uploads/2020/07/IBM-earnings1.jpg

IBM Beats Earnings Expectations, Stock Jumps after Results

By

Updated

IBM reported its second-quarter earnings after the market close on Monday. The stock price jumped in extended trading due to its better-than-expected earnings numbers.

Article continues below advertisement

IBM’s earnings beat consensus estimates

The company reported an adjusted EPS of $2.18, which beat the consensus estimate at $2.09. IBM delivered revenues of $18.1 billion, which beat the consensus estimate at $17.7 billion.

However, IBM’s second-quarter earnings results declined compared to the same period last year. The company posted an adjusted EPS of $3.17 in the second quarter of 2019. Also, IBM delivered revenue of $19.2 billion in the second quarter of 2019.

Article continues below advertisement

However, the times have changed, which might explain the difference in the latest earnings results compared to last year’s results. IBM has been exiting some of its slow legacy businesses to focus on new and fast-growing businesses like cloud computing. So far in 2020, IBM has been grappling with the coronavirus pandemic. Generally, the pandemic has strained business spending, which impacts sales in some of IBM’s business lines. The sales in the company’s business services unit fell 7 percent year-over-year in the second quarter due to the COVID-19 pandemic.

Despite the coronavirus fallout, IBM’s earnings for the second quarter were impressive. Most of the company’s customers are in sectors that have not been impacted as much by the COVID-19 pandemic. The sectors include healthcare and banking.

Article continues below advertisement

Cloud business continues to impress

Selling cloud computing services has become one of IBM’s star businesses. The company’s earnings results show that the cloud business was impressive in the second quarter. IBM’s cloud business jumped 30 percent YoY to $6.3 billion in the second quarter. The cloud business contributed 35 percent of the company’s overall revenue. The cloud revenue rose 19 percent to $5.4 billion and contributed 30 percent of IBM’s overall revenue in the first quarter of 2020.

In an investor briefing following IBM’s earnings report, CEO Arvind Krishna talked about the growing adoption of cloud computing during the pandemic.

Krishna said, “The trend we see in the market is clear. Clients want to modernize apps, move more workloads to the cloud and automate IT tasks.”

Article continues below advertisement

Krishna used to run the company’s cloud computing business. He took over from Ginni Rometty as IBM’s CEO in April. Therefore, the company’s latest earnings report marks its first full-quarter results under Krishna’s leadership.

IBM acquired Red Hat a year ago to bolster its cloud computing business. IBM’s earnings numbers on Monday show that the revenue from the Red Hat business jumped 17 percent in the second quarter.

Notably, IBM has focused on the hybrid segment of the cloud market. The global hybrid market is on track to hit $172 billion in 2025 from $36 billion in 2017. The public cloud market is even bigger. The global public cloud sales will likely hit $355 billion in 2022 from $227.8 billion in 2019. IBM has been battling it out with Amazon, Microsoft, and Google in the cloud market. Currently, Amazon dominates the cloud market a third of the global market share.

IBM stock jumps after impressive results

Finally, IBM’s stock price jumped 5 percent in extended trading Monday after the company reported impressive earnings numbers. The stock jumped a little more than 1 percent in regular trading and wrapped up at $126.37. Notably, IBM’s stock price trades at more than a 20 percent discount to its 52-week peak.

Advertisement

More From Market Realist