FinanceLooker

Excrept from filing document 2025-01-31

The aggregate market value of the registrant s Class A common stock held by non affiliates of the registrant based on the closing price of a share of the registrant s Class A common stock on July 31 2024 as reported by the Nasdaq Global Select Market on such date was approximately 15 8 billion This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose
As of February 14 2025 the number of shares of the registrant s Class A common stock outstanding was 262 753 519 and the number of shares of the registrant s Class B common stock outstanding was 42 480 334
Portions of the registrant s definitive Proxy Statement relating to the 2025 Annual Meeting of Stockholders are incorporated herein by references in Part III of this Annual Report on Form 10 K to the extent stated herein Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of the registrant s fiscal year ended January 31 2025
This Annual Report on Form 10 K contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended the Securities Act and Section 21E of the Securities Exchange Act of 1934 as amended the Exchange Act which statements involve substantial risks and uncertainties All statements other than statements of historical facts contained in this Annual Report on Form 10 K including statements regarding our future results of operations or financial condition business strategy and plans and objectives of management for future operations including our statements regarding the benefits and timing of the rollout of new technology are forward looking statements In some cases you can identify forward looking statements because they contain words such as anticipate believe contemplate continue could estimate expect intend may plan potential predict project should target will or would or the negative of these words or other similar terms or expressions Forward looking statements contained in this Annual Report on Form 10 K include but are not limited to statements about our future financial performance including our revenue cost of revenue gross profit margins and operating expenses trends in our key business metrics the sufficiency of our cash and cash equivalents investments and cash provided by sales of our products and services to meet our liquidity needs market trends our market position and opportunity our growth strategy and business aspirations for our communications and collaboration platform and evolving AI capabilities our product strategy our efforts to enhance the security and privacy of our platform our ability to operate our business and effectively manage our scale under evolving macroeconomic conditions such as geopolitical conflicts tariffs and trade tensions inflationary pressures interest rate fluctuations and foreign currency exchange rate volatility our ability to become the ubiquitous platform for communications and collaboration our ability to attract new customers and retain existing customers our ability to successfully expand into our existing markets and into new markets our ability to effectively manage our growth and future expenses and the impact of recent accounting pronouncements on our consolidated financial statements
You should not rely on forward looking statements as predictions of future events We have based the forward looking statements contained in this Annual Report on Form 10 K primarily on our current expectations and projections about future events and trends that we believe may affect our business financial condition and operating results The outcome of the events described in these forward looking statements is subject to risks uncertainties and other factors described in the section titled Risk Factors and elsewhere in this Annual Report on Form 10 K Moreover we operate in a very competitive and rapidly changing environment New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward looking statements contained in this Annual Report on Form 10 K The results events and circumstances reflected in the forward looking statements may not be achieved or occur and actual results events or circumstances could differ materially from those described in the forward looking statements
In addition statements that we believe and similar statements reflect our beliefs and opinions on the relevant subject These statements are based on information available to us as of the date of this Annual Report on Form 10 K While we believe that such information provides a reasonable basis for these statements that information may be limited or incomplete Our statements should not be read to indicate that we have conducted an exhaustive inquiry into or review of all relevant information These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements
The forward looking statements made in this Annual Report on Form 10 K relate only to events as of the date on which the statements are made We undertake no obligation to update any forward looking statements made in this Annual Report on Form 10 K to reflect events or circumstances after the date of this Annual Report on Form 10 K or to reflect new information or the occurrence of unanticipated events except as required by law We may not actually achieve the plans intentions or expectations disclosed in our forward looking statements and you should not place undue reliance on our forward looking statements Our forward looking statements do not reflect the potential impact of any future acquisitions mergers dispositions joint ventures or investments
You should read this Annual Report on Form 10 K and the documents that we reference in this Annual Report on Form 10 K and have filed with the Securities and Exchange Commission as exhibits to this Annual Report on Form 10 K with the understanding that our actual future results levels of activity performance and events and circumstances may be materially different from what we expect
Investing in our Class A common stock involves numerous risks including the risks described in Part I Item 1A Risk Factors of this Annual Report on Form 10 K Below are some of these risks any one of which could materially adversely affect our business financial condition results of operations and prospects
Our business depends on our ability to attract new customers retain and upsell additional products and new product categories to existing customers and upgrade free users to one of our paid offerings Any decline in new customers renewals or upgrades would harm our business
Interruptions delays or outages in service from our co located data centers or cloud hosting services and a variety of other factors would impair the delivery of our services require us to issue credits or pay penalties and harm our business
We operate in competitive markets and we must continue to compete effectively Many of our actual and potential competitors benefit from competitive advantages over us such as greater name recognition longer operating histories more varied products and services larger marketing budgets more established marketing customer and partner relationships more third party integrations greater accessibility across devices and applications greater access to larger user bases major distribution agreements with hardware manufacturers and resellers and greater financial technical and other resources In addition as we introduce new products and services to our platform and with the introduction of new technologies and market entrants we expect competition to intensify in the future
Our security measures and those of the third parties with whom we work have been compromised in the past and may be compromised in the future If our security measures are compromised in the future or if our information technology fails this could harm our reputation expose us to significant fines and liability impair our sales and harm our business In addition our products and services may be perceived as not being secure This perception may result in customers and users curtailing or ceasing their use of our products us incurring significant liabilities and our business being harmed
The actual or perceived failure by us our customers partners or vendors to comply with stringent and evolving laws and regulations industry standards policies and contractual obligations relating to privacy data protection information security laws and other matters could harm and has in the past harmed our reputation and business or subject us to significant fines and liability
We may be subject to or respond to requests from law enforcement in connection with enforcement of a variety of U S and international laws that could result in claims increase the cost of operations or otherwise harm our business due to changes in the laws changes in the interpretations of the laws greater enforcement of the laws or investigations into compliance with the laws
A number of our products including Zoom Phone are subject to U S federal and international regulation and other products we may introduce in the future may also be subject to U S federal state or international laws rules and
We use generative artificial intelligence AI in our products and services which may result in operational challenges legal liability reputational concerns competitive risks and regulatory concerns that could adversely affect our business and results of operations
The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to our initial public offering including our executive officers employees and directors and their affiliates limiting your ability to influence corporate matters
Zoom Workplace with AI Companion is an open AI first work platform for human connection Zoom Workplace makes connecting easier more immersive and more dynamic for businesses and individuals We re committed to evolving our platform in ways that empower limitless human connection and solve real business problems All of our product innovation has a unified goal to help streamline the workday through effective communication and collaboration tools Together with Zoom Workplace Zoom s Business Services for sales marketing and customer experience teams including Zoom Contact Center Zoom Revenue Accelerator and Zoom Events strengthen customer relationships throughout the customer lifecycle The Zoom platform makes teamwork more meaningful drives impact with intelligence strengthens customer relationships and enables seamless workflows Trust is a cornerstone of the Zoom platform We equip users with a comprehensive set of tools to make their interactions safe secure and private We believe that strong security should never compromise a great user experience
Zoom s mission is to deliver an AI first work platform for human connection This AI first approach to Zoom Workplace and Zoom Business Services is designed to allow individuals and teams to free up time and focus on what matters most engaging connecting and delivering creative and insightful work all within one unified platform
The Zoom developer ecosystem enables customers to choose the apps and integrations they prefer Zoom offers more than 2 900 apps on the Zoom App Marketplace and integrations with key software vendors such as Microsoft and Google
We re on a mission to reimagine the way the world communicates and collaborates Zoom brings employee and customer experience together into a single AI first open platform that people love to use Flagship products like Zoom Meetings Zoom Phone Zoom Team Chat and Zoom Docs are among the core products on the platform that are critical to business communication and collaboration needs We strive to continue building a platform that helps people work smarter be more engaged with work and better connect with each other AI has been core to Zoom s product DNA over many years grounded in our conviction that AI can make work more human by strengthening collaboration productivity and inclusivity
In fiscal year 2025 Zoom continued to invest in AI and focused on three key areas regarding AI supporting individual productivity powering better collaboration and helping customer facing teams deliver meaningful business value to delight their customers In September 2023 we launched Zoom AI Companion our smart assistant that is designed to empower workers to increase productivity improve team effectiveness and enhance skills Additionally we introduced our federated approach to AI which enables the use of multiple large language models LLMs including Zoom s own to complete each task for users Zoom s federated approach allows its tech stack to dynamically select from multiple AI models including those from OpenAI Anthropic and Meta making AI accessible and affordable so that more people can incorporate them in their day to day workflows With these advancements in AI Companion and our broader AI strategy we believe we re well positioned as AI technology continues to evolve We are evolving agentic AI capabilities within AI Companion that will continue to deliver practical value to customers while building on our ambitious vision of AI that truly amplifies human potential for our customers In line with our commitment to responsible AI Zoom does not use customer audio video chat screen sharing attachments or other communications such as poll results whiteboard and reactions to train Zoom s or third party AI models
Zoom continues to be at the center of flexible work Our continued product innovation is laser focused on supporting a flexible work environment with new innovations in areas such as document collaboration hybrid workspaces and employee communication Additionally our employee experience platform Workvivo deepened our commitment to creating a platform that is focused on connecting and engaging employees
Unlike most Contact Center as a Service CCaaS solutions that are only optimized for voice Zoom Contact Center is an omnichannel cloud contact center platform that is optimized for video and intentionally supports a robust suite of channels such as voice and video SMS and webchat The result is a one stop shop designed for customer experience leaders to deliver excellence to their customers and to strengthen workforce engagement
The happiness we deliver is recognized by our customers Zoom has consistently earned high scores across customer review sites Gartner Peer Insights TrustRadius and G2 including being recognized as a 2024 Customers Choice in the Gartner Peer Insight Voice of the Customer for Unified Communications as a Service UCaaS and Visual Collaboration Applications and a Leader badge for Zoom Contact Center by G2 Industry analysts also recognize our market leadership across our platform and products Gartner has named Zoom a leader in the Magic Quadrant for UCaaS for the fourth year in a row and Workvivo was named a leader in the Magic Quadrant for Intranet Packaged Solutions Forrester published its Forrester Wave for Conversational Intelligence where Zoom Revenue Accelerator debuted as a Strong player IDC named Zoom Events as a leader in its IDC MarketScape for Worldwide Virtual Events Applications Zoom Workplace was also named Editor s Choice and one of the Best Products and Services of the Year 2024 by PC Mag included in Fast Company s 2024 Most Innovative Companies list and awarded CRN Tech Innovators Award for Zoom AI Companion as well as Best Unified Communications Platform 250m Best UCaaS Provider AMERICAS Best Collaboration Platform and Best Hybrid Workplace Product from UC Today
We deliver happiness to our customers by giving them experiences that add meaningful business value and delight them We respond to customer needs with action to drive positive user experiences We believe these practices result in our high scores across customer review sites and will continue to generate referrals from our existing customers providing meaningful viral adoption for the foreseeable future
Our platform is designed to make it easy to host meetings By attracting free users to our platform we promote usage that allows them and their meeting attendees to experience the Zoom difference We complement this lead generation model with our multipronged go to market strategy that integrates the viral enthusiasm for our platform with optimal routes to market including direct sales representatives online channel resellers and strategic partners This approach is designed to allow us to cost effectively drive upgrades to our paid offering and expansion within organizations of all sizes and verticals
Our engineers aim to stay on the cutting edge of communication collaboration and AI technologies We strive to deliver the best experience to our users by dedicating a portion of our engineering capacity to developing on demand customer requested features that would be valuable across our customer base Our core areas of focus are bolstering innovation on products in the following categories employee experience customer experience core communications generative AI and departmental and industry specific solutions
With users offices and data centers strategically located around the world we are poised to reach new customers globally Our platform is intuitively designed such that localization requirements are minimal For example our platform works without intensive translation requirements with only a few language adjustments to our user interface and support systems Zoom continues to make meetings more effective and inclusive with new language captions and translations Within a Zoom Meeting translated captions will translate the source language into English captions or translate from English to the language selected by the meeting participant Translated captions support more than 35 languages This facilitates seamless collaboration and helps to improve attendee engagement including after the meeting through AI Companion summaries
As organizations experience our platform and become familiar with its benefits more teams and departments within these organizations adopt Zoom Our platform may begin in a line of business and then organically expand across departments This land and expand model has led to some of our largest deployments Customers are also purchasing services for events webinars room solutions phone contact center and employee experience creating a complete and integrated set of communications services
Through the Zoom Developer ecosystem we enable customers and their developers to build their own solutions with our underlying platform technology seamlessly embed our platform into their own offerings and integrate their applications across Zoom products using our extensive library of application program interfaces APIs and selection of software development kits SDKs Our app marketplace further extends the value and adoption of Zoom with our customers through the development and distribution of apps and integrations We continue to partner with video conferencing hardware and peripheral providers as well as with software providers including Palo Alto Networks Zendesk and Box
We provide an open AI first work platform for human connection that delivers happiness and fundamentally changes how people interact connecting them through frictionless and secure meetings phone chat content sharing and more Our products are grouped under the following categories which are further described below
Zoom AI Companion launched in September 2023 is Zoom s generative AI digital assistant designed to be seamlessly embedded across Zoom s suite of products to deliver real time digital assistance and enhance productivity It works effortlessly across Zoom Meetings Zoom Team Chat Zoom Email Zoom Whiteboard and Zoom Events and more Zoom AI Companion uses a federated AI approach that incorporates Zoom s own LLMs with third party models to deliver high quality results and lower customer costs Zoom AI Companion is included at no additional cost for customers with paid services in their Zoom user accounts
Zoom Meetings provides HD video voice chat and content sharing across mobile devices desktops laptops telephones and conference room systems Our architecture can support up to 1 000 video participants in a single meeting Conversations can be one to one one to many or many to many Zoom Meetings feature a 49 person video gallery view virtual backgrounds MP4 M4A cloud local recording with transcripts video breakout rooms screen sharing with annotation and integrations with other powerful business applications to help teams get more done together Zoom Meetings integrate with tools created by companies such as Atlassian Box Dropbox Google LinkedIn Microsoft Salesforce ServiceNow and Slack Our meetings are a flexible tool for on the go employees who rely on their mobile devices or tablets throughout their business day
An end to end encryption E2EE option is available to free and paid Zoom customers globally who host meetings with up to 1000 participants Zoom s E2EE uses the same 256 bit AES GCM encryption that secures Zoom meetings by default but with Zoom s E2EE the meeting host generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants Additionally a customer managed key CMK service allows organizations to provide and manage their own encryption keys for certain customer content stored at rest in the Zoom Cloud The organization needs to manage the keys in the Amazon Web Services Key Management Service This allows for encryption of applicable content stored in the Zoom Cloud using the keys that the organization controls We believe Zoom was also the first UCaaS company to offer post quantum E2EE solution video conferencing Post quantum E2EE works across Zoom Workplace and employs upgraded algorithms designed to be able to withstand the potential future threats of quantum computers
Zoom Phone is a cloud phone system for businesses that provides private branch exchange PBX features such as secure call routing call queuing call detail reports call recording call quality monitoring voicemail switch to video and much more Zoom Phone provides inbound and outbound calling via its support for native connectivity to the public switched telephone network PSTN Available stand alone or as an optional add on to Zoom Meetings Zoom Phone is a core component of our modern UCaaS strategy that enables customers to replace their existing PBX solution and consolidate all of their business communications and collaboration requirements onto Zoom As of January 31 2025 Zoom Phone provided native PSTN connectivity in more than 45 countries and territories
Zoom Phone also supports Premises Peering and Cloud Peering which provide customers with the flexibility to keep their current PSTN service providers by redirecting existing third party voice circuits to the Zoom Phone Cloud Hybrid connectivity is also supported allowing customers to mix native Zoom Phone calling plans and third party voice circuits This unique capability allows customers to enjoy all of the benefits and features of Zoom Phone while keeping their existing service provider contracts phone numbers and calling rates with their preferred carrier of record
Zoom Phone Provider Exchange makes it easier for customers to choose their preferred PSTN provider partners providing an improved way to connect with cloud peering partners promote the discovery of new providers and enable self service of phone numbers from selected partners As of January 31 2025 there are more than 90 countries and territories included in the Provider Exchange program
Zoom Team Chat which is included in Zoom Workplace and Zoom Phone plans enables organizations and teams to communicate and collaborate in groups channels or one on ones and to stay connected by instantly sharing messages images files and other content across desktop laptop tablet and mobile devices With Zoom Team Chat users can easily invite people outside their organization to a chat conversation and quickly switch from a chat to a phone call or video meeting during a conversation Zoom Team Chat also features content storage for users who want discoverability and the ability to review their conversations or shared files There are dozens of Zoom Team Chat compatible applications available in the Zoom App Marketplace that provide notifications and improved workflow for other enterprise systems
Zoom Mail and Calendar includes both client experiences Zoom Mail Client Zoom Calendar Client and service components Zoom Mail Service Zoom Calendar Service Zoom Mail Client and Zoom Calendar Client can be used with third party email and calendaring services from Microsoft or Google or with Zoom Mail Service and Calendar Service
Zoom Workflow Automation is a no code workflow builder that helps users build complex workflows across Zoom Workplace and third party applications so they can spend time on more meaningful work and collaborate more seamlessly with colleagues
Zoom Docs is a dedicated modular workspace for efficient dynamic hybrid collaboration With Zoom Docs users get a singular workspace designed to bring their teams together to share ideas and get more done all powered by AI It helps tie together our collection of communication modalities with online word processing now threaded throughout the Zoom platform
Zoom Whiteboard is an interactive canvas that allows teams to collaborate and brainstorm through the use of templates drag and drop shapes and objects text diagramming tools and integrations with third party services Zoom Whiteboard is a persistent collaboration tool that works across Zoom Meetings Zoom Team Chat Zoom Rooms for Touch Zoom Workplace desktop and mobile apps and web browsers Whiteboards can be shared with internal and external participants
Zoom Clips is a convenient solution for capturing both video and screen content Zoom Clips enables users to effortlessly and quickly record edit share store and analyze short video clips as well as comment react to other user s clips to keep the collaboration going Clips are particularly valuable when demonstrating or showcasing product features or functionalities Zoom Clips is included with Zoom Workspace paid plans
Zoom Contact Center is an omnichannel solution that helps empower and upskill agents improve operational effectiveness and strengthen customer relationships Built on Zoom s reliable and secure platform Zoom Contact Center enriches customer engagement by delivering highly personalized and seamless customer journeys across all channels The capabilities of Zoom Contact Center are further enhanced when integrated with Zoom Virtual Agent our intelligent AI powered chatbot and Zoom s Workforce Engagement Management suite including Workforce Management and Quality Management for Contact Center customers Together these solutions form an all in one comprehensive contact center solution designed to elevate every aspect of the customer experience
Zoom Revenue Accelerator is conversation intelligence software for Zoom Meetings and Zoom Phone which provides sales teams with meaningful and actionable insights from their customer interactions to improve seller performance and enhance customer experiences by reconciling call analytics with CRM data
Built on Zoom s reliable and secure video technology Zoom Events allows event hosts to seamlessly create and manage virtual and hybrid events of any size Zoom Events offers features such as event hubs dedicated corporate event spaces customizable registration and ticketing attendee networking Expo Floor and event analytics This comprehensive solution is designed to simplify how users manage host market and report on all of their virtual and hybrid events
Zoom Sessions allows customers to use the signature features of Zoom Events for a single session event including branded registration and event pages live polling surveys and chat advanced reporting and the ability to organize upcoming and past events in one place
Zoom Webinars support interactive video presentations to large audiences from almost anywhere in the world and from many devices Zoom Webinars can scale up to 1 million attendees with the expanded single use license and last up to 30 hours with 1 000 interactive video panelists With webinars customers have control over the video viewing experience and attendees join to listen learn and interact using chat Q A live polling and more Our powerful third party integrations help users maximize usage of their webinars and expand capabilities with paid registration marketing automation lead nurturing and learning management
Workvivo is an all in one employee experience platform EXP designed to simplify internal communication drive engagement and foster a strong company culture Workvivo combines internal tools for communication employee recognition and an intranet into a single platform Workvivo provides a new way for customers to keep their employees informed engaged and connected Workvivo consists of a monthly subscription and optional add on features for an additional fee
Zoom Rooms is our software based conference room system that transforms every room from executive offices huddle rooms and training rooms to broadcast studios into a collaboration space that is easy to use simple to deploy and low effort to manage Designed to increase workforce collaboration across in room and virtual participants Zoom Rooms brings one click to join meetings wireless multi sharing interactive whiteboarding intuitive room controls scheduling enhancements digital signage and other features to the Zoom Meeting experience and hybrid work experience
location time and duration in advance or on demand by selecting a location on a floor plan Administrators can learn more about the utilization of their workspaces to support the planning and optimization of their locations
The Zoom Developer Platform enables developers platform integrators service providers and customers to easily build apps and integrations that use Zoom s video based communications solutions across video phone and chat or integrate Zoom s core technology into their products and services with opportunities for co marketing discovery and distribution Our developer platform also allows Zoom customers to administer their accounts including managing app requests and provisioning as well as optimizing account usage with access to dashboards and usage metrics With our SDKs APIs webhooks and extensive developer resources Zoom third party developers and partners can build and publish applications on our App Marketplace that integrate our platform with other globally in demand applications platforms websites and services Our customers also have access to tools and resources to develop private applications that integrate Zoom Workplace and Zoom technology into their workflows and systems
Zoom Apps combine users favorite apps with the power of video communications by allowing users to access them directly in Zoom Meetings Users can enrich their Zoom experience with a variety of apps that cover many use cases including whiteboarding project management note taking gaming and more Zoom Essential Apps launched in January 2023 provides access to a curated list of apps at no cost for one year after app activation for Zoom Workplace Pro Business and Business Plus users to enhance their Zoom experience such as through visual agendas automated tools to keep meetings on track and interactive activities to add energy and fun to meetings
Our unique technology and infrastructure enable best in class reliability scalability and performance We designed our open AI first collaboration platform to help streamline the workday through effective communication and collaboration tools Our Federated AI approach leverages the best of both our proprietary AI and industry leading models from partners like OpenAI and Anthropic The right AI model is applied to each specific task to optimize performance and efficiency
Video communication presents its own unique set of challenges requiring significant computing resources for encoding decoding multiplexing and synchronization along with high network bandwidth and performance To address this our platform separates video content processing from the transporting and mixing of streams We allocate video content processing to intelligent agents that reside on client devices and dynamically encode and decode based on the performance of client technology network performance and bandwidth Our next generation multimedia router operates on commodity hardware and a globally distributed cloud infrastructure to determine the optimal data centers to host a meeting and an optimal set of paths to connect the participants
We have customers of all sizes from individuals to global Fortune 50 organizations Our current customer base spans countries across the world and numerous industry categories including education entertainment media enterprise infrastructure finance government health care manufacturing nonprofit not for profit and social impact retail consumer products and software internet No individual customer represented more than 10 of our total revenue in the fiscal year ended January 31 2025
Our sales model combines our viral demand generation and our free Zoom Meetings and Zoom Workplace basic plan with a sales approach optimized for the size of each customer opportunity Our direct sales force includes our field sales representatives as well as our inside sales team and it is organized by customer subscription size region and vertical Our channel team works across a broad channel ecosystem from resellers to strategic technology and service partners as well as independent software vendors ISVs and service integrators SIs to build a strong ecosystem that broadens our reach Our online channel supports high volume high velocity self service sales
Our marketing team s primary objective is to create a preference for our brand by leveraging our brand recognition enhancing brand perception and engaging our users with virtual events content social media and customer advisory councils
We implement targeted online and out of home advertising Our events strategy is based on a combination of online in person and hybrid approaches Zoomtopia our annual user conference provides a hybrid experience for tens of thousands of in person and virtual attendees
Zoom s research and development efforts are focused on driving innovation in communication technology With research teams in China India Singapore and the United States our global presence supports a follow the sun strategy enabling efficient development of new capabilities We prioritize advancements in Zoom AI Companion Zoom Workplace Zoom Business Services security video and audio quality and seamless integrations Our team is also dedicated to improving performance across devices and networks enhancing user experience and exploring emerging technologies to help shape the future of remote and hybrid workplace For information on the risks associated with our international operations see Risks Related to Our Business and Our Industry under Item 1A Risk Factors
The markets in which we operate are highly competitive We face competition from legacy web based meeting services providers including Cisco Webex and GoTo bundled productivity suite providers with communications offerings including Microsoft 365 with Teams and Google Workspace with Meet and UCaaS and legacy web based meeting providers including Avaya RingCentral and 8x8 as well as consumer facing platforms that can support small or medium sized businesses including Amazon Apple and Facebook Additionally as our Contact Center customer base continues to grow we may face additional competition including from Five9 Inc Genesys and NICE inContact
We rely on a combination of patents trademarks copyrights trade secrets and contractual protections to establish and protect our intellectual property rights We actively seek patent protection covering inventions originating from our company We also pursue the registration and enforcement of trademarks and domain names in the United States and in various jurisdictions outside the United States
We control access to and use of our proprietary technology and other confidential information through internal and external controls including contractual protections with employees contractors customers and partners Our software is protected by U S and international intellectual property laws Our policy requires employees and independent contractors to sign agreements 1 assigning to us any inventions trade secrets works of authorship and other intellectual property generated by them in the course of their employment and 2 agreeing to protect our confidential information
In certain circumstances we license intellectual property from third parties for use in our products This may include open source software We take steps to ensure compliance with the terms of the licenses governing such licensed technology We believe our business is not materially dependent on any individual patent trademark copyright trade secret or other intellectual property right whether our own or licensed from third parties For information on the risks associated with our intellectual property see Risks Related to Our Intellectual Property under Item 1A Risk Factors
Our business activities are subject to various federal state local and foreign laws rules and regulations Compliance with these laws rules and regulations has not had and is not expected to have a material effect on our capital expenditures results of operations and competitive position as compared to prior periods Nevertheless compliance with existing or future governmental regulations including but not limited to those pertaining to global trade business acquisitions consumer and data protection and taxes could have a material impact on our business in subsequent periods For more information on the
As of January 31 2025 we had 7 412 full time employees Of these employees 3 568 are in the United States and 3 844 are in our international locations None of our U S employees are represented by a labor union Employees in two of our non U S subsidiaries have the benefit of a collective bargaining agreement and are represented by a workers council We have not experienced interruptions of operations or any work stoppages due to labor disagreements
We are focused on delivering happiness to our employees and customers We strive to change the way business is done through our communications technology and our company culture We take happiness so seriously that we have an employee led happiness committee and crew to facilitate and amplify our efforts to deliver happiness to our employees and customers
This culture supports our hiring and serves as a competitive advantage in attracting and retaining top talent Zoom has been prominently featured in the computer software category on Fortune s Most Admired Companies list four years running and included in Fast Company s 2024 Most Innovative Companies list as well as Forbes 2025 list of America s Best Midsize Employers Additionally it was named to the Variety500 an award that recognizes the most influential business leaders shaping the industry
We offer fair competitive compensation and benefits that support our employees overall well being Our employees total compensation packages include base pay bonuses or sales commissions and equity We offer a wide array of benefits including comprehensive healthcare benefits including mental health and fertility benefits wellness benefits a book reimbursement plan to support continuous learning and charitable gift matching through our Zoom Cares program
Over the past several years we conducted a comprehensive employee survey with regular follow ups and engaged in peer research to make thoughtful decisions on how to move forward in an evolving world of work Two priorities were immediately clear keeping our employees safe and supporting them through a meaningful employee experience We believe maintaining a flexible working environment for our employees is a key priority
We were incorporated under the laws of the state of Delaware in April 2011 under the name Saasbee Inc and in February 2012 we changed our name to Zoom Communications Inc In May 2012 we changed our name to Zoom Video Communications Inc In November 2024 we changed our name back to Zoom Communications Inc Our principal executive offices are located at 55 Almaden Boulevard 6th Floor San Jose California 95113 Our telephone number is 888 799 9666 Our website address is https zoom com Information contained on or that can be accessed through our website is not incorporated by reference into this Annual Report on Form 10 K The Zoom design logo Zoom Zoom Communications and our other registered or common law trademarks service marks or trade names appearing in this Annual Report on Form 10 K are the property of Zoom Communications Inc Other trade names trademarks and service marks used in this Annual Report on Form 10 K are the property of their respective owners
We file annual reports on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to reports filed or furnished pursuant to Sections 13 a and 15 d of the Exchange Act The SEC maintains a website at www sec gov that contains reports proxy and information statements and other information that we file with the SEC electronically Copies of our reports on Form 10 K Forms 10 Q Forms 8 K and amendments to those reports may also be obtained free of charge electronically through our investor relations website located at investors zoom us as soon as reasonably practical after we file such material with or furnish it to the SEC
We announce material information to the public through a variety of means including filings with the SEC press releases our newsroom news zoom us public conference calls our website www zoom com and the investor relations section of our website investors zoom us We use these channels as well as social media including our blog blog zoom us our X formerly Twitter account zoom_us our LinkedIn page linkedin com company zoom our Instagram page
instagram com zoom our TikTok page tiktok com zoom and our Facebook page facebook com zoom to communicate with investors and the public about Zoom our products and services and other matters Therefore we encourage investors the media and others interested in Zoom to review the information we make public in these locations as such information could be deemed to be material information Information on or that can be accessed through our websites or these social media channels is not part of this Annual Report on Form 10 K and the inclusion of our website addresses and social media channels are inactive textual references only
Investing in our securities involves a high degree of risk You should carefully consider the risks and uncertainties described below together with all of the other information in this Annual Report on Form 10 K including the section titled Management s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes before making a decision to invest in our securities The risks and uncertainties described below may not be the only ones we face If any of the risks actually occur our business could be materially and adversely affected In that event the market price of our Class A common stock could decline and you could lose part or all of your investment
Our business depends on our ability to attract new customers retain and upsell additional products and new product categories to existing customers and upgrade free users to our paid offerings Any decline in new customers renewals or upgrades would harm our business
Our business depends upon our ability to attract new customers and maintain and expand our relationships with our existing customers including upselling additional products and new product categories to our existing customers and upgrading users from a free plan to one of our paid offerings
Our business is subscription based and customers are not obligated to and may choose not to renew their subscriptions after their existing subscriptions expire Customers may also terminate or reduce the size of their existing subscriptions As a result we cannot provide assurance that customers will renew their subscriptions utilizing the same tier of plan upgrade to a higher priced tier or purchase additional products if they renew at all Renewals of subscriptions to our platform may decline or fluctuate because of several factors such as dissatisfaction with our products and support a customer no longer having a need for our products or a belief that a competitor s product is better more secure or less expensive than our products and platform For example during the COVID 19 pandemic we saw a significant increase in usage and subscriptions As a result our customer base shifted largely from businesses and enterprises to a mix of businesses enterprises and consumers Following the pandemic some of our customers reduced or discontinued their use of our platform and additional customers may do so in the future Additionally this shift in mix has resulted and may continue to result in higher non renewal rates than we have experienced in the past Renewals are also impacted by reductions in customer information technology spending budgets or a decision by the customer to consolidate their spending budgets on one of our competitor s platforms both of which are more likely to occur during periods of high inflation or recessionary or uncertain economic environments We must continually add new customers and licenses to grow our business and to replace customers and licenses who choose not to continue to use our platform Finally any decrease in user satisfaction with our products or support would harm our brand word of mouth referrals and ability to grow
We encourage customers to purchase additional products and encourage users of our free offering to upgrade to one of our paid offerings by recommending additional features and through in product prompts and notifications However free users may never upgrade to one of our paid offerings We also seek to expand within organizations by adding new licenses having workplaces purchase additional products or expanding the use of our platform into other teams and departments within an organization If we fail to upsell our customers or upgrade free users to one of our paid offerings or expand the number of licenses within organizations our business would be harmed
Our revenue growth has fluctuated in prior periods You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance There are no assurances we will be able to sustain our revenue growth in future periods and our revenue growth rate may continue to remain flat or decline in future periods Many factors have and may contribute to declines in our growth rate including higher market penetration increased competition macroeconomic conditions such as inflation recessionary or uncertain economic environments fluctuating foreign currency exchange rates slowing demand for our platform a lower than anticipated capitalization on growth opportunities and the maturation of our business among others Our growth rate could adversely affect investors perceptions of our business and the trading price of our Class A common stock could be adversely affected
Interruptions delays or outages in service from our co located data centers or cloud hosting services and a variety of other factors would impair the delivery of our services require us to issue credits or pay penalties and harm our business
We currently serve our users from various co located data centers located throughout the world We also utilize cloud hosting services such as Amazon Web Services and Oracle Cloud for the hosting of certain critical aspects of our business and Microsoft Azure for limited customer specified managed services As part of our distributed meeting architecture we establish private links between data centers that automatically transfer data between various data centers Damage to or failure of these data centers has in the past resulted in and could in the future result in interruptions or delays in our services In addition we have experienced and may in the future experience other interruptions and delays in our services caused by a variety of other factors including but not limited to infrastructure changes vendor including cloud hosting issues human or software errors viruses security attacks ransomware or cyber extortion fraud general internet availability issues spikes in usage local administrative actions changes to legal or permitting requirements and denial of service issues In some instances we may not be able to identify the cause or causes of these problems within an acceptable period of time For example we have experienced partial outages in our services that impacted a subset of our users for a limited number of hours Additionally in connection with the addition of new data centers or expansion or consolidation of our existing data center facilities or other reasons we may move or transfer our data and our users metadata to other data centers not including our China data center Despite precautions that we take during this process any unsuccessful data transfers may impair or cause disruptions in the delivery of our service and we may incur significant costs in connection with any such move or transfer Interruptions delays or outages in our services would reduce our revenue may require us to issue credits or pay penalties may subject us to claims and litigation and may cause customers to terminate their subscriptions and adversely affect our ability to attract new customers Our ability to attract and retain customers and licenses depends on our ability to provide customers and users with a highly reliable platform and even minor interruptions or delays in our services could harm our business
Additionally if our data centers or cloud hosting services are unable to keep up with our increasing needs for capacity customers may experience delays or interruptions in service as we seek to obtain additional capacity which could result in the loss of customers who use our unified communications and collaboration platform because of its reliability and performance We plan to continue our practice of opening new co located data centers throughout the world to meet increased demand but we may be unable to bring additional data centers online in a timely manner including as a result of current shortages for certain parts such as servers
We do not control or in some cases have limited control over the operation of the co located data center facilities and cloud hosting services we use and they are vulnerable to damage or interruption from human error intentional bad acts earthquakes floods fires hurricanes war terrorist attacks power losses hardware failures systems failures telecommunications failures disease and other public health related measures any of which could disrupt our service In the event of significant physical damage to one of these data centers or disruption of the cloud hosting services we use it may take a significant period of time to achieve full resumption of our services and our disaster recovery planning may not account for all eventualities Despite precautions taken at these data center facilities the occurrence of a natural disaster an act of terrorism or other act of malfeasance a decision to close the facilities without adequate notice or other unanticipated problems at the facilities would harm our business
The market for communication and collaboration technologies platforms is competitive and rapidly changing and includes companies ranging from new market entrants to hyperscalers that provide technologies to improve communication and collaboration technologies platforms either as bundled solutions or standalone products Given the range of companies in this space maintaining an open and robust marketplace with fair competition is important Certain features of our current platform compete in the communication and collaboration technologies market with products offered by
Other large established companies may also make investments in video communications tools In addition as we introduce new products and services into our platform and with the introduction of new technologies and market entrants including AI we expect competition to continue to intensify
In February 2022 we launched Zoom Contact Center an omnichannel contact center solution that is optimized for video which competes against companies that offer similar services such as Five9 Genesys and NICE inContact and new competitors that may enter that market in the future As we continue to build out our platform we may face increased competition against companies that offer similar services and new competitors that may enter that market in the future During the COVID 19 pandemic we saw a significant increase in usage and subscriptions from smaller customers many of whom are consumers or small and medium sized businesses With respect to these smaller customers we face competition from more consumer oriented platforms most of which have more experience with the consumer market than we do Further many of our actual and potential competitors benefit from competitive advantages over us such as greater name recognition longer operating histories more varied products and services larger marketing budgets more established marketing customers and partner relationships more third party integrations greater accessibility across devices and applications greater access to larger user bases major distribution agreements with hardware manufacturers and resellers and greater financial technical and other resources Some of our competitors may make acquisitions or strategic investments or enter into strategic relationships to offer a broader range of products and services than we do which may prevent us from using such third parties technology or offering such products or services These combinations may make it more difficult for us to compete effectively We expect these trends to continue as competitors attempt to strengthen or maintain their market positions
Demand for our platform is also price sensitive Many factors including our marketing user acquisition and technology costs and our current and future competitors pricing and marketing strategies can significantly affect our pricing strategies Certain competitors offer or may in the future offer lower priced or free products or services that compete with our platform or may bundle and offer a broader range of products and services than we do Similarly certain competitors may use marketing strategies that enable them to acquire customers at a lower cost than we can Furthermore third parties could build products similar to ours that rely on open source software Even if such products do not include all the features and functionality that our platform provides we could face pricing pressure from these third parties to the extent that users find such alternative products to be sufficient to meet their needs In some cases we have been forced to engage in price cutting initiatives or other discounts to attract and retain customers in response to competitive pressures and may have to do so in the future We on occasion offer customers a free period of time at the beginning of the subscription term that can result in deferred billings or long term accounts receivable and increase the risk of loss on uncollected accounts receivable
Our results of operations have fluctuated and may in the future fluctuate significantly and period to period comparisons of our results of operations may not be meaningful Accordingly the results of any one quarter should not be relied upon as an indication of future performance Our results of operations may fluctuate as a result of a variety of factors many of which are outside of our control and as a result may not fully reflect the underlying performance of our business For example during fiscal year 2021 we experienced rapid growth in usage of our unified communications and collaboration platform largely due to the COVID 19 pandemic a significant portion of which was attributable to free Basic accounts which do not generate any revenue To meet this increased demand we have incurred and expect to continue to incur significant costs associated with upgrading our infrastructure and expanding our capacity Fluctuations in our results may negatively impact the value of our securities Factors that may cause fluctuations in our results of operations include without limitation those listed below
our ability to hire develop and retain talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time and provide sales leadership in areas in which we are expanding our sales and marketing efforts
the length of our sales cycles and linearity of our bookings especially with respect to sales to large enterprises and highly regulated industries including financial services and U S federal and state and foreign governmental agencies
the amount and timing of operating expenses related to the maintenance and expansion of our business operations and infrastructure as well as international expansion and entry into operating leases and the hiring and retention of personnel who can build manage and maintain our expanded business operations and infrastructure
lawsuits regulatory actions or investigations legislator scrutiny or negative publicity arising from actual alleged or perceived privacy violations or issues or security vulnerabilities incidents or breaches
Our business may be significantly affected by changes in the economy such as high inflation and the responses by central banking authorities to control such inflation recessionary or uncertain environments fluctuations in the foreign currency exchange rates and geopolitical tensions and military conflicts including the ongoing conflicts between Russia and Ukraine and in the Middle East and tariffs and trade tensions including the United States ongoing trade disputes with China and other countries While some customers may view a subscription to our platform as a cost saving purchase decreasing the need for business travel others may view a subscription to our platform as a discretionary purchase and our customers may reduce their information technology spending on our platform during an economic downturn or during times of economic uncertainty Given current economic conditions including inflation we have experienced and may continue to experience a loss of users and customers as well as a reduction in demand for our platform especially if the effects of the current economic environment have a prolonged impact on various industries that our unified communications and collaboration platform addresses In addition to the foregoing adverse developments that affect financial institutions transactional counterparties or other third parties such as bank failures or concerns or speculation about any similar events or risks could lead to market wide liquidity problems which in turn may cause third parties including customers to become unable to meet their obligations under various types of financial arrangements as well as general disruptions or instability in the financial markets Moreover we have lost and may continue to lose customers as a result of such customers ceasing to do business and we have experienced and may continue to experience a material increase in longer payment cycles and greater difficulty in collecting accounts receivable from certain customers These issues may continue in the future if current economic conditions continue or worsen
We invest significant resources into sales to large organizations Large organizations typically undertake a significant evaluation and negotiation process due to their leverage size organizational structure and approval requirements all of which have and may continue to lengthen our sales cycle We have also faced and may in the future face unexpected deployment challenges with large organizations or more complicated deployment of some or all aspects of our platform Large organizations may demand additional features support services and pricing concessions or require additional security management or control features We may spend substantial time effort and money on sales efforts to large organizations without any assurance that our efforts will produce any sales or that these customers will deploy our platform widely enough across their organization to justify our substantial up front investment As a result we anticipate increased sales to large organizations will lead to higher up front sales costs and greater unpredictability in our business results of operations and financial condition
We generate and expect to continue to generate revenue from the sale of subscriptions to our platform As a result widespread acceptance and use of communications and collaboration technologies in general and our platform in particular is
critical to our future growth and success If the communications and collaboration technologies market fails to grow or grows more slowly than we currently anticipate demand for our platform could be negatively affected
Changes in user preferences for communications and collaboration technologies may have a disproportionately greater impact on us than if we offered multiple platforms or disparate products Demand for communications and collaboration technologies in general and our platform in particular is affected by a number of factors many of which are beyond our control Some of these potential factors include
a reduction in customer information technology spending budgets or a consolidation of spending budgets on our competitors platforms especially during periods of inflation or recessionary or uncertain economic environments
The communications and collaboration technologies market is subject to rapidly changing user demand and trends in preferences If we fail to successfully predict and address these changes and trends meet user demands or achieve more widespread market acceptance of our platform our business would be harmed
We have incurred net losses in the past and could incur net losses in the future We intend to continue to expend significant funds on our sales and marketing efforts to attract new customers expand the number of licenses and services used by our customers and develop and enhance our products We also intend to continue investing in general corporate purposes including operations hiring additional personnel including through acquisitions of other businesses upgrading our infrastructure addressing security and privacy issues and expanding into new geographies and markets To the extent we are successful in increasing our customer base we may also incur increased losses because other than sales commissions the costs associated with acquiring customers are generally incurred up front while the subscription revenue is generally recognized ratably over the subscription term which can be monthly annual or on a multiyear basis Our efforts to grow our business may be costlier than we expect and we may not be able to increase our revenue enough to offset our higher operating expenses which may result in decreased profitability We may incur significant losses in the future for a number of reasons including as a result of the other risks described herein and unforeseen expenses difficulties complications delays and other unknown events While free users continue to be a meaningful portion of the user base we have directed marketing programs focused on converting free users to paid subscriptions Some of these users have upgraded to a paid plan but the remainder have not and may never do so If we are unable to increase or sustain our profitability the value of our business and Class A common stock may significantly decrease Furthermore it is difficult to predict the size and growth rate of our market customer demand for our platform customer adoption and renewal of our platform the entry of competitive products and services or the success of existing competitive products and services As a result we may not be able to increase or maintain profitability in future periods If we fail to grow our revenue sufficiently to keep pace with our investments and other expenses our business would be harmed
The experience of our users depends upon the interoperability of our platform across devices operating systems and third party applications that we do not control and if we are not able to maintain and expand our relationships with third parties to integrate our platform with their solutions our business may be harmed
One of the most important features of our platform is its broad interoperability with a range of diverse devices operating systems and third party applications Our platform is accessible from the web and from devices running Windows Mac OS iOS Android and Linux We also have integrations with Atlassian Dropbox Google Microsoft Salesforce Slack and a variety of other productivity collaboration data management and security vendors We are dependent on the accessibility of
our platform across these and other third party operating systems and applications that we do not control and some of these third parties can make it more difficult for our platform to interoperate with their systems in favor of competitive platforms For example given the broad adoption of Microsoft Office and other productivity software it is important that we are able to integrate with this software Several of our competitors own develop operate or distribute operating systems app stores co located data center services and other software and also have material business relationships with companies that own develop operate or distribute operating systems applications markets co located data center services and other software that our platform requires in order to operate Moreover some of these competitors have inherent advantages developing products and services that more tightly integrate with their software and hardware platforms or those of their business partners
Third party services and products are constantly evolving and we may not be able to modify our platform to assure its compatibility with that of other third parties following development changes In addition some of our competitors may be able to disrupt the operations or compatibility of our platform with their products or services or exert strong business influence on our ability to and terms on which we operate and distribute our platform For example we currently offer products that directly compete with several large technology companies that we rely on to ensure the interoperability of our platform with their products or services As our respective products evolve we expect this level of competition to increase Should any of our competitors modify their products or standards in a manner that degrades the functionality of our platform or gives preferential treatment to competitive products or services whether to enhance their competitive position or for any other reason the interoperability of our platform with these products could decrease and our business could be harmed
In addition we provide develop and create applications for our platform partners that integrate our platform with our partners various offerings For example our Zoom Workplace product integrates with tools offered by companies such as Atlassian and Dropbox to help teams get more done together If we are not able to continue and expand on existing and new relationships to integrate our platform with our partners solutions or there are quality issues with our products or service interruptions of our products that integrate with our partners solutions our business will be harmed
We are subject to requirements imposed by app stores such as those operated by Apple and Google who may change their technical requirements or policies in a manner that adversely impacts the way in which we or our partners collect use and share data from users For example Apple recently began requiring mobile applications using its iOS mobile operating system to obtain a user s permission to track them or access their device s advertising identifier for certain purposes The long term impact of these and any other privacy and regulatory changes remains uncertain If we do not comply with applicable requirements imposed by app stores we could lose access to the app store and users and our business would be harmed
The communications and collaboration technologies market is characterized by rapid technological change and frequent new product and service introductions Our ability to grow our customer base and increase our revenue will depend heavily on our ability to enhance and improve our platform introduce new features and products and interoperate across an increasing range of devices operating systems and third party applications Our customers may require features and capabilities that our current platform does not have In particular advancements in technology such as AI and machine learning are changing the way people work and businesses that are slow to adopt these new technologies may face a competitive disadvantage We invest significantly in research and development and our goal is to focus our spending on measures that improve quality and ease of adoption enhance privacy and security and create organic demand for our platform There is no assurance that new additions or other future enhancements to our platform or new product experiences features or capabilities will be compelling to our customers or gain market acceptance or that they will perform as expected If our research and development investments do not accurately anticipate demand or if we fail to develop our platform in a manner that satisfies customer preferences and requirements in a timely and cost effective manner we may fail to retain our existing customers or increase demand for our platform
The introduction of new products and services by competitors or the development of entirely new technologies to replace existing offerings such as AI powered communication and collaboration tools could make our platform obsolete or adversely affect our business results of operations and financial condition We may experience difficulties with software development design or marketing that could delay or prevent our development introduction or implementation of new product experiences features or capabilities We have in the past experienced delays in our internally planned release dates of new features and capabilities and there can be no assurance that new product experiences features or capabilities will be released according to schedule Any delays could result in adverse publicity loss of revenue or market acceptance or claims by users brought against us all of which could harm our business Moreover new productivity features to our platform may require substantial investment and we have no assurance that such investments will be successful If customers and users do not widely adopt our new product experiences features and capabilities or they do not perform as expected we may not be able to realize a return on our investment If we are unable to develop license or acquire new features and capabilities to our platform on a timely and cost effective basis or if such enhancements do not achieve market acceptance our business would be harmed
We use generative AI including in our products and services which may result in operational challenges legal liability reputational concerns competitive risks and regulatory concerns that could adversely affect our business and results of operations
We use generative AI processes and algorithms including by deploying generative AI features in our products and services which may result in adverse effects to our operations legal liability reputation and competitive risks The use of generative and agentic AI at scale is relatively new and may lead to challenges concerns and risks that are significant or that we may not be able to predict For example AI algorithms use machine learning ML and predictive analytics which may be insufficient biased inaccurate or of poor quality which could result in customer rejection or skepticism of our products adversely impact the rights of individuals affect our reputation or brand and negatively affect our financial results Additionally we rely on third parties for certain AI features of our products and if such third parties do not provide us those features or do not do so on acceptable terms experience interruptions or cease operating we may need to work with another provider which may take time or may not be possible and could result in the disruption of certain of our products or services affect our reputation or brand and negatively affect our financial results We could also face claims from third parties claiming infringement of their intellectual property or other proprietary rights with respect to materials used or created by generative or agentic AI tools or features that we believed to be available for use and not subject to such rights The investment required to bring AI features to market and the costs associated with providing these features to our customers may be significant and we may be unable to recover these costs if customers and users do not widely adopt these features We currently offer our AI features at no additional cost as we believe they will ultimately enhance user satisfaction improve customer retention and drive revenue If such benefits are not realized the associated investment costs could further negatively impact our margins Further use of generative AI tools by our employees or others could result in disclosure of confidential or sensitive company and customer data reputational harm and legal liability
Our ability to increase our customer base and achieve broader market acceptance of our products and services will depend to a significant extent on our ability to expand our marketing and sales operations We plan to continue expanding our sales and marketing capabilities including through strategic partners both domestically and internationally If we are unable to expand our sales and marketing operations our future revenue growth and business could be adversely impacted
Identifying and recruiting qualified sales representatives and training them is time consuming and resource intensive and they may not be fully trained and productive for a significant amount of time We also plan to dedicate significant resources to sales and marketing programs including internet and other online advertising All of these efforts will require us to invest significant financial and other resources as the cost to acquire customers through these efforts is high Our business will be harmed if our efforts do not generate a correspondingly significant increase in revenue
Failures in internet infrastructure or interference with broadband access could cause current or potential users to believe that our systems are unreliable possibly leading our customers to switch to our competitors or to cancel their subscriptions to our platform
Unlike traditional communications and collaboration technologies our services depend on our users high speed broadband access to the internet usually provided through a cable or digital subscriber line connection Increasing numbers of users and increasing bandwidth requirements may degrade the performance of our platform due to capacity constraints and other internet infrastructure limitations As our number of users has grown and their usage of communications capacity has increased we have been required to make additional investments in network capacity to maintain adequate data transmission speeds the availability of which may be limited or the cost of which may be on terms unacceptable to us If adequate capacity does not continue to be available to us to support our user base in the future our network may be unable to achieve or maintain sufficiently high data transmission capacity reliability or performance In addition if internet service providers and other third parties providing internet services have outages or deteriorations in their quality of service our users will not have access to our platform or may experience a decrease in the quality of our platform Furthermore as the rate of adoption of new technologies increases the networks our platform relies on may not be able to sufficiently adapt to the increased demand for these services including ours Frequent or persistent interruptions could cause current or potential users to believe that our systems or platform are unreliable leading them to switch to our competitors or to avoid our platform which could permanently harm our business
In addition users who access our platform through mobile devices such as smartphones and tablets must have a high speed connection such as 3G 4G 5G LTE satellite or Wi Fi to use our services and applications Currently this access is provided by companies that have significant and increasing market power in the broadband and internet access marketplace including incumbent phone companies cable companies satellite companies and wireless companies Some of these providers offer products and subscriptions that directly compete with our own offerings which can potentially give them a competitive advantage Also these providers could take measures that degrade disrupt or increase the cost of user access to third party
services including our platform by restricting or prohibiting the use of their infrastructure to support or facilitate third party services or by charging increased fees to third parties or the users of third party services any of which would make our platform less attractive to users and reduce our revenue
On January 4 2018 the Federal Communications Commission FCC released an order reclassifying broadband internet access as an information service a regulatory regime generally referred to as network neutrality subject to certain provisions of Title I of the Communications Act The order requires broadband providers to publicly disclose accurate information regarding network management practices performance characteristics and commercial terms of their broadband internet access services sufficient to enable consumers to make informed choices regarding the purchase and use of such services and entrepreneurs and other small businesses to develop market and maintain internet offerings The new rules went into effect on June 11 2018 Numerous parties filed judicial challenges to the order and on October 1 2019 the United States Court of Appeals for the District of Columbia Circuit released a decision that rejected nearly all of the challenges to the new rules but reversed the FCC s decision to prohibit all state and local regulation targeted at broadband internet service requiring case by case determinations as to whether state and local regulation conflicts with the FCC s rules The court also required the FCC to reexamine three issues from the order but allowed the order to remain in effect while the FCC conducts that review On October 27 2020 the FCC adopted an order concluding that the three issues remanded by the court did not provide a basis to alter its conclusions in the 2018 order On October 19 2023 the FCC adopted a notice of proposed rulemaking proposing to reinstate the 2015 rules and on April 24 2024 adopted an order that substantially reinstated those rules On January 2 2025 the U S Court of Appeals for the Sixth Circuit issued a decision overturning the FCC order That decision remains subject to potential further appeals We cannot predict the impact of the new rules on our operations or business
In addition a number of states have adopted or are adopting or considering legislation or executive actions that would regulate the conduct of broadband providers including legislation to impose state level network requirements in New York After a federal court judge denied a request for a preliminary injunction against California s state specific network neutrality law California began enforcing that law on March 25 2021 A number of other states have adopted or are adopting or considering legislation or executive actions that would regulate the conduct of broadband providers A similar law in Vermont is subject to a pending challenge but went into effect on April 20 2022 and the challenge has been suspended until an appeal in another case addressing state powers to adopt internet regulation is resolved The FCC s April 24 order which as described above was overturned by the Sixth Circuit Court of Appeals permits it to preempt any state level network neutrality requirements that go beyond the requirements adopted in that order but specifically held that the California law would not be preempted We cannot predict whether the FCC order or other state initiatives will be enforced modified overturned or vacated by legal action of the court federal legislation or the FCC Under the FCC s 2018 rules which currently remain in effect broadband internet access providers may be able to charge web based services such as ours for priority access or favor services offered by our competitors or by the internet access providers themselves which could result in increased costs and a loss of existing customers impair our ability to attract new customers and harm our business but the 2024 rules if they go into effect are intended to limit the ability of broadband internet access providers to engage in such behavior
If there are changes to the regulatory structures in the United States or elsewhere that reduce investment in infrastructure by internet service providers including a return of the network neutrality regulations that were overturned any impacts of reduced investment that reduce network capacity or speed could have a negative effect on our business operating results and financial condition
Our security measures and those of third parties with whom we work have been compromised in the past and may be compromised in the future If our security measures are compromised in the future or if our information technology fails this could harm our reputation expose us to significant fines and liability impair our sales and harm our business In addition if our products and services are perceived as not being secure this could result in customers and users curtailing or ceasing their use of our products our incurring significant liabilities and our business being harmed
In the ordinary course of our business we and the third parties with whom we work collect receive store process generate use transfer disclose make accessible protect secure dispose of transmit and share confidential proprietary and sensitive data including data of ours our customers and our users the data which includes personal information customer and user content health related data intellectual property trade secrets business plans and financial information We and the third parties upon which we rely face a variety of evolving threats including but not limited to ransomware attacks which could cause security incidents We routinely investigate security incidents which have occurred in the past and may occur in the future that result in unauthorized access to loss or unauthorized disclosure of or inadvertent disclosure of confidential proprietary and sensitive information
Cyberattacks other malicious internet based activity online and offline fraud and other similar activities threaten the confidentiality integrity and availability of our proprietary confidential and sensitive data and information technology systems and those of the third parties with whom we work Cloud based platform providers of products and services have been and are expected to continue to be targeted Threats are prevalent and continue to rise are increasingly difficult to detect and
come from a variety of sources including traditional computer hackers threat actors hacktivists organized criminal threat actors personnel such as through theft or misuse sophisticated nation state and nation state supported actors and advanced persistent threat intrusions Some actors now engage and are expected to continue to engage in cyberattacks including without limitation nation state actors for geopolitical reasons and in conjunction with military conflicts and defense activities During times of war and other major conflicts we and the third parties with whom we work may be vulnerable to a heightened risk of these attacks which could materially disrupt our systems and operations supply chain and ability to provide our services We and the third parties with whom we work are subject to a variety of evolving threats including but not limited to social engineering attacks including through deep fakes which may be increasingly more difficult to identify as fake and phishing attacks malicious code such as viruses and worms malware including as a result of advanced persistent threat intrusions denial of service attacks credential stuffing personnel misconduct or error supply chain attacks software bugs server malfunctions software or hardware failures loss of data or other information technology assets adware telecommunications failures attacks enhanced or facilitated by AI earthquakes fires floods and other similar threats Ransomware attacks including those perpetrated by organized criminal threat actors nation states and nation state supported actors are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations or our ability to provide our products or services loss of data and income reputational harm and diversion of funds Extortion payments may alleviate the negative impact of a ransomware attack but we may be unwilling or unable to make such payments due to for example applicable laws or regulations prohibiting such payments Additionally our platform products and services are relied on by a large number of companies worldwide and as a result if our platform products or solutions are compromised a significant number or all of our customers and their data could be simultaneously affected The potential liability and associated consequences we could suffer as a result of such a large scale event could be catastrophic and result in irreparable harm
Future or past business transactions such as acquisitions or integrations could expose us to additional cybersecurity risks and vulnerabilities as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities systems and technologies Furthermore we have discovered and may in the future discover security issues that were not found during due diligence of such acquired or integrated entities and it may be difficult to integrate companies into our information technology environment and security program
In addition our reliance on third parties has in the past and could continue to introduce new cybersecurity risks and vulnerabilities including supply chain attacks and other threats to our business operations We rely on third parties to operate critical business systems to process confidential proprietary and sensitive data in a variety of contexts including without limitation cloud based infrastructure data center facilities encryption and authentication technology employee email content delivery to customers and other functions We also rely on third parties to provide other products services and parts or otherwise to operate our business Our ability to monitor these third parties information security practices is limited and these third parties may not have adequate information security measures in place If the third parties with whom we work experience a security incident or other interruption we could experience adverse consequences While we may be entitled to damages if the third parties with whom we work fail to satisfy their privacy or security related obligations to us any award may be insufficient to cover our damages or we may be unable to recover such award In addition supply chain attacks have increased in frequency and severity and we cannot guarantee that third parties infrastructure in our supply chain or that of the third parties with whom we work supply chains have not been compromised
If our security measures are compromised as has occurred in the past our reputation could be damaged our data information or intellectual property or that of our customers may be destroyed stolen or otherwise compromised our business may be harmed and we could incur significant liability We take steps designed to detect and remediate vulnerabilities in our information systems and those of third parties with whom we work but we may not detect or remediate all such vulnerabilities or do so in a timely manner The threats and techniques used to exploit vulnerabilities change frequently and are often sophisticated in nature and may be difficult to detect by security tools Vulnerabilities could be exploited and result in a security incident We have limited budgetary and human resources for detecting and remediating vulnerabilities and have experienced difficulties in hiring and retaining qualified security personnel especially after our recent restructuring actions We may experience delays in developing and deploying remedial measures including patches designed to address identified vulnerabilities and our remedial measures may require action by our customers such as installing patches or updates which may increase the amount of time a vulnerability remains unremediated We have not always been able in the past and may be unable in the future to anticipate or prevent threats or techniques used to detect or exploit vulnerabilities in our information systems or third party software or obtain unauthorized access to or compromise our systems
In addition security researchers and other individuals have in the past and will continue in the future to actively search for and exploit actual and potential vulnerabilities in our software or services This activity may increase because of increased demand for our services and increased media scrutiny of our unified communications and collaboration platform and can lead to additional adverse publicity reputational harm extortion threats business and operational interruptions security incidents additional expenses litigation regulatory investigations and actions and substantial harm to our business some of which we have experienced For example in July 2019 a security researcher published a blog highlighting concerns with the Zoom Meeting platform including certain video on features We were able to release updates to the software addressing these
vulnerabilities and we are not aware of any customers being affected or meetings compromised by these vulnerabilities In most cases customers are responsible for installing this update to the software and their software is subject to these vulnerabilities until they do so Additionally in March 2020 a security researcher reported certain vulnerabilities related to our macOS version that could have allowed an unauthorized person to gain root access to a user s system Given the nature of our business and operations our products and services will inevitably contain vulnerabilities or critical security defects that have not been identified or remediated and cannot be disclosed without compromising security We have identified high or critical vulnerabilities in our products services and information systems in the past and we expect that we will continue to identify such vulnerabilities in the future We cannot be certain that we will be able to address any vulnerabilities in our products services and information systems that we may become aware of in the future or there may be delays in developing patches that can be effectively deployed to address vulnerabilities
We will continue to make prioritization decisions based on among other things our available resources the efficacy of our security tools and the increasing workload to meet certain security obligations to determine which vulnerabilities or security defects to fix and the timing of these fixes which could result in an exploit that compromises security In some cases customers are responsible for installing our software updates and until they do so their service remains subject to the vulnerabilities addressed in the software update Vulnerabilities and critical security defects errors in remediating vulnerabilities or security defects failure of third party providers to remediate vulnerabilities or security defects or customers not deploying security releases or deciding not to install software updates could result in claims of liability against us damage our reputation or otherwise harm our business
Security incidents and vulnerabilities and concerns regarding privacy data protection and information security may also prevent some of our customers and users from using or cause some of our customers and users to stop using our solutions and fail to upgrade or renew their subscriptions Failures to meet customers and users expectations with respect to security and confidentiality of their data and information could damage our reputation and affect our ability to retain customers and users attract new customers and users and grow our business
In addition cybersecurity events or security vulnerabilities could result in breaches of our agreements with customers lawsuits against us including class action litigation regulatory investigations or actions and significant increases in costs including costs for remediating the effects of such an event or vulnerability lost revenue due to network downtime and a decrease in customer and user trust increases in insurance premiums due to cybersecurity incidents increased costs to address cybersecurity issues and attempts to prevent future incidents fines penalties judgments and settlements and attorney fees and harm to our business and our reputation because of any such incident
Any of the previously identified or similar threats could cause a security incident or other interruption that could result in unauthorized unlawful or accidental acquisition modification destruction loss alteration encryption disclosure of or access to confidential proprietary or sensitive data or our information technology systems or those of the third parties with whom we work A security incident or other interruption could disrupt our ability and that of third parties with whom we work to provide our services We expend significant resources or modify our business activities to try to protect against security incidents Additionally certain privacy data protection and information security obligations require us to implement and maintain certain security measures or industry standard or reasonable security measures to protect our information technology systems and sensitive data
Many governments have enacted laws requiring companies to provide notice of data security incidents including those recently promulgated by the SEC These laws may also require us to take certain measures such as providing credit monitoring to individuals Such laws are inconsistent and compliance in the event of a widespread data breach is costly and the disclosure or the failure to comply with such requirements could lead to adverse consequences In addition some of our customers require us to notify them of data security breaches
Actual or perceived security gaps or security compromises experienced in our industry or by our competitors our customers a third party with whom we work or us could cause us to experience adverse consequences such as government enforcement actions for example investigations fines penalties audits and inspections additional reporting requirements and or oversight restrictions on processing sensitive data including personal information litigation including class claims indemnification obligations negative publicity reputational harm monetary fund diversions diversion of management attention interruptions in our operations including availability of data financial loss and other similar harms Security incidents and attendant consequences may cause customers to stop using our services deter new customers from using our services and negatively impact our ability to grow and operate our business
In addition while more than half of our employees are based in the United States like many similarly situated technology companies we have a sizable number of research and development personnel outside of the United States including in China which has exposed and could continue to expose us to governmental and regulatory as well as market and media scrutiny regarding the actual or perceived integrity of our platform or data security and privacy features
Increased usage of our services novel uses of our services and additional awareness of Zoom and our brand has led and could in the future lead to greater public scrutiny of press related to or a negative perception of our information security and potential vulnerabilities associated with our platform For example during the COVID 19 pandemic we opened our platform to unprecedented numbers of first time users leading to challenges for users who did not have full IT support or established protocols for security and privacy like our larger customers As a result we have experienced negative publicity related to meeting disruptions and security and privacy issues including on encryption Such unfavorable publicity and scrutiny could result in material reputational harm a loss of customer and user confidence increased regulatory or litigation exposure additional expenses and other harm to our business
There can be no assurance that any limitations of liability provisions in our subscription agreements terms of use or other agreements would be enforceable or adequate or would otherwise protect us from any such liabilities or damages with respect to any particular claim We also cannot be sure that our existing general liability insurance coverage and coverage for cyber liability or errors or omissions will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims or that the insurer will not deny coverage as to any future claim The successful assertion of one or more large claims against us that are not covered or exceed available insurance coverage or the occurrence of changes in our insurance policies including premium increases or the imposition of large deductible or co insurance requirements could harm our business
In addition to experiencing a security incident third parties may gather collect or infer sensitive information about us from public sources data brokers or other means that reveals competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position
We believe that maintaining and enhancing the Zoom brand is critical to expanding our base of customers and users and in particular conveying to users and the public that the Zoom brand consists of a broad communications and collaboration platform rather than just one distinct product For example if users view the Zoom brand primarily as a video conferencing point solution or utility rather than as a platform that connects people through video voice chat and content sharing or have a negative perception of our privacy and security then our market position may be detrimentally impacted We anticipate that as our market becomes increasingly competitive maintaining and enhancing our brand may become increasingly difficult and expensive Any unfavorable publicity or perception of our platform including from any delays or interruptions in service due to capacity constraints stemming from increased usage from our privacy or security features because of sentiment towards the providers of communication and collaboration technologies generally or from our integration of new product functionalities using technologies with heightened public interest could adversely affect our reputation and our ability to attract and retain customers Similarly any unfavorable perception of our company including due to any actual or perceived violation by our employees of our policies such as our Code of Business Conduct and Ethics could cause us reputational harm and customer loss impact our financial performance expose us to litigation and harm our business among other things If we fail to promote and maintain the Zoom brand including consumer and public perception of our platform or our company or if we incur excessive expenses in this effort our business will be harmed
While our employee headcount both in the United States and internationally has generally increased over time we have undertaken and may undertake from time to time in the future restructuring actions to better align our financial model For example in February 2023 we commenced certain restructuring actions designed to reduce operating costs and continue advancing our ongoing commitment to profitable growth
These organizational changes may not achieve or sustain the targeted benefits or the benefits even if achieved may not be adequate to meet our long term profitability and operational expectations Steps we take to manage our business operations including workplace policies for employees and to align our operations with our strategies for future growth may adversely affect our reputation and brand our ability to recruit retain and motivate highly skilled personnel Additionally while we expect to continue to grow our business and operations over time we have encountered in the past and may encounter in the future risks and uncertainties frequently experienced by growing companies in rapidly changing industries Our ability to manage our growth and business operations effectively and to integrate new employees technologies and acquisitions into our existing business will require us to continue to expend resources to support our global user base and to retain attract train motivate and manage employees This places a continuous significant strain on our management operational and financial resources If we fail to achieve the necessary level of efficiency in our organization as it grows or if we are not able to accurately forecast future growth our business would be harmed
The software technology underlying our platform is inherently complex and may contain material defects or errors particularly when new products are first introduced or when new features or capabilities are released We have from time to time found defects or errors in our platform and new defects or errors in our existing platform or new products may be detected in the future by us or our users There can be no assurance that our existing platform and new products will not contain defects Any real or perceived errors failures vulnerabilities or bugs in our platform have in the past resulted and could in the future result in negative publicity or lead to data security access retention or other performance issues all of which could harm our business The costs incurred in correcting such defects or errors may be substantial and could harm our business Moreover the harm to our reputation and legal liability related to such defects or errors may be substantial and would harm our business
We also utilize hardware purchased or leased and software and services licensed from third parties to offer our platform Any defects in or unavailability of our or third party hardware software or services that cause interruptions to the availability of our services loss of data or performance issues could among other things
Our success depends in a large part upon the continued service of key members of our senior management team In particular our founder President and Chief Executive Officer Eric S Yuan is critical to our overall management as well as the continued development of our products services the Zoom platform our culture our strategic direction engineering and our global operations including regions such as the United States Europe Middle East and Africa EMEA and Asia Pacific APAC All of our executive officers are at will employees and we do not maintain any key person life insurance policies Any changes in our senior management team in particular even in the ordinary course of business including the transition of our Chief Financial Officer in 2024 may be disruptive to our business Such changes may result in a loss of institutional knowledge and cause disruptions to our business If our senior management team fails to work together effectively or execute our plans and strategies on a timely basis as a result of management turnover or otherwise our business could be harmed
The failure to attract and retain additional qualified personnel or to maintain our happiness centric company culture could harm our business and culture and prevent us from executing our business strategy
To execute our business strategy we must attract and retain highly qualified personnel Competition for executives software developers sales personnel and other key employees in our industry is intense In particular we compete with many other companies for software developers with high levels of experience in designing developing and managing software for communication and collaboration technologies as well as for skilled sales and operations professionals At times we have experienced and we may continue to experience difficulty in hiring and retaining employees with appropriate qualifications and we may not be able to fill positions in a timely manner or at all which may be exacerbated by our recent restructuring actions and any similar future actions In addition our recruiting personnel methodology and approach may need to be altered to address a changing candidate pool and profile We may not be able to identify or implement such changes in a timely manner In addition we have experienced and may continue to experience employee turnover as a result of our recent restructuring actions New hires require training and take time before they achieve full productivity New employees may not become as productive as we expect and we may be unable to hire or retain sufficient numbers of qualified individuals If we fail to attract new personnel or fail to retain and motivate our current personnel our business could be harmed
Many of the companies with which we compete for experienced personnel have greater resources than we have and some of these companies may offer more attractive compensation packages Particularly in the San Francisco Bay Area job candidates and existing employees carefully consider the value of the equity awards they receive in connection with their employment If the perceived value of our equity awards declines or if the mix of equity and cash compensation that we offer is unattractive it may adversely affect our ability to recruit and retain highly skilled employees Job candidates may also be
threatened with legal action under agreements with their existing employers if we attempt to hire them which could impact hiring and result in a diversion of our time and resources Additionally laws and regulations such as restrictive immigration laws may limit our ability to recruit internationally We must also continue to retain and motivate existing employees through our compensation practices company culture and career development opportunities If we fail to attract new personnel or to retain our current personnel our business would be harmed
We believe that a critical component to our success and our ability to retain our best people is our culture As we continue to grow and develop a public company infrastructure we may find it difficult to maintain our happiness centric company culture Transparency is also an important part of our culture and one that we practice every day As we continue to grow maintaining this culture of transparency will present its own challenges that we will need to address including the type of information and level of detail that we share with our employees
In addition as our stock price has fluctuated since our initial public offering IPO employees joining us at different times could have significant disparities in proceeds from sales of our equity in the public markets which could create disparities in wealth among our employees which may harm our culture and relations among employees and our business Further the volatility of our stock price may make our equity compensation less attractive to current and potential employees and could contribute to increased turnover or difficulties in hiring
Our platform addresses the communications and collaboration needs of users worldwide and we see international expansion as a major opportunity Our revenue from APAC and EMEA collectively represented 28 2 and 28 7 and 30 5 of our revenue for the fiscal years ended January 31 2025 2024 and 2023 respectively Our customers include multinational corporations with global users and we expect to continue to expand our international operations which includes opening offices in new jurisdictions and providing our platform in additional languages to support the needs of these multinational corporations Any new markets or countries into which we attempt to allow users to access our services or sell subscriptions to our platform may not be receptive If we are not able to satisfy certain government and industry specific requirements we have in the past and may in the future experience service outages or other adverse consequences including interference with our local operations or restrictions on our ability to continue our operations in certain jurisdictions that would impair our ability to operate or expand further into certain markets As an example if local or national Chinese government agencies interfered with or placed restrictions on our research and development operations in China our ability to design new products features and functionality on a timely basis or at all or our ability to effectively deliver our services would be adversely impacted as a significant portion of our research and development organization resides in China In addition our ability to manage our business and conduct our operations internationally in the future requires considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages cultures customs legal and regulatory systems alternative dispute systems and commercial markets Future international expansion will require investment of significant funds and other resources We also face risks related to recruiting and retaining talented and capable employees outside the United States including complying with complex employment and compensation related laws regulations and practices in these international jurisdictions and maintaining our company culture across all of our offices We may also be unable to grant equity compensation to employees in certain countries outside of the United States due to the complexities of local laws and regulations This may require us to offer equally compelling alternatives to supplement our compensation such as long term cash compensation plans or increased short term cash compensation in order to continue to attract and retain employees in these jurisdictions
providing our platform and operating our business across a significant distance in different languages and among different cultures including the potential need to modify our platform and features to ensure that they are culturally appropriate and relevant in different countries
compliance with applicable international laws and regulations including laws and regulations with respect to privacy information security telecommunications requirements data protection consumer protection automatic renewals and unsolicited email and the risk of penalties to us and individual members of management or employees if our practices are deemed to be out of compliance
operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States and the practical enforcement of such intellectual property rights outside of the United States
foreign government interference with our intellectual property that resides outside of the United States such as the risk of changes in foreign laws that could restrict our ability to use our intellectual property outside of the foreign jurisdiction in which we developed it
compliance by us and our business partners with anti corruption laws import and export control laws tariffs trade barriers economic sanctions and other regulatory limitations on our ability to provide our platform in certain international markets
foreign exchange controls that might require significant lead time in setting up operations in certain geographic territories and might prevent us from repatriating cash earned outside the United States
changes in diplomatic and trade relationships including the continuing deterioration in diplomatic relations between the United States and China or deterioration in diplomatic relations between the United States and countries with which the United States has traditionally enjoyed close ties and alliances and the ongoing conflicts between Russia and Ukraine and in the Middle East
generally longer payment cycles and greater difficulty in collecting accounts receivable a risk that may increase as a result of recent macroeconomic conditions such as high inflation recessionary environments recent bank failures and related uncertainties and fluctuations in foreign currency exchange rates weighing on our customers ability to pay for our service on a timely basis
double taxation of our international earnings and potentially adverse tax consequences due to changes in the income and other tax laws of the United States or the international jurisdictions in which we operate including the imposition of digital services taxes and
As described above following Russia s military invasion of Ukraine in February 2022 the United States European Union and other nations announced various sanctions against Russia and export restrictions against Russia and Belarus Such restrictions include blocking sanctions on some of the largest state owned and private Russian financial institutions and their removal from the Society for Worldwide Interbank Financial Telecommunication or the SWIFT payment system The invasion of Ukraine and the retaliatory measures that have been taken and could be taken in future by the United States NATO and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies any or all of which could adversely affect our business including preventing us from performing existing contracts pursuing new business opportunities or receiving payments for services already provided to customers
Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in international jurisdictions We may be unable to keep current with changes in laws and regulations as they occur Although we have implemented policies and procedures designed to support compliance with these laws and regulations there can be no assurance that we will always maintain compliance or that all of our employees contractors partners and agents will comply In addition legal requirements in the United States and other countries may come into conflict with each other making it challenging or impossible to comply with both countries legal requirements simultaneously Any violations could result in enforcement actions fines civil and criminal penalties damages injunctions or reputational harm If we are unable to comply with these laws and regulations or manage the complexity of our global operations successfully we may need to relocate or cease operations in certain foreign jurisdictions
We are subject to various U S and international anti corruption laws such as the U S Foreign Corrupt Practices Act of 1977 as amended the FCPA and the U K Bribery Act 2010 as well as other similar anti bribery and anti kickback laws and regulations These laws and regulations generally prohibit companies and their employees and intermediaries from directly or indirectly authorizing offering or providing improper payments or benefits to government officials and other recipients for improper purposes The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls Although we take precautions to prevent violations of anti corruption laws our exposure for violating these laws increases as
We have a significant number of employees primarily engineers in China where personnel costs are less expensive than in many other geographies The number or proportion of our employees in China has fluctuated in the past and may fluctuate in the future due to a number of factors including macroeconomic changes and internal restructuring Geopolitical and national security tensions between the United States and China or between other countries and China have in the past currently are and could in the future lead to increased scrutiny of our business operations in China and a negative perception among current and potential customers regarding our collection use storage disclosure and processing of personal information and our privacy policies any of which may harm our reputation and business Additionally we may face certain adverse consequences as a result of geopolitical and national security tensions between the United States and China including interference with or restrictions on our local operations that would impair our ability to operate in China As an example if local or national Chinese government agencies interfered with or placed restrictions on our research and development operations in China our ability to design new products features and functionality on a timely basis or at all or our ability to effectively deliver our service would be adversely impacted as a significant portion of our research and development organization resides in China
In June and July 2020 we received subpoenas from the Department of Justice s U S Attorney s Office for the Eastern District of New York EDNY and the Department of Justice s U S Attorney s Office for the Northern District of California NDCA The EDNY and NDCA subpoenas requested information about among other things our interactions with foreign governments and or foreign political parties including the Chinese government as well as about storage of and access to user data including the use of servers based overseas In addition the EDNY subpoena requested information about the actions we took responding to law enforcement requests from the Chinese government The NDCA subpoena also requested documents and information about among other things contacts between our employees and representatives of the Chinese government and any attempted or successful influence by any foreign government in our policies procedures practices and actions as they relate to users in the United States We are fully cooperating with these investigations and have conducted our own thorough internal investigation These investigations are ongoing and we do not know when they will be completed which facts we will ultimately discover as a result of the investigations or what actions the government may or may not take We cannot predict the outcome of these investigations and a negative outcome in any or all of these matters could cause us to incur substantial fines penalties or other financial exposure as well as material reputational harm a loss of customer and user confidence and business additional expenses and other harm to our business
We recognize revenue from subscriptions to our platform over the terms of these subscriptions Consequently increases or decreases in new sales may not be immediately reflected in our results of operations and may be difficult to discern
We recognize revenue from subscriptions to our platform over the terms of these subscriptions As a result a portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters Consequently a decline in new or renewed subscriptions in any single quarter may have an immaterial impact on the revenue that we recognize for that quarter However such a decline will negatively affect our revenue in future quarters Accordingly the effect of significant downturns in sales and potential changes in our pricing policies or rate of customer expansion or retention may not be fully reflected in our results of operations until future periods In addition a significant portion of our costs is expensed as incurred while revenue is recognized over the term of the subscription As a result growth in the number of new customers and users could continue to result in our recognition of higher costs and lower revenue in the earlier periods of our subscriptions Finally our subscription based revenue model also makes it difficult for us to rapidly increase our revenue through additional sales in any period as revenue from new customers or from existing customers who increase their use of our platform or upgrade to a higher priced plan must be recognized over the applicable subscription term
Increased user demand for support may result in increased costs that may harm our results of operations For example during the COVID 19 pandemic we saw surging demand requiring us to allocate additional resources to support our expanded customer and user base including many who were using our platform for the first time placing additional pressure on our support organization In addition as we continue to support our global user base we need to be able to continue to provide efficient support that meets our customers and users needs globally at scale If we are unable to provide efficient user support globally at scale or if we need to hire additional support personnel our business may be harmed Our new customer signups are highly dependent on our business reputation and on recommendations from our existing customers and users Any failure to
Our future success depends on our continued ability to establish and maintain a network of channel relationships and we expect that we will need to maintain and expand our network as we expand into international markets A small portion of our revenue is derived from our network of sales agents and resellers which we refer to collectively as resellers many of which sell or may in the future decide to sell their own products and services or services from other communications solutions providers Loss of or reduction in sales through these third parties could reduce our revenue Our competitors may in some cases be effective in causing our resellers or potential resellers to favor their products and services or prevent or reduce sales of our products and services Recruiting and retaining qualified resellers in our network and training them in our technology product offerings and processes requires significant time and resources For resellers in certain emerging markets we may be unable to effectively oversee and quality check certain processes such as customer due diligence which has and may continue to impact such resellers ability to implement robust customer verification protocols and mitigate fraud risk If we decide to further develop and expand our indirect sales channels we must continue to scale and improve our processes and procedures to support these channels including investment in systems and training Many resellers may not be willing to invest the time and resources required to train their staff to effectively sell our platform If we fail to maintain relationships with our resellers develop relationships with new resellers in new markets expand the number of resellers in existing markets or manage train or provide appropriate incentives to our existing resellers our ability to increase the number of new customers and increase sales to existing customers could be adversely impacted which would harm our business
We sell to customers globally and have international operations primarily in Australia China and the U K As we continue to expand our international operations we will become more exposed to the effects of fluctuations in currency exchange rates Although the majority of our cash generated from revenue is denominated in U S dollars a portion of our revenue is denominated in foreign currencies and our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations For the fiscal years ended January 31 2025 2024 and 2023 19 3 19 3 and 20 0 of our revenue respectively and 16 4 13 7 and 10 8 of our expenses respectively were denominated in currencies other than U S dollars Because we conduct business in currencies other than U S dollars but report our results of operations in U S dollars we also face remeasurement exposure to fluctuations in currency exchange rates which could hinder our ability to predict our future results and earnings and could materially impact our results of operations For example for the fiscal year ended January 31 2025 our total revenue was lower than anticipated in part due to the strengthening of the U S dollar We do not currently maintain a program to hedge exposures to non U S dollar currencies
We expect to continue selling our products and services to U S federal and state and foreign governmental agency customers which may occur through sales to other companies that re sell our services to government customers and or through direct sales to government entities While we are a U S Federal Risk and Authorization Management Program FedRAMP authorized SaaS service selling to government entities and other government contractors presents a number of unique challenges and risks including the following
selling to governmental entities can be more competitive expensive and time consuming than selling to private entities often requiring significant up front time and expense and ongoing compliance costs without any assurance that these efforts will generate a sale
government certification requirements may change or we may be unable to achieve or sustain one or more government certifications including FedRAMP which may restrict our ability to sell into the government sector until we have attained such certificates
contracts with governmental entities and other government contractors including resellers in the government market contain terms that are less favorable than what we generally agree to in our standard agreements including terms and conditions required by regulation that are not negotiable with the customer
non compliance with terms and conditions of government contracts or with representations or certifications made in connection with government contracts can result in significantly more adverse consequences than we typically would
expect in the commercial market including depending on the circumstances criminal liability liability under the civil False Claims Act and or suspension or debarment from doing business with governmental entities
as a U S government contractor we may be subject to executive orders and regulatory changes affecting various aspects of our operations including compliance with nondiscrimination plans and any required elimination or modification of such plans in response to new executive orders could pose challenges in hiring or retaining employees and may lead to other adverse operational impacts while failure to comply with these requirements could expose us to administrative civil or criminal liabilities including fines penalties repayments or suspension or debarment from eligibility for future U S government contracts and
government demand and payment for our products may be influenced among other things by public sector budgetary cycles and funding authorizations with funding reductions or delays having an adverse impact on public sector demand for our products
To the extent that we become more reliant on contracts with government entities and or other government contractors in the future our exposure to such risks and challenges could increase which in turn could adversely impact our business
In May 2021 the Biden Administration issued an Executive Order requiring federal agencies to implement additional information technology security measures including among other things requiring agencies to adopt multifactor authentication and encryption for data at rest and in transit to the maximum extent consistent with Federal records laws and other applicable laws The Executive Order will lead to the development of secure software development practices and or criteria for a consumer software labeling program which will reflect a baseline level of secure practices for software that is developed and sold to the U S federal government Software developers will be required to provide visibility into their software and make security data publicly available Due to this Executive Order federal agencies may require us to modify our cybersecurity practices and policies thereby increasing our compliance costs If we are unable to meet the requirements of the Executive Order our ability to work with the U S government may be impaired and may result in a loss of revenue
In January 2025 the current administration began issuing Executive Orders identifying new government policy and directing U S federal agencies to evaluate their current actions including certain spending to ensure that such actions are consistent with new Administration priorities Some of those Executive Orders are the subjects of pending litigation and there remains significant uncertainty about the ways in which agencies will implement the new Executive Orders Such implementation could negatively affect our current and future business with U S government agencies
Our current platform as well as products features and functionality that we may introduce in the future may not be widely accepted by our customers and users or may receive negative attention or may require us to compensate or reimburse third parties any of which may lower our margins and harm our business
Our ability to engage retain and increase our base of customers and users and to increase our revenue will depend on our ability to successfully create new products features and functionality both independently and together with third parties We may introduce significant changes to our existing platform or develop and introduce new and unproven products including technologies with which we have little or no prior development or operating experience These new products and updates may not perform as expected have attracted and may in the future attract negative attention if they involve technologies with heightened public interest may fail to engage retain and increase our base of customers and users or may create lag in adoption of such new products New products may initially suffer from performance and quality issues that may negatively impact our ability to market and sell such products to new and existing customers The short and long term impact of any major change to our products or the introduction of new products is particularly difficult to predict If new or enhanced products including those incorporating AI features fail to engage retain and increase our base of customers or do not perform as expected we may fail to generate sufficient revenue operating margin or other value to justify our investments in such products any of which may harm our business in the short term long term or both In addition our current platform as well as products features and functionality that we may introduce in the future may require us to compensate or reimburse third parties For example our cloud phone system Zoom Phone is a PBX phone solution that requires us to compensate carriers that operate the PSTN As a result a portion of the payments that we will receive from customers who will use our Zoom Phone product will be allocated towards compensating these telephone carriers which lowers our margins for Zoom Phone as compared to our other products In addition new products that we introduce in the future may similarly require us to compensate or reimburse third parties all of which would lower our profit margins for any such new products If this trend continues with our new and existing products including Zoom Phone it could harm our business
If we experience excessive fraudulent activity or cannot meet evolving credit card association merchant standards we could incur substantial costs and lose the right to accept credit cards for payment which could cause our customer and paid user base to decline significantly
A large portion of our customers authorize us to bill their credit card accounts directly for our products If customers pay for their subscriptions with stolen credit cards we could incur substantial third party vendor costs for which we may not be reimbursed Further our customers provide us with credit card billing information online or over the phone and we do not review the physical credit cards used in these transactions which increases our risk of exposure to fraudulent activity We also incur charges which we refer to as chargebacks from the credit card companies for claims that the customer did not authorize the credit card transaction for our products something that we have experienced in the past If the number of claims of unauthorized credit card transactions becomes excessive we could be assessed substantial fines for excess chargebacks and we could lose the right to accept credit cards for payment In addition credit card issuers may change merchant standards including data protection and documentation standards required to utilize their services from time to time If we fail to maintain compliance with current merchant standards or fail to meet new standards the credit card associations could fine us or terminate their agreements with us and we would be unable to accept credit cards as payment for our products Our products may also be subject to fraudulent usage and schemes including third parties accessing customer accounts or viewing and recording data from our communications solutions These fraudulent activities can result in unauthorized access to customer accounts and data unauthorized use of our products and charges and expenses to customers for fraudulent usage We may be required to pay for these charges and expenses with no reimbursement from the customer and our reputation may be harmed if our products are subject to fraudulent usage Although we implement multiple fraud prevention and detection controls we cannot assure you that these controls will be adequate to protect against fraud Substantial losses due to fraud or our inability to accept credit card payments would cause our customer base to significantly decrease and would harm our business
We are subject to income taxes in the United States and various jurisdictions outside of the United States Our effective tax rate could fluctuate due to changes in the proportion of our earnings and losses in countries with differing statutory tax rates Our tax expense could also be impacted by changes in non deductible expenses changes in tax benefits of stock based compensation expense changes in the valuation of or our ability to use deferred tax assets the applicability of withholding taxes and effects from acquisitions
The provision for taxes on our consolidated financial statements could also be impacted by changes in accounting principles changes in U S federal state or foreign tax laws applicable to corporate multinationals other fundamental changes in tax law currently being considered by many countries and changes in taxing jurisdictions administrative interpretations decisions policies and positions In addition we are subject to review and audit by U S federal state local and foreign tax authorities Such tax authorities may disagree with tax positions we take and if any such tax authority were to successfully challenge any such position our business could be adversely impacted
The Tax Cuts and Jobs Act of 2017 requires the capitalization and amortization of research and development expenses effective for years beginning after December 31 2021 The mandatory capitalization requirement increased our cash tax liabilities but also decreased our effective tax rate due to increasing the foreign derived intangible income deduction Although Congress has been considering legislation that would defer the amortization requirement to later years we have no assurance that the provision will be repealed or otherwise modified Absent a change in legislation we expect the mandatory capitalization requirement will continue to have a material impact on our cash flows
We may also be subject to additional tax liabilities due to changes in non income based taxes resulting from changes in U S federal state local or foreign tax laws changes in taxing jurisdictions administrative interpretations decisions policies and positions results of tax examinations settlements or judicial decisions changes in accounting principles changes to our business operations including acquisitions as well as the evaluation of new information that results in a change to a tax position taken in a prior period Further the Organization for Economic Cooperation and Development OECD and the Inclusive Framework of G20 and other countries have issued proposals related to the taxation of the digital economy In addition several countries have proposed or enacted Digital Services Taxes DST many of which would apply to revenue derived from certain digital services Future developments related to such proposals in particular any unilateral actions outside of the OECD s Inclusive Framework such as the imposition of DST rules could have an adverse impact on our business by increasing our future tax obligations
The OECD has also been working on a Base Erosion and Profits Shifting project that upon implementation would change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we operate In this regard the OECD has proposed policies aiming to modernize global tax systems including a country by country 15 minimum effective tax rate Pillar Two for multinational companies Numerous countries have enacted or are in the process of enacting legislation to implement the Pillar Two model rules with a subset of the rules becoming effective during our fiscal year ended January 31 2025 and the remaining rules becoming effective for our fiscal year ending January 31 2026 or in later periods As these rules continue to evolve with new legislation and guidance we will continue to monitor and account for the enactment of Pillar Two rules in the countries where we operate and the potential impacts such rules may have on our effective tax rate and cash flows in future years
We have made and may continue in the future to make acquisitions of other companies products and technologies We have limited experience in acquisitions We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms if at all due to among other things possible delays and challenges in obtaining regulatory approvals If we do complete acquisitions we may not ultimately strengthen our competitive position or achieve our goals and any acquisitions we complete could be viewed negatively by users developers or investors In addition we may not be able to integrate acquired businesses successfully or effectively manage the combined company following an acquisition If we fail to successfully integrate our acquisitions or the people or technologies associated with those acquisitions into our company the results of operations of the combined company could be adversely affected The process of acquiring a business including any integration efforts requires significant time and resources requires significant attention from management and can disrupt the ordinary functioning of our business and we may not be able to manage the process successfully which could harm our business In addition we may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction including accounting charges
We may have to pay cash incur debt or issue equity securities to pay for any such acquisition each of which could affect our financial condition or the value of our capital stock The sale of equity to finance any such acquisitions could result in dilution to our stockholders If we incur more debt it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business
During fiscal year 2021 we experienced rapid growth in usage of our unified communications and collaboration platform largely due to the COVID 19 pandemic This usage dramatically changed the scale of our business and we have a limited operating history at the current scale of our business As a result our ability to forecast our future results of operations is limited and subject to a number of uncertainties including our ability to plan for and model future growth and expenses Our historical revenue growth should not be considered indicative of our future performance Further in future periods our revenue growth could continue to slow or our revenue could decline for a number of reasons including any reduction in demand for our platform increased competition contraction of our overall market our inability to accurately forecast demand for our platform and plan for capacity constraints or our failure for any reason to capitalize on growth opportunities or to adapt and respond to inflationary factors affecting our business or future economic recession The changes the COVID 19 pandemic fostered on the way companies operate including the shifts to remote and hybrid work have limited our ability to forecast revenue costs and expenses due to the uncertainty around how companies choose to operate in the future including the impacts of a remote and hybrid workplace We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries such as the risks and uncertainties described herein If our assumptions regarding these risks and uncertainties which we use to plan our business are incorrect or change or if we do not address these risks successfully our business would be harmed
We track our key business metrics with tools that are not independently verified by any third party Our tools have limitations and our methodologies for tracking these metrics may change over time which could result in unexpected changes to our performance metrics including the key metrics we report If the tools we use to track these metrics over or undercount performance or contain errors the data we report may not be accurate and our understanding of certain details of our business may be distorted which could affect our longer term strategies
The actual or perceived failure by us our customers partners or vendors to comply with stringent and evolving laws and regulations industry standards policies and contractual obligations relating to privacy data protection information security and other matters could harm and has in the past harmed our reputation and business and subject us to significant fines and liability
In the ordinary course of business we collect receive store process generate use transfer disclose make accessible protect secure dispose of transmit and share confidential proprietary and sensitive information including personal information customer and user content business data trade secrets intellectual property third party data business plans transactions and financial information Our data processing activities subject us to numerous privacy data protection and information security obligations such as various laws regulations guidance industry standards external and internal privacy and security policies and contractual requirements
In the United States federal state and local governments have enacted numerous privacy data protection and information security laws including data breach notification laws personal information privacy laws consumer protection laws e g Section 5 of the Federal Trade Commission Act and other similar laws e g wiretapping laws Numerous U S states have enacted comprehensive privacy laws that impose certain obligations on covered businesses including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal data As applicable such rights may include the right to access correct or delete certain personal data and to opt out of certain data processing activities such as targeted advertising profiling and automated decision making The exercise of these rights may impact our business and ability to provide our products and services Certain states also impose stricter requirements for processing certain personal data including sensitive information such as conducting data privacy impact assessments These state laws allow for statutory fines for noncompliance For example the California Consumer Privacy Act of 2018 CCPA applies to personal information of consumers business representatives and employees and requires businesses to provide specific disclosures in privacy notices and honor requests of California residents to exercise certain privacy rights The CCPA provides for fines and allows private litigants affected by certain data breaches to recover significant statutory damages Similar laws are being considered in several other states as well as at the federal and local levels and we expect more states to pass similar laws in the future These developments may further complicate compliance efforts and increase legal risk and compliance costs for us and the third parties upon whom we rely Under various laws and other obligations related to privacy data protection and information security we are required to obtain certain consents to process personal information For example some of our data processing practices may be challenged under wiretapping laws when we obtain consumer information from third parties through various methods including chatbot and session replay providers or via third party marketing pixels These practices are subject to increased challenges by class action plaintiffs Several states and foreign jurisdictions have enacted statutes imposing obligations on businesses collecting or processing biometric information For example Illinois Biometric Information Privacy Act BIPA regulates the collection use safeguarding and storage of biometric information and provides for substantial penalties and statutory damages The Federal Trade Commission FTC has indicated that use of biometric technologies including facial recognition technologies may be subject to additional scrutiny Our inability or failure to obtain consent for these practices could result in adverse consequences including class action litigation mass arbitration demands and regulatory attention
Outside the United States an increasing number of laws regulations and industry standards related to privacy data protection and information security may govern For example the European Union s General Data Protection Regulation EU GDPR the United Kingdom s GDPR UK GDPR Brazil s General Data Protection Law Lei Geral de Proteção de Dados Pessoais or LGPD Law No 13 709 2018 and China s Personal Information Protection Law PIPL impose strict requirements for processing personal information For example under the EU GDPR companies may face temporary or definitive bans on data processing and other corrective actions fines of up to 20 million Euros under the EU GDPR and 17 5 million pounds sterling under the UK GDPR or 4 of annual global revenue in each case whichever is greater or private litigation related to processing of personal information brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests China s PIPL imposes a set of specific obligations on covered businesses in connection with their processing and transfer of personal information and imposes fines of up to RMB 50 million or 5 of the prior year s total annual revenue of the violator The Swiss Federal Act on Data Protection FADP also applies to the collection and processing of personal information including health related information by companies located in Switzerland or in certain circumstances by companies located outside of Switzerland
We also market to customers in Asia and have operations in Japan Singapore and India and may be subject to new and emerging privacy data protection and information security regimes in the region including Japan s Act on the Protection of
In addition we may be unable to transfer personal information from Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross border data flows Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal information to other countries In particular the European Economic Area EEA and the United Kingdom UK have significantly restricted the transfer of personal information to the United States and other countries whose privacy laws they generally believe are inadequate Other jurisdictions have in the past and may continue to adopt similarly stringent data localization and cross border data transfer laws Although there are currently various mechanisms that may be used to transfer personal information from the EEA and UK to the United States in compliance with law such as the EEA s standard contractual clause and the EU U S Data Privacy Framework and the UK extension thereto which allow for transfers to relevant U S based organizations who self certify compliance and participate in the Framework these mechanisms can be subject to legal challenges and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal information to the United States
If there is no lawful manner for us to transfer personal information from the EEA the UK or other jurisdictions to the United States or if the requirements for a legally compliant transfer are too onerous we could face significant adverse consequences including the interruption or degradation of our operations the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense increased exposure to regulatory actions substantial fines and penalties the inability to transfer data and work with partners vendors and other third parties and injunctions against our processing or transferring of personal information necessary to operate our business Additionally companies that transfer personal information out of the EEA and UK to other jurisdictions particularly to the United States are subject to increased scrutiny from regulators individual litigants and activist groups Some European regulators have ordered certain companies to suspend or permanently cease certain transfers of personal information out of Europe for allegedly violating the EU GDPR s cross border data transfer limitations For example in May 2023 the Irish Data Protection Commission determined that a major social media company s use of the standard contractual clauses to transfer personal information from Europe to the United States was insufficient and levied a 1 2 billion Euro fine against the company and prohibited the company from transferring personal information to the United States The United States is also increasingly scrutinizing certain data transfers and may also impose certain data localization requirements
We may also become subject to new laws that regulate non personal information For example the European Union s Data Act imposes certain data and cloud service interoperability and switching obligations to enable users to switch between cloud service providers without undue delay or cost as well as certain requirements concerning cross border international transfers of and governmental access to non personal information outside the EEA Depending on how this Act and any similar laws are implemented and interpreted we may have to adapt our business practices contractual arrangements and products and services to comply with such obligations
Our development and use of AI technologies is subject to privacy data protection IP and information security laws industry standards external and internal privacy and security policies and contractual requirements as well as increasing regulation and scrutiny Several jurisdictions around the globe including the EU the UK and certain U S states have proposed enacted or are considering laws governing the development and use of technology featuring AI For example the EU s AI Act enters in phases this year and will have a direct effect across all EU jurisdictions The EU AI Act and other similar laws if implemented and if applicable could impose onerous obligations related to the use of AI related systems Obligations on AI may make it harder for us to conduct our business using or build products incorporating AI require us to change our business practices require us to retrain our algorithms require us to disclose or provide greater transparency regarding the nature of our AI tools and the data we have employed to train them or prevent or limit our use of AI For example the FTC has required other companies to turn over or disgorge valuable insights or trainings generated through the use of AI where they allege the company has violated privacy and consumer protection laws Additionally certain privacy laws extend rights to consumers such as the right to delete certain personal information and regulate automated decision making which may be incompatible with our use of AI If we do not develop or incorporate AI in a manner consistent with these factors and consistent with customer expectations it has in the past and may in the future result in an adverse impact to our reputation our business may be less efficient or we may be at a competitive disadvantage Similarly if customers and users do not widely adopt our new product AI experiences features and capabilities or they do not perform as expected we may not be able to realize a return on our investment
Additionally regulators are increasingly scrutinizing companies that process minors data and or provide online services or other interactive platforms used by minors Numerous laws regulations and legally binding codes such as the Children s
Online Privacy Protection Act COPPA California s Age Appropriate Design Code the CCPA other U S state comprehensive privacy laws the EU and UK GDPR the EU s Digital Services Act DSA the UK s Online Safety Act OSA and the UK Age Appropriate Design Code impose various obligations on companies that process minors data and or provide online services or other interactive platforms used by children including prohibiting showing minors advertising requiring age verification limiting the use of minors personal information requiring certain consents to process such data and extending certain rights to children and their parents with respect to that data These laws may and in some cases already have been subject to legal challenges and changing interpretations which may further complicate our efforts to comply with laws applicable to us Some of these obligations have wide ranging applications including for services that do not intentionally target child users defined in some circumstances as a user under the age of 18 years old In particular COPPA is a U S Federal law that applies to operators of commercial websites and online services directed to U S children under the age of 13 that collect personal information from children and to operators of general audience websites with actual knowledge that they are collecting personal information from U S children under the age of 13 We provide video communications and collaboration services to schools school districts and school systems to support traditional virtual and hybrid classrooms distance learning educational office hours guest lectures and other services As part of these services Zoom may be used by students including students under the age of 13 and we collect personal information from such students on behalf of our school subscribers School subscribers must contractually consent to Zoom s information practices on behalf of students prior to students using the services If we fail to accurately anticipate the application interpretation or legislative expansion of these laws regulations and legally binding codes we could be subject to governmental enforcement actions data processing restrictions litigation fines and penalties adverse publicity or loss of customers Moreover as a result of any such failures we could be in breach of our K 12 school customer contracts and our customers could lose trust in us which could harm our reputation and business
Individuals are increasingly resistant to the collection use and sharing of personal information to deliver targeted advertising Third party platforms have introduced or plan to introduce measures to provide users with more privacy controls over targeted advertising activities and regulators including in the EEA UK are heavily scrutinizing the use of technologies used to deliver such advertisements Major technology platforms on which we rely to gather information about consumers have adopted or proposed measures to provide consumers with additional control over the collection use and sharing of their personal information for targeted advertising or other purposes For example in 2021 Apple began allowing users to more easily opt out of activity tracking across devices In February 2022 Google announced similar plans to adopt additional privacy controls on its Android devices to allow users to limit sharing of their data with third parties and reduce cross device tracking for advertising purposes Additionally Google has announced that it intends to phase out third party cookies in its Chrome browser which could make it more difficult for us to target advertisements Other browsers such as Firefox and Safari have already adopted similar measures In addition legislative proposals and present laws and regulations regulate the use of cookies and other tracking technologies electronic communications and marketing For example in the EEA and the UK regulators are increasingly focusing on compliance with requirements related to the targeted advertising ecosystem European regulators have issued significant fines in certain circumstances where the regulators alleged that appropriate consent was not obtained in connection with targeted advertising activities In the EU it is anticipated that the ePrivacy Regulation and national implementing laws will replace the current national laws implementing the ePrivacy Directive which may require us to make significant operational changes In the United States the CCPA for example grants California residents the right to opt out of a company s sharing of personal information for advertising purposes in exchange for money or other valuable consideration and requires covered businesses to honor user enabled browser signals from the Global Privacy Control Partially as a result of these developments individuals are becoming increasingly resistant to the collection use and sharing of personal information to deliver targeted advertising or other types of tracking Individuals are now more aware of options related to consent do not track mechanisms such as browser signals from the Global Privacy Control and ad blocking software to prevent the collection of their personal information for targeted advertising purposes As a result we may be required to change the way we market our products and any of these developments or changes could materially impair our ability to reach new or existing customers or otherwise negatively affect our operations
We are also subject to consumer protection laws that may affect our sales and marketing efforts including laws related to subscriptions billing and auto renewal These laws as well as any changes in these laws could adversely affect our self serve model and make it more difficult for us to retain and upgrade customers and attract new customers For example in September 2024 the FCC adopted new rules scheduled to take effect in 2027 that require video conferencing services to include features that expand accessibility requirements for consumers of our products and services Additionally we have in the past are currently and may from time to time in the future become the subject of inquiries and other actions by regulatory authorities as a result of our business practices including our subscription billing and auto renewal policies Consumer protection laws may be interpreted or applied by regulatory authorities in a manner that could require us to make changes to our operations or incur fines penalties or settlement expenses which may result in harm to our business
In addition to privacy data protection and information security laws we are contractually subject to certain industry standards adopted by industry groups and may become subject to additional such obligations in the future We also have certain privacy data protection information security obligations arising from the practices in our industry or of companies similar to us We are also bound by other contractual obligations related to privacy data protection and information security and our efforts to comply with such obligations may not be successful If we fall below such industry standard or cannot comply with such contractual obligations our reputation and business may be harmed We also publish privacy policies marketing materials whitepapers and other statements such as compliance with certain certifications or self regulatory principles regarding privacy data protection artificial intelligence and information security Regulators in the United States have scrutinized and are increasingly scrutinizing these statements and if these policies materials or statements are found to be deficient lacking in transparency deceptive unfair misleading or misrepresentative of our practices we may be subject to investigation enforcement actions by regulators or other adverse consequences
We have in the past and may in the future receive inquiries or be subject to investigations by domestic and international government entities regarding among other things our privacy data protection and information security practices The result of these proceedings could impact our brand reputation subject us to monetary remedies and costs interrupt or require us to change our business practices divert resources and the attention of management from our business or subject us to other remedies that adversely affect our business We also face litigation regarding our privacy and security practices including alleged data sharing with third parties in various jurisdictions See Part I Item 3 Legal Proceedings for additional information
In June 2020 we received a grand jury subpoena from the Department of Justice s U S Attorney s Office for the EDNY which requested information regarding our interactions with foreign governments and foreign political parties including the Chinese government as well as information regarding storage of and access to user data the development and implementation of Zoom s privacy policies and the actions we took responding to law enforcement requests from the Chinese government In July 2020 we received subpoenas from the Department of Justice s U S Attorney s Office for the NDCA and the SEC Both subpoenas seek documents and information relating to various security data protection and privacy matters including our encryption and our statements relating thereto as well as calculation of usage metrics and related public statements In addition the NDCA subpoena seeks information relating to any contacts between our employees and representatives of the Chinese government and any attempted or successful influence by any foreign government in our policies procedures practices and actions as they relate to users in the United States We have since received additional subpoenas from EDNY and NDCA seeking related information We are fully cooperating with all of these investigations and have conducted our own thorough internal investigation These investigations are ongoing and a negative outcome in any or all of these matters could cause us to incur substantial fines penalties or other financial exposure as well as material reputational harm a loss of customer and user confidence and business additional expenses and other harm to our business As of the date hereof in regard to the SEC matter a tentative settlement of 18 0 million is now outstanding and remains subject to SEC approval We do not know when these matters will be completed including the SEC matter which facts we will ultimately discover as a result of the investigations or what actions the government may or may not take
We were also the subject of an investigation by the FTC relating to our privacy and security representations and practices We have reached a settlement agreement with the FTC which the FTC voted to make final on January 19 2021 We could fail or be perceived to fail to comply with the terms of the settlement with the FTC or any other orders or settlements relating to litigation or governmental investigations with respect to our privacy and security practices Any failure or perceived failure to comply with such orders or settlements may increase the possibility of additional adverse consequences including litigation additional regulatory actions injunctions or monetary penalties or require further changes to our business practices significant management time or the diversion of significant operational resources Furthermore the costs of compliance with and other burdens imposed by the laws regulations policies and other obligations that are applicable to the businesses of our users may limit the adoption and use of and reduce the overall demand for our platform and services which could have an adverse impact on our business
Additionally we rely on the administrators of our customers in the healthcare and education industries to obtain the necessary consents from users of our products and services and to ensure their account settings are configured correctly for their compliance under applicable laws and regulations including HIPAA Furthermore if third parties we work with such as vendors or developers make misrepresentations violate applicable laws and regulations or our policies such misrepresentations and violations may also put our users content at risk and could in turn have an adverse effect on our business Any significant change to applicable laws regulations or industry practices regarding the collection use retention security or disclosure of our users content or regarding the manner in which the express or implied consent of users for the collection use retention or disclosure of such content is obtained could increase our costs and require us to modify our
Increased usage of our services and additional awareness of Zoom and our brand has led to greater public scrutiny of press related to or a negative perception of our collection use storage disclosure and processing of personal information and our privacy policies and practices For example users and customers particularly those that are new to Zoom may not have significant IT or security knowledge or have their own IT controls like those of a larger organization to configure our service in a manner that provides them with control over user settings This has resulted in reports of users and customers experiencing meeting disruptions by malicious actors Additional unfavorable publicity and scrutiny has led to increased governmental and regulatory scrutiny and litigation exposure and could result in material reputational harm a loss of customer and user confidence additional expenses and other harm to our business
Obligations related to privacy data protection information security the use of AI the provision of online services and other interactive platforms and consumers expectations regarding them are quickly changing becoming increasingly stringent and creating uncertainty Additionally these obligations may be subject to differing applications and interpretations which may be inconsistent or conflict among jurisdictions Preparing for and complying with these obligations requires us to devote significant resources and has and may continue to necessitate changes to our services information technologies systems and practices and to those of any third parties that process personal information on our behalf
We may at times fail or be perceived to have failed in our efforts to comply with our obligations relating to privacy data protection information security the use of AI and the provision of online services and other interactive platforms Moreover despite our efforts our personnel or third parties with whom we work may fail to comply with such obligations which could negatively impact our business operations If we or the third parties with whom we work fail or are perceived to have failed to address or comply with applicable privacy data protection and information security obligations we could face significant consequences including but not limited to government enforcement actions e g investigations fines penalties audits inspections and similar litigation including class action claims and mass arbitration demands additional reporting requirements and or oversight bans or restrictions on processing personal information and orders to destroy or not use personal information In particular plaintiffs have become increasingly more active in bringing privacy related claims against companies including class claims and mass arbitration demands Some of these claims allow for the recovery of statutory damages on a per violation basis and if viable carry the potential for monumental statutory damages depending on the volume of data and the number of violations Any of these events could have a material adverse effect on our reputation business or financial condition including but not limited to loss of customers inability to process personal information or to operate in certain jurisdictions limited ability to develop or commercialize our products expenditure of time and resources to defend any claim or inquiry adverse publicity or substantial changes to our business model or operations
Changes in government trade policies including the imposition of tariffs and export restrictions could limit our ability to sell our products to certain customers which may materially adversely affect our sales and results of operations
The U S or foreign governments have taken and may in the future take administrative legislative or regulatory action including imposing tariffs that could materially interfere with our ability to sell products in certain countries The direct and indirect effects of tariffs and other restrictive trade policies are difficult to measure and are only one part of a larger U S China economic and trade policy disagreement The effects of tariffs are uncertain because of the dynamic nature of governmental action and responses Sustained uncertainty about or worsening of current global economic conditions and further escalation of trade tensions between the United States and its trading partners especially China could result in a global economic slowdown and long term changes to global trade including retaliatory trade restrictions that restrict our ability to operate in China We cannot predict what actions may ultimately be taken by the current administration or future administrations with respect to tariffs or trade relations between the United States and China or other countries what products may be subject to such actions or what actions may be taken by the other countries in retaliation Any further deterioration in the relations between the United States and China could exacerbate these actions and other governmental intervention For example the implementation of China s national security law in Hong Kong has created additional U S China tensions and could potentially increase the risks associated with the business and operations of U S based technology companies in China Any alterations to our business strategy or operations made in order to adapt to or comply with any such changes would be time consuming and expensive and certain of our competitors may be better suited to withstand or react to these changes
Further the U S Government has expressed concerns with the security of information and communications technology and services ICTS sourced from providers in China Russia and other jurisdictions In May 2019 an executive order was issued invoking national emergency economic powers to implement a framework to regulate the acquisition or transfer of ICTS in transactions that imposed undue national security risks The executive order is subject to implementation by the Secretary of
Commerce and applies to contracts entered into prior to the effective date of the order On March 22 2021 the U S Department of Commerce issued an interim final rule allowing it to identify review and prohibit ICTS transactions that pose a national security risk including transactions involving specified countries such as China Several aspects of this rule remain unclear including the scope of affected transactions and how the rule will be implemented and enforced in practice In addition the U S Commerce Department has implemented additional restrictions and may implement further restrictions that would affect conducting business with certain Chinese companies Due to the uncertainty regarding the timing content and extent of any such changes in policy we cannot assure you that we will successfully mitigate any negative impact Depending upon their duration and implementation these tariffs the executive order and its implementation and other regulatory actions could materially affect our business including in the form of increased cost of revenue decreased margins increased pricing for customers and reduced sales
We currently collect and remit applicable indirect taxes in jurisdictions where we through our employees have a presence and where we have determined based on legal precedents in the jurisdiction that sales of our platform are classified as taxable State and local taxing authorities have differing rules and regulations that are subject to varying interpretations This makes the applicability of sales tax to e commerce businesses such as ours uncertain and complex We believe that we are not otherwise subject to or required to collect additional taxes fees or surcharges imposed by state and local jurisdictions because we do not have a sufficient physical presence or nexus in the relevant taxing jurisdiction or such taxes fees or surcharges do not apply to sales of our platform in the relevant taxing jurisdiction There is uncertainty as to what constitutes sufficient nexus for sales made over the Internet and after the U S Supreme Court s ruling in South Dakota v Wayfair states may require an e commerce business with no in state property or personnel to collect and remit sales tax Therefore it is possible that we could face future audits or challenges of our positions by taxing authorities and that our liability for these taxes could exceed our estimates The application of existing new or future laws whether in the U S or internationally could harm our business
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws
Our platform and associated products are subject to various restrictions under U S export control and sanctions laws and regulations including the U S Department of Commerce s Export Administration Regulations EAR and various economic and trade sanctions regulations administered by the U S Department of the Treasury s Office of Foreign Assets Control OFAC The U S export control laws and U S economic sanctions laws include restrictions or prohibitions on the sale or supply of certain products and services to U S embargoed or U S sanctioned countries governments persons and entities and also require authorization for the export of certain encryption items In addition various countries regulate the import of certain encryption technology including through import permitting and licensing requirements and have enacted or could enact laws that could limit our ability to distribute our platform or could limit our customers ability to implement our platform in those countries
Although we have taken precautions to prevent our platform and associated products from being accessed or used in violation of such laws we have inadvertently allowed our platform and associated products to be accessed or used by some customers in potential violation of U S economic sanction laws In addition we have in the past inadvertently made and may inadvertently make our software products available to some customers in potential violation of the EAR Therefore as warranted we may submit voluntary self disclosures regarding compliance with U S sanctions and export control laws and regulations to OFAC and to the U S Department of Commerce s Bureau of Industry and Security BIS For instance in March 2022 we submitted a voluntary self disclosure to BIS regarding our compliance with certain U S export control laws and regulations which BIS closed out with a warning letter with no referral for criminal or administrative prosecution and no imposition of monetary fines or penalties
If we are found to be in violation of U S economic sanctions or export control laws in the future it could result in fines and penalties We may also be adversely affected through other penalties business disruption reputational harm loss of access to certain markets or otherwise While we are working to implement additional controls designed to prevent similar activity from occurring in the future these controls may not be fully effective
Changes in our platform or changes in export sanctions and import laws may delay the introduction and sale of subscriptions to our platform in international markets prevent our customers with international operations from using our platform or in some cases prevent the access or use of our platform to and from certain countries governments persons or entities altogether Further any change in export or import regulations economic sanctions or related laws shift in the enforcement or scope of existing regulations or change in the countries governments persons or technologies targeted by such regulations could result in decreased use of our platform or in our decreased ability to export or sell our platform to existing or potential customers with international operations Any decreased use of our platform or limitation on our ability to export or sell our platform would likely harm our business
We may be subject to or respond to requests from law enforcement in connection with enforcement of a variety of U S and international laws that could result in claims increase the cost of operations or otherwise harm our business due to changes in the laws changes in the interpretations of the laws greater enforcement of the laws or investigations into compliance with the laws
We may be subject to or respond to requests from law enforcement that are legally valid appropriately scoped and sufficiently detailed in connection with enforcement of various civil and criminal laws including those covering copyright indecent content child protection consumer protection telecommunications services taxation and similar matters It may be difficult expensive and disruptive for us to address law enforcement requests subpoenas and other legal process and laws in various jurisdictions may conflict and hamper our ability to satisfy or comply with such requests subpoenas and other legal process There have been instances where improper or illegal content has been shared on our platform without our knowledge As a service provider and as a matter of policy we do not monitor user meetings However to protect user safety and prevent conduct that is illegal violent or harmful to others we enforce our terms of service through use of a mix of tools that suggest when such activity may be occurring on our platform Our trust and safety team may take further action as appropriate including suspension or termination of the participant s account or referral to law enforcement The laws in this area are currently in a state of flux and vary widely between jurisdictions Accordingly it may be possible that in the future we and our competitors may be subject to legal actions along with the users who shared such content In addition regardless of any legal liability we may face our reputation could be harmed should there be an incident generating extensive negative publicity about the content shared on our platform Such publicity would harm our business
Changes in law or policy could compel us or limit our ability to engage in content moderation or otherwise limit the ability of users to engage in inappropriate or harmful behavior and could expose us to liability
There have been various Congressional and executive efforts to eliminate or modify Section 230 of the Communications Act of 1934 enacted as part of the Communications Decency Act of 1996 Section 230 provides protection for providers of online service from liability for content produced by third parties and protects the right to engage in moderation of user content The current administration and many members of Congress from both parties support the reform or repeal of Section 230 so the possibility of Congressional action remains In addition the FCC is considering a petition to adopt rules interpreting Section 230 which limits the liability of internet platforms for third party content that is transmitted via those platforms and for good faith moderation of offensive content No date has been set for a vote on that proposal and the FCC has not released any document describing the rules that would be proposed There is no schedule for action by the FCC on the petition If Congress revises or repeals Section 230 or the FCC adopts rules we may no longer be afforded the same level of protection offered by Section 230 In addition there are pending cases before the judiciary that may result in changes to the protections afforded to internet platforms including a lawsuit that if successful would greatly limit the scope of Section 230 The U S Supreme Court recently declined to limit the applicability of Section 230 in certain circumstances but future cases may not yield the same results and
a recent decision by the U S Court of Appeals for the Third Circuit would limit the applicability of Section 230 to curated content These various efforts to limit the protections provided by Section 230 would increase the risks faced by internet based businesses like Zoom that rely on third party content Even if claims asserted against us do not result in liability we may incur substantial costs in investigating and defending such claims If we are found liable for our customers or other users activities we could be required to pay fines or penalties redesign business methods or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability
Legislation has been adopted in Florida and Texas that is intended to reduce or eliminate the power of businesses operating on the Internet to moderate user generated content implicitly eliminating the federal protections granted under Section 230 Similar legislation has been introduced in other states Implementation of the Florida and Texas statutes has been stayed by various federal courts including the U S Supreme Court On August 18 2022 the parties in the Florida case requested and were granted a stay of the appeals court mandate pending Supreme Court review On September 16 2022 the U S Court of Appeals for the Fifth Circuit issued a decision upholding the Texas law On September 30 the parties in that case filed an unopposed motion to stay the Fifth Circuit decision pending Supreme Court review and the Fifth Circuit granted that request on October 13 2022 On September 29 2023 the Supreme Court announced that it would review both the Florida and Texas decisions and on July 1 2024 the Court issued a decision returning both cases to the trial courts for additional analysis The district court in Texas on August 29 2024 issued a decision staying some portions of the Texas law and allowing others to go into effect relying on analysis under both Section 230 and the First Amendment and on November 18 2024 the Fifth Circuit issued an order setting parameters for the district court s consideration of the issues raised by the Supreme Court The district court in Florida set a trial date in its case for June 2025 Florida amended its statute in an effort to address issues that led the court to issue the stay It is likely that any other such state legislation also would be challenged under the First Amendment to the U S Constitution and on the ground that it is preempted by Section 230 In addition on August 27 2024 the U S Court of Appeals for the Third Circuit issued a decision limiting the protections afforded by Section 230 in cases where a social media company curates user feeds to the extent that the feed becomes the speech of the company reversing a trial court decision that
Furthermore new laws and regulations have been enacted or are being considered that impose extensive obligations regarding online safety and the operation of online services or platforms such as the OSA and DSA which may increase our compliance costs require changes to our processes operations and business practices For example these new laws and regulations may seek to regulate the sharing of user generated content and require us to identify mitigate and manage the risks of harm to users from illegal or harmful content Violating these obligations could carry significant consequences For example violating the DSA can result in fines of up to 6 of total annual worldwide revenue and violating the OSA can result in audits inspections and fines of up to 18 million or 10 of worldwide revenue whichever is higher
Zoom Phone is subject to U S federal and international regulation and other products we may introduce in the future may also be subject to U S federal state or international laws rules and regulations Any failure to comply with such laws rules and regulations could harm our business and expose us to liability
Zoom Phone is provided through our wholly owned subsidiary Zoom Voice Communications Inc which is regulated by the FCC as an interconnected voice over internet protocol VoIP service provider As a result Zoom Phone is subject to existing or potential FCC regulations including but not limited to regulations relating to privacy disability access porting of numbers federal Universal Service Fund USF contributions and other regulatory assessments emergency calling Enhanced 911 E 911 access charges for long distance services and law enforcement access The Supreme Court currently is considering a challenge to the USF contribution rules that could affect how such contributions are collected from services providers like us Congress or the FCC may expand the scope of Zoom Phone s regulatory obligations at any time In addition FCC classification of Zoom Phone as a common carrier or telecommunications service could result in additional federal and state regulatory obligations If we do not comply with any current or future state regulations that apply to our business we could be subject to substantial fines and penalties we may have to restructure our product offerings exit certain markets or raise the price of our products any of which could ultimately harm our business and results of operations Any enforcement action by the FCC which may be a public process would hurt our reputation in the industry possibly impair our ability to sell Zoom Phone to our customers and harm our business
As described above the FCC has reinstated its prior network neutrality regulations but the FCC order was reversed by the Sixth Circuit Court of Appeals See Part 1A Failures in internet infrastructure or interference with broadband access could cause current or potential users to believe that our systems are unreliable possibly leading our customers to switch to our competitors or to cancel their subscriptions to our platform Changes in FCC regulation of the internet and internet based services also could impose new regulatory obligations on our other services Such action could result in extension of common carrier regulation to internet based communications services like the ones we offer The imposition of common carrier regulation would increase our costs and we could be required to modify our service offerings to comply with regulatory requirements The failure to comply with such regulation could result in substantial fines and penalties and other sanctions
On December 13 2023 the FCC adopted revised rules on reporting of breaches of private customer information known as CPNI The revised rules could broaden the types of CPNI breaches that must be reported but also could limit the number of reports that must be filed by adopting a minimum threshold for the number of customers affected and not requiring reporting in certain circumstances when customers are not harmed The rules also require that breach reports be provided directly to the FCC which could increase the risk of enforcement action including fines and behavioral remedies These rules are not yet in effect and have been challenged in federal court We cannot predict the impact of the new rules on our operations or business or whether they will be overturned in court
The FCC has adopted rules that prohibit Chinese companies that are deemed to be a national security risk by other federal agencies from obtaining new authorizations and placed on a list known as the Covered List to sell telecommunications equipment in the U S and is considering proposed rules that would ban those companies from selling previously authorized equipment or could prohibit the use of their equipment in the U S Zoom does not currently have any equipment from the companies subject to the ban in its network but if other companies are added to the Covered List and the FCC adopts rules that ban sales or use of equipment from such companies we could be required to find new sources for similar equipment or replace existing equipment entirely
State telecommunications regulation of Zoom Phone is generally preempted by the FCC However states are allowed to assess state USF contributions E 911 fees and other surcharges A number of states require us to contribute to state USF and pay E 911 and other assessments and surcharges while others are actively considering extending their programs to include the products we offer The California Public Utilities Commission has adopted an order requiring VoIP providers like Zoom Phone
to obtain authority to operate in that state We generally pass USF E 911 fees and other surcharges through to our customers where we are permitted to do so which may result in our products becoming more expensive We expect that state public utility commissions will continue their attempts to apply state telecommunications regulations to services like Zoom Phone If we do not comply with any current or future state regulations that apply to our business we could be subject to substantial fines and penalties and we may have to restructure our product offerings exit certain markets or raise the price of our products any of which could harm our business
Certain states have adopted or are adopting or considering legislation or executive actions that would regulate the conduct of broadband providers California s state specific network neutrality law has taken effect and Vermont s law took effect but a challenge to that law remains pending The FCC s April 25 order permits it to preempt any state level network neutrality requirements that go beyond the requirements adopted in that order but specifically held that the California law would not be preempted The FCC order was stayed on August 1 2024 pending resolution of an appeal For additional information on this order see the risk factor titled Failures in internet infrastructure or interference with broadband access could cause current or potential users to believe that our systems are unreliable possibly leading our customers to switch to our competitors or to cancel their subscriptions to our platform We cannot predict whether other state initiatives will be enforced modified overturned or vacated
As we expand internationally we may be subject to telecommunications consumer protection privacy data protection and other laws and regulations in the foreign countries where we offer our products If we do not comply with any current or future international regulations that apply to our business we could be subject to substantial fines and penalties we may have to restructure our product offerings exit certain markets or raise the price of our products any of which could harm our business
We protect our intellectual property through patents copyrights trademarks domain names and trade secrets and from time to time are subject to litigation based on allegations of infringement misappropriation or other violations of intellectual property or other proprietary rights of others Some companies including some of our competitors own large numbers of patents as well as valuable copyrights and trademarks which they may use to assert claims against us As we face increasing competition and gain an increasingly high profile the possibility of intellectual property rights claims commercial claims and other assertions against us grows We have in the past been are currently and may from time to time in the future become a party to litigation and disputes related to our use of intellectual property our business practices and our platform While we intend to defend these lawsuits vigorously and believe that we have valid defenses to these claims litigation can be costly and time consuming divert the attention of our management and key personnel from our business operations and dissuade potential customers from subscribing to our services which would harm our business Furthermore with respect to these lawsuits there can be no assurances that favorable outcomes will be obtained We may need to settle litigation and disputes on terms that are unfavorable to us or we may be subject to an unfavorable judgment that may not be reversible upon appeal The terms of any settlement or judgment may require us to cease some or all of our operations or pay substantial amounts to the other party In addition our agreements with certain larger customers include certain provisions for indemnifying them against liabilities if our services infringe a third party s intellectual property rights which could require us to make payments to our customers During the course of any litigation or dispute we may make announcements regarding the results of hearings and motions and other interim developments If securities analysts and investors regard these announcements as negative the market price of our Class A common stock may decline With respect to any intellectual property rights claim we may have to seek a license to continue practices found to be in violation of third party rights which may not be available on reasonable terms and may significantly increase our operating expenses A license to continue such practices may not be available to us at all and we may be required to develop alternative non infringing technology or practices or discontinue the practices The development of alternative non infringing technology or practices could require significant effort and expense Our business could be harmed as a result
We primarily rely and expect to continue to rely on a combination of patent trademark and domain name protection trademark and copyright laws as well as confidentiality and license agreements with our employees consultants and third parties to protect our intellectual property and proprietary rights We make business decisions about when to seek patent protection for a particular technology and when to rely upon copyright or trade secret protection and the approach we select may ultimately prove to be inadequate Even in cases where we seek patent protection there is no assurance that the resulting patents will effectively protect every significant feature of our products In addition we believe that the protection of our
trademark rights is an important factor in product recognition protecting our brand and maintaining goodwill If we do not adequately protect our rights in our trademarks from infringement and unauthorized use any goodwill that we have developed in those trademarks could be lost diminished or impaired which could harm our brand and our business Third parties may knowingly or unknowingly infringe our intellectual property or proprietary rights third parties may challenge our intellectual property or proprietary rights our pending and future patent trademark and copyright applications may not be approved and we may not be able to prevent infringement without incurring substantial expense We have also devoted substantial resources to the development of our proprietary technologies and related processes In order to protect our proprietary technologies and processes we rely in part on trade secret laws and confidentiality agreements with our employees consultants and third parties These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information In addition others may develop similar technologies or processes or independently discover our trade secrets in which case we would not be able to assert our trade secret rights Further the laws of certain foreign countries do not provide the same level of intellectual property protection of corporate proprietary information and assets such as rights to patents copyrights trademarks trade secrets know how and records as the laws of the United States For instance the legal systems of certain countries particularly certain developing countries do not favor the enforcement of patents and other intellectual property protection As a result we may encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad Additionally we may also be exposed to material risks of theft or unauthorized reverse engineering of our proprietary information and other intellectual property including technical data manufacturing processes data sets or other sensitive information Our efforts to enforce our intellectual property rights in such foreign countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop which could have a material adverse effect on our business financial condition and results of operations Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights If the protection of our proprietary rights is inadequate to prevent use or appropriation by third parties the value of our platform brand and other intangible assets may be diminished and competitors may be able to more effectively replicate our platform and its features Any of these events would harm our business
We have incorporated and may in the future incorporate third party open source software including our open source AI models in our technologies Open source software is generally licensed by its authors or other third parties under open source licenses From time to time companies that use third party open source software have faced claims challenging the use of such open source software and requesting compliance with the open source software license terms Accordingly we may be subject to suits by parties claiming ownership of what we believe to be open source software or claiming non compliance with the applicable open source licensing terms Some open source software licenses require end users who use distribute or make available across a network software and services that include open source software to offer aspects of the technology that incorporates the open source software for no cost We may also be required to make publicly available source code which in some circumstances could include valuable proprietary code for modifications or derivative works we create based upon incorporating or using the open source software and or to license such modifications or derivative works under the terms of the particular open source license Additionally if a third party software provider has incorporated open source software into software that we license from such provider we could be required to disclose our source code that incorporates or is a modification of such licensed software While we use tools designed to help us monitor and comply with the licenses of third party open source software and protect our valuable proprietary source code we may inadvertently use third party open source software in a manner that exposes us to claims of non compliance with the terms of their licenses including claims of intellectual property rights infringement or for breach of contract Furthermore there exists today an increasing number of types of open source software licenses almost none of which have been tested in courts of law to provide guidance of their proper legal interpretations If we were to receive a claim of non compliance with the terms of any of these open source licenses we could be required to publicly release certain portions of our proprietary source code We could also be required to expend substantial time and resources to re engineer some of our software Any of the foregoing could disrupt and harm our business Furthermore with respect to our use of third party open source AI models some licenses to third party open source AI models contain additional use restrictions pertaining to research only limitations or in some cases vague notions of responsible uses for the AI models which may not in all instances comport with our business practices
In addition the use of third party open source software typically exposes us to greater risks than the use of third party commercial software because open source licensors generally do not provide warranties or controls on the functionality or origin of the software Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our platform Any of the foregoing could harm our business and could help our competitors develop products and services that are similar to or better than ours
The trading price of our Class A common stock has been and will likely continue to be volatile and could be subject to fluctuations in response to various factors some of which are beyond our control These fluctuations could cause you to lose all or part of your investment in our Class A common stock Factors that could cause fluctuations in the trading price of our Class A common stock include the following
failure of securities analysts to maintain coverage of us changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors
In addition in the past following periods of volatility in the overall market and in the market price of a particular company s securities securities class action litigation has often been instituted against these companies For example in April 2020 June 2020 July 2020 and October 2021 we and certain of our officers and directors were sued in putative class action lawsuits and purported shareholder derivative lawsuits alleging violations of the federal securities laws for allegedly making materially false and misleading statements about our data privacy and security measures Securities litigation against us could result in substantial costs and divert our management s time and attention from other business concerns which could harm our business We may be the target of additional litigation of this type in the future as well
The dual class structure of our common stock as contained in our amended and restated certificate of incorporation has the effect of concentrating voting control with those stockholders who held our stock prior to our IPO including our executive officers employees and directors and their affiliates limiting your ability to influence corporate matters
Our Class B common stock has 10 votes per share and our Class A common stock has one vote per share As of January 31 2025 the holders of our outstanding Class B common stock held 61 8 of the voting power of our outstanding capital stock with our directors executive officers and 5 stockholders and their respective affiliates holding 57 0 of such voting power in the aggregate As of January 31 2025 our founder President and Chief Executive Officer Eric S Yuan together with his affiliates held approximately 7 2 of our outstanding capital stock but controlled approximately 31 8 of the voting power of our outstanding capital stock Therefore these holders have significant influence over our management and affairs and over all matters requiring stockholder approval including election of directors and significant corporate transactions such as a merger or other sale of Zoom or our assets for the foreseeable future Each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of i the date that is six months following the death or incapacity of Mr Yuan ii the date that is six months following the date that Mr Yuan is no longer providing services to us or his employment is terminated for cause iii the date specified by the holders of a majority of the then outstanding shares of Class B common stock voting as a separate class and iv the 15 year anniversary of the closing of our IPO
In addition the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than a majority of the outstanding shares of our common stock This concentrated control will limit your ability to influence corporate matters for the foreseeable future and as a result the market price of our Class A common stock could be adversely affected
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock which will have the effect over time of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term If for example Mr Yuan retains a significant portion of his holdings of Class B common stock for an extended period of time he could in the future control a majority of the combined voting power of our Class A and Class B common stock As a board member Mr Yuan owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders As a stockholder even a controlling stockholder Mr Yuan is entitled to vote his shares in his own interests which may not always be in the interests of our stockholders generally
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline
Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders We may sell Class A common stock convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time If we sell any such securities in subsequent transactions investors may be materially diluted New investors in such subsequent transactions could gain rights preferences and privileges senior to those of holders of our Class A common stock
Sales of a substantial number of shares of our Class A common stock and Class B common stock after automatically converting to Class A common stock in the public market or the perception that these sales might occur could depress the market price of our Class A common stock
In addition certain of our stockholders have registration rights that would require us to register shares owned by them for public sale in the United States We have also filed a registration statement to register shares reserved for future issuance under our equity compensation plans As a result subject to the satisfaction of applicable exercise periods and applicable volume and restrictions that apply to affiliates the shares issued upon exercise of outstanding stock options or upon settlement of outstanding restricted stock unit RSU awards are available for immediate resale in the United States in the open market
Sales of our shares could also impair our ability to raise capital through the sale of additional equity securities in the future and at a price we deem appropriate These sales could also cause the trading price of our Class A common stock to fall and make it more difficult for you to sell shares of our Class A common stock
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management or hinder efforts to acquire a controlling interest in us and the market price of our Class A common stock may be lower as a result
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire or attempt to acquire control of Zoom even if a change in control was considered favorable by our stockholders
Moreover because we are incorporated in Delaware we are governed by the provisions of Section 203 of the Delaware General Corporation Law which prohibit a person who owns 15 or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15 of our outstanding voting stock unless the merger or combination is approved in a prescribed manner Any provision in our certificate of incorporation or our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock and could also affect the price that some investors are willing to pay for our Class A common stock
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and the federal district courts of the United States of America as the exclusive forums for certain disputes between us and our stockholders which could limit our stockholders ability to choose the judicial forum for disputes with us or our directors officers or employees
Our amended and restated certificate of incorporation provides that unless we consent in writing to the selection of an alternative forum the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law i any derivative action or proceeding brought on our behalf ii any action asserting a claim of breach of a fiduciary duty owed by any of our directors officers or other employees to us or our stockholders iii any action arising pursuant to any provision of the Delaware General Corporation Law or the certificate of incorporation or the amended and restated bylaws or iv any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware or if the Court of Chancery does not have jurisdiction the federal district court for the District of Delaware in all cases subject to the court having jurisdiction over indispensable parties named as defendants This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act Furthermore Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions Accordingly both state and federal courts have jurisdiction to entertain such claims To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts among other considerations our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act While the Delaware courts have determined that such choice of forum provisions are facially valid a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions In such instance we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to these provisions These exclusive forum provisions may limit a stockholder s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors officers or other employees which may discourage lawsuits against us and our directors officers and other employees If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action we may incur further significant additional costs associated with resolving the dispute in other jurisdictions all of which could harm our results of operations
We have never declared nor paid cash dividends on our capital stock We currently intend to retain any future earnings to finance the operation and expansion of our business and we do not expect to declare or pay any dividends in the foreseeable future As a result stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future returns on their investment
Estimates of our market opportunity and forecasts of market growth may prove to be inaccurate and even if the market in which we compete achieves the forecasted growth our business could fail to grow at similar rates if at all
Market opportunity estimates and growth forecasts for the markets in which we compete including those we have generated ourselves are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate Not every organization covered by our market opportunity estimates will necessarily buy video communications and collaboration platforms and some or many of those organizations may choose to continue using legacy communication methods or point solutions offered by our competitors It is impossible to build every product feature that every customer or user wants and our competitors may develop and offer features that our platform does not provide The variables that go into the calculation of our market opportunity are subject to change over time and there is no guarantee that any particular number or percentage of the organizations covered by our market opportunity estimates will purchase our solutions at all or generate any particular level of revenue for us Even if the markets in which we compete meet the size estimates and growth forecasts our business could fail to grow for a variety of reasons outside of our control including competition in our industry If any of these risks materializes it could harm our business and prospects
Occurrence of any catastrophic event including earthquake fire flood tsunami or other weather event power loss telecommunications failure software or hardware malfunctions cyber attack war terrorist attack disease or health epidemics could result in lengthy interruptions in our service In particular our U S headquarters and some of the data centers we utilize are located in the San Francisco Bay Area a region known for seismic activity and our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster In addition acts of terrorism could cause disruptions to the internet or the economy as a whole Even with our disaster recovery arrangements our service could be interrupted Moreover if our systems were to fail or be negatively impacted as a result of a natural disaster or other event our ability to deliver products to our users would be impaired or we could lose critical data If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency our business would be harmed
We also face risks related to health epidemics An outbreak of a contagious disease and other adverse health developments could have an adverse effect on global economic conditions and on our business The effects could include business and service disruptions such as the temporary closure of our facilities restrictions on our employees ability to travel to support our facilities and services and difficulties in hiring new employees
We are subject to risks associated with our strategic investments including partial or complete loss of invested capital Significant changes in the fair value of our investment portfolio could negatively impact our financial results
We have strategic investments in publicly traded and privately held companies The financial success of our investments in any privately held company is typically dependent on a liquidity event such as a public offering acquisition or other favorable market event reflecting appreciation to the cost of our initial investment In addition valuations of privately held companies are inherently complex due to the lack of readily available market data Likewise the financial success of our investment in any publicly held company is typically dependent upon an exit in favorable market conditions and to a lesser extent on liquidity events The capital markets for public offerings and acquisitions are currently depressed and the likelihood of successful liquidity events for the companies we have invested in could significantly worsen In addition valuations of privately held companies are inherently complex due to the lack of readily available market data
We record all fair value adjustments of our publicly traded and privately held non marketable securities through the consolidated statement of operations As a result we may experience additional volatility to our statements of operations due to changes in market prices of our investments in publicly held securities and the valuation and timing of observable price changes or impairments of our investments in privately held securities Our ability to mitigate this volatility in any given period may be impacted by our contractual obligations to hold securities for a set period of time All of our investments are subject to a risk of a partial or total loss of investment capital Changes in the fair value or partial or total loss of investment capital of these individual companies could be material to our financial statements and negatively impact our business and financial results
Generally accepted accounting principles in the United States are subject to interpretation by the FASB the SEC and various bodies formed to promulgate and interpret appropriate accounting principles A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect the reporting of transactions completed before the announcement or effectiveness of a change It is also difficult to predict the impact of future changes to accounting principles or our accounting policies any of which could harm our business
Historically we have funded our operations and capital expenditures primarily through equity issuances and cash generated from our operations Although we currently anticipate that our existing cash and cash equivalents and cash flow from operations will be sufficient to meet our cash needs for the foreseeable future we may require additional financing We evaluate financing opportunities from time to time and our ability to obtain financing will depend among other things on our development efforts business plans operating performance and condition of the capital markets at the time we seek financing We cannot assure you that additional financing will be available to us on favorable terms when required or at all particularly during times of market volatility and general economic instability The need for additional liquidity may also be affected by the federal government s potential failure to raise the debt ceiling or correct a prolonged banking or financial crisis If we raise additional funds through the issuance of equity or equity linked or debt securities those securities may have rights preferences or privileges senior to the rights of our Class A common stock and our stockholders may experience dilution
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting our ability to produce timely and accurate consolidated financial statements or comply with applicable regulations could be impaired
We are subject to the reporting requirements of the Exchange Act the Sarbanes Oxley Act of 2002 the Sarbanes Oxley Act and the rules and regulations of the applicable listing standards of The Nasdaq Stock Market We expect that the requirements of these rules and regulations will continue to increase our legal accounting and financial compliance costs make some activities more difficult time consuming and costly and place significant strain on our personnel systems and resources
The Sarbanes Oxley Act requires among other things that we maintain effective disclosure controls and procedures and internal control over financial reporting We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded processed summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers We are also continuing to improve our internal control over financial reporting In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting we have expended and anticipate that we will continue to expend significant resources in our accounting legal and IT organizations
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business In addition changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes systems and controls to accommodate such changes We have limited experience with implementing the systems and controls that will be necessary to operate as a public company as well as adopting changes in accounting principles or interpretations mandated by the relevant regulatory bodies Additionally if these new systems controls or standards and the associated process changes do not give rise to the benefits that we expect or do not operate as intended it could adversely affect our financial reporting systems and processes our ability to produce timely and accurate financial reports or the effectiveness of internal control over financial reporting Moreover our business may be harmed if we experience problems with any new systems and controls that result in delays in their implementation or increased costs to correct any post implementation issues that may arise
Further weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our business or cause us to fail to meet our reporting obligations and may result in a restatement of our consolidated financial statements for prior periods Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC Recently the SEC has alleged violations of internal controls at other public companies even in the absence of an underlying accounting or disclosure
Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information which would likely have a negative effect on the trading price of our Class A common stock In addition if we are unable to continue to meet these requirements we may not be able to remain listed on The Nasdaq Stock Market We are required to provide an annual management report on the effectiveness of our internal control over financial reporting
Our independent registered public accounting firm is required to formally attest to the effectiveness of our internal control over financial reporting Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented designed or operating Any failure to maintain effective disclosure controls and internal control over financial reporting could harm our business and could cause a decline in the trading price of our Class A common stock
The trading market for our Class A common stock depends in part on the research and reports that securities or industry analysts publish about us or our business The analysts estimates are based upon their own opinions and are often different from our estimates or expectations If one or more of the analysts who cover us downgrade our Class A common stock or publish inaccurate or unfavorable research about our business the price of our securities would likely decline If one or more securities analysts cease coverage of us or fail to publish reports on us regularly demand for our securities could decrease which might cause the price and trading volume of our Class A common stock to decline
As a public company listed in the United States we incur significant additional legal accounting and other expenses In addition changing laws regulations and standards relating to corporate governance and public disclosure including regulations implemented by the SEC and The Nasdaq Stock Market may increase legal and financial compliance costs and make some activities more time consuming These laws regulations and standards are subject to varying interpretations and as a result their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies We intend to invest resources to comply with evolving laws regulations and standards and this investment may result in increased general and administrative expenses and a diversion of management s time and attention from revenue generating activities to compliance activities If notwithstanding our efforts we fail to comply with new laws regulations and standards regulatory authorities may initiate legal proceedings against us and our business may be harmed
Failure to comply with these rules might also make it more difficult for us to obtain certain types of insurance including director and officer liability insurance and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage The impact of these events would also make it more difficult for us to attract and retain qualified persons to serve on our board of directors on committees of our board of directors or as members of senior management
There is an increasing focus from regulators investors customers and other stakeholders concerning environmental social and governance matters To the extent we share information about our practices in this area we could be criticized for the accuracy adequacy or completeness of such disclosures In addition we may communicate related goals or initiatives from time to time which can be costly to achieve and difficult to implement There is no assurance that we will achieve any of these goals that our initiatives will achieve their intended outcome and our ability to implement these initiatives or achieve these goals may be dependent on external factors outside our control Further we may experience backlash from customers government entities advocacy groups employees or other stakeholders who disagree with our actual or perceived positions or with our lack of position on social environmental governance political public policy economic geopolitical or other sensitive issues Any perceived lack of transparency about these matters could harm our brand and reputation our employees engagement and retention and the willingness of our customers and partners to do business with us
There are inherent climate related risks wherever business is conducted We have a global workforce and operate in leased office spaces and data centers and the short medium and long term climate impacts to our business are unclear
Changing market dynamics global policy developments and the increasing frequency and impact of extreme weather events to infrastructure in the U S and elsewhere have the potential to disrupt our business the business of our third party suppliers and the business of our customers and may cause us to experience losses and additional costs to maintain or resume operations In addition we may be subject to increased regulations reporting requirements standards or expectations regarding the environmental impacts of our business
We have designed and implemented an information security program that is tailored to our operations and infrastructure the nature of our products and services and the sensitivity of data Our information security program consists of processes that are designed to identify assess and manage material risks from cybersecurity threats
We have implemented cybersecurity risk management processes that include for example vulnerability assessments application security assessments penetration testing third party security assessments security audits and ongoing risk assessments In addition we have implemented certain technical physical and organizational safeguards designed to mitigate material risks from cybersecurity threats including for example depending on the environment or system information security policies and standards data protection policies and standards security training and awareness campaigns information protection processes and systems monitoring for cybersecurity threats We have also implemented an Incident Response Plan and procedures that provide us with a framework for responding to cybersecurity incidents The Incident Response Plan and procedures provide protocols for incident evaluation including the use of third party service providers processes for notification and internal escalation of information to our senior management and the appropriate Board committee s all as appropriate depending on the nature of the incident The Incident Response Plan is reviewed and updated as necessary under the leadership of Zoom s Chief Information Security Officer CISO
Further our assessment and management of material risks from cybersecurity threats are an important element of our overall enterprise risk management program and included in our annual enterprise risk assessment which we provide to senior management and the Board
We use third party service providers to assist us from time to time to identify assess and manage material risks from cybersecurity threats including for example professional services firms including legal counsel threat intelligence service providers cybersecurity consultants cybersecurity software and managed service providers penetration testing firms and forensic investigators
We have a third party risk management program designed to oversee identify and mitigate material risks from cybersecurity threats associated with our use of third party service providers We perform risk based due diligence and ongoing monitoring of third parties which may include for example reviewing the third party s relevant security audits and assessments conducting our own security assessments and imposing contractual obligations related to information security
As of the date of this Annual Report on Form 10 K we do not believe any risks from cybersecurity threats have materially affected or are reasonably likely to materially affect us including our business strategy results of operations or financial condition For a description of the risks from cybersecurity threats that may materially affect us and how they may do so see the risk factor titled Our security measures and those of the third parties with whom we work have been compromised in the past and may be compromised in the future If our security measures are compromised in the future or if our information technology fails this could harm our reputation expose us to significant fines and liability impair our sales and harm our business In addition our products and services may be perceived as not being secure This perception may result in customers and users curtailing or ceasing their use of our products us incurring significant liabilities and our business being harmed in Part I Item 1A Risk Factors of this Annual Report on Form 10 K
Our Board addresses our cybersecurity risk management as part of its general oversight function As outlined in its committee charter the Cybersecurity Risk Management Committee of the Board Cybersecurity Risk Committee assists the Board in fulfilling its oversight responsibility Our CISO Michael Adams leads the team responsible for implementing and maintaining our information security program and reports directly to the Chief Operating Officer COO who reports directly to our Chief Executive Officer CEO Mr Adams is a graduate of the United States Naval Academy and brings nearly 30 years of security and leadership experience including serving as Deputy General Counsel of NATO s International Security Assistance Force Joint Command Deputy General Counsel of the United States Military s Pacific Command and Deputy
General Counsel for two Chairmen of the Joint Chiefs of Staff of the United States as well as an executive at a leading technology company Mr Adams previously served as Zoom s Chief Counsel to the COO and CISO
The CISO provides regular briefings to our senior management and the Cybersecurity Risk Committee concerning relevant cybersecurity risks and the processes we have implemented to address them The Cybersecurity Risk Committee and the Board also receive various reports summaries and presentations related to cybersecurity threats risks and mitigations
Our corporate headquarters is located in San Jose California where we lease approximately 103 000 square feet of commercial space pursuant to operating leases that expire in the fiscal year ending January 31 2030 In addition we maintain additional offices in the United States and internationally in APAC and EMEA
Information with respect to this item may be found in Note 9 Commitment and Contingencies in the accompanying notes to the consolidated financial statements included in Part II Item 8 Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10 K under Legal Proceedings which is incorporated herein by reference
As of January 31 2025 we had 52 holders of record of our Class A common stock and 12 holders of record of our Class B common stock Because many of our shares of Class A common stock are held in street name by brokers and other nominees on behalf of stockholders we are unable to estimate the total number of beneficial owners of our Class A common stock represented by these holders of record
We have never declared or paid any cash dividends on our capital stock We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future Any future determination to declare cash dividends will be made at the discretion of our Board subject to applicable laws and will depend on a number of factors including our financial condition results of operations capital requirements contractual restrictions general business conditions and other factors that our Board may deem relevant
This performance graph shall not be deemed soliciting material or to be filed with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act
The following graph compares i the cumulative total stockholder return on our Class A common stock from January 31 2020 through January 31 2025 with ii the cumulative total return of the Russell 2000 Index RUT and the Nasdaq Computer Index IXCO over the same period assuming the investment of 100 in our Class A common stock and in both of the other indices on January 31 2020 and the reinvestment of dividends The graph uses the closing market price on January 31 2020 of 76 30 per share as the initial value of our Class A common stock As discussed above we have never declared or paid a cash dividend on our Class A common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future
In February 2024 our Board of Directors authorized a stock repurchase program of up to 1 5 billion of our Class A common stock In November 2024 our Board of Directors authorized the repurchase of an additional 1 2 billion of our outstanding Class A common stock Repurchases of our Class A common stock may be effected from time to time either on the open market including pre set trading plans in privately negotiated transactions and other transactions in accordance with applicable securities laws The repurchase program does not obligate us to acquire any particular amount of Class A common stock and the repurchase program may be suspended or discontinued at any time at our discretion See Note 10 Stockholders Equity and Equity Incentive Plans of this Annual Report on Form 10 K for additional information related to share repurchases
You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10 K This discussion contains forward looking statements based upon current expectations that involve risks and uncertainties Our actual results may differ materially from those anticipated in these forward looking statements as a result of various factors including those discussed in the section titled Risk Factors and in other parts of this Annual Report on Form 10 K
Zoom Workplace with AI Companion is an open AI first work platform for human connection Our platform is designed to enable seamless communication and collaboration through a suite of products that includes Zoom Meetings Zoom Phone Zoom Team Chat and Zoom Docs and more all powered by AI to improve productivity collaboration and business outcomes
We strive to simplify the workday with tools that drive meaningful team collaboration and customer engagement Zoom Workplace our AI driven platform supports businesses by providing an open scalable solution for communication and collaboration This includes Zoom Contact Center Zoom Revenue Accelerator and Zoom Events which empower sales marketing and customer experience teams to foster stronger customer relationships
AI is core to Zoom s product innovation In fiscal year 2025 Zoom continued to invest in AI and focused on three key areas regarding AI supporting individual productivity powering better collaboration and helping customer facing teams deliver meaningful business value and delight to their customers Our federated approach to AI enables users to leverage multiple AI models including those from OpenAI Anthropic and Meta making AI more accessible and affordable so that more people can incorporate them in their day to day workflows In line with our commitment to responsible AI Zoom does not use customer audio video chat screen sharing attachments or other communications such as poll results whiteboard and reactions to train Zoom s or third party AI models
Zoom s platform prioritizes security and privacy with 32 co located data centers globally and robust encryption We are committed to delivering high quality real time video even in low bandwidth conditions while safeguarding our customers data
Revenue is driven by subscriptions to Zoom Workplace and Zoom Business Services Our core offerings include Zoom Workplace Pro Business and Enterprise bundles with vertical specific plans for Education Healthcare and Government We also offer Zoom Phone with regional and global calling plans designed to meet diverse customer needs
Our revenue was 4 665 4 million 4 527 2 million and 4 393 0 million for the fiscal years ended January 31 2025 2024 and 2023 respectively representing year over year growth of 3 1 and 3 1 respectively We had net income of 1 010 2 million 637 5 million and 103 7 million for the fiscal years ended January 31 2025 2024 and 2023 respectively Net cash provided by operating activities was 1 945 3 million 1 598 8 million and 1 290 3 million for the fiscal years ended January 31 2025 2024 and 2023 respectively
The macroeconomic environment including geopolitical conflicts tariffs and trade tensions inflationary pressures interest rate fluctuations and foreign currency exchange rate volatility continues to create uncertainty in demand for subscriptions to our unified communications and collaboration platform These factors along with responses by central banks and government policies have placed pressure on consumer and business behavior leading to elongated sales cycles and increased scrutiny of IT budgets among existing and potential customers For the fiscal year ended January 31 2025 compared to the fiscal year ended January 31 2024 we experienced continued growth in total revenue and revenue from Enterprise customers However several factors have impacted and may continue to impact our growth rate such as higher market penetration increased competition and the maturation of our business among others
While we have seen improvement in the macroeconomic environment in recent periods we continue to monitor the potential effects of these circumstances as well as the overall global economy and geopolitical landscape on our business and financial results as well as the overall global economy The implications of macroeconomic conditions on our business results of operations and overall financial position particularly in the long term remain uncertain
We are focused on continuing to grow the number of customers who use Zoom Workplace and Zoom Business Services Our operating results and growth prospects will depend in part on our ability to attract new customers While we believe there is a significant market opportunity that our platform addresses it is difficult to predict customer adoption rates or the future growth rate and size of the market for our platform We will need to continue to invest in sales and marketing in order to address this opportunity by hiring developing and retaining talented sales personnel who are able to achieve desired productivity levels in a reasonable period of time
We believe that there is a large opportunity for growth with many of our existing customers Historically customers have increased the size of their subscriptions as they have expanded their use of our platform across their operations Over the past few years macroeconomic headwinds have resulted in slower hiring and higher seat count downsells from our existing Enterprise customers in key markets that has impacted the rate of expansion and have caused our net dollar expansion rate for Enterprise customers to drop below one hundred percent Despite the decline in our rate of expansion we believe there are still opportunities for future growth with our existing customers as we innovate our platform with additional product offerings and the use of AI This expansion in the use of our platform also provides us with opportunities to market and sell additional products to our customers such as Zoom Phone Contact Center and Workvivo In order for us to address this opportunity and expand the use of our products with our existing customers we will need to maintain the reliability of our platform and produce new features and functionality that are responsive to our customers requirements for enterprise grade solutions
We quantify our expansion across existing Enterprise customers through our net dollar expansion rate We define Enterprise customers as distinct business units who have been engaged by either our direct sales team resellers or strategic partners Revenue from Enterprise customers represented 59 0 57 9 and 54 8 of total revenue for the fiscal years ended January 31 2025 2024 and 2023 respectively Our net dollar expansion rate includes the increase in user adoption within our Enterprise customers as our subscription revenue is primarily driven by the number of paid licenses within a customer and the purchase of additional products and compares our subscription revenue from the same set of Enterprise customers across comparable periods We calculate net dollar expansion rate as of a period end by starting with the annual recurring revenue ARR from all Enterprise customers as of 12 months prior Prior Period ARR We define ARR as the annualized revenue run rate of subscription agreements from all customers at a point in time We calculate ARR by taking the monthly recurring revenue MRR and multiplying it by 12 MRR is defined as the recurring revenue run rate of subscription agreements from all Enterprise customers for the last month of the period including revenue from monthly subscribers who have not provided any indication that they intend to cancel their subscriptions We then calculate the ARR from these Enterprise customers as of the current period end Current Period ARR which includes any upsells contractions and attrition We divide the Current Period ARR by the Prior Period ARR to arrive at the net dollar expansion rate For the trailing 12 months calculation we take an average of the net dollar expansion rate over the trailing 12 months Our net dollar expansion rate may fluctuate as a result of a number of factors including the level of penetration within our customer base expansion of products and features and our ability to retain our Enterprise customers Our trailing 12 month net dollar expansion rate for Enterprise customers was 98 101 and 115 as of January 31 2025 2024 and 2023 respectively
In addition to Enterprise customers we also have a significant number of customers who subscribe to our services directly through our website Online customers or Online business Online customers represent a diverse customer base ranging from individual consumers to small and medium size businesses We continue to focus on acquisition and retention of our Online customer base through various strategies to improve the features and functionalities of our products and services Revenue from Online customers represented 41 0 42 1 and 45 2 of total revenue for the fiscal years ended January 31 2025 2024 and 2023 respectively The ability to retain these Online customers will have an impact on our future revenue The online monthly average churn for our Online customers was 2 9 3 1 and 3 4 per month for the fiscal years ended January 31 2025 2024 and 2023 respectively One of the dynamics in the Online portion of the business is the MRR contribution from customers who have retained Zoom services for a certain portion of time as these customers tend to maintain their subscriptions and contribute meaningfully to the Online business As of January 31 2025 2024 and 2023 the percentage of total Online MRR from Online customers with a continual term of service of at least 16 months was 75 1 74 2 and 72 0 respectively
We calculate our online average monthly churn by starting with the Online customer MRR as of the beginning of the applicable quarter Entry MRR We define Entry MRR as the recurring revenue run rate of subscription agreements from all Online customers except for subscriptions that we recorded as churn in a previous quarter based on the customers earlier
indication to us of their intention to cancel that subscription We then determine the MRR related to customers who canceled or downgraded their subscription or notified us of that intention during the applicable quarter Applicable Quarter MRR Churn and divide the Applicable Quarter MRR Churn by the applicable quarter Entry MRR to arrive at the MRR churn rate for Online customers We then divided that amount by three to calculate the Online average monthly churn for the applicable quarter
We continue to invest resources to enhance the capabilities of Zoom Workplace and Zoom Business Services For example we have introduced a number of new products and enhancements including Zoom AI Companion Zoom Docs and ongoing enhancements for Zoom Phone Meetings Zoom Rooms Sessions Webinars Events and Contact Center We also deliver Zoom Phone calling plans in more than 45 countries and territories as of January 31 2025
We recently announced several upcoming products including Zoom Tasks a custom AI Companion add on Zoom Workplace for Frontline Workers and Zoom Workplace for Clinicians The custom AI Companion add on is designed to handle complex tasks across our platform by integrating data from multiple sources including third party apps Zoom Workplace for Frontline Workers is an AI powered mobile solution aimed at enhancing on shift communications task management and insights for frontline employees and their managers Zoom Workplace for Clinicians is designed to automate clinical workflows leveraging healthcare AI to streamline clinical notes reduce documentation overhead and improve doctor patient interactions These products are expected to be generally available in the first half of 2025
Third party developers are also a key component of our strategy for platform innovation to make it easier for customers and developers to extend our product portfolio with new functionalities We believe that as more developers and other third parties use our platform to integrate major third party applications we will become the ubiquitous platform for communications and collaboration We will need to expend additional resources to continue introducing new products features and functionality and supporting the efforts of third parties to enhance the value of our platform with their own applications
An E2EE option is available to free and paid Zoom customers globally who host meetings with up to 1 000 participants as well as on Zoom Phone for one on one calls on the same Zoom account Zoom s E2EE uses the same 256 bit AES GCM encryption to encrypt real time media in meetings during transit that supports standard Zoom Meetings but with Zoom s E2EE the feature is designed so that the device of the meeting host or originating caller in the case of Zoom Phone as opposed to Zoom s servers generates encryption keys and uses public key cryptography to distribute these keys to the other meeting participants or call recipient Additionally Zoom s post quantum E2EE is now globally available for Zoom Workplace specifically for Zoom Meetings and Zoom Phone with support for Zoom Rooms coming soon We believe that the launch of the new security enhancement makes Zoom the first UCaaS company to offer a post quantum E2EE solution for video conferencing
Our platform addresses the communications and collaboration needs of users worldwide and we see international expansion as a major opportunity Our revenue from the rest of the world APAC and EMEA represented 28 2 28 7 and 30 5 of our total revenue for the fiscal years ended January 31 2025 2024 and 2023 respectively We use strategic partners and resellers to sell in certain international markets where we have limited or no direct sales presence While we believe global demand for our platform will continue to increase as international market awareness of Zoom grows our ability to conduct our operations internationally will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages cultures customs legal and regulatory systems alternative dispute systems and commercial markets
As Zoom continues to expand and evolve we have seen an increasing overlap between our Enterprise and Online customer categories Over time customers with lower MRR are expected to move from Enterprise to Online as we optimize our sales strategies While these moves do not have a material impact on other key business metrics the number of customers between these two groups has become less meaningful as a key business metric Therefore beginning in the first quarter of fiscal year 2026 we will no longer report the number of Enterprise customers as a key business metric However we will
Instead of using Enterprise customer count as an indicator of our performance we believe that revenue from Enterprise customers and the number of customers contributing more than 100 000 in trailing 12 month revenue are better indicators of our ability to grow and scale with larger organizations These metrics better reflect our progress in attracting and retaining high value customers and scaling our business over time
As of January 31 2025 2024 and 2023 we had approximately 192 600 220 400 and 213 000 Enterprise customers respectively During the three months ended April 30 2024 in order to enhance customer experience and improve efficiency we transitioned approximately 26 800 Enterprise customers with lower MRR away from working with direct sales teams resellers or strategic partners These customers are now considered Online customers and no longer included in our Enterprise customer total as of January 31 2025 The impact of this transition did not have a material impact on the percentage of revenue from Enterprise and Online customers net dollar expansion rate or Online average monthly churn
We focus on growing the number of customers who contribute more than 100 000 of trailing 12 months revenue as it is a measure of our ability to scale with our customers and attract larger organizations to Zoom Revenue from these customers represented 31 0 29 2 and 27 1 of total revenue for the fiscal years ended January 31 2025 2024 and 2023 respectively As of January 31 2025 2024 and 2023 we had 4 088 3 810 and 3 471 customers respectively that contributed more than 100 000 of trailing 12 months revenue demonstrating our penetration of larger organizations including enterprises These customers are a subset of Enterprise customers
We define FCF as GAAP net cash provided by operating activities less purchases of property and equipment We believe that FCF is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our operations that after investments in property and equipment can be used for future growth FCF is presented for supplemental informational purposes only and has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of other GAAP financial measures such as net cash provided by operating activities It is important to note that other companies including companies in our industry may not use this metric may calculate this metric differently or may use other financial measures to evaluate their liquidity all of which could reduce the usefulness of this non GAAP metric as a comparative measure
The following table presents a summary of our cash flows for the fiscal years presented and a reconciliation of FCF to net cash provided by operating activities the most directly comparable financial measure calculated in accordance with GAAP
We derive our revenue from subscription agreements with customers for access to our unified communications and collaboration platform Our customers generally do not have the ability to take possession of our software We also provide services which include professional services consulting services and online event hosting which are generally considered
distinct from the access to our unified communications and collaboration platform The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services over the contract term which can include a free period discount
Cost of revenue primarily consists of costs related to hosting our unified communications and collaboration platform and providing general operating support services to our customers These costs are related to our co located data centers third party cloud hosting integrated third party PSTN services personnel related expenses amortization of capitalized software development and acquired intangible assets royalty payments and allocated overhead
Research and development expenses primarily consist of personnel related expenses directly associated with our research and development organization depreciation of equipment used in research and development and allocated overhead Research and development costs are expensed as incurred
Sales and marketing expenses primarily consist of personnel related expenses directly associated with our sales and marketing organization Other sales and marketing expenses include advertising and promotional events to promote our brand such as awareness programs digital programs public relations tradeshows and our user conference Zoomtopia and allocated overhead Sales and marketing expenses also include credit card processing fees related to sales and amortization of deferred contract acquisition costs
General and administrative expenses primarily consist of personnel related expenses associated with our finance and legal organizations professional fees for external legal accounting and other consulting services expected credit losses insurance certain indirect taxes litigation settlements corporate security and regulatory expenses and allocated overhead
Revenue for the fiscal year ended January 31 2025 increased by 138 2 million or 3 1 compared to the fiscal year ended January 31 2024 The increase in revenue was due to a 5 2 increase in revenue from subscription services provided to Enterprise customers of which 63 5 and 36 5 were from existing and new customers respectively Revenue from Online customers remained flat year over year
in restructuring costs as a result of the prior year restructuring plan The increase in hosting costs was due to the increased use of AI functionality along with investments to upgrade our data center backbone
Gross margin decreased to 75 8 for the fiscal year ended January 31 2025 from 76 2 for the fiscal year ended January 31 2024 The decrease in gross margin was mainly due to increased costs associated with the use of AI functionality along with the investments to upgrade our data center backbone
Sales and marketing expense for the fiscal year ended January 31 2025 decreased by 113 9 million or 7 4 compared to the fiscal year ended January 31 2024 The decrease in sales and marketing expense was primarily due to a 53 5 million
General and administrative expense for the fiscal year ended January 31 2025 decreased by 136 9 million or 23 6 compared to the fiscal year ended January 31 2024 The decrease in general and administrative expense was primarily due to a 39 4 million decrease in stock based compensation expense a 37 8 million decrease in litigation settlements a 15 2 million decrease in bad debt expense a 13 3 million decrease in restructuring costs as a result of the prior year restructuring plan and a 5 4 million decrease in legal expenses
Gains on strategic investments net of 177 1 million and 109 8 million for the fiscal years ended January 31 2025 and 2024 respectively was primarily driven by unrealized gains from valuation changes on our publicly and privately held securities
Other income net for the fiscal year ended January 31 2025 increased by 127 9 million or 64 8 compared to the fiscal year ended January 31 2024 The increase was mainly driven by an increase of 130 5 million in investment yield from cash and marketable securities
Provision for income taxes for the fiscal year ended January 31 2025 increased by 110 5 million or 56 7 compared to the fiscal year ended January 31 2024 The change in income taxes was primarily due to an increase in income before taxes increases in non deductible compensation and other permanent items and a reduction in tax shortfalls on stock based compensation for the fiscal year ended January 31 2025 See Part II Item 8 Note 12 Income Taxes to the consolidated financial statements in this Annual Report for further information
For a discussion of the fiscal year ended January 31 2024 compared to the fiscal year ended January 31 2023 please refer to Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10 K for the fiscal year ended January 31 2024
As of January 31 2025 our principal sources of liquidity were cash cash equivalents and marketable securities of 7 8 billion which were held for working capital purposes and for investment in growth opportunities Our marketable securities generally consist of high grade commercial paper corporate bonds agency bonds corporate and other debt securities U S government agency securities and treasury bills
We have financed our operations primarily through income from operations and sales of equity securities Cash from operations could also be affected by various risks and uncertainties including but not limited to macroeconomic factors such as geopolitical conflicts tariffs and trade tensions inflationary pressures interest rate fluctuations and the fluctuations in foreign currency exchange rates These factors and other risks detailed in the section titled Risk Factors could impact the timing of cash collections from our customers However based on our current business plan and revenue prospects we believe our existing cash cash equivalents and marketable securities together with net cash provided by operations will be sufficient to meet our needs for at least the next 12 months and allow us to capitalize on growth opportunities We believe we will meet longer term expected future cash requirements and obligations through a combination of cash flows from operating activities and available cash balances Our future capital requirements will depend on many factors including our revenue growth rate subscription renewal activity billing frequency the timing and extent of spending to support further sales and marketing and research and development efforts as well as expenses associated with our international expansion and the timing and extent of additional capital expenditures to invest in existing and new office spaces as well as data center infrastructure We may in the future enter into arrangements to acquire or invest in complementary businesses services and technologies including intellectual property rights We may choose or be required to seek additional equity or debt financing In the event that additional financing is required from outside sources we may not be able to raise it on terms acceptable to us or at all If we are unable to raise additional capital when desired our business results of operations and financial condition would be materially and adversely affected
Our material cash requirements from known contractual and other obligations primarily relate to our leases for office space and equipment as well as non cancelable purchase obligations Expected timing of those payments are as follows
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding Obligations under contracts that we can cancel without a significant penalty are not included in the table above Refer to the Future minimum lease payments table in Note 7 Operating Leases and Non cancelable Purchase Obligations in Note 9 Commitments and Contingencies to the consolidated financial statements included in Part II Item 8 of this Annual Report on Form 10 K for more details
We have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of when the related tax settlements will become due See Part II Item 8 Note 11 Income Taxes to the consolidated financial statements in this Annual Report for a discussion of income taxes
Our largest source of operating cash is cash collections from our customers for subscriptions to our platform Our primary uses of cash from operating activities are for employee related expenditures costs related to hosting our platform and marketing expenses Net cash provided by operating activities is impacted by our net income adjusted for certain non cash items such as stock based compensation expense depreciation and amortization expenses as well as the effect of changes in operating assets and liabilities
Net cash provided by operating activities was 1 945 3 million for the fiscal year ended January 31 2025 compared to 1 598 8 million for the fiscal year ended January 31 2024 The increase in operating cash flow was mainly driven by higher net income year over year
Net cash used in investing activities of 1 106 0 million for the fiscal year ended January 31 2025 was due to net purchases of marketable securities of 964 3 million purchases of property and equipment of 136 6 million and purchases of strategic investments of 18 5 million partially offset by proceeds from strategic investments of 13 4 million
Net cash used in investing activities of 1 183 7 million for the fiscal year ended January 31 2024 was due to net purchases of marketable securities of 951 4 million cash paid for acquisition net of cash acquired of 204 9 million purchases of property and equipment of 127 0 million and purchases of strategic investments of 70 5 million partially offset by proceeds from strategic investments of 170 1 million
Net cash used in financing activities of 1 028 1 million for the fiscal year ended January 31 2025 was due to cash paid for repurchases of common stock of 1 093 9 million partially offset by proceeds from issuance of common stock pursuant to our employee stock purchase plan ESPP of 54 0 million proceeds from employee equity transactions to be remitted to employees and tax authorities net of 7 2 million and proceeds from the exercise of stock options of 4 6 million
Net cash provided by financing activities of 60 2 million for the fiscal year ended January 31 2023 was due to proceeds from issuance of common stock pursuant to our employee stock purchase plan ESPP of 54 1 million and proceeds from the exercise of stock options of 10 2 million partially offset by proceeds from employee equity transactions remitted to employees and tax authorities net of 4 1 million
For a discussion of the fiscal year ended January 31 2023 please refer to Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10 K for the fiscal year ended January 31 2024
In February 2024 our Board of Directors authorized a stock repurchase program of up to 1 5 billion of our Class A common stock In November 2024 our Board of Directors authorized the repurchase of an additional 1 2 billion of our outstanding Class A common stock Repurchases of our Class A common stock may be effected from time to time either on the open market including pre set trading plans in privately negotiated transactions and other transactions in accordance with applicable securities laws
The timing and the amount of any repurchased Class A common stock will be determined by our management based on its evaluation of market conditions and other factors The repurchase program will be funded using our working capital Any repurchased shares of Class A common stock will be retired The repurchase program does not obligate us to acquire any particular amount of Class A common stock and the repurchase program may be suspended or discontinued at any time at our discretion
Critical accounting estimates are those accounting estimates that require the most difficult subjective or complex judgments often as a result of the need to make estimates about the effect of matters that are inherently uncertain These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances Critical accounting estimates are accounting estimates where the nature of the estimates are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on financial condition or operating performance is material
We believe that of our significant accounting policies which are described in Part II Item 8 Note 1 Summary of Business and Significant Accounting Policies to the consolidated financial statements in this Annual Report the following critical estimates involve a greater degree of judgment and complexity
We derive our revenue primarily from subscription agreements with customers for access to our unified communications and collaboration platform and services We also provide other services which include professional services consulting services and online event hosting which were immaterial to our consolidated financial statements Revenue is recognized when a customer obtains control of promised services The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services over the contract term which can include a free period discount We apply judgment during the identification of a contract to determine the customer s ability and intent to pay which is based on a variety of factors including the customer s historical payment experience or in the case of a new customer credit and financial information pertaining to the customer The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer Variable consideration is included in the transaction price if in our judgment it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur
We primarily capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are incremental costs from the acquisition of customer contracts These costs are recorded as deferred contract acquisition costs in the consolidated balance sheets We determine whether costs should be deferred based on our sales compensation plans and if the commissions are incremental and would not have occurred absent the customer contract
Sales commissions paid upon the initial acquisition of a customer contract are amortized over an estimated period of benefit of three years which is typically greater than the contractual terms of the customer contracts Significant judgment is required in arriving at this estimated period of benefit We determine the period of benefit for commissions paid for the acquisition of the initial customer contract by taking into consideration the initial estimated customer life and the technological life of our unified communications and collaboration platform and related significant features Sales commission is generally not paid upon contract renewal Amortization is recognized on a straight line basis commensurate with the pattern of revenue recognition
We account for our business combinations using the acquisition method of accounting which requires among other things allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill When determining the fair value of assets acquired and liabilities assumed we make estimates and assumptions especially with respect to intangible assets Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and as a result actual results may differ from estimates During the measurement period not to exceed one year from the date of acquisition we may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date After the measurement period any subsequent adjustments are reflected in the consolidated statements of operations Acquisition costs such as legal and consulting fees are expensed as incurred
Goodwill amounts are not amortized but rather tested for impairment at least annually in the fourth quarter of each fiscal year or more often if circumstances indicate that the carrying value may not be recoverable As of January 31 2025 no impairment of goodwill has been identified
Intangible assets consist of acquired identifiable intangible assets resulting from business combinations as well as other intangible assets purchased outside of a business combination Finite lived intangible assets are initially recorded at fair value and are amortized on a straight line basis over their estimated useful lives We routinely evaluate the estimated remaining useful lives of our finite lived intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization Indefinite lived intangible assets are recorded at fair value and are not amortized We review the useful lives of indefinite lived intangible assets each reporting period to determine whether events and circumstances continue to support the indefinite useful life classification If we determine that the life of an intangible asset is no longer indefinite that asset would be tested for impairment and amortized prospectively over its estimated remaining useful life We have not recorded any impairment charges during the fiscal years presented
Accounting for strategic investments in privately held debt and equity securities in which we do not have a controlling interest or significant influence requires us to make significant estimates and assumptions
Valuations of privately held securities are inherently complex and require judgment due to the lack of readily available market data Privately held debt and equity securities are valued using significant unobservable inputs or data in an inactive market The valuation requires our judgment due to the absence of market prices and inherent lack of liquidity The carrying values of our privately held equity securities are adjusted if there are observable price changes in a same or similar security from the same issuer or if there are identified events or changes in circumstances that may indicate impairment as discussed below In determining the estimated fair value of our strategic investments in privately held companies we utilize the most recent data available as adjusted to reflect the specific rights and preferences of those securities we hold
We assess our privately held debt and equity securities strategic investment portfolio quarterly for indicators for impairment Our impairment analysis encompasses a qualitative assessment that evaluates key factors including but not limited to the investee s financial metrics market acceptance of the product or technology and the rate at which the investee is using its cash If the investment is considered to be impaired we record the investment at fair value by recognizing an impairment through the consolidated statement of operations and establishing a new carrying value for the investment
The privately held debt and equity securities we hold and their rights and preferences relative to those of other securities within the capital structure may impact the magnitude by which our investment value moves in relation to movement of the total enterprise value of the company As a result our investment value in a specific company may move by more or less than any change in the value of that overall company An immediate decrease of 10 in enterprise value of our largest privately held equity securities held as of January 31 2025 would not have had a material impact on the value of our investment portfolio
We use the asset and liability method of accounting for income taxes Under this method income tax expense is recognized based on the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns We make assumptions judgments and estimates to determine the current income tax provision benefit deferred tax asset and liabilities and valuation allowance recorded against a deferred tax asset The assumptions judgments and estimates relative to the current income tax provision benefit take into account current tax laws their interpretation and possible results of foreign and domestic tax audits Changes in tax law their interpretation and resolution of tax audits could significantly impact the income taxes provided in our consolidated financial statements Assumptions judgments and estimates relative to the amount of deferred income taxes take into account future taxable income Any of the assumptions judgments and estimates mentioned above could cause the actual income tax obligations to differ from our estimates
The majority of our cash generated from revenue is denominated in U S dollars with a portion of our revenue from amounts denominated in foreign currencies Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations which are primarily in Australia China Europe and the United States Our results of current
and future operations and cash flows are therefore subject to fluctuations due to changes in foreign currency exchange rates For the fiscal year ending January 31 2025 2024 and 2023 19 3 19 3 and 20 0 of our revenue respectively and 16 4 13 7 and 10 8 of our expenses respectively were denominated in currencies other than the U S dollar The effect of a hypothetical 10 change in foreign currency exchange rates applicable to our business would not have had a material impact on our historical consolidated financial statements for the fiscal years ended January 31 2025 2024 and 2023 As the impact of foreign currency exchange rates has not been material to our historical operating results we have not entered into derivative or hedging transactions but we may do so in the future if our exposure to foreign currency becomes more significant
We had cash and cash equivalents of 1 3 billion and marketable securities of 6 4 billion as of January 31 2025 Cash and cash equivalents consist of bank deposits money market funds and high grade commercial paper and agency bonds Our marketable securities generally consist of high grade commercial paper agency bonds corporate and other debt securities U S government agency securities and treasury bills The cash and cash equivalents and marketable securities are held for working capital purposes Such interest earning instruments carry a degree of interest rate risk The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure Due to the short term nature of our investments we have not been exposed to nor do we anticipate being exposed to material risks due to changes in interest rates A hypothetical 10 change in interest rates during any of the periods presented would not have had a material impact on our historical consolidated financial statements for the fiscal years ended January 31 2025 2024 and 2023
We have audited the accompanying consolidated balance sheets of Zoom Communications Inc and subsidiaries the Company as of January 31 2025 and 2024 the related consolidated statements of operations comprehensive income stockholders equity and cash flows for each of the years in the three year period ended January 31 2025 and the related notes and financial statement schedule II valuation and qualifying accounts collectively the consolidated financial statements We also have audited the Company s internal control over financial reporting as of January 31 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
In our opinion the consolidated financial statements referred to above present fairly in all material respects the financial position of the Company as of January 31 2025 and 2024 and the results of its operations and its cash flows for each of the years in the three year period ended January 31 2025 in conformity with U S generally accepted accounting principles Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of January 31 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
The Company s management is responsible for these consolidated financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s consolidated financial statements and an opinion on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As discussed in Notes 1 and 2 to the consolidated financial statements the Company s revenue is principally derived from the sale of subscriptions to the Company s video communications platform The Company recorded 4 665 million of revenue for the year ended January 31 2025
We identified the evaluation of sufficiency of audit evidence over revenue as a critical audit matter This matter required especially subjective auditor judgment because the Company s revenue recognition process is highly automated and is reliant upon a number of customized and proprietary information technology IT systems Involvement of IT professionals with specialized skills and knowledge was required to assist with the performance of certain procedures and determination of IT applications subject to testing
The following are the primary procedures we performed to address this critical audit matter We applied auditor judgment to determine the nature and extent of procedures to be performed over revenue We evaluated the design and tested the operating effectiveness of certain internal controls related to revenue recognition This included certain controls related to the Company s general information technology and application controls related to the systems utilized within the Company s revenue recognition process We involved IT professionals with specialized skills and knowledge who assisted in testing the IT controls of the various systems interacting with the Company s revenue recognition process We recalculated revenue for system generated sales transactions during the year using a software audit tool For a sample of transactions we compared the amounts recognized for consistency with underlying documentation including contracts with customers and cash receipts Additionally for the same sample of transactions we recalculated the amount of revenue recognized in the period based on the terms of the arrangement and the satisfaction of the underlying performance obligation In addition we evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of procedures performed
Common stock 0 001 par value per share 2 000 000 000 Class A shares authorized as of January 31 2025 and 2024 263 113 866 and 260 896 822 shares issued and outstanding as of January 31 2025 and 2024 respectively 300 000 000 Class B shares authorized as of January 31 2025 and 2024 42 626 998 and 46 661 531 shares issued and outstanding as of January 31 2025 and 2024 respectively
Zoom provides an open AI first work platform for human connection Our culture of delivering happiness drives our mission and values and is fundamental to everything we do at Zoom We were incorporated in the state of Delaware in April 2011 and are headquartered in San Jose California
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America GAAP and include the accounts of Zoom Communications Inc its subsidiaries and a variable interest entity for which we are the primary beneficiary All intercompany balances and transactions have been eliminated in consolidation
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period Significant items subject to such estimates and assumptions include but are not limited to the estimated expected benefit period for deferred contract acquisition costs stock based compensation expense the fair value of marketable securities acquired intangible assets and goodwill the valuation of deferred income tax assets and uncertain tax positions and accruals and contingencies Actual results could materially differ from those estimates
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents marketable securities restricted cash and accounts receivable We maintain our cash cash equivalents marketable securities and restricted cash with high quality financial institutions with investment grade ratings A majority of the cash balances are with U S banks and are insured to the extent defined by the Federal Deposit Insurance Corporation
No single customer accounted for more than 10 of accounts receivable at January 31 2025 or 2024 No single customer accounted for 10 or more of total revenue during the fiscal years ended January 31 2025 2024 or 2023
Restricted cash consists of certificates of deposit collateralizing our operating leases and cash from proceeds from international employees sales of our common stock and is included in prepaid expenses and other current assets and other assets noncurrent in the consolidated balance sheets
As of January 31 2025 and 2024 we had 12 0 million and 6 9 million respectively of cash from proceeds from international employees sales of our common stock The amount is held in our bank account until it is remitted to the employees and the tax authorities Due to the restrictions on the use of the funds in the bank account we have classified the amount as restricted cash included in prepaid expenses and other current assets and a corresponding amount is included in accrued expenses and other current liabilities in the consolidated balance sheets
We are exposed to credit losses primarily through our accounts receivable and investments in available for sale debt securities See Note 3 for additional information related to our available for sale debt securities
We maintain an allowance for credit losses for expected uncollectible accounts receivable which is recorded as an offset to accounts receivable and changes in such are classified as general and administrative expense in the consolidated statements of operations The allowance for credit losses is based on management s estimate for expected credit losses for outstanding accounts receivable We determine expected credit losses based on historical write off experience an analysis of the aging of outstanding receivables customer payment patterns the establishment of specific reserves for customers in an adverse financial condition and adjust based upon our expectations of changes in macroeconomic conditions that may impact the collectibility of outstanding receivables including noncurrent accounts receivable We also consider current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data We reassess the adequacy of the allowance for credit losses each reporting period Other reserves generally represent a reduction of accounts receivable with an offsetting reduction to deferred revenue
For the fiscal year ended January 31 2025 our assessment took into account recent changes in macroeconomic conditions such as inflation pressures fluctuations in foreign currency exchange rates and uncertain environments which may impact our estimates of credit and collectibility trends Below is a rollforward of our allowance for credit losses for the fiscal year ended January 31 2025
Available for sale investments consist primarily of high grade commercial paper agency bonds corporate bonds corporate and other debt securities U S government agency securities and treasury bills We classify our marketable securities as available for sale at the time of purchase and reevaluate such classification at each balance sheet date We may sell these securities at any time for use in current operations even if they have not yet reached maturity As a result we classify our securities including those with maturities beyond 12 months as current assets in the consolidated balance sheets We carry these securities at fair value and record unrealized gains and losses in accumulated other comprehensive income loss which is reflected as a component of stockholders equity We evaluate our securities with unrealized loss positions as to whether the declines in fair value were due to credit losses and record the portion of impairment relating to the credit losses through allowance for credit losses limited to the amount that fair value was less than the amortized cost basis Realized gains and losses from the sale of marketable securities are determined based on the specific identification method Realized gains and losses are reported in other income expense net in the consolidated statements of operations
We hold strategic investments in publicly held equity securities and privately held debt and equity securities in which we do not have a controlling interest Publicly held equity securities are measured using quoted prices in their respective active markets with changes recorded through gains losses on strategic investments net in the consolidated statements of operations Privately held equity securities without a readily determinable fair value are recorded at cost and adjusted for impairments and observable price changes with a same or similar security from the same issuer i e using the measurement alternative and are recorded through gains losses on strategic investments net in the consolidated statements of operations
If based on the terms of these publicly traded and privately held securities we determine that we exercise significant influence on the entity to which these securities relate we will apply the equity method of accounting for such investments
Privately held equity securities that are accounted for under the equity method are measured at cost less any impairment plus or minus our share of equity method investee income or loss which is reported in gains losses on strategic investments net in the consolidated statements of operations
On a quarterly basis we assess our privately held debt and equity securities in our strategic investment portfolio for indicators for impairment For the fiscal years ended January 31 2025 2024 and 2023 we recognized an immaterial amount of impairment to our privately held debt and equity securities
Fair value is defined as the exchange price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date We measure financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value A financial instrument s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement Three levels of inputs may be used to measure fair value
Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Financial instruments consist of cash equivalents restricted cash marketable securities accounts receivable and accounts payable Cash equivalents restricted cash and marketable securities are stated at fair value on a recurring basis Accounts receivable and accounts payable are stated at their carrying value which approximates fair value due to the short time to the expected receipt or payment date
Property and equipment net are stated at cost less accumulated depreciation and amortization Depreciation and amortization are calculated using the straight line method over the estimated useful lives of the respective assets determined to be three to five years Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life of five years Expenditures for maintenance and repairs are expensed as incurred Significant improvements and betterments that substantially enhance the life of an asset are capitalized
We capitalize certain development costs related to our unified communications and collaboration platform during the application development stage as long as it is probable the project will be completed and the software will be used to perform the function intended Capitalized software development costs are recorded as part of property and equipment net Costs related to preliminary project activities and post implementation activities are expensed as incurred Capitalized software development costs are amortized on a straight line basis over the software s estimated useful life which is generally three years and are recorded in cost of revenue in the consolidated statements of operations We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets We have capitalized 14 9 million 8 1 million and 18 0 million of software development costs during the fiscal years ended January 31 2025 2024 and 2023 respectively
All lease arrangements are generally recognized at lease commencement Operating lease right of use ROU assets and operating lease liabilities are recognized at commencement For short term leases an initial term of 12 months or less an ROU asset and corresponding lease liability are not recorded and we record rent expense in our consolidated statements of operations on a straight line basis over the lease term and record variable lease payments as incurred ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of fixed payments not yet paid over the lease term We use our incremental
borrowing rate based on the information available at the commencement date in determining the lease liabilities as our leases generally do not provide an implicit rate Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments in an economic environment where the leased asset is located ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date less lease incentives received We reassess the lease term if and when a significant event or change in circumstances occurs within our control We currently do not have any finance leases
We evaluate long lived assets or asset groups for impairment whenever events indicate that the carrying value of an asset or asset group may not be recoverable based on expected future cash flows attributable to that asset or asset group Recoverability of assets held and used is measured by comparing the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group If the carrying amount of an asset or asset group exceeds estimated undiscounted future cash flows then an impairment charge would be recognized based on the excess of the carrying amount of the asset or asset group over its fair value Assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell There were no impairment charges recognized related to long lived assets during the fiscal years ended January 31 2025 2024 or 2023
We account for our business combinations using the acquisition method of accounting which requires among other things allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill When determining the fair value of assets acquired and liabilities assumed we make estimates and assumptions especially with respect to intangible assets Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and as a result actual results may differ from estimates During the measurement period not to exceed one year from the date of acquisition we may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill if new information is obtained related to facts and circumstances that existed as of the acquisition date After the measurement period any subsequent adjustments are reflected in the consolidated statements of operations Acquisition costs such as legal and consulting fees are expensed as incurred
Goodwill amounts are not amortized but rather tested for impairment at least annually or more often if circumstances indicate that the carrying value may not be recoverable Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value We have one reporting unit and as a result goodwill has been assigned to the single reporting unit We conducted our annual impairment test of goodwill in the fourth quarter of fiscal year 2025 and determined that no adjustment to the carrying value of goodwill was required
Intangible assets consist of acquired identifiable intangible assets resulting from business combinations as well as other intangible assets purchased outside of a business combination such as domains and intellectual property addresses Finite lived intangible assets are initially recorded at fair value and are amortized on a straight line basis over their estimated useful lives We routinely evaluate the estimated remaining useful lives of our finite lived intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization Indefinite lived intangible assets are recorded at fair value and are not amortized We review the useful lives of indefinite lived intangible assets each reporting period to determine whether events and circumstances continue to support the indefinite useful life classification If we determine that the life of an intangible asset is no longer indefinite that asset would be tested for impairment and amortized prospectively over its estimated remaining useful life There were no impairment charges to acquired intangible assets during the fiscal year ended January 31 2025
We derive our revenue primarily from subscription agreements with customers for access to our unified communications and collaboration platform and services We also provide other services which include professional services consulting services and online event hosting which were immaterial to our consolidated financial statements Revenue is recognized when a customer obtains control of promised services The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services over the contract term which can include a free period discount We determine revenue recognition through the following steps
We determine a contract with a customer to exist when the contract is approved each party s rights regarding the services to be transferred can be identified the payment terms for the services can be identified the customer has the ability and intent to pay and the contract has commercial substance At contract inception we will evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation We apply judgment in determining the customer s ability and intent to pay which is based on a variety of factors including the customer s historical payment experience or in the case of a new customer credit and financial information pertaining to the customer
Performance obligations committed in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us and are distinct in the context of the contract whereby the transfer of the services or products is separately identifiable from other promises in the contract Promised services or products under which both of these two criteria are not met are recognized as a combined single performance obligation Our performance obligations primarily relate to access to our unified communications and collaboration platform which consists of one or more software based services Our customers do not have the ability to take possession of our software and through access to our platform we provide a series of distinct software based services that are satisfied over the term of the subscription
The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer Variable consideration is included in the transaction price if in our judgment it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur None of our contracts contain a significant financing component Revenue is recognized net of any taxes collected from customers which are subsequently remitted to governmental entities e g sales and other indirect taxes
Our unified communications and collaboration platform and related services are typically warranted to perform in a professional manner that will comply with the terms of the subscription agreements In addition we include service level commitments to our customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those service levels These credits represent a form of variable consideration We have not provided any material refunds related to these agreements in the consolidated financial statements during the periods presented
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation s relative standalone selling price Our contracts with multiple performance obligations are generally sold over the same subscription term and have the same pattern of transfer to the customer and so they are accounted for as one combined performance obligation in the context of the contract Accordingly the transaction price is allocated to this single performance obligation
Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for those services Fees for access to our unified communications and collaboration platform and related services are subscription revenue and are considered one performance obligation and the related revenue is recognized ratably over the subscription period as we satisfy the performance obligation
Cost of revenue primarily consists of costs related to hosting our unified communications and collaboration platform and providing general operating support services to our customers These costs are composed of co located data center costs third party cloud hosting costs integrated third party PSTN services personnel related expenses amortization of capitalized software development costs and acquired intangible assets royalty payments and allocated overhead costs Indirect overhead
costs associated with corporate facilities and related depreciation health care benefits training and other employee benefits are allocated to cost of revenue and operating expenses based on applicable headcount
Research and development costs include personnel related expenses associated with our engineering personnel and consultants responsible for the design development and testing of our unified communications and collaboration platform depreciation of equipment used in research and development and allocated overhead costs Research and development costs are expensed as incurred
Advertising costs are expensed as incurred in sales and marketing expense and amounted to 50 8 million 56 5 million and 64 7 million for the fiscal years ended January 31 2025 2024 and 2023 respectively
Stock based compensation expense related to stock awards with only service conditions including stock options RSUs and ESPP are measured based on the fair value of the awards granted and recognized as an expense on a straight line basis over the requisite service period For RSU s with service and performance conditions expense is recognized over the requisite service period if it is probable the performance condition will be achieved The probability of achievement is assessed quarterly and the effect of any change in the estimated number of performance based awards expected to vest is recognized in the period those estimates are revised as a cumulative catch up adjustment to stock based compensation expense
The fair value of each option and ESPP award is estimated on the grant date using the Black Scholes option pricing model The Black Scholes option pricing model requires the use of assumptions including the fair value of the underlying common stock the expected term of the award the expected volatility of the price of our common stock risk free interest rates and the expected dividend yield of our common stock
The assumptions used to determine the fair value of the stock awards represent management s best estimates These estimates involve inherent uncertainties and the application of management s judgment We account for forfeitures as they occur instead of estimating the number of awards expected to be forfeited
The functional currency of our foreign subsidiaries is the U S dollar Accordingly monetary assets and liabilities of our foreign subsidiaries are remeasured into U S dollars at the exchange rates in effect at the reporting date non monetary assets and liabilities are remeasured at historical rates and revenue and expenses are remeasured at average exchange rates in effect during each reporting period
We use the asset and liability method of accounting for income taxes Under this method deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse
Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe it is more likely than not that they will not be realized We consider all available positive and negative evidence including future reversals of existing taxable temporary differences projected future taxable income tax planning strategies carryback potential if permitted under the tax law and results of recent operations
We record uncertain tax positions on the basis of a two step process in which 1 we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and 2 for those tax positions that meet the more likely than not recognition threshold we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority We consider many factors when evaluating our uncertain tax positions which involve significant judgment and may require periodic adjustments The resolution of these uncertain tax positions in a manner inconsistent with management s expectations could have a material impact on our consolidated financial statements We recognize interest and penalties related to uncertain tax positions as a component of our provision for income taxes Accrued interest and penalties are included with the related tax liability
We calculate our net income per share attributable to Class A and Class B common stock using the two class method required for companies with participating securities We consider our convertible preferred stock and unvested common stock which includes early exercised stock options to be participating securities as holders of such securities have non forfeitable dividend rights in the event of our declaration of a dividend for shares of common stock
Distributed and undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders Basic net income per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of our Class A and Class B common stock outstanding
The diluted net income per share attributable to common stockholders is computed by giving effect to all dilutive securities Diluted net income per share attributable to common stockholders is computed by dividing the resulting net income attributable to common stockholders by the weighted average number of fully diluted common shares outstanding
which aims to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis to enable investors to develop more decision useful financial analyses ASU 2023 07 is effective for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 Early adoption is permitted We adopted the ASU as of February 1 2024 and applied the amendments in this Update retrospectively to all prior periods presented in these financial statements Our adoption resulted in the addition of a note to consolidated financial statements 14 Segment Information
which aims to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction ASU 2023 09 is effective for fiscal years beginning after December 15 2024 and early adoption is permitted We are currently evaluating the impact from the adoption of this ASU on our consolidated financial statements
which aims to improve financial reporting by requiring additional disclosure about specific expense categories in the notes to financial statements at interim and annual reporting periods ASU 2024 03 is effective for fiscal years beginning after December 15 2026 and interim periods within fiscal years beginning after December 15 2027 Early adoption is permitted We are currently evaluating the impact from the adoption of this ASU on our consolidated financial statements
We receive payments from customers based on a billing schedule as established in our customer contracts Accounts receivable are recorded when we contractually have the right to consideration In some arrangements a right to consideration for our performance under the customer contract may occur before invoicing to the customer resulting in an unbilled accounts receivable The amount of unbilled accounts receivable included within accounts receivable net of allowances on the consolidated balance sheets was 118 5 million and 124 8 million as of January 31 2025 and 2024 respectively and the amount of unbilled accounts receivable included within other assets noncurrent on the consolidated balance sheets was immaterial as of January 31 2025 and 2024
Contract liabilities consist of deferred revenue Revenue is deferred when we have the right to invoice in advance of performance under a customer contract The current portion of deferred revenue balances is recognized over the next 12 months The amount of revenue recognized during the fiscal years ended January 31 2025 2024 and 2023 that was included in deferred revenue at the beginning of each period was 1 249 8 million 1 257 4 million and 1 140 7 million respectively
The terms of our subscription agreements are monthly annual and multiyear and we may bill for the full term in advance or on an annual quarterly or monthly basis depending on the billing terms with customers As of January 31 2025 the aggregate amount of the transaction price allocated to our remaining performance obligations was 3 801 9 million which consists of both billed consideration in the amount of 1 353 7 million and unbilled consideration in the amount of 2 448 2 million that we expect to recognize as revenue We expect to recognize 59 of our remaining performance obligations as revenue over the next 12 months and the remainder thereafter
We primarily capitalize sales commissions and associated payroll taxes paid to internal sales personnel that are incremental costs from the acquisition of customer contracts These costs are recorded as deferred contract acquisition costs in the consolidated balance sheets We determine whether costs should be deferred based on our sales compensation plans and if the commissions are incremental and would not have occurred absent the customer contract
Sales commissions paid upon the initial acquisition of a customer contract are amortized over an estimated period of benefit of three years which is typically greater than the contractual terms of the customer contracts Generally we do not pay sales commissions upon contract renewal Amortization is recognized on a straight line basis commensurate with the pattern of revenue recognition We determine the period of benefit for commissions paid for the acquisition of the initial customer contract by taking into consideration the initial estimated customer life and the technological life of our unified communications and collaboration platform and related significant features Amortization of deferred contract acquisition costs is included in sales and marketing expense in the consolidated statements of operations
We periodically review these deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit There were no impairment losses recorded during the periods presented
Unrealized losses for securities that have been in an unrealized loss position for less than 12 months were 6 2 million and 6 0 million as of January 31 2025 and 2024 respectively Unrealized losses for securities that have been in an unrealized loss position for 12 months or longer were immaterial as of January 31 2025 and 4 8 million as of January 31 2024 We review the individual securities that have unrealized losses on a regular basis to evaluate whether or not any security has experienced or is expected to experience credit losses resulting in the decline in fair value We evaluate among other factors whether we have the intention to sell any of these marketable securities and whether it is more likely than not that we will be required to sell any of them before recovery of the amortized cost basis We have not recorded an allowance for credit losses as we believe any such losses would be immaterial based on the high grade credit rating for each of our marketable securities as of the end of each fiscal year There were no material realized gains or losses from available for sale securities that were reclassified out of accumulated other comprehensive income loss for the fiscal years ended January 31 2025 2024 and 2023
During the fiscal year ended January 31 2025 we recorded net unrealized gains of 151 4 million on our investments accounted for under the measurement alternative method mainly driven by changes in the fair value sales of investments along with dividends received from these investments
The following tables present information about our financial instruments that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value
We classify our highly liquid money market funds and publicly held equity securities within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets We classify our commercial paper agency bonds corporate and other debt securities U S government agency securities treasury bills and certificates of deposit within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market including readily available pricing sources for the identical underlying security which may not be actively traded We classify our privately held debt securities as Level 3 due to the lack of relevant observable market data over fair value inputs such as the probability weighting of the various scenarios that can impact settlement of the arrangement
On April 21 2023 we acquired 100 of the issued and outstanding share capital of Workvivo Limited Workvivo a private technology company that provides an employee experience platform for an all cash purchase consideration of 221 8 million The acquisition extends our platform and offers our customers new ways to keep employees informed engaged and connected The acquisition has been accounted for as a business combination
In allocating the purchase consideration 184 7 million was attributed to goodwill 28 0 million to intangible assets primarily consisting of 10 8 million to developed technology and 17 0 million to customer relationships and 9 1 million to other net assets acquired The goodwill amount represents synergies related to our existing products expected to be realized from the acquisition and assembled workforce The associated goodwill is not deductible for tax purposes
At the date of the acquisition the developed technology and customer relationships both had an estimated useful life of 5 0 years and both are amortized using the straight line method over their respective estimated useful lives Amortization of developed technology and customer relationships is recorded within cost of revenue and sales and marketing expense respectively within the consolidated statements of operations As of January 31 2025 the developed technology and customer relationships both had a remaining useful life of 3 2 years
Transaction costs incurred in connection with the acquisition were immaterial The results of operations of Workvivo which are not material have been included in our consolidated financial statements from the date of the acquisition Pro forma and historical results of operations of the company have not been presented as the results do not have a material effect on any of the periods presented in our consolidated statements of operations
We have entered into various operating lease agreements for office space with remaining contractual periods of up to five years We also enter into equipment operating lease agreements related to our Hardware as a Service HaaS offering We elect to apply the lessor practical expedient per ASC 842 and account for HaaS with customers as a combined performance obligation with the right to access our unified communications and collaboration platform under ASC 606
HaaS was immaterial to our consolidated financial statements Many of our leases contain one or more options to extend As leases approach maturity we consider various factors such as market conditions and the terms of any renewal options that may exist to determine whether we are reasonably certain to exercise the options to extend the lease
In the normal course of business we enter into non cancelable purchase commitments with various parties to purchase primarily software based services As of January 31 2025 we had outstanding non cancelable purchase obligations with a term of less than 12 months of 236 5 million and non cancelable purchase obligations with a term 12 months or longer of 233 7 million
Our agreements with certain larger customers include certain provisions for indemnifying customers against liabilities if our services infringe a third party s intellectual property rights It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that may be involved in each particular agreement To date we have not incurred any material costs as a result of such provisions and have not accrued any liabilities related to such obligations in our consolidated financial statements
In addition we have indemnification agreements with our directors and our executive officers that require us among other things to indemnify our directors and executive officers for costs associated with any fees expenses judgments fines and settlement amounts incurred by any of those persons in any action or proceeding to which any of those persons is or is threatened to be made a party by reason of the person s service as a director or officer including any action by us arising out of that person s services as our director or officer or that person s services provided to any other company or enterprise at our request We maintain director and officer insurance coverage that may enable us to recover a portion of any future indemnification amounts paid To date there have been no claims under any of our directors and executive officers indemnification provisions
We conduct operations in many tax jurisdictions In many jurisdictions non income based taxes such as sales and use tax and other indirect taxes are assessed on our operations Although we are diligent in collecting and remitting such taxes
there is uncertainty as to what constitutes sufficient presence for a jurisdiction to levy taxes fees and surcharges for sales made over the Internet As of January 31 2025 and 2024 we recorded sales and other tax liabilities of 83 3 million and 77 7 million respectively of which 41 8 million and 35 5 million are included in accrued expenses and other current liabilities respectively and 41 5 million and 42 3 million are included in other liabilities noncurrent respectively in our consolidated balance sheets based on our best estimate of the probable liability for the loss contingency incurred as of those dates Our estimate of a probable outcome under the loss contingency is based on analysis of our sales and marketing activities revenue subject to sales tax and applicable regulations in applicable jurisdictions in each period No significant adjustments to the sales and other tax liabilities have been recognized in the accompanying consolidated financial statements for changes to the assumptions underlying the estimate however changes in our assumptions may occur in the future as we obtain new information which can result in adjustments to the recorded liability
In June 2020 we received a grand jury subpoena from the Department of Justice s U S Attorney s Office for Eastern District of New York EDNY which requested information regarding our interactions with foreign governments and foreign political parties including the Chinese government as well as information regarding storage of and access to user data the development and implementation of Zoom s privacy policies and the actions we took responding to law enforcement requests from the Chinese government In July 2020 we received subpoenas from the Department of Justice s U S Attorney s Office for the Northern District of California NDCA and the SEC Both subpoenas seek documents and information relating to various security data protection and privacy matters including our encryption and our statements relating thereto as well as calculation of usage metrics and related public statements In addition the NDCA subpoena seeks information relating to any contacts between our employees and representatives of the Chinese government and any attempted or successful influence by any foreign government in our policies procedures practices and actions as they relate to users in the United States We have since received additional subpoenas from EDNY and NDCA seeking related information We are fully cooperating with all of these investigations and have conducted our own thorough internal investigation These investigations are ongoing and a negative outcome in any or all of these matters could cause us to incur substantial fines penalties or other financial exposure as well as reputational harm During the fiscal year ended January 31 2025 we recorded an 18 0 million accrual with respect to a tentative settlement offer for the SEC matter that remains subject to SEC approval We do not know when these matters will be completed including the SEC matter which facts we will ultimately discover as a result of the investigations or what actions the government may or may not take We are unable to predict the ultimate outcome of these matters and are unable to reasonably estimate any range of possible loss beyond the 18 0 million settlement offer for the SEC matter
On June 11 2020 and July 30 2020 purported shareholder derivative complaints were filed in the United States District Court for the District of Delaware The first complaint names as defendants nine of our officers and directors and the second complaint names eight of our officers and directors The lawsuits assert state and federal claims and are based on the same alleged misstatements as the shareholder class action complaint The lawsuits accuse our board of directors of failing to exercise reasonable and prudent supervision over our management policies practices and internal controls The plaintiffs seek unspecified monetary damages on behalf of us as well as governance reforms On September 25 2020 the derivative cases were consolidated On October 27 2021 a third substantially identical lawsuit was filed in the same court against the same defendants seeking unspecified monetary damages and governance reforms On November 17 2021 all three derivative lawsuits were consolidated The consolidated case was stayed pending resolution of the motion to dismiss the securities class action On April 11 2023 the court entered a stipulated order that required defendants to answer move or otherwise respond to the operative complaint by June 12 2023 On June 12 2023 defendants filed a motion to dismiss the consolidated case On August 11 2023 the plaintiff in the consolidated case filed an amended complaint On October 18 2023 defendants filed their motion to dismiss the amended complaint On December 22 2023 plaintiff filed her opposition to the motion to dismiss and on January 26 2024 defendants filed their reply in support of the motion to dismiss On April 1 2024 the parties notified the court that the parties are engaged in good faith material settlement discussions and requested that the court stay any proceedings and rulings in connection with the pending motion to dismiss while the parties attempt to reach a proposed resolution of this action On April 2 2024 the Court stayed the case On January 14 2025 the parties executed a Stipulation of Settlement Stipulation to resolve this matter Under the terms of the Stipulation in exchange for the release and dismissal with prejudice of all claims against all defendants in the matter Zoom agreed to enact certain corporate governance reforms and to pay plaintiff s counsel a fee award of up to 1 35 million The Stipulation and settlement remain subject to preliminary and final approval by the court On January 16 2025 plaintiff filed a motion for preliminary approval of the settlement On February 6 2025 the court held a hearing on the motion for preliminary approval of the settlement We accrued the 1 35 million fee award and recorded it as a general and administrative expense in our consolidated statement of operations for the year ended January 31 2025
We are vigorously defending ourselves against these lawsuits Given the uncertainty of litigation the preliminary stage of the cases and the legal standards that must be met for among other things class certification and success on the merits
On April 7 2020 and April 8 2020 securities class action complaints were filed against us and two of our officers in the United States District Court for the NDCA The plaintiffs are purported stockholders of ours The complaints allege among other things that we violated Sections 10 b and 20 a of the Exchange Act and Rule 10b 5 by making false and misleading statements and omissions of material fact about our data privacy and security measures The complaints seek unspecified damages interest fees and costs On May 18 2020 the actions were consolidated On November 4 2020 the court appointed a lead plaintiff On December 23 2020 the lead plaintiff filed a consolidated complaint We filed a motion to dismiss the consolidated complaint on May 20 2021 Plaintiff filed an opposition to our motion to dismiss on July 9 2021 Our reply in support of the motion to dismiss was filed on August 9 2021 On February 16 2022 the court granted in part and denied in part our motion to dismiss On March 14 2022 we moved for reconsideration of the court s ruling on the motion to dismiss On March 22 2022 the court ordered plaintiff to respond to our motion which plaintiff did on March 29 2022 On April 22 2022 we answered the complaint On March 8 2023 the court denied our motion for reconsideration On April 6 2023 the court entered a scheduling order On July 17 2023 the parties entered into a stipulation and agreement of settlement the Stipulation to resolve this matter Under the terms of the stipulation in exchange for the release and dismissal with prejudice of all claims against all defendants in the matter we have agreed to pay and or cause our insurance carriers to pay a total of 150 0 million The Stipulation and settlement remain subject to preliminary and final approval by the court On July 25 2023 the court entered an order staying further proceedings in the matter pending the filing of a motion for preliminary approval of the settlement On October 17 2023 lead plaintiff filed a motion for preliminary approval of the settlement A hearing on the motion for preliminary approval was held on June 13 2024 but the court has yet to enter a preliminary approval order As a result of the settlement we made net payments of 60 0 million 150 0 million for the settlement net of 90 0 million covered by insurance during the year ended January 31 2024 of which 7 5 million had been accrued during the year ended January 31 2023 and 52 5 million was recorded as a general and administrative expense in our consolidated statement of operations for the year ended January 31 2024
In addition from time to time we are involved in various other legal proceedings arising from the normal course of business activities We are not presently a party to any other such litigation the outcome of which we believe if determined adversely to us would individually or taken together have a material adverse effect on our business operating results cash flows or financial condition Defending such proceedings is costly and can impose a significant burden on management and employees We may receive unfavorable preliminary or interim rulings in the course of litigation and there can be no assurances that favorable final outcomes will be obtained
In November 2018 we implemented a dual class common stock structure pursuant to which all the then outstanding shares of our common stock were reclassified as Class B common stock and a new class of Class A common stock was authorized The Class A common stock is entitled to one vote per share and the Class B common stock is entitled to 10 votes per share The Class A and Class B common stock have the same dividend and liquidation rights Each share of Class B common stock will automatically convert into one share of Class A common stock upon a any transfer of such share except for certain permitted transfers described in our amended and restated certificate of incorporation and b the death of the holder of such share In addition each share of Class B common stock will be automatically converted into one share of Class A common stock upon the earliest of a the date that is six months following the death or incapacity of Eric S Yuan our CEO b the date that is six months following the date that Mr Yuan is no longer providing services to us or his employment is terminated for cause c the date specified by the holders of a majority of the then outstanding shares of convertible preferred stock voting together on an as converted basis and the holders of a majority of the then outstanding shares of Class B common stock voting as a separate class and d the 15 year anniversary of the closing of our IPO In connection with the implementation of the dual class common stock structure each then outstanding share of our convertible preferred stock became convertible into one share of Class B common stock and all outstanding options to purchase shares of common stock became options to purchase an equivalent number of shares of Class B common stock
Upon the effectiveness of the amended and restated certificate of incorporation in November 2018 the number of shares of common stock that are authorized to be issued consisted of 320 000 000 shares of Class A common stock 0 001 par value per share and 300 000 000 shares of Class B common stock 0 001 par value per share Class A and Class B common stock are collectively referred to as common stock throughout the notes to the consolidated financial statements unless otherwise noted
Upon the completion of the IPO in April 2019 our amended and restated certificate of incorporation became effective which also authorized the issuance of 2 000 000 000 shares of Class A common stock 0 001 par value per share and 300 000 000 shares of Class B common stock 0 001 par value per share
In February 2024 our Board of Directors authorized a stock repurchase program of up to 1 5 billion of our Class A common stock In November 2024 our Board of Directors authorized the repurchase of an additional 1 2 billion of our outstanding Class A common stock Repurchases of our Class A common stock may be effected from time to time either on the open market including preset trading plans in privately negotiated transactions and other transactions in accordance with applicable securities laws The program does not obligate us to repurchase any specific number of shares and may be discontinued at any time
During the fiscal year ended January 31 2025 we repurchased and subsequently retired 15 888 316 shares of our Class A common stock for an aggregate amount of 1 1 billion As of January 31 2025 1 6 billion of the repurchase authorization remained available
In 2011 we adopted the 2011 Global Share Plan 2011 Plan under which officers employees and consultants were granted various forms of equity incentive compensation at the discretion of the board of directors including stock options and restricted stock awards In connection with the IPO the shares of Class B common stock remaining available for issuance under the 2011 Plan became available for issuance for a corresponding number of shares of our Class A common stock under the 2019 Equity Incentive Plan 2019 Plan which is a successor to and continuation of our 2011 Plan
In April 2019 we adopted the 2019 Plan which became effective in connection with our IPO Our 2019 Plan provides for the grant of stock options stock appreciation rights RSU awards performance awards and other forms of awards The awards generally vest over four years The plan administrator determines the term of stock options granted under the 2019 Plan up to a maximum of 10 years The maximum number of shares of our Class A common stock that may be issued under our 2019 Plan will not exceed 58 300 889 shares of our Class A common stock which is the sum of 1 34 000 000 new shares plus 2 an additional number of shares not to exceed 24 300 889 consisting of A shares that remain available for the issuance of awards under our 2011 Plan as of immediately prior to the time our 2019 Plan becomes effective and B shares of Class B common stock subject to outstanding stock options or other stock awards granted under our 2011 Plan that on or after the 2019 Plan became effective terminate or expire prior to exercise or settlement are not issued because the award is settled in cash are forfeited because of the failure to vest or are reacquired or withheld or not issued to satisfy a tax withholding obligation or the purchase or exercise price if any as such shares become available from time to time In addition the number of shares of our Class A common stock reserved for issuance under our 2019 Plan automatically increases on February 1 of each calendar year starting on February 1 2020 through February 1 2029 in an amount equal to i 5 of the total number of shares of our common stock both Class A and Class B outstanding on January 31 of the fiscal year before the date of each automatic increase or ii a lesser number of shares determined by our board of directors prior to the applicable February 1
There were no options granted for the fiscal years ended January 31 2025 2024 and 2023 The intrinsic value of the options exercised which represents the difference between the fair market value of our common stock on the date of exercise and the exercise price of each option was 62 1 million 90 0 million and 121 5 million during the fiscal years ended January 31 2025 2024 and 2023 respectively As of January 31 2025 all options have vested and there is no unrecognized stock based compensation expense remaining
As of January 31 2025 unrecognized stock based compensation expense related to outstanding unvested RSUs was 1 495 8 million which is expected to be recognized over a weighted average period of 2 6 years
For the fiscal year ended January 31 2025 we granted 1 7 million RSUs that contain both service and performance vesting criteria The ultimate number of shares eligible to vest pursuant to these RSUs range from 0 to 100 of the target number of shares depending on achievement of the performance metrics The number of RSUs with service and performance vesting conditions included in the granted amount in the table above reflects the shares that would be eligible to vest at 100 of the target amount
In April 2019 we adopted the 2019 ESPP which became effective in connection with the IPO A total of 9 000 000 shares of our Class A common stock were initially reserved for issuance under the ESPP The number of shares of our Class A common stock reserved for issuance automatically increases on February 1 of each calendar year beginning on February 1 2020 through February 1 2029 by the lesser of 1 1 of the total number of shares of our common stock both Class A and Class B outstanding on the last day of the fiscal year before the date of the automatic increase and 2 7 500 000 shares provided that before the date of any such increase our board of directors may determine that such increase will be less than the amount set forth in clauses 1 and 2
Under our current ESPP Class A common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lesser of 1 85 of the fair market value of a share of our Class A common stock on the first date of an offering or 2 85 of the fair market value of a share of our Class A common stock on the date of purchase No employee may purchase shares under the ESPP at a rate in excess of 25 000 worth of our Class A common stock based on the fair market value per share of our Class A common stock at the beginning of an offering for each calendar year such purchase right is outstanding or 3 000 shares The 2019 ESPP provides for at maximum 27 months offering periods with four offering dates generally in June and December of each year The first offering period began on April 18 2019 During the fiscal years
On February 7 2023 we announced a restructuring plan the Plan intended to reduce operating costs and continue advancing our ongoing commitment to profitable growth The Plan included a reduction of our then current workforce by approximately 15 The execution of the Plan was completed as of July 31 2023 and therefore no restructuring expense was recorded for the year ended January 31 2025
For the year ended January 31 2024 we recorded net restructuring costs of 73 0 million which consisted of 54 4 million related to employee transition severance payments and employee benefits 17 3 million related to stock based compensation awards and 1 3 million for other related expenses
Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes as well as operating loss and tax credit carryforwards Significant components of our deferred income tax assets as of January 31 2025 and 2024 are as follows
The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income of an appropriate character in the periods the items are expected to be deductible or taxable Based on the available objective evidence during the year ended January 31 2025 we believe that it is more likely than not that the tax benefits relating to U S losses that are capital in nature and certain state deferred tax assets may not be realized prior to expiration Accordingly we have maintained a valuation allowance against these deferred tax assets and intend to maintain the applicable valuation allowance until sufficient positive evidence exists to support a reversal of or decrease in the valuation allowance
As of January 31 2025 we had net operating loss carryforwards of approximately 1 8 million for federal income tax purposes and 12 5 million for state income tax purposes which will begin to expire in the year 2033 if unused We also had certain foreign net operating loss carryforwards of 22 4 million which have an indefinite life
As of January 31 2025 we also had research and development credit carryforwards of approximately 1 2 million for federal income tax purposes and 23 4 million for state income tax purposes The federal research and development tax credits have a twenty year carryover period while the state research and development tax credits carry forward indefinitely
We indefinitely reinvest earnings from our foreign subsidiaries and therefore no deferred tax liability has been recognized on the basis difference created by such earnings We have not provided foreign withholding taxes for any undistributed earnings of our foreign subsidiaries
As of January 31 2025 gross unrecognized tax benefits related to uncertain tax positions were 56 3 million 66 0 million total including 9 7 million associated with interest and penalties As of January 31 2024 gross unrecognized tax benefits related to uncertain tax positions were 41 8 million 46 5 million total including 4 7 million associated with interest and penalties As of January 31 2023 gross unrecognized tax benefits related to uncertain tax positions were 30 4 million 32 5 million total including 1 6 million associated with interest and penalties We recognized approximately 9 7 million 4 7 million and 1 6 million in potential interest and penalties associated with uncertain tax positions during fiscal years ended January 31 2025 2024 and 2023 respectively To the extent taxes are not assessed with respect to uncertain tax positions substantially all amounts accrued including interest and penalties will be reduced and reflected as a reduction of the overall income tax provision Unrecognized tax benefits and associated accrued interest and penalties are included in our income tax provision
We file income tax returns in the U S federal jurisdiction various state jurisdictions and various foreign jurisdictions As of January 31 2025 all of the years in which net operating losses or tax credits were utilized remain open to examination by the federal and state tax authorities We believe that an adequate provision has been made for any adjustments that may result from tax examinations Although the timing of the resolution settlement and closure of audits is not certain we do not believe it is reasonably possible that our unrecognized tax benefits will materially change in the next 12 months
As required by the 2017 Tax Cuts and Jobs Act we started capitalizing research and development expenses incurred beginning in fiscal year 2023 These expenses are capitalized and amortized over five years for domestic research and fifteen years for international research The mandatory capitalization requirement increases our cash tax liabilities but also decreases our effective tax rate due to increasing the foreign derived intangible income deduction The cash flow impact will decrease over time as capitalized research and development expenditures continue to amortize
The potential shares of common stock that were excluded from the computation of diluted net income per share attributable to common stockholders for the periods presented because including them would have been anti dilutive are as follows
For the years ended January 31 2025 2024 and 2023 the table above does not include 405 156 of issued Class A common stock held by us that are reserved for the sole purpose of being transferred to nonprofit organizations
Our CEO is the Chief Operating Decision Maker CODM of the Company The Company manages the business activities on a consolidated basis and all information provided to and reviewed by our CODM is compiled at the consolidated entity level Therefore we have only one operating and reportable segment The description of the types of products and services from which the reportable segment derives its revenue is the same as those described in the Summary of Business and Significant Accounting Policies
The measure of segment profit or loss that our CODM uses to allocate resources and assess performance is our consolidated net income The CODM uses net income to monitor results and to decide whether to reinvest profits Our CODM does not assess segment performance or make decisions using asset or liability information
Includes stock based compensation related payroll taxes acquisition related expenses restructuring expenses litigation settlements net gains on strategic investments net and other income net excluding interest income
Our management with the participation of our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Exchange Act as of the end of the period covered by this Annual Report on Form 10 K Based on such evaluation our principal executive officer and principal financial officer have concluded that as of such date our disclosure controls and procedures were effective at a reasonable assurance level
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Exchange Act Management conducted an assessment of the effectiveness of the Company s internal control over financial reporting based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission Management has concluded that its internal control over financial reporting was effective as of January 31 2025 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U S GAAP
The effectiveness of our internal control over financial reporting as of January 31 2025 has been audited by KPMG LLP an independent registered public accounting firm as stated in their report which is included in Item 8 of this Annual Report on Form 10 K
There has been no change in our internal control over financial reporting as defined in Rules 13a 15 d and 15d 15 d under the Exchange Act that occurred during the quarter ended January 31 2025 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting
Our management including our principal executive officer and principal financial officer does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud A control system no matter how well designed and operated can provide only reasonable not absolute assurance that the objectives of the control system are met Further the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs Because of the inherent limitations in all control systems no evaluation of controls can provide absolute assurance that all control issues and instances of fraud if any have been detected These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake Additionally controls can be circumvented by the individual acts of some persons by collusion of two or more people or by management override of the controls The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate Due to inherent limitations in a cost effective control system misstatements due to error or fraud may occur and not be detected
During the Company s last fiscal quarter the Company s directors and officers as defined in Rule 16a 1 f under the Exchange Act adopted or terminated the contracts instructions or written plans for the purchase or sale of the Company s securities set forth in the table below
Represents the maximum number of shares that may be sold pursuant to the 10b5 1 arrangement The actual number of shares sold will be dependent on the satisfaction of certain conditions as set forth in the written plan
The plan provides for the sale of up to 75 of the shares vested during the plan period net of any shares we withhold to satisfy income tax withholding the amount of which cannot currently be determined A maximum of 143 201 shares are eligible to vest during the plan period
We maintain a Code of Business Conduct and Ethics that incorporates our code of ethics applicable to all employees including all directors and executive officers Our Code of Business Conduct and Ethics is published on our Investor Relations website at investors zoom us under Corporate Governance We intend to satisfy the disclosure requirement under Item 5 05 of Form 8 K regarding amendments to or waiver from a provision of our Code of Business Conduct and Ethics by posting such information on the website address and location specified above
The remaining information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders which will be filed with the SEC no later than 120 days after January 31 2025
The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders which will be filed with the SEC no later than 120 days after January 31 2025
The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders which will be filed with the SEC no later than 120 days after January 31 2025
The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders which will be filed with the SEC no later than 120 days after January 31 2025
The information required by this item is incorporated by reference to the definitive Proxy Statement for our 2025 Annual Meeting of Stockholders which will be filed with the SEC no later than 120 days after January 31 2025
The documents listed in the following Exhibit Index of this Annual Report on Form 10 K are incorporated by reference or are filed with this Annual Report on Form 10 K in each case as indicated therein numbered in accordance with Item 601 of Regulation S K
The certifications attached as Exhibit 32 1 that accompany this Annual Report on Form 10 K are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 as amended or the Exchange Act whether made before or after the date of this Annual Report on Form 10 K irrespective of any general incorporation language contained in such filing
All other financial statement schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10 K
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Each person whose signature appears below constitutes and appoints Eric S Yuan Michelle Chang and Aparna Bawa and each one of them as his or her true and lawful attorneys in fact and agents with full power of substitution and resubstitution for him or her and in their name place and stead in any and all capacities to sign any and all amendments to this Annual Report on Form 10 K and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission granting unto said attorneys in fact and agents and each of them full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorneys in fact and agents or any of them or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof

Company Name	Zoom Communications, Inc. Vist SEC web-site
Category	SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC.
Trading Symbol	ZM