ibm shares fall after revenue misses expectations in third quarter results

IBM's third-quarter earnings fell short of Wall Street's revenue expectations, leading to a 3% decline in the company's stock in after-hours trading.

Financial Performance

While IBM reported earnings per share of $2.30, slightly exceeding the anticipated $2.23, its revenue of $14.97 billion was below the expected $15.07 billion. The company faced a significant net loss of $330 million, or 36 cents per share, compared to a net income of $1.70 billion, or $1.84 per share, in the same quarter last year. This was largely attributed to a one-time pension settlement charge related to an agreement with Prudential.

Revenue Growth Expectations

Looking ahead, IBM's management expects revenue growth at constant currency to align with the third quarter's performance. The company reported a 2% revenue growth at constant currency for the third quarter and reiterated its target of achieving over $12 billion in free cash flow for 2024. The consulting and infrastructure segments are facing challenges in a volatile economic environment, raising concerns among investors.

Software Segment Resilience

On a positive note, IBM's software segment showed resilience, generating $6.52 billion in revenue, a 10% increase compared to the previous quarter. The growth was driven by a 14% increase in revenue from Red Hat, a strategic acquisition made in 2019. The consulting revenue, however, experienced a slight decline of 0.5%, totaling $5.15 billion. Business transformation revenue within the consulting unit grew by 2%, a decrease from the 6% growth reported in the second quarter.

Challenges in the Infrastructure Segment

IBM's infrastructure segment reported a 7% decline in revenue, falling short of expectations. Investors are concerned about the performance of this segment, especially as they await the launch of a new mainframe computer expected in the first half of 2025. Despite these challenges, IBM has seen growth in its generative artificial intelligence initiatives, with a book of business exceeding $3 billion.

Strategic Moves and Acquisitions

During the quarter, IBM announced plans to expand its network of Oracle product consultants and acquire Oracle services company Accelalpha. The company also completed the sale of its QRadar cloud software assets to Palo Alto Networks and acquired StreamSets and webMethods from Software AG. These strategic moves demonstrate IBM's efforts to adapt to the evolving technology landscape and enhance its service offerings.

Conclusion

Overall, while IBM's stock has performed well this year, the recent earnings report highlights the challenges the company faces in key segments. Executives will likely focus on addressing investor concerns and outlining strategies for future growth in a competitive market during discussions with analysts.

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