International Business Machines (NYSE:) reported third-quarter earnings that beat analyst expectations, but revenue fell short of expectations, sending shares down more than 6% on Thursday.
The tech giant posted adjusted earnings per share of $2.30, beating analyst consensus of $2.22. However, revenue came in at $15 billion, slightly less than the $15.04 billion analysts had forecast. Compared to the same quarter last year, sales increased by 1%, or 2% at constant exchange rates.
IBM The Software segment was a bright spot, with revenue growing 9.7% year over year to $6.5 billion. The company’s Red Hat business saw revenue increase by 14%.
However, the Infrastructure segment saw a 7% decline in revenue to $3 billion. Also, revenues from the company’s Consulting business remained stable and contracts declined 4% year-over-year.
Highlighting the company’s progress in artificial intelligence, Arvind Krishna, chairman, president and CEO of IBM, said: “Our Generative AI business book now exceeds $3 billion, up from more than $1 billion from quarter to quarter to quarter.”
Despite the revenue loss, IBM maintained its full-year 2024 guidance, expecting steady currency revenue growth consistent with its mid-single-digit model. The company also raised its free cash flow guidance to more than $12 billion for this year, although it did not reaffirm its 4% revenue growth target.
In a post-earnings note, Bernstein analysts said there could be some profit-taking from investors after the report, given IBM’s rally of about 26% in the past three months.
“We believe that expectations were high going into the publication, and as estimates are unlikely to change and investors could gradually become more cautious on the
in the consulting industry, we see some potential in taking profits from print,” they said.
Separately, RBC Capital Markets analysts noted that IBM had “a solid but uneven quarter,” noting that Software’s strength, especially Red Hat’s, was offset “by slowing infrastructure spending and continued macroeconomic headwinds for non-genAI Consulting.”
James Kavanaugh, Senior Vice President and Chief Financial Officer of IBM, commented on the company’s financial performance, saying, “Our investments in software are paying off as we have repositioned our portfolio in recent years.”
The significant stock drop following the earnings release suggests that investors may be concerned about IBM’s ability to meet growth expectations.
Shares are up 42% this year.
Senad Karaahmetovic contributed to this report.
