It's a Big Miss
IBM reported a lackluster quarterly report last evening which sent the shares crumbling down today. Investors that are expecting some sort of a turnaround for the technology heavyweight are going to have to keep waiting. Earnings came in at $2.38 a share which actually beat the $2.35 estimate. But the real focus was revenue which was $18.16B vs $18.39B expected, meaning that customers are paying IBM less than predicted for its services.
IBM doesn't have the hip and modern appeal of say a Netflix, or an Apple, or an Amazon, but it does provide valuable cloud-based services, necessary security software, and modern data analytics. The company has also been investing heavily in artificial intelligence such as Watson, which can also lead to new services and better business analytics.
It has been known for some time that IBM has had declining growth. This is the 20th straight quarter of year over year revenue declines. Yet speculators have been piling into the stock hoping for a quarterly turnaround. This would explain the 5% drop in the stock, as the hot money pulls out. At 12x earnings with a stable business, there is no other reason for such volatility. Though many investors believe that IBM is slowly leaking its business away to competitors such as Google or Amazon in the cloud and AI space.
Carl Quintanilla of CNBC tweeted: 'IBM shares "are friendless." But below $160, "you're basically saying they're never coming back." - @jimcramer'
It's not difficult to fathom that IBM may never make a comeback if it keeps losing business to nimbler companies. Warren Buffet has made a large bet on IBM, meaning that he believes in the long term prospects of the company and isn't looking at the 90 day clock. Though the trend may be difficult to reverse as competitors continue to chip away at the 105 year old company.