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Zoom Video (ZM +12%) crushes its earnings forecast in Q2 (Jul), registers revenue growth above its guidance, and raises its FY25 (Jan) financial targets, culminating in a decent move higher today. The video conferencing platform was in the midst of a solid rebound effort after sinking to new lows earlier this month, bouncing by around +10% ahead of Q2 numbers. Following its beat-and-raise in the quarter, enough investors are nodding their heads in approval today, keeping ZM trending in a positive direction.

• In Q2, adjusted EPS expanded by 3.7% yr/yr to $1.39, coming in well ahead of ZM's $1.20-1.21 estimate, which translated to a yr/yr decline. Non-GAAP gross margins did contract by 170 bps yr/yr to 78.6% as ZM stepped up its AI investments and upgraded its data center. However, management predicts margins will improve toward the company's long-term target of 80% after hovering around 79% for the rest of FY25.
• Revenue inched 2.1% higher yr/yr to $1.16 bln, led by Enterprise growth of 4%. Also, ZM's attention to the up market provided a revenue boost, ending the quarter with 3,933 customers contributing over $100K in TTM revenue, a 7% improvement yr/yr. Geographically, Americas revs increased by 3% while EMEA was flat and APAC compressed by 2%.
• Categorically, ZM attributed its revenue growth to the broadening of Zoom Workplace, moving up market with Contact Center, and improving AI capabilities. Zoom Workplace, which was launched in April, is the company's AI-powered platform that can be deployed across an organization, containing Zoom Meetings, Team Chat, and Phone, while embedding its AI companion (launched in September 2023), which has been enabled on over 1.2 mln accounts. Meanwhile, Contact Center surpassed 1,100 customers, more than double the number from last year.
• Following upbeat Q2 numbers, ZM hiked its FY25 guidance, projecting adjusted EPS of $5.29-5.32, up from $4.99-5.02, and revs of $4.63-4.64 bln, up from $4.61-4.62 bln. The Americas will likely continue to lift ZM's numbers as management expects softness to persist overseas, particularly in EMEA, which has been impacted by ongoing wars.

Even following a nice run ahead of Q2 results, ZM's Q2 report shone brightly enough to help it break to its best levels since March, potentially signaling the beginning of a broader recovery. There are still some lingering concerns, including the fact that while profitability continues to improve, yr/yr revenue growth remains nearly flat. ZM has not recorded double-digit top-line growth since 2022, highlighting the company's struggles in a post-pandemic environment.

It may take more than a consistently lethargic growth rate to keep today's wave of buying alive over a longer timeframe. AI could be this catalyst. However, its feature set thus far is limited to a few moderately helpful tasks, such as summarizing meetings, providing real-time transcripts and translations, and generating responses, all likely not enough to spark a major customer boost. Perhaps, further enhancements could be a key difference maker.