IBM ended its five-year streak of declining quarterly revenue on Thursday. But Wall Street hardly cheered.
IBM’s shares dropped 3.4% in after-hours trading on Thursday to $163.35 despite the business technology giant finally reporting a sales increase after an ignominious 22 straight quarters of declines.
The company said its fourth quarter sales grew to $22.5 billion, a 4% increase from the $21.8 billion during the same quarter a year earlier.
IBM, like many legacy enterprise technology companies including Cisco (CSCO) and Oracle (ORCL), have been shifting their businesses to sell software and data crunching an on-demand model amid changing corporate technology spending habits. IBM, in particular, has been investing heavily in its Watson data analytics services, cloud computing, and cybersecurity to offset declines from its traditional software business.
In October, the company publicly hinted that its sales slump was nearing an end, which helped lift IBM’s stock over the past several months. But it also ruined the element of surprise for Thursday’s revenue gain, and set up investors to second guess the results.
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It also didn’t help that IBM’s newly installed CFO James Kavanaugh said during a call with analysts that the company’s earnings per share for 2018 would be “at least $13.80,” lower than analyst expectations of $13.92. IBM’s 2018 EPS is on par with what it had reported for 2017.
In a note from GBH Insights after IBM’s earnings call, head of technology research analyst Daniel Ives said that IBM’s quarterly sales increase means that the company is “showing signs of life.” However, he said the company’s guidance was “a mixed bag” that was not in tune with what many investors were hoping for, but will be “enough for the bulls to hang their hat on tomorrow morning.”
Any signs of life is better than none.
“Thus quarter was another important step in the right direction with 2018 a major prove me year for IBM to show the turnaround story is viable, which we believe it is, albeit at a snail-like pace,” Ives wrote.
Correction, 6:20 p.m. PT: An earlier version of the headline to this article overstated the number of quarters of IBM’s revenue decline streak. It is 22, not 23.