IBM's Earnings Miss Sparks Stock Dip Despite AI and Software Gains
1min read IBM's third-quarter earnings report revealed a slight revenue miss, causing the company's stock to drop 2.61% in after-hours trading. The quarterly revenue stood at $14.97 billion, a 1% increase from the previous year but short of the anticipated $15.07 billion.
The tech giant reported a net loss of $3.30 billion, a shift from the $17.04 billion profit in the same quarter last year. This significant change was largely due to a one-time pension settlement expense related to an agreement with Prudential.
Looking forward, IBM management projects that fourth-quarter revenue growth, measured at constant currency, will maintain a 2% increase, consistent with the third quarter's performance. The company also reiterated its ambition to surpass $12 billion in free cash flow by 2024, having achieved $6.59 billion in the first three quarters of this year.
The software segment emerged as a pillar of profitability, bringing in $6.52 billion, representing a 10% year-over-year increase and surpassing analysts' expectations. This sector's robust 83% gross margin outshone other divisions.
Consulting revenue slightly declined to $5.15 billion, falling short of expectations. CFO Jim Kavanaugh highlighted persistent economic uncertainties challenging the consulting arm.
Infrastructure revenue dipped 7% to $3.04 billion, missing forecasts. Kavanaugh pointed out customer anticipation for new mainframe rollouts expected in early 2025.
IBM's generative AI business now exceeds $3 billion, growing by over $1 billion from the second quarter. CEO Arvind Krishna noted that approximately 80% of this revenue stems from consulting, with the rest generated by the software sector.
Despite the recent drop, IBM's stock has risen about 43% year-to-date, outperforming the S&P 500's 21% gain over the same period.
