A $1.61bn investment gain lifted Zoom's GAAP EPS to $5.15 while revenue grew 4.9%

by Bisi Oyelaran · August 26, 2026

Equities Reporter, US Market Current

Zoom Communications reported results for the second quarter of its fiscal 2027 year, which ended July 31, 2026, at 4:05 p.m. Eastern on Tuesday, Aug. 25, and the headline earnings figure requires an asterisk. GAAP diluted earnings per share were $5.15. Non-GAAP diluted earnings per share were $1.55. The $3.60 gap between the two, on this publication's arithmetic, is not a rounding artifact or a stock-compensation quirk; it is almost entirely one line in the income statement.

That line is gains on strategic investments, net, which came to $1,614.2 million in the quarter against $45.1 million in the year-ago period. GAAP net income was $1,542.4 million, up from $358.6 million a year earlier. Strip out the investment gains and the operating picture is far quieter.

Revenue was $1,277.2 million, up 4.9 percent from a year earlier and up 4.7 percent in constant currency, against $1,217.2 million in the comparable quarter. The enterprise segment produced $787.5 million of that, up 7.8 percent year over year. The online segment, which serves self-service and small-business customers, contributed $489.7 million and grew 0.6 percent.

Chief Executive Eric Yuan said in the release that the 7.8 percent enterprise growth rate was the company's strongest in three years. The release also stated that the customer count for Zoom Virtual Agent, the company's AI-driven customer-service product, rose 256 percent year over year, though the release did not disclose the absolute number of those customers or the revenue attached to them.

Operating results moved in two directions depending on which measure you use. GAAP income from operations was $314.3 million, a 24.6 percent operating margin, down from $321.7 million a year earlier. Non-GAAP income from operations was $510.3 million, a 40.0 percent margin, up from $503.2 million. The difference between the two operating figures is dominated by stock-based compensation and related payroll taxes of $186.7 million, with acquisition-related expenses of $9.3 million also excluded from the non-GAAP measure.

The full non-GAAP reconciliation for the quarter removed $186.7 million of stock-based compensation and payroll taxes, subtracted the $1,614.2 million of strategic investment gains, added back $9.3 million of acquisition-related expenses, and applied $339.8 million of tax effects on those adjustments. In other words, the same gains that inflated GAAP earnings were removed from the non-GAAP figure, which is why the two numbers point in such different directions this quarter.

Cash generation was steady. Operating cash flow was $494.8 million and free cash flow was $472.4 million. The company ended the quarter with $7.2 billion in cash and marketable securities. It repurchased 3.7 million shares during the quarter, bringing cumulative repurchases under the current authorization to 44.2 million shares. Diluted share count was 299.7 million, down from 308.2 million a year earlier, which mechanically supports per-share figures independent of operating performance.

Two customer metrics frame the growth question. The number of customers contributing more than $100,000 in trailing twelve-month revenue reached 4,625, up 8.2 percent from a year earlier. The trailing twelve-month net dollar expansion rate for enterprise customers was 99 percent, up from 98 percent. A figure below 100 percent means that, in aggregate, existing enterprise customers spent slightly less over the period than the same cohort did a year prior, with new customer additions rather than expansion within the installed base carrying segment growth.

The forward guidance points to a flat sequential quarter on the top line. For the fiscal third quarter, Zoom guided revenue of $1.275 billion to $1.280 billion, non-GAAP income from operations of $510 million to $515 million, and non-GAAP diluted earnings per share of $1.46 to $1.48. The revenue midpoint of that range is within a few million dollars of the $1,277.2 million just reported.

For the full fiscal year, the company guided revenue of $5.085 billion to $5.095 billion, non-GAAP income from operations of $2.065 billion to $2.075 billion, non-GAAP diluted earnings per share of $6.08 to $6.12, and free cash flow of $1.780 billion to $1.820 billion. At the midpoint, the full-year non-GAAP operating margin implied by those two ranges is roughly 41 percent by this publication's calculation, in the same neighbourhood as the quarter just reported.

The quarter is a useful case study in reading a print rather than a headline. A company whose revenue grew below 5 percent and whose GAAP operating income declined year over year nonetheless posted GAAP earnings per share more than three times the non-GAAP figure, because a portfolio of strategic investments was marked up by $1.6 billion. Investment gains of that kind are non-recurring by nature and are not tied to the sale of software subscriptions.

The results landed the evening before a heavy macro session. On Wednesday morning the Bureau of Economic Analysis reported that the core PCE price index rose 0.2 percent in July and 3.3 percent from a year earlier, and that second-quarter real GDP was unrevised at a 1.5 percent annual rate, with corporate profits from current production up $400.9 billion in the quarter. Wednesday's equity session was still open as of roughly 11:20 a.m. Eastern, so no closing price for the day existed; the last completed session was Tuesday, Aug. 25, when the Nasdaq Composite closed at 26,151.30, up 0.66 percent.

Zoom's next scheduled disclosure is its fiscal third-quarter report, which will test whether the enterprise segment's 7.8 percent growth rate holds and whether the net dollar expansion rate crosses back above 100 percent.