Q3 2025 Summary
Published Feb 25, 2025, 9:54 PM UTC- Zoom's significant win of a 20,000-seat Contact Center deal with Spain's national revenue service demonstrates its ability to compete at the high end and reflects customer trust in Zoom's scalable architecture and innovation pace. This large deal showcases Zoom's capability to expand into international markets and leverage existing customer relationships.
- Zoom's AI-first strategy and ongoing investments in AI are positioning the company for future growth and monetization. The upcoming release of Custom AI Companion and AI Companion Studio in the first half of next year aims to meet customers' AI needs by offering customization and personalization, which is expected to drive future monetization opportunities, especially in the enterprise segment. ,
- Stabilization and potential growth in the Online business, coupled with declining churn rates, indicate a positive trend in Zoom's core business. The Online business, which declined by 80% two years ago and 4% last year, is now flat or slightly down, with the ambition for growth. Decreasing churn rates and positive trends in both enterprise and online segments highlight strong fundamentals and set the foundation for future revenue growth. ,
- The monetization of key AI products like the Customized AI Companion and AI Companion Studio will not begin until the second half of next year, indicating that significant AI-related revenue contributions are delayed.
- Operating margins are expected to decline in the long term due to increased investments in AI and emerging businesses, which may not deliver significant returns immediately, putting pressure on profitability.
- The Online business is expected to be flat to slightly down in Q4, and deferred revenue growth is limited, with only a 5% increase in Q3 and guidance of 5%-6% in Q4, indicating challenges in driving growth, especially in the Online segment.
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AI Monetization Strategy
Q: How will AI be monetized and when?
A: Eric Yuan explained that they already monetize AI today through services like Contact Center and Zoom Revenue Accelerator, but not for Workplace products. They plan to monetize Customized AI Companion and AI Companion Studio, which will not be free and are expected to be available in the first half of next calendar year. This will allow enterprises to tailor AI solutions, meeting their needs and providing new revenue streams for Zoom. -
Future Growth Drivers
Q: Which products will drive growth next year?
A: Michelle Chang emphasized that beyond their foundational Meetings product, they are excited about the shift to the Workplace platform and the inclusion of AI at no additional cost. Zoom Phone continues to be a significant growth driver, and emerging products like Contact Center and Workvivo are expected to be durable elements for future growth. They also see growth opportunities through international expansion, channel partnerships, and moving upmarket. -
Contact Center Growth
Q: What drove the 20,000-seat Contact Center deal?
A: Eric Yuan explained that the Spanish revenue service had already deployed over 30,000 Zoom Phone seats and trusted Zoom's performance during busy tax seasons. They chose Zoom Contact Center due to its scalable architecture, pace of innovation, and comprehensive feature set, including PCI, FedRAMP, workforce management, and social channels. Zoom's ability to support large-scale deployments from day one was a key differentiator. -
Margin Outlook
Q: How should we think about operating margins?
A: Michelle Chang stated that they are investing in AI, emerging growth businesses, and the platform, which may impact operating margins in the near term. While they provided long-term guidance with operating margins lower than current levels due to these investments, this is a long-term scenario and not necessarily reflective of FY26 margins. She emphasized a disciplined approach to expenses, ensuring investments align with strategic value and top-line growth. -
Impact of AI Investments on Gross Margin
Q: How are AI investments affecting gross margins?
A: Eric Yuan noted that they are investing in areas like the Zoom Workplace platform, deploying more GPUs, and using more cloud-based GPUs to improve AI quality. They are also introducing Customized AI Companion and AI Companion Studio next year, which will provide monetization opportunities. Additionally, they leverage AI technology for the Contact Center, such as Zoom Virtual Agent, sharing the same AI infrastructure. -
Workvivo Growth and Meta Partnership
Q: How is Meta's sunsetting of Workplace impacting Workvivo?
A: Eric Yuan explained that Meta decided to retire its Workplace product, and based on customer feedback, chose Workvivo as an exclusive partner. They have built migration tools to help customers transition from Meta Workplace to Workvivo. This partnership drives growth, with strong pipelines and promising prospects. Michelle Chang added that while the Meta partnership is significant, underlying metrics show holistic growth through geo expansion, partner dynamics, and strength in industries like retail and frontline. -
Competition and Pricing Strategy
Q: How do you approach market competition and pricing?
A: Eric Yuan stated that their philosophy is to offer a better product, better price, and better service. Their core strength is product experience, leading customers to prefer their platform approach. They have increased prices before without issues because users value the product. With AI at no additional cost, they aim to build long-term trust and see more opportunities to monetize as a platform player. -
Deferred Revenue Growth
Q: What affected deferred revenue growth and guidance?
A: Michelle Chang explained that deferred revenue grew 5% in Q3, as guided, with dynamics driven by tightening discounting and lengthening billing terms. They expect these factors to continue into Q4, guiding to 5% to 6% growth. She emphasized that their guidance philosophy remains the same, and revenue is ultimately a better measure than deferred revenue due to quarter-to-quarter fluctuations.