🐘 This Elephant Can’t Dance?

IBM has had a rough few years is a massive understatement. The trend of dropping revenues and profits quarter after quarter continues unabated.

Hey Global Investor, here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Yesterday Close) 3,853.07 +1.22 (0.032%)

NASDAQ (Yesterday Close) 13,530.92 +73.67 (0.55%)

FTSE 100 (5 PM IST) 6654.46 -60.96 (-0.90%)

NIFTY 50 (Today’s Close) 14,371.90 −218.45 (1.50%)

USDINR (5 PM IST) 72.96 (1 Year +2.64%)

This Elephant Can’t Dance?

Simply saying “IBM has had a rough few years” is a massive understatement. The trend of dropping revenues and profits quarter after quarter continues unabated.

Background: In 2018, under then CEO Ginni Rometty, IBM had acquired Red Hat for $34B. The theory was that IBM would build an open-source hybrid cloud tech platform that assists customers as they manage their systems. What is a hybrid cloud you ask? Turns out most companies are not yet tech-savvy enough to put all their systems on the cloud. A large chunk of their systems are still on-premises, and someone will need to help them manage these two disparate technologies. That’s the hybrid cloud.

Well, Rometty, who took office in 2012, presided over 22 straight quarters of revenue losses and the Red Hat acquisition did little to change the tide. As a result, in April 2020, it was Rometty out, Arvind Krishna in. As Krishna grappled with IBM’s strategy, it became clear that cloud is where the future is. And so, IBM announced the spin-off of its legacy infrastructure services business to go all-in on cloud, even if it meant enduring some short-term pain.

What Happened? The transformation that Krishna was hoping to demonstrate is yet to show itself. IBM reported a drop in adjusted net income for the seventh straight year and a decline in sales for eight of the last nine years.

Key Numbers for the quarter:

  • Adjusted EPS: $2.07 vs $1.79 expected
  • Revenue: $20.37B vs $20.67B expected

The three major business segments – Cloud and Cognitive Software, Global Technology Services, and Global Business Services, all registered a Y-o-Y drop between 3% to 6%. However, the Systems revenue was down 18%. Krishna reiterated the legacy business spin-off as a positive and set the expectation that the company expects to grow in mid-single digits after the fact, along with $12B free cash flow.

This optimism was immediately panned by the analysts as “unrealistic” and that investors will need more details on the spin-off itself. So where does IBM go from here? Krishna is steering it straight into the hybrid cloud – where Amazon, Microsoft, and Google are already waiting.

Market Reaction: IBM stock closed at $131.65, up 1.21%. After the disappointing report, shares are down 8.35% before hours.

Company Snapshot 📈

IBM $131.65 +1.57 (+1.21%)

Analyst Rating  (15 Ratings) BUY 27%  HOLD 60%  SELL 13%

Newsworthy 📰

  • Back to Basics?: Intel’s New CEO Commits to Manufacturing (INTC +6.46%)
  • No More: Alphabet cancels Loon, project to beam internet to earth from balloons (GOOG +0.23%)
  • Helping Hand: Amazon will open pop-up Covid vaccine clinic in Seattle (AMZN +1.34%)

Later Today 🕒

  • Before Market Open: World Acceptance Corp Earnings (WRLD)
  • Before Market Open: Kansas City Southern Earnings (KSN)
  • First Bancorp (North Carolina) Earnings

Fun Fact of The Day 🌞

Around 24 billion newspapers are published around the world every year

Disclaimer: The content of this article has been created and published by Winvesta India Technologies Pvt. Ltd., in order to ease the reader’s understanding of the subject matter. The information and/or content (collectively “Information”) provided herein is general information sourced through various news reports and does not constitute a research report or a research analysis. The Information is not intended to offer advice, target or solicit any particular customer or group of customers to buy or sell securities. 

Winvesta does not render any research or advisory services and provides a more detailed description of its services on its website and mobile application along with the terms and conditions published therein from time to time. While reasonable care has been exercised to ensure that the Information is adequate and reliable, no representation is made by Winvesta as to its accuracy or completeness and Winvesta, its affiliates, subsidiaries and employees accept no liability of whatsoever nature for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this Information. Neither Winvesta nor any of its affiliates are acting as an investment adviser, research analyst or in any other fiduciary capacity. Accordingly, reader’s are expected to undertake their own due diligence in consultation with their own advisors and are advised not to solely rely on the Information. Any such reliance shall be at the reader’s own risk. 

All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.

Start Building Your Global Portfolio Today

Download Winvesta App now to Get Started