IBM reports lower revenue but cloud segment remains strong

 

• IBM reported Q3 2020 earnings report after Wall Street session yesterday
• Third consecutive quarter of lower sales
• Growth in cloud segment remain robust
• Weak business segments to be spun-off at the end of 2021

IBM released a Q3 2020 earnings report yesterday after Wall Street closed. Company reported results that were in-line with guidance provided by the company earlier this year. Report confirmed a third consecutive quarter of lower sales but details of the report look promising.

While IBM earnings report turned out to be slightly better than expected, the company saw deterioration in most business segments compared to a year ago period. Source: Bloomberg, XTB

 

Results

 

IBM reported $17.6 billion in revenue for the third quarter of 2020, marking a 2.6% drop from a year ago period. This marked a third consecutive quarter of declining sales. However, details look encouraging. IBM reported 4.7 and 3.6% revenue declines in Global Business Services and Global Technology Services units, respectively. Company announced earlier this year that those 2 business units will be spun-off as IBM plans to focus on cloud services. Revenue in the cloud services segment increased 5% YoY in Q3 2020, to $5.5 billion.
Earnings per share at $2.58 were slightly higher than market estimates ($2.54) and 7% YoY higher. Net income at $2.31 billion was 13% YoY higher.

The Cloud and Cognitive Software segment (green line) was the only one with a positive growth rate in Q3 2020. Company plans to spin-off Global Technology Services (red) and Global Business Services (yellow) units and focus on cloud and AI. Source: Bloomberg, XTB

 

Outlook

 

While another revenue decline in a row is surely a bad thing for a company, IBM generated lower sales in business it plans to spin-off. Cloud revenue growth remained robust in the quarter, signalling that the company's overall growth trajectory is likely to improve after spin-off is completed (expected by the end of 2021). IBM plans to take a $2.3 billion charge related to restructuring but the company looks to be well positioned for any struggles ahead - cash at hand increased from $10.8 billion in Q3 2019 to $15.6 billion now. Company did not provide a full-year outlook after it was suspended in April on the back of Covid-19 uncertainty.

 

Market reaction

 

IBM shares, which had been down about 1% following the earnings report, were down about 2.5% during the conference call. Today's session launched with a massive bearish price gap and stock remains under heavy selling pressure. So far shares dipped as much as 6.7%, the most since June. Should downbeat moods prevail, support at $116.00 may come into play.  However, if the declines deepen, then major support lies near $100.00, where the trendline of lows going back to 2002 comes into play.

International Business Machines Corporation (IBM.US), D1 interval. Source: xStation5

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