it. Our online churn is at a historical low, and enterprise customers value our product suite and AI features, which positions us well in the market. -
Contact Center Progress
Q: Is Zoom's Contact Center ready for prime time?
A: Yes, our Contact Center is making very good progress. We've won deals against top competitors, including two recent wins where customers chose us for our features, seamless integration, greater uptime, and AI capabilities. We added around 90 new deals over $100,000 ARR, representing nearly 250% year-over-year growth. -
Meta and Avaya Partnerships
Q: What is the opportunity with the Meta and Avaya partnerships?
A: With Meta, we're the preferred migration partner for their Workplace product, assisting customers in transitioning over the next 12 to 18 months, including a significant 100,000-seat deal with a large telco. The Avaya partnership allows us to serve large enterprises through a hybrid architecture, integrating our Zoom Workplace client with Avaya's on-premise solutions, benefiting both companies and customers. -
AI Integration and Zoom Workplace
Q: How will AI and Zoom Workplace drive growth?
A: AI is integral to our Zoom Workplace platform, adding value at no additional cost. This enhances collaboration tools and helps us evolve from "Meet Happy" to "Work Happy". Both SMB and enterprise customers appreciate our open platform and integrated AI features, supporting revenue growth and adoption. -
Pricing Strategy and Churn
Q: How does pricing strategy impact churn and revenue?
A: We increased prices without a significant change in churn. Customers recognize the added value from our services and AI features. In business services like Revenue Accelerator, we focus on delivering high value rather than competing on price, resonating with enterprise customers and supporting revenue growth. -
Partner Program and Competition
Q: How do you position against Ring and traditional partners?
A: We continue to win with partners and direct sales, not only in Phone Cloud but also in Contact Center. Our partner programs remain competitive and appropriate, focusing on pricing, total cost of ownership, and ease of deployment. Recent partnerships, like being named the preferred migration partner for Meta and Twilio, showcase our momentum. -
Billings and Deferred Revenue Trends
Q: What drives the divergence in billings and revenue?
A: We're seeing strength in moving from monthly to annual or multiyear billing terms and expansion into longer-tenured customers, contributing to billings growth. We've benefited from more thoughtful discounting practices, including fewer free periods in the enterprise, leading to growth in billings and deferred revenue.