International Business Machines Corp. (NYSE:IBM) continued its struggle to post revenue growth in the first quarter. Though the drop was an expected one, it was wider than expected forcing investors to dump the stock in after-hours trading on Tuesday. Predictably, when unfavorable news comes in, short sellers join the party. Therefore, the significant drop of close to twelve percent from the 52-week high price could tempt investors to shop the stock.
International Business Machines Corp. (NYSE:IBM) suffered year-over-year drop in revenue for the 20th consecutive quarter. Its revenue of $18.16 billion fell 2.8 percent from the previous year period and came in below the expectations of $18.39 billion. Analysts estimated revenue to fall 1.6 percent.
Investors are concerned that wider than expected quarterly revenue fall could further widen than the expected yearly drop of 1.6 percent in the current year and 0.10 percent next year. There was hope that IBM could report revenue growth starting from next year with cloud being the major force to reckon with. Analysts are already expecting 2.2 percent drop in revenue for the second quarter. Therefore, any chances of offsetting the first quarter weakness in the June look to be remote.
IBM’s cognitive solutions, which included Watson-related offerings, could manage to post 2.1 percent growth in revenue to $4.1 billion fueled by analytics and security growth. However, its global business services witnessed 3.0 percent fall in revenue to $4.0 billion while revenue from systems fell 16.8 percent to $1.4 billion. Its technology services and cloud platforms revenue also dipped 2.5 percent to $8.2 billion.
In a recent note, Morgan Stanley (NYSE:MS) felt that cloud potentials of IBM are not valued fully. The company generated revenue of $3.186 billion in 2016 representing four percent of its total revenue. The brokerage felt that this could grow to 12 percent of the total revenue of $10.117 billion by the end of the current decade.
Though there is a concern on revenue front, its bottom line looks solid and tops estimates. In the first quarter too, IBM’s earnings of $2.38 a share topped expectations by three cents. Aside from that, the company maintained its adjusted EPS outlook of a minimum of $13.80, which is better than the Street analysts’ predictions of $13.78 a share.
Though the stock could see immediate selling pressure, it could rebound in the upcoming days. Significantly, the stock is trading well below the average price of $172 a share paid by Warren Buffett.
On Tuesday, the stock dropped 5.37 percent in after-hours trading.