Why Is Everyone Ignoring Zoom Stock’s High Cash Yield?
Over the last twelve months, Zoom Communications (ZM) generated free cash flow equal to 6.7% of its market value. The median S&P 500 company sits at 4.4%. A yield that high means one of two things: a heavily discounted business or a company the market expects to shrink. So why are investors paying so little for Zoom’s cash?
Why Zoom’s Unspent Money Still Belongs To You
Shareholders own a slice of the free cash Zoom produces, just as they own a share of its profit. That holds true whether the company distributes those funds or keeps them on the balance sheet. Retained cash still belongs to the owners. When the broader market eventually recognizes that accumulated cash, share prices tend to follow suit. That effect is stronger when the cash pile is actively growing.
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Zoom Earns Wide Margins And Spends Little
Zoom sells business software like Zoom Workplace and its customer experience product, Zoom CX. These platforms generate significant amounts of cash. Over the last twelve months, the company converted 38.6% of its revenue into free cash flow. During the same period, its operating margin widened to 23.7%, up from 16.2% two years earlier. The company also requires little capital to keep its operations running, allocating just 4% of its operating cash flow to capital spending.
This free cash flow has grown every year. Over the last twelve months, it reached $1.9 billion, climbing from $1.1 billion three years earlier. Zoom also operates with virtually no leverage. The company holds total debt of $0.1 billion, compared to $7.2 billion in cash and short-term investments. A profile of rising cash, expanding margins, and almost no debt looks more like a business on sale than one in decline.
Zoom Has Grown Slower Than The S&P 500
Revenue at Zoom grew by an average of 3.8% a year over the last three years, lagging behind the 5.9% pace of the S&P 500. The price appears to assume this sluggish trajectory will persist. Yet growth did accelerate to 5.0% over the last twelve months, up from 3.6% the prior year.
The weak spot remains Zoom’s Online business, a segment that generates less revenue than the Enterprise division. During the fiscal Q2 2027 earnings call, the company lowered its fiscal 2027 outlook for Online revenue to flat, down from an earlier forecast of slight growth. Executives described this reduced outlook as prudent, noting that buyers across the industry have altered how they discover new products.
Zoom is prioritizing its Enterprise business, the segment that brings in most of its revenue. This division grew by 7.8% from a year earlier in fiscal Q2 2027, expanding faster than the company as a whole. The company credited its AI products. Zoom also raised its fiscal 2027 free cash flow forecast to a range of $1.78 billion to $1.82 billion, up from $1.72 billion. Even so, the new range sits below the $1.9 billion it generated over the last twelve months. Extending the life of equipment at one data center for two more years accounted for about $40 million of that increase.
With so little debt on the balance sheet, the open question for Zoom is whether free cash flow can hold steady or continue growing while the Online segment remains flat. When the company reports its fiscal third quarter of 2027, free cash flow and Online revenue growth will be the central metrics to watch.
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Zoom Communications holders are counting on its cash flow to hold up. When the advisor who built your plan moves on, it is a natural moment to ask whether the plan still fits the life you have now. Glenn Caldicott, CIO of our Boston-based partner firm Empirical Asset Management, an SEC-registered investment adviser, offers a free review of your holdings, fees and income plan.