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The Business Model (How They Make Money)

Zoom Communications, Inc. (ZM) makes its money by providing a platform that helps people connect and collaborate through video, voice, chat, and content sharing. Think of it as a digital meeting room, phone system, and chat application all rolled into one, designed for both individuals and large organizations. Their core business revolves around subscriptions to these services.

Zoom's main products include:

• Zoom Meetings: Their flagship video conferencing service, offering high-definition video, voice, and screen sharing.
• Zoom Phone: A cloud-based phone system that replaces traditional business phones.
• Zoom Team Chat: An instant messaging service for quick communication and file sharing.
• Zoom Contact Center: Tools for businesses to manage customer interactions.
• Zoom AI Companion: An integrated artificial intelligence assistant designed to boost productivity with features like meeting summaries.

Their revenue primarily comes from these subscription services, which are sold to a diverse range of customers, from small businesses to large enterprises across various industries like education, healthcare, and government. For the fiscal year ended January 31, 2026 (FY26), Zoom reported total revenue of $4,868.8 million. A significant portion of this came from their Enterprise customers (larger businesses), which accounted for $2,934.1 million, or about 60.3% of their total revenue in FY26. The remaining $1,934.7 million, or approximately 39.7%, came from their Online business (smaller customers and individuals).

The Metrics That Matter Most

For a company like Zoom, which operates on a subscription model and invests heavily in technology and customer acquisition, certain financial metrics are particularly insightful.

1. Revenue: This is the total amount of money Zoom brings in from selling its subscriptions and services. For a company that relies on growing its customer base and expanding its offerings, consistent revenue growth shows that more people are signing up and using their products.

   • In fiscal year 2026, Zoom's revenue was $4,868.8 million. This was an increase from $4,665.4 million in fiscal year 2025. This growth indicates that Zoom is continuing to attract and retain customers, even in a competitive market.

2. Net Income: This is Zoom's profit after all expenses, including taxes, have been paid. It tells you how much money the company actually keeps from its sales. For investors, a growing net income suggests that Zoom is not only generating sales but also managing its costs effectively to turn those sales into real profit.

   • Zoom reported a net income of $1,900.1 million in fiscal year 2026. This was a substantial increase from $1,010.2 million in fiscal year 2025.

3. Free Cash Flow: This metric shows the cash a company generates after paying for its operating expenses and capital expenditures (investments in things like new equipment or software). It's essentially the cash left over that Zoom can use for things like paying down debt, buying back its own stock, or making acquisitions. For a software company, strong free cash flow is a sign of financial health and flexibility.

   • In fiscal year 2026, Zoom generated $1,924.1 million in free cash flow. This is up from $1,808.7 million in fiscal year 2025.

4. Sales & Marketing Expenses: This represents the money Zoom spends to attract new customers and keep existing ones. For a subscription-based business, investing in sales and marketing is crucial for growth. By tracking this, you can see how much Zoom is spending to drive its revenue and whether those investments are paying off.

   • Zoom's sales and marketing expenses were $1,781 million in fiscal year 2026. In fiscal year 2025, these expenses were $1,870 million.

How to Value This Company

The most relevant valuation metric for Zoom Communications is the P/Sales ratio (Price-to-Sales ratio).

The P/Sales ratio helps you figure out if a company's stock price is reasonable compared to the amount of revenue it generates. You calculate it by taking the company's total market value (its stock price multiplied by all outstanding shares) and dividing it by its total revenue over the past year.

Here's why it's particularly useful for Zoom:

• Focus on Growth: Software companies like Zoom often prioritize growing their customer base and revenue, sometimes even before achieving massive profits. The P/Sales ratio is great for these growth companies because it focuses on sales, which are usually more stable and predictable than profits in the early or high-growth stages.
• Industry Comparison: It allows you to compare Zoom's valuation to other similar software or communication technology companies, even if their profit margins vary. A higher P/Sales ratio might suggest investors expect faster future revenue growth, while a lower one could indicate slower growth expectations or that the stock is potentially undervalued relative to its sales.
• Simplicity: It's a straightforward way to gauge how much investors are willing to pay for each dollar of Zoom's sales.

As of May 2026, Zoom's trailing twelve-month (TTM) P/Sales ratio is approximately 6.53. To use this, you would compare Zoom's current P/Sales ratio to its historical P/Sales ratios and to the P/Sales ratios of its competitors. If Zoom's ratio is significantly higher than its historical average or its peers, it might suggest the stock is considered expensive. If it's lower, it could indicate it's a more reasonably priced or even undervalued opportunity, assuming its business fundamentals remain strong.