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IBM Q4 earnings: Big Blue making Big Green

AInvestWednesday, Jan 24, 2024 4:59 pm ET
2min read

IBM, a leading technology company, announced its fourth-quarter earnings report, showing casing robust revenue growth and beating market expectations. 

The company reported a revenue of $17.38 billion, a 4.1% year-over-year increase, surpassing the estimated revenue of $17.29 billion. 

The software segment led the way with a revenue of $7.51 billion, a 3.1% y /y growth. The Hybrid Platform & Solutions category posted a 2% rise, while Red Hat recorded a notable 8% increase. Transaction Processing also saw a 5% revenue boost. The Consulting segment experienced a 5.8% y/y growth, driven by Business Transformation, which rose by 6%, and Technology Consulting, which grew by 5%. Application Operations in the Consulting segment also registered a 7% increase. The infrastructure segment reported a 2.7% y/y increase in revenue, primarily fueled by the Hybrid Infrastructure category, which saw an 8% rise. IBM zSystems also made a significant contribution with an 8% growth. Financing segment revenue increased by 1.7% y/y, reaching $175 million. 

One of the key highlights of IBM's Q4 report was its strong gross margin performance. The adjusted gross margin improved to 60.1%, up from 58.6% in the previous year, exceeding the estimated gross margin of 58.8%. This increase can be attributed to the company's focus on its hybrid cloud and artificial intelligence (AI) offerings. 

Operating Earnings per share (EPS) for the quarter reached $3.87, surpassing the previous year's $3.60 per share and exceeding the estimated EPS of $3.76. 

IBM's impressive financial performance continued with a significant increase in free cash flow, which rose to $6.09 billion, marking a substantial 17% year-over-year growth and surpassing the estimated free cash flow of $5.37 billion.

Looking ahead, IBM anticipates a consistent revenue growth in line with its mid-single digit model on a constant currency basis. Foreign exchange rates are expected to create a one-point headwind to revenue growth. Free cash flow is projected to be around $12 billion for the upcoming fiscal year, exceeding the estimated free cash flow of $10.92 billion. IBM expects constant currency revenue growth to be consistent with its mid-single digit model, indicating a positive outlook for revenue performance in 2024. 

Arvind Krishna, IBM's chairman and chief executive officer, emphasized the company's growth in Q4, particularly driven by the increasing demand for AI solutions. Krishna stated, In the fourth quarter, we grew revenue in all of our segments, driven by continued adoption of our hybrid cloud and AI offerings. Client demand for AI is accelerating, and our book of business for Watson and generative AI roughly doubled from the third to the fourth quarter. 

IBM's impressive performance in Q4 suggests a solid foundation for future growth, with its focus on innovative technology solutions and increasing adoption of hybrid cloud and AI offerings. The company's ability to exceed market expectations in both revenue and free cash flow are indicative of its robust financial position and strong market presence.

Investors can look forward to IBM's projected revenue growth and substantial free cash flow in the coming years, which align with the company's mid-single digit model and forecasted $12 billion in free cash flow by 2024.

Shares of IBM jumped 5% in reaction to earnings. The stock is trading at $182 which is its highest level in a decade. The all-time high of $206 set in 2013 is within reach. 

$IBM(IBM)

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