IBM Q3 Earnings

IBM / Investor Relations

IBM shares dropped by about 3% in after-hours trading on Wednesday after the company missed Wall Street’s revenue expectations for the third quarter. Here’s how IBM’s performance compared to analyst estimates from the London Stock Exchange Group (LSEG): IBM reported an adjusted earnings per share of $2.30, beating expectations of $2.23. However, revenue came in at $14.97 billion, slightly below the anticipated $15.07 billion.

IBM’s revenue rose by 1.5% year-over-year, though the company posted a net loss of $330 million compared to a $1.70 billion profit the previous year. This loss was largely due to a one-time pension settlement charge following an agreement with Prudential. For the upcoming fourth quarter, IBM expects revenue growth at constant currency similar to the 2% growth seen in the third quarter. The company is also on track to achieve over $12 billion in free cash flow for 2024, having already generated $6.59 billion through the first nine months of the year.

The company’s software division saw a 10% increase in revenue, totaling $6.52 billion. Red Hat, an IBM acquisition from 2019, achieved significant growth with a 14% revenue increase. IBM’s software segment had a strong gross margin of 83%. On the consulting side, revenue fell slightly to $5.15 billion, marking a 0.5% decrease and missing expectations. CEO Arvind Krishna noted that IBM's consulting segment is facing ongoing economic uncertainties. Infrastructure revenue also declined by 7% to $3.04 billion, below analyst predictions.

IBM reported an increase in its generative AI business, which is now valued at over $3 billion, largely concentrated within consulting. IBM made moves to expand its services, including purchasing Accelalpha, an Oracle services provider, and selling QRadar cloud software assets to Palo Alto Networks.