IBM Common Stock (NYSE:IBM): Soft Q1 Results Rattles Investors, Triggers Sell-off

IBM Common Stock (NYSE:IBM) shares fell 6% in after-hours of trading, despite the tech giant reporting first quarter financial results that appeared to beat Wall Street expectations. The sell-off came on growing concerns that investments on Artificial Intelligence could take much longer before they start paying off.
Neha Gupta
ibm

IBM Q1 Results

Big Blue reported earnings per share of $2.45 a share slightly above estimates of $2.42 a share. Revenue came in at $19.07 billion also beating Wall Street expectations of $18.83 billion and representing a 5% year over year growth.

The adjusted gross margin in the quarter fell 70 basis points annually to 43.7%. It also decreased 30 basis points to 44.1% on the tech giant backing out restructuring costs for System’s hardware segment.  Both metrics were below the 45.1% consensus estimate.

Investors Concern

A point of concern among investors has to do with the fact that the company’s earnings received a boost from a one-time tax gain of $817 million. Chief Financial Officer, James Kavanaugh, reiterating that investors should not count on a continued boost from mainframe sales to boost earnings, also went a long way in spooking the markets, triggering the sell-off.

“As we enter the second half, we have a significant headwind on mix because we are not counting on more than a typical mainframe cycle.  It would not be prudent for analysts to predict or to predicate our $13.80 [2018] guidance on breaking mainframe cycle,” said Mr. Kavanaugh.

IBMs earnings were much softer than what its peers have been reporting raising further concerns whether the company is experiencing slow growth. A number of enterprise tech firms have posted strong earnings reports as IT spend continues to rise.

Focus On Strategic Businesses

However, IBM wants investors to pay attention and judge the company based on its efforts in what it calls strategic imperatives that accounted for 47% of its total revenue. This segment comprises of cloud-computing, analytics, mobile, and security business. The division also includes software analytics and the highly touted artificial intelligence platform, Watson

However, it appears the strategic businesses are not growing as fast as they ought to. The crucial businesses grew by 15% in the quarter, in line with estimates, even though analysts were expecting modest beat given that IBM future depends on them

Watson which is the first commercially available AI platform that can process vast amounts of big data and interact in natural language has started to live up to expectation be it at a slow pace. In the first quarter, it was a major contributing factor, helping drive double-digit growth.

Investors have not been forgiving of IBM in the market in part because the stock sat out a massive 2-year tech rally.  The stock has consistently traded sideways, as others hit higher highs.  Warren Buffett through his investment firm, Berkshire Hathaway Inc. (Class B NYSE:BRK.B), offloading nearly all of his shares in the company has also gone a long way in denting the stock’s outlook on Wall Street.

Don't miss a thing!

Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All

Top Promotions

Top Brokers

IMPORTANT DISCLAIMERS
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
RISK DISCLAIMER
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.
FOLLOW US