IBM Stock Slides As Cloud Software Concerns Overshadow Beat-And-Raise Results

Core Viewpoint - IBM reported better-than-expected third-quarter results, but disappointing growth in its software division led to a significant drop in stock price, highlighting concerns about its software performance despite overall revenue growth [1][9]. Financial Performance - IBM earned an adjusted $2.65 per share for the September-ended quarter, a 15% increase from the previous year, surpassing analyst expectations of $2.45 per share [2]. - Total sales increased by 9% to $16.3 billion, exceeding analyst estimates of $16.1 billion [2]. - The company expects revenue growth of over 5% for the full year and free cash flow of approximately $14 billion, up from a previous forecast of $13.5 billion [4]. Segment Performance - IBM's software segment revenue grew by 10% to $7.21 billion, aligning with analyst expectations [5]. - Red Hat, IBM's hybrid cloud software offering, experienced a slowdown in growth to 14% year-over-year, down from 16% in Q2 [5][6]. - The infrastructure segment saw a 17% year-over-year increase in sales to $3.56 billion, outperforming estimates of $3.46 billion [7]. - Consulting revenue also exceeded expectations, increasing by 3% year-over-year to $5.32 billion, compared to forecasts of $5.24 billion [7]. Market Reaction - Following the earnings report, IBM's stock fell more than 7% in premarket trading, marking the third consecutive quarter of stock decline after earnings results [4][9]. - Despite the drop, IBM's stock had gained 33% year-to-date prior to the earnings announcement [8]. Analyst Insights - Analysts noted that the deceleration in Red Hat's growth was a key concern, with expectations for mid-teens growth not being met [6]. - Some analysts remain optimistic about potential acceleration in IBM's software growth, but caution is advised until consistent performance is observed [10].