IBM Unlikely to Disrupt Its Revenue Degrowth Trend in 4Q15



IBM’s revenue degrowth is likely to continue in 4Q15

The earnings season has once again started. On January 19, 2016, IBM (IBM) will release its fiscal 4Q15 results. Shortly after that, IBM’s peers in the technology space—Citrix (CTXS), SanDisk (SNDK), and Microsoft (MSFT)—plan to announce their fiscal results.

In our series addressing IBM’s 3Q15 earnings, we noted that the company continued to report a fall in revenues. In the later part of this series, we will touch on the factors that forced IBM to report declining revenues in fiscal 3Q15.

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In the last 14 consecutive quarters, IBM has failed to report any revenue growth. It is likely that this trend would continue in its fiscal 4Q15 earnings report. IBM’s lackluster performance in the past few quarters led IBM’s stock to slump in 2015, a trend that we also saw in 2014. The share price chart above shows IBM’s stock performance in 2015.

Expectations from fiscal 4Q15

In contrast to its revenues, IBM beat Thomson Reuters’s consensus EPS (earnings per share) estimate of $3.30 in fiscal 3Q15. However, on a YoY (year-over-year) basis in fiscal 3Q15, IBM’s revenues and EPS fell by 14% and 9%, respectively.

Although IBM has not provided revenue guidance for 4Q15 in its 3Q15 earnings release, for full fiscal 2015, it expects its non-GAAP (generally accepted accounting principles) diluted EPS to be in the range of $14.75–$15.75.

For fiscal 4Q15, Estimize, a financial estimates platform, expects IBM to report revenues of $22.231 billion and non-GAAP EPS of $4.76. For full fiscal 2015, analysts expect IBM to post non-GAAP EPS of $14.93 per share.

Investors who wish to gain broad-based exposure to IBM can consider investing in the iShares US Technology ETF (IYW). IYW has an exposure of 46.7% to application software and invests ~12.5% of its holdings in IBM.


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