Zoho founder Sridhar Vembu has hit back at a social media user questioning the company's decision to withhold annual salary hikes, asking the critic to understand the difference between rising revenue and the money a business has available to spend. His response comes after the software company announced that employees would not receive their usual appraisal this year, despite reporting thousands of crores in annual profit.

The debate began after a user on X questioned why a bootstrapped company such as Zoho, which does not depend on external investors, could not afford to give employees a salary hike. The user pointed to Zoho's annual net profit of more than Rs 3,000 crore and argued that the decision was difficult to justify when the company was not under pressure from outside investors.

Vembu responded by explaining that the profits being discussed belonged to the previous financial year, when Zoho had provided salary hikes. The company's financial position and spending requirements have since changed, he said, noting that profits reported were for last year and pay hikes had already been issued then.

Explaining the company's position further, Vembu said Zoho was dealing with a steep rise in infrastructure expenses, particularly the cost of servers needed to run its data centres and support its growing use of artificial intelligence. He noted that server prices had increased fourfold, while the cost of AI usage had also risen substantially. Zoho needs to buy servers when it signs up new customers and replace older equipment, adding to its capital expenditure.

Vembu pointed out that while revenue is up, capital investment in servers to generate that revenue has increased massively, causing cash flow to turn negative before factoring in depreciation over time. He added that Zoho had reduced its marketing expenditure and deferred salary hikes in an effort to bring cash flow back to zero.

His explanation follows an earlier post in which he warned that the software industry's business outlook was uncertain. He also cited geopolitical challenges and said Zoho had not increased its employee count in the past 18 months, stating that the firm is trying to avoid mass layoffs while undergoing a reinvention that could take three to five years to yield results.

The social media user's claim about Zoho's profits is largely correct based on financial filings. Zoho Corporation recorded consolidated revenue of Rs 12,313 crore in the financial year 2024-25 alongside a net profit of Rs 3,191 crore, following a net profit of Rs 3,299 crore in the previous fiscal year.

This means Zoho did report a net profit exceeding Rs 3,000 crore, but that figure does not establish how much cash the company has available for spending in the current financial year. Profit and cash flow are distinct financial measures, and a company can report a profit while spending heavily on new equipment, infrastructure, and other investments that affect cash flow differently than a profit and loss account.