Toronto, Canada – October 23, 2024: The stock of IBM is in pressure today despite beating profit expectations after the release of its third-quarter earnings report. While the technology giant posted decent earnings per share, revenue was below what analysts had projected, raising concerns about its ability to drive growth in key business segments.
Overview of Earnings
IBM reported an adjusted EPS of $2.35, beating analysts’ expectations of $2.30. The company’s revenue, however, came in at $14.6 billion below the consensus estimate of $14.9 billion. This deficit was blamed on slower-than-anticipated growth in both of the most important sectors for IBM: software and consulting.
IBM Chief Executive Officer Arvind Krishna addressed the mixed results in a statement during the earnings call. “While we delivered earnings growth and continued operational discipline, revenue softness reflects the current macroeconomic environment and elongated sales cycles,” he said.
Stock Reaction
IBM’s stock declined almost 4% in extended trading as investors digested the revenue miss following the earnings announcement, casting more doubts over whether the company can maintain its growth against increasing competition and a slowdown in enterprises’ spending.
J.P. Morgan analyst Samik Chatterjee said, “While the earnings beat is encouraging, the revenue trajectory for IBM continues to be underwhelming. Growth across key segments isn’t yet at a pace to excite investors.”
Segment Performance
Software: This is up 4% from last year but below estimates as AI solution adoption remains softer.
Consulting: Consulting revenue was modestly higher, but demands softened owing to delayed projects by clients on budget constraints.
Infrastructure: Hybrid cloud and infrastructure revenue performance matched estimates, enabling margins to stay stable.
Outlook
IBM also reaffirmed full-year guidance, expecting mid-single-digit revenue growth and improving cash flow. Krishna sounded confident about the AI and hybrid cloud offerings at the company, but also warned of near-term headwinds from both the overall macroeconomic environment and shifting client priorities.
Conclusion
Still, despite the beat in profits, the miss on revenues raised fears about the sustainability of its growth, sending shares lower. As IBM will be compelled to cash in on AI and hybrid cloud when enterprises get cautious with spending, investor confidence will return.
The strategy for driving growth by IBM remains closely watched since it remains in the middle of remaking itself in a competitive technology landscape.
