Zoom Video Sees Stock Dip Amid Mixed Q4 Fiscal Performance

Zoom Video (ZM) shares fell nearly 8% on Tuesday after the company released its fourth-quarter fiscal 2025 earnings report. Investors reacted negatively primarily due to the company’s disappointing revenue outlook for the forthcoming quarters.

Although Zoom exceeded the Zacks Consensus Estimate for both revenues and earnings, lower growth projections raised concerns, particularly as many organizations are now mandating that employees return to physical offices.

Over the past year, Zoom’s stock has increased by 8.9%, in contrast to the broader Zacks Computer and Technology sector, which saw a growth of 18.3%.

1-Year ZM Stock Price Performance

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Q4 Performance Highlights Robustness in Shifting Workplace Trends

In its fourth quarter, Zoom reported revenues of $1.184 billion, which surpassed the consensus estimate by 0.5% and marked a 3.29% increase from the previous year. This performance underscores Zoom’s strategic shift towards artificial intelligence capabilities.

When excluding the effects of foreign exchange, constant currency revenues reached $1.188 billion, up 3.6% year-over-year. The adjusted earnings per share were $1.41, exceeding the Zacks Consensus Estimate by 7.63%, although this figure was slightly lower than the prior year’s earnings.

Enterprise revenues, now making up 60% of total revenues (a 2 percentage point increase year over year), experienced growth of about 6% compared to the same quarter last year. Additionally, the trailing 12-month Net Dollar Expansion rate for Enterprise customers remained steady at 98%, indicating strong retention rates among larger clients.

Disappointing Guidance Pressures ZM Stock

Despite a solid quarter, Zoom’s forward guidance failed to meet market expectations. For the first quarter of fiscal 2026, the company forecasts revenues between $1.162 billion and $1.167 billion, down from the earlier estimated $1.174 billion. Similarly, for the full fiscal year 2026, anticipated revenues are in the range of $4.785 billion to $4.795 billion, reduced from previous guidance of $4.798 billion.

This tempered outlook highlights ongoing challenges as companies enforce in-office work policies, which may diminish the reliance on remote collaboration tools. Nevertheless, Zoom’s management has confidence in its AI-driven strategy; CEO Eric Yuan remarked, “As Zoom AI Companion becomes increasingly agentic, we look forward to continuing to help our customers fully realize the benefits of AI and discover what’s possible with AI agents.”

The Zacks Consensus Estimate for fiscal 2026 suggests a revenue growth of 2.73% to reach $4.79 billion, while the earnings estimate is set at $5.29 per share, signifying a 4.51% decline year-over-year.

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Financial Health Remains Strong Despite Concerns

Even with the slowing growth, Zoom continues to showcase a robust financial position. Operating cash flow for the fourth quarter increased by 20.9% year-over-year, reaching $424.6 million, while free cash flow grew by 25.1% to $416.2 million. The company maintains a strong balance sheet with roughly $7.8 billion in cash, cash equivalents, and marketable securities.

Moreover, Zoom has actively engaged in shareholder returns, repurchasing around 4.3 million shares in the fourth quarter and 15.9 million shares throughout the fiscal year. The company concluded the quarter with operating cash flow and free cash flow margins of 35.9% and 35.2%, respectively, indicative of efficient capital management in the face of competitive pressures.

Analyzing Stock Valuation and Competitive Landscape

With a forward 12-month price-to-sales ratio of 4.74, Zoom is trading at a premium compared to the Zacks Internet – Software industry average of 4.64. This premium valuation embodies investor expectations for future AI-driven growth; however, it also heightens the risk of downside should the company fail to achieve its revenue growth targets in the subsequent quarters.

Concerns Rise Over ZM’s Valuation Metrics

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Competitive challenges are significant for Zoom, as it contends with major players like Microsoft (MSFT) with Teams, Cisco (CSCO) with Webex, and Alphabet (GOOGL) offering Google Meet. These competitors have integrated their collaboration tools into larger productivity suites and have vast resources to invest in AI technologies, utilizing existing enterprise relationships and bundled product offerings to compete effectively on price.

Though Zoom has established strong brand recognition, maintaining its market share mandates ongoing innovation and differentiation amid fierce competition from these ecosystem players who provide integrated collaboration solutions as part of broader enterprise contracts.

Focus on AI and Enterprise Solutions for Future Growth

Zoom is intensifying its focus on AI capabilities, with the monthly active users of Zoom AI Companion rising by 68% quarter-over-quarter. The company plans to introduce a Custom AI Companion add-on in April to automate workplace tasks via custom agents, allowing personalization aligned with customer needs while ensuring seamless integration with third-party tools.

In addition, Zoom’s Contact Center solution secured its largest annual recurring revenue deal to date with a Fortune 100 tech company in the U.S., evidencing the firm’s competitive edge in the enterprise market.

Investment Considerations for ZM Stock

For current shareholders, holding onto the stock may be advisable given Zoom’s solid cash position, active share buybacks, and strategic emphasis on AI, which could potentially reignite growth in the long term. The company remains poised to adapt as market conditions evolve.