AI and Financial Discipline Fuel Margin Expansion and Profitability
Zoom Communications has announced third quarter results for fiscal year 2026, underscoring its continued focus on innovation and operational excellence. Total revenue grew 4.4% year-over-year to $1.23 billion, but the true highlight is in the company's margin and profitability figures, supported by surging adoption of its AI-driven offerings.
Operating discipline stands out: GAAP operating margin rose to 25.2%, while non-GAAP operating margin climbed to an impressive 41.2%. Both GAAP and non-GAAP EPS demonstrated healthy year-over-year growth, with GAAP diluted EPS surging 204.5% to $2.01 and non-GAAP EPS reaching $1.52 (up 10.1%). Operating cash flow leapt 30.2% to $629.3 million, representing a 51.2% margin, while free cash flow hit $614.3 million, yielding a 50% margin.
| Key Q3 Metrics | Q3 FY26 | YoY Change |
|---|---|---|
| Total Revenue | $1,229.8M | +4.4% |
| GAAP Operating Margin | 25.2% | +9.7 pts |
| Non-GAAP Operating Margin | 41.2% | +2.3 pts |
| GAAP Diluted EPS | $2.01 | +204.5% |
| Non-GAAP Diluted EPS | $1.52 | +10.1% |
| Operating Cash Flow | $629.3M | +30.2% |
| Free Cash Flow Margin | 50.0% | +11.1 pts |
AI Initiatives Gain Traction as Enterprise Revenue Accelerates
The company is turning heads with rapid enterprise growth, highlighted by 6.1% YoY revenue growth in the segment. This comes on the back of strong demand for Zoom's AI Companion platform, with adoption ramping across key enterprise clients. Custom AI Companion and the AI-first Customer Experience suite delivered robust contributions, resulting in what management called one of their best CX quarters to date.
Zoom’s enterprise strategy continues to pay off: the number of customers contributing more than $100,000 in trailing 12 months revenue climbed 9.2% to 4,363, reflecting both net new client wins and solid retention, with enterprise net dollar expansion rate stable at 98%. Online average monthly churn remained flat at 2.7%.
| Customer Metrics | Q3 FY26 | YoY Change |
|---|---|---|
| Customers >$100K (TTM) | 4,363 | +9.2% |
| Enterprise Net Dollar Expansion | 98% | - |
| Online Churn | 2.7% | Flat |
| Online MRR (16+ months) | 74.4% | +0.3 pts |
Share Repurchases and Strong Cash Position Signal Shareholder Confidence
Zoom continued its aggressive approach to capital return, repurchasing 5.1 million shares during Q3 (now 32.5 million total under the current plan). Further, the board increased the share buyback authorization by $1 billion, bringing the total potential capital for repurchases above $1.3 billion.
Balance sheet strength remains a competitive advantage, with cash and marketable securities at $7.9 billion as of quarter-end—ample liquidity to support growth initiatives and future buybacks.
Fiscal 2026 Outlook Reinforces Stable Growth and High Margins
Zoom projects Q4 FY26 revenue between $1.230 billion and $1.235 billion, with full-year non-GAAP operating margin expected between 40.3% and 40.4%, and free cash flow for the full year between $1.86 billion and $1.88 billion. The midpoint of non-GAAP diluted EPS guidance for the full fiscal year is $5.96.
This outlook signals confidence in sustainable growth and continued focus on high-margin, cash-generating operations—even as the company continues to scale its AI offerings.
Takeaway: Profitable Growth Driven by Enterprise and AI Adoption
Zoom's third quarter financials spotlight the company's success in leveraging AI innovation and disciplined cost control to drive margin expansion, record cash flow, and sustained enterprise momentum. The expanded share repurchase plan signals long-term confidence in the business. As AI-driven product launches and customer wins continue, Zoom's financial model positions it to capitalize on new growth opportunities, all while rewarding shareholders along the way.
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