Zoom FQ1'27 growth continues to improve gradually, target price raised to USD 103 but Market-Perform maintained

Overview

This report is Bernstein's earnings commentary on Zoom Video Communications Inc FQ1'27. The core conclusion is that Zoom's growth has not rebounded sharply, but it is gradually improving, with revenue growth back in the mid-single-digit range and support from enterprise customers, the online business, and AI products. The company is still investing in AI, but management emphasizes that the product mix is shifting from investment to monetization. The report keeps a Market-Perform rating and raises the target price to USD 103, mainly due to the value of the Anthropic stake and a valuation multiple adjustment.

Core views

First, Zoom's market position remains resilient, with FQ1'27 constant-currency revenue up 5.7% YoY, the first time above 5% since FY23 and 2.2 percentage points above the midpoint of constant-currency guidance. Second, growth quality is improving across Enterprise and Online: the Online business showed only a slight increase in churn after price increases but still showed signs of positive growth; enterprise customers with more than $100K in ARR are estimated to have grown close to 10% YoY and continued to perform well despite the RingCentral churn headwind. Third, AI has become central to the growth narrative, with Contact Center, Custom AI Companion, ZVA Receptionist, Zoom AI Services, Workvivo Seer, and other products continuing to expand use cases, while ZCX delivered high-double-digit YoY growth. Fourth, margins remain healthy, but the non-GAAP operating margin upside was only 1.0 percentage point, below the stronger profit delivery seen in the past.

Analysis framework

The report analyzes quarterly results, management call feedback, segment revenue estimates, customer-size segmentation, NRR/ARR trends, margin bridge, and the valuation framework. On the revenue side, it mainly breaks down Online and Enterprise, with particular attention to large customers above $100K ARR, the headwind from RingCentral white-label churn, changes in net dollar expansion rates, and incremental AI product sales. On the valuation side, it uses DCF and P/Sales at 50% weights each and incorporates the carrying value of Anthropic private equity into the target-price adjustment.

Methodology notes

• Valuation methods50/50 DCF and P/Sales

  Target price is derived by weighting DCF and comparable valuation using future 5-8 quarter sales multiples 50% each.

  DCF uses an 11% WACC and a 0% terminal growth rate; the P/Sales multiple is raised to 6x, mainly reflecting Anthropic stake value and the SaaS peer valuation framework.

• Valuation methodsRule-of-40 Cloud SaaS regression framework

  Use the regression line for Cloud SaaS peers with margins above 10% to assess revenue multiples.

  The report assumes the current Cloud SaaS multiple regression line remains stable over the next year or more and uses it as the basis for the P/Sales comparable valuation.

• Operating AnalysisSegment ARR and NRR tracking

  Assess growth durability through ARR/revenue growth in Online, smaller Enterprise accounts, and enterprise customers with more than $100K ARR, as well as TTM NRR and point-in-time NRR.

  Charts show NRR falling from a high level and then stabilizing, with TTM NRR improving to around 99%, and large customers remaining the main source of enterprise growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ZM.US

  Primary covered security

  Strengths

  Revenue growth is gradually improving, with support from enterprise large customers and the online business; the AI product lineup is expanding, creating cross-sell opportunities from Contact Center and Zoom Phone; gross margin and operating margin remain healthy.

  Weaknesses

  Overall growth is still not fast, with revenue growth only in the mid-single digits; RingCentral churn continues to create a FY27 headwind; the non-GAAP operating margin upside is weaker than in the strongest historical periods.

  Comparison

  Compared with high-growth SaaS companies, Zoom's growth is more moderate; compared with mature software companies, its cash flow, margins, and enterprise customer base are relatively stable.

  Risks

  Risks include slowing demand for video-conferencing solutions, intensifying competition, weaker-than-expected AI monetization, insufficient enterprise customer expansion, and valuation sensitivity to earnings disappointment.

• RNG.US

  Related source of churn

  Strengths

  As an industry-related company, changes in its white-label and partnership relationship provide important context for analyzing Zoom's enterprise revenue.

  Weaknesses

  RingCentral churn has created a disclosed headwind to Zoom's ARR and enterprise segment growth.

  Comparison

  The report does not assign an investment rating to RNG.US; it is used only as a source of Zoom revenue headwinds and customer churn events.

  Risks

  The pace of related partnership changes or customer migration may continue to affect comparability in Zoom's segment growth.

• Anthropic

  Private equity valuation factor

  Strengths

  Zoom's Anthropic stake, with a carrying value of about USD 1.3 billion, is included in Bernstein's target-price adjustment.

  Weaknesses

  As a private asset, the stake has limited valuation transparency and liquidity.

  Comparison

  Its impact on Zoom's target price is reflected more in valuation than in current operating revenue.

  Risks

  Volatility in private asset valuation, liquidity discounts, or future disclosure changes could affect valuation support.

Key data

• RatingMarket-PerformBernstein keeps the rating unchanged.
• Target Price103.00 USDThe prior target price was USD 88.00; this is an increase.
• FQ1'27 constant-currency revenue growth5.7% YoYFirst time above 5% since FY23, 2.2 percentage points above the midpoint of constant-currency guidance.
• Revenue growth excluding RingCentral churnAbout 6.1% YoYRingCentral churn created about a USD 19 million ARR headwind, affecting growth by roughly 40 bps.
• Online revenue shareAbout 39%Churn rose only slightly by about 20 bps, supported by monthly and annual price increases.
• Enterprise customers above $100K revenue shareAbout 33%The report estimates this business grew slightly below 10% YoY.
• AI Companion paid MAUs+184% YoYBase is small, but it shows rising adoption of AI products.
• Enterprise net dollar expansion rate99%Improved from 98% previously, supported by lower churn and product expansion.
• Gross marginAbout 79%Long-term target is around 80%, and it remains healthy even as AI usage expands.
• Anthropic equity carrying valueAbout USD 1.3 billionBernstein includes this private equity value in its valuation.

Impact & implications

For ZM.US, the report sends a mildly positive operational signal rather than a strong buy signal. Revenue growth back above 5%, improved enterprise large accounts, and stronger AI monetization indicate that Zoom is gradually recovering from the post-pandemic growth trough; however, mid-single-digit growth, limited margin upside, and the lingering RingCentral churn overhang still constrain rating upside. The target-price increase is driven more by the valuation framework and the inclusion of Anthropic stake value than by a major fundamental inflection.

Risks

• Slowing demand for video-conferencing solutions.
• Intensifying competition from well-funded rivals.
• Zoom failing to develop innovative solutions fast enough, or new solutions not matching customer needs.
• Execution missteps or earnings below expectations could trigger significant downside at the current valuation.
• RingCentral churn headwinds may continue to affect enterprise growth linearly across FY27 quarters.
• AI products are still in an early monetization phase; if add-on sales and usage rates fall short of expectations, growth improvement may slow.

What to watch

• Whether constant-currency revenue growth can remain above 5% in the coming FQ2-FY27 quarters.
• The churn rate, usage, and contribution from new monetization tools after Online price increases.
• Growth in enterprise customers above $100K, the number of customers above $1M, and seat expansion.
• Whether TTM NRR and point-in-time NRR can stabilize back above 100%.
• Paid adoption rates for Contact Center, Zoom Phone, Custom AI Companion, ZVA Receptionist, and Workvivo Seer.
• Whether gross margin can stay around 79%-80% as AI usage expands.
• Changes in Anthropic stake value disclosure and their impact on the target price.