Ooma's AI and POTS Replacement Surge: Record Quarter, New Products, and a Reinvented Growth Story

With AirDial accelerating, AI monetization underway, and residential users growing again, Ooma posts 25% revenue growth and record profitability.

OOMA · Earnings Call · 2026-08-26

A Look Under the Hood

Ooma’s Q2 fiscal 2027 results were nothing short of a turnaround inflection. Total revenue hit $83.2M, up 25% year-over-year, while adjusted EBITDA jumped 74% to a record $12.4M, representing a 15% margin — up from 10% just six quarters ago. The quarter was propelled by a combination of POTS replacement momentum, AI-driven ARPU expansion, and a pivot in residential products that has finally reversed a years-long user decline. The company’s CEO, Eric Stang, framed it clearly: “We are now halfway through our fiscal 2027, and I'm pleased to report that on both the top line and the bottom line, we are ahead of our original plan.” (component_hash=6464102805222130427). The growth is broad-based, but the most striking numbers come from the business segment: business subscription and services revenue grew 38% year-over-year, with AirDial services revenue up 75%. On the balance sheet, Ooma generated record operating cash flow of $13.1M and free cash flow of $10.8M in the quarter. A look at the longer-term trend shows revenue climbing steadily, but the recent acceleration is notable. Total revenue rose from under $70M in fiscal 2026 to $81M this quarter, a clear step-up in growth. The gross margin remained healthy at 62.4%, even with product margins improving from -47% to -25% year-over-year on the back of AirDial hardware and tariff recovery.

AirDial: The POTS Replacement Wave Is Real

AirDial continues to be the star performer. The company added two new resale partners in Q2, bringing the total past 40, including a Verizon Platinum partner. A highlight win was a large hospital system that purchased nearly 200 AirDial lines, over 1,000 UCaaS seats, and Ooma Connect for Internet backup. Eric Stang commented on the market acceleration: “Just a lot more activity, a lot more interest. Customers still want to do a POC. When they sign, they still go through a rollout schedule that's dictated really by their needs.” (component_hash=4750243760627885397) He also quantified the remaining opportunity: “There's still a long way to go in POTS reduction. So probably 8 million lines out there or some number of that level to be replaced.” This comes as carriers like AT&T aggressively sunset copper lines, a trend that has been building for years. In prior quarters, we saw similar optimism: back in May 2026, Eric noted, “So implementations are going great. We are we are able to respond as needed, as customers come in, and you know, we are excited about all the opportunities we are seeing.” (component_hash=113233554942459457). The difference now is that the order flow is converting into revenue and expanding margins.

AI: Moving from Features to a Platform

Ooma is making a bold bet on AI, not as a gimmick but as a monetization engine. The company launched AI Transcriptions, AI Insights, AI Answering Service, and AI Receptionist within the Pro Plus tier and as stand-alone services. The newly announced Pro Plus attach rate is already strong — 58% of new Office users choose higher tiers. Eric described the pricing power: "Whether a customer is stepping up to Pro Plus for an additional $5 or $10 per month per user or whether they are also paying us $15 to $50 a month or more for our stand-alone services, we have the potential to significantly increase our revenue per account and per user." (component_hash=6464102805222130427) The company is also building an major retailer distribution channel for its hardware, which will feed the subscription base. The launch of StarDial, a residential solution designed for Starlink users, further expands the addressable market. Eric explained the technology: "We automatically send redundant packets when we observe latency over the connection. And we will dial up to 1 redundant, 2 redundant, 3 redundant and then back down... We think that's a real powerful feature for communicating over Starlink Internet." (component_hash=3920503645641943424) This AI push aligns with broader market trends. In the global trajectory, we see a surge in keywords like "AI data centers" and "agentic AI" across many earnings calls. Ooma is approaching this from a niche SMB angle, which is differentiated. In the recent earnings reporters list, Zoom also discussed similar AI-driven communications features. This confluence suggests the market is betting on AI as a core growth driver, but Ooma's execution — with in-house AI processing to control costs — sets it apart.

What we're starting to do with AI, it's an inflection point for us in our market. We can bring some pretty exciting features to our small business customers, in particular, that they've never had or seen before.
Eric Stang, Chief Executive Officer · 2026-08-26

Residential Pivot and a Rebound in Users

Perhaps the most surprising result is the turnaround in residential subscribers. After years of gradual decline, Ooma grew its residential base by over 3,000 users in Q2, driven by the launch of MyPhone — a product designed for younger children as an alternative to a smartphone. Eric Stang noted, "We were declining each year in residential users. This past quarter, we grew 3,000 users, and the bulk of that swing is driven by MyPhone." (component_hash=5315862580520357404) The company has secured placement at five major retailers including Costco, Amazon, Best Buy, Walmart, and Target, and expects in-store availability this fall. This residential rebound is also a financial story. The company now guides residential subscription revenue to be flat to +1% for the year, a reversal from the previous -1% to -3% assumption. Shig Hamamatsu attributed the guidance raise significantly to this: "knowing that the residential subscription still accounts for around 30% of subscription revenue, that's turning from decline year-over-year to growth." (component_hash=2699058493714255205) In the prior quarter, Eric had hinted at the potential of this new product: "I think My Phone is going to take us to the next step. And we should have it out in the market in the first half of this year. We have previewed it with a couple of our retail partners, and they love it." (component_hash=3070514051214741185) That vision is now materializing.

Outlook and Strategic Significance

Ooma raised its full-year fiscal 2027 revenue guidance to $332-333.5M and non-GAAP EPS to $1.35-1.38. The company is clearly in a period of operating leverage, with R&D as a percent of revenue declining and sales and marketing remaining disciplined. The merger synergies from FluentStream and Phone.com are also starting to show, with additional actions taken late in Q2 expected to benefit Q3. The upcoming Investor Day on September 29 at the NYSE will provide a deeper look into the AI roadmap and partner strategy. Given the strong execution, the 54% run-up in the stock over the past 90 days (as per the price tape) reflects the market's growing confidence. The stock remains well below its 2021 peak, but the fundamental trajectory is clearly inflecting upward. With a cell phone alternative addressing parental concerns, AI features that add real value to SMBs, and AirDial riding the POTS replacement wave, Ooma has multiple catalysts. The most compelling aspect is the convergence of these themes — each one alone could be a growth story, but together they form a powerful narrative of a company that has found its footing and is scaling profitability. This is not just a quarterly beat; it is a strategic repositioning that could define Ooma's next several years.