Shares of International Business Machines Corp. (IBM, Financial) tumbled over 4% in aftermarket trading on Monday on the heels of reporting first-quarter revenue that missed analyst estimates.
The Armonk, New York-based company reported revenue of $17.6 billion, down 3.4% year over year as declining revenue in the Global Technology Services business offset growth in the Cloud & Cognitive Software business.
Segment revenues underperform consensus estimates
Revenue in IBM’s Cloud & Cognitive Software business increased 5%, driven by strong sales growth in the company’s cloud and Red Hat businesses, with Red Hat revenue increasing 18% year over year. Despite this, Cloud & Cognitive Software revenue of $5.24 billion underperformed the FactSet consensus estimate of $5.30 billion.
IBM CEO Arvind Krishna said on the earnings call that the company shifted its focus to hybrid cloud and artificial intelligence to meet the market’s shift in demand in light of the coronavirus outbreak. The CEO said that the first-quarter performance in cloud reflects “the trust clients place in IBM’s technology and expertise today” and positions the company to establish “an enduring hybrid cloud platform.”
Despite strong growth in Cloud & Cognitive Software, revenue in Global Technology Services of $6.47 billion underperformed the consensus estimate of $6.51 billion and declined 5.9% year over year, driven by the near-term impact from lower client business transactions.
Shares tumble on revenue decline and withdrawal of outlook
IBM traded around an aftermarket low of $115.50, down 4.08% from the closing price of $120.10 on the company’s revenue miss. Additionally, the company withdrew its full-year 2020 guidance given the uncertainty around Covid-19.
GuruFocus ranks IBM’s profitability 8 out of 10 on several positive investing signs, which include consistent revenue growth and a return on equity that outperforms 97.24% of global competitors. Despite this, IBM’s financial strength ranks just 4 out of 10 on the heels of debt ratios underperforming over 80% of global software companies.
Gurus with holdings in IBM include Pioneer Investments (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies.
Disclosure: No positions.
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