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IBM Faces After-Hours Slump Despite Strong Year-To-Date Stock Surge

Mover TrackerThursday, Oct 24, 2024 6:31 pm ET

1min read

IBM recently released its third-quarter financial results, showing total revenue of $14.97 billion, a 1% increase from the previous year but falling short of market expectations of $15.07 billion. This led to a 2.61% drop in after-hours trading, reflecting market dissatisfaction.

This quarter, IBM experienced a net loss of $3.30 billion, contrasting with last year's net profit of $17.04 billion. The loss was mainly due to a one-time pension settlement cost. Despite this, management remains optimistic, anticipating a 2% revenue growth in the fourth quarter at constant currency and reaffirming their 2024 free cash flow target of $12 billion, with $6.59 billion achieved in the first three quarters.

Software emerged as the key driver of IBM's earnings growth, with revenue reaching $6.52 billion, marking a 10% increase and surpassing analyst expectations of $6.37 billion. The software division's gross margin hit 83%, the highest among all the company’s segments.

Consulting services, however, faced challenges with $5.15 billion in revenue, a 0.5% year-over-year decline, slightly below forecasts. IBM CEO Arvind Krishna stated that this performance met the lower end of expectations, while CFO Jim Kavanaugh highlighted ongoing economic uncertainties impacting the division.

The infrastructure division's revenue stood at $3.04 billion, a 7% decline, missing analyst projections of $3.24 billion. The company attributed this to clients awaiting new mainframe models planned for release in 2025.

IBM achieved significant progress in its generative AI business, which now exceeds $3 billion, a growth of over $1 billion from the second quarter. Approximately 80% of this revenue is derived from consulting, with the remainder from software.

Despite the third-quarter financial challenges, IBM has performed strongly in the stock market, with shares up roughly 43% year-to-date, substantially outpacing the S&P 500's 21% growth, reflecting investor confidence in its long-term strategy and AI investments.

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