ZM Q1 Earnings Call: AI Product Expansion and Enterprise Headwinds Shape Outlook

Video conferencing platform Zoom (NASDAQ: ZM) missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 2.9% year on year to $1.17 billion. Its non-GAAP EPS of $1.43 per share was 9.5% above analysts’ consensus estimates.

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StockStory’s Take

Zoom’s first quarter results were marked by ongoing adoption of its AI-powered features and expansion of high-value offerings. CEO Eric Yuan highlighted the rising popularity of Zoom AI Companion, with a 40% increase in monthly active users, and cited customer wins such as Raymond James and the Boston Celtics upgrading to broader platform solutions. The company also saw notable traction in its Customer Experience segment, with Contact Center customer growth of 65% year over year and upsell momentum for the Virtual Agent. CFO Michelle Chang pointed to record-low churn in the online segment and a growing share of enterprise customers contributing over $100,000 in annual revenue, while also noting that recent product enhancements, such as increased storage limits tied to modest price increases, have supported customer retention.

Looking ahead, Zoom’s guidance is shaped by its emphasis on expanding AI-first solutions and prudent assumptions in light of macroeconomic uncertainty. Management expects ongoing adoption of Custom AI Companion, new offerings for frontline and clinician workers, and continued channel partner expansion to support growth, though they acknowledged some elongation in enterprise deal cycles. CFO Michelle Chang explained that the updated outlook incorporates a modestly improved forecast for the online segment, aided by price increases and product enhancements, but a more conservative stance for enterprise due to greater scrutiny in large deal negotiations. CEO Eric Yuan reiterated the company’s focus on integrating intelligent workflow automation and agentic AI capabilities, stating that these innovations are “transforming Zoom from a communication platform into a system of actions that streamlines business processes.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to expanding AI capabilities and increased product integration, while acknowledging selective softness in enterprise demand.

• AI Companion usage surge: The number of monthly active users for Zoom’s AI Companion rose nearly 40% quarter over quarter, with broader adoption among both enterprise and mid-market customers. Management cited specific use cases, such as Raymond James rolling out AI Companion meeting summaries, as evidence of practical value driving customer engagement.
• Contact Center expansion: Zoom’s Customer Experience segment, anchored by Contact Center and Virtual Agent, continued to gain traction. The company reported 65% year-over-year growth in Contact Center customers and highlighted a shift toward the premium Elite SKU, which includes advanced AI features. Upsell activity for Virtual Agent reached its highest quarterly level to date.
• Zoom Phone integration: Growth in Zoom Phone remained in the mid-teens, outpacing industry averages. The integration with Microsoft Teams has expanded Zoom’s reach, particularly through channel partnerships and competitive takeouts, with management noting that many new customers are coming through these integrations.
• Online business stability: The online segment benefited from a modest price increase paired with enhanced product value, such as doubled storage limits. This contributed to record-low churn and a higher proportion of customers choosing annual contracts, indicating increased customer stickiness.
• Enterprise deal scrutiny: While most customer segments showed stable demand, management observed that some large U.S. enterprise deals faced extended negotiations and heightened scrutiny, resulting in a more cautious enterprise outlook for the coming quarters.

Drivers of Future Performance

Zoom’s outlook focuses on accelerating AI-driven product adoption and navigating a cautious enterprise environment as macroeconomic pressures persist.

• AI-first product expansion: The company expects further growth from Custom AI Companion, frontline worker solutions, and clinician-focused offerings. Management believes these products will broaden Zoom’s addressable market, with AI automation and workflow integration enabling new use cases across industries such as healthcare, retail, and financial services.
• Prudent enterprise assumptions: Due to observed elongation of enterprise sales cycles and increased deal scrutiny, Zoom’s guidance for this segment remains conservative. Management stated that while retention remains strong, future growth in large enterprise will depend on improving customer confidence and demonstrating compelling total cost of ownership advantages.
• Channel and international growth: Investments in channel partnerships, such as the new agreement with Bell Canada, and continued expansion in EMEA and APAC are expected to contribute incremental revenue. Management emphasized that enhancements to partner systems are shortening sales cycles and increasing channel influence, particularly for Contact Center and Phone products.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will monitor (1) adoption rates and monetization progress for Custom AI Companion and other AI-driven offerings, (2) the pace of enterprise deal closures and any improvement in sales cycle duration, and (3) expansion of channel-led sales, particularly in Contact Center and Phone. Execution on international growth and continued customer retention in the online segment will also be key indicators of Zoom’s ability to meet its updated guidance.

Zoom currently trades at a forward price-to-sales ratio of 5.1×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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