Kyndryl: A Strategic Turnaround That Signals a Strong Buy
Tuesday, Jan 14, 2025 4:21 pm ET
2min read Kyndryl Holdings, Inc. (NYSE: KD), the world's largest IT infrastructure services provider, is set to release its quarterly results on February 3, 2025. As the company continues its strategic pivot from transformation to growth, investors are eager to see how its financial performance has evolved. In this article, we will analyze Kyndryl's recent developments, strategic initiatives, and financial outlook to provide a comprehensive overview of the company's progress.
Kyndryl's strategic progress has been marked by several key initiatives, including Alliances, Advanced Delivery, and Accounts. These three-A initiatives have driven meaningful financial progress and solidified the company's leadership position in mission-critical IT services. In fiscal year 2024, Kyndryl recognized more than $500 million in revenue tied to cloud hyperscaler alliances, triple the prior-year amount and exceeding the full-year target raised to $400 million in February. Additionally, the AI-enabled Kyndryl Bridge operating platform, used by more than 1,200 customers, has enhanced the world-class technology services the company provides and generated annualized savings of approximately $575 million as of year-end.
Kyndryl's strong growth in Kyndryl Consult, driven by its focus on infrastructure and the deployment of Kyndryl Bridge, has contributed to the company's overall financial progress. The company's commitment to continuous improvement and innovation has enabled it to maintain a solid double-digit growth trajectory for Kyndryl Consult. Furthermore, Kyndryl's expansion of its ecosystem of strategic partners and service capabilities has enhanced customers' access to a wider range of technology solutions, driving growth in both Kyndryl Consult and the Kyndryl Bridge operating platform.
Despite the revenue decline in the fourth quarter of fiscal 2024, primarily due to intentional exits from negative, no, and low-margin revenue streams, Kyndryl's earnings have shown improvement. Adjusted pretax income for the quarter was $30 million, an increase of $91 million compared to an adjusted pretax loss of $61 million in the prior-year period. For the fiscal year 2024, adjusted pretax income was $165 million, a $382 million increase from the previous year. The company's adjusted EBITDA margin increased by 350 basis points in the fourth quarter to 14.7% and by 310 basis points for the fiscal year 2024, demonstrating the positive impact of focusing on higher-margin business segments.
Kyndryl's strategic turnaround has been marked by a strong focus on reducing no-margin and low-margin third-party content in customer contracts. This strategic move has led to a year-over-year revenue decline of 10% and 9% in constant currency for the fourth quarter, and a decline of 6% and 6% in constant currency for the fiscal year ended March 31, 2024. However, this decline reflects the company's progress in improving its revenue mix and focusing on higher-margin business segments.
Looking ahead, Kyndryl expects to return to positive constant-currency revenue growth in the fourth quarter and provides an outlook for at least $435 million of adjusted pretax income in fiscal year 2025. The company's strategic progress, strong growth in Kyndryl Consult, and expansion of the Kyndryl Bridge operating platform solidify its leadership position in mission-critical IT services, while also driving meaningful financial progress.
In conclusion, Kyndryl's strategic turnaround, marked by its three-A initiatives and focus on reducing no-margin and low-margin third-party content in customer contracts, has driven meaningful financial progress. The company's strong growth in Kyndryl Consult and expansion of the Kyndryl Bridge operating platform have solidified its leadership position in mission-critical IT services. As Kyndryl continues to execute its strategy to fuel earnings growth, investors can expect positive revenue growth in the fourth quarter of this fiscal year. With a strong outlook for fiscal year 2025, Kyndryl is a compelling investment opportunity for those seeking exposure to a well-positioned IT infrastructure services provider.
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