Goldman Sachs has reaffirmed its "Neutral" rating and $87 target price for Zoom Communications (ZM.US) following the company's better-than-expected second-quarter earnings report. Goldman highlighted several positive aspects of the quarter, including strong growth in artificial intelligence applications, with AI Companion's monthly active users increasing four-fold year-over-year, accelerating momentum in the contact center business, 229 customers with annual recurring revenue exceeding $100,000 representing a 94% year-over-year increase, continued progress in Workvivo business with large customer count growing 142% compared to the prior year.
The company reported revenue growth of 4.7% year-over-year, exceeding market expectations by 1.6%, marking the largest revenue beat in four quarters. The company posted non-GAAP operating margin of 41%, surpassing market expectations by 260 basis points, while free cash flow exceeded expectations by 29%. The company achieved a gross margin of 76.38% and a PEG ratio of 0.88. InvestingPro data indicates the stock appears attractively valued relative to its growth potential. InvestingPro analysis shows the company received an "Excellent" financial health score. Based on InvestingPro's fair value analysis, the stock appears to be undervalued.
Enterprise business revenue performance was particularly notable, growing 7% year-over-year, higher than the previous quarter's 5.9% and the prior year's 3.5%. Net expansion rate remained stable at 98%, while online churn rate increased sequentially to 2.9% but remained flat year-over-year.
Zoom cautiously raised its fiscal 2026 guidance, increasing revenue guidance by 0.1%, excluding approximately $20 million in outperformance. The company expects third-quarter revenue growth to decelerate due to higher comparison bases and reduced benefits from professional services, followed by re-acceleration in the fourth quarter driven by strong enterprise business momentum.
Following the positive earnings results, Citizens JMP analyst Patrick Walravens reiterated a "Market Perform" rating on the stock. The analyst's view reflects a neutral stance on Zoom's financial performance. These developments highlight Zoom's ability to consistently exceed earnings expectations in recent quarters.