International Business Machines (IBM) shares jumped higher in pre-market trading after posting stronger-than-expected fourth quarter earnings late Monday in the first update since shedding its legacy infrastructure business to focus on cloud computing growth.
IBM notched double-digit revenue growth rates in both its cloud and consulting businesses over the three months ending in December, with an overall topline of $16.7 billion, an 8.5% gain from the same period last year. Adjusted earnings of $3.35 per share also beat Street forecasts by around 5 cents.
Looking into the start of the year, IBM said overall revenues will grow by a 'mid-single-digit' percentage, with a "low double-digit" pre-tax profit margin as it navigates a competitive cloud space, dominated by the likes of Amazon (AMZN), Google (GOOGL) and Microsoft (MSFT), under CEO Arvind Krishna.
Free cash flow was guided in the region of $10.25 billion, a figure that puts it on pace to meet its 2024 target of $35 billion.
"Over the last year and a half, we have taken a series of actions to execute our hybrid cloud and AI strategy and improve our revenue profile, optimizing our portfolio, increasing investments, expanding our ecosystem, and simplifying our go-to market," Krishna told investors on a conference call late Monday.
"The most important metric, of course, is revenue growth, but we are also pleased to see our client renewal rates increasing and our recurring revenue base growing," he added. "We are starting to see signs of sales productivity improvements, with average productivity per technology seller increasing from the first to the second half."
IBM shares were marked 1.3% higher in early trading -- against a 1.15% decline for the Nasdaq -- to change hands at $130.50 each, a move that would trim the stock's six-month decline to around 4.5%.
"Given the disposition and all the moving parts, we find it challenging to come to a definitive conclusion (from IBM's fourth quarter earnings)," said BMO Capital Markets analyst Keith Bachman, who carries a 'market perform' rate with a $155 price target on the stock.
"Nevertheless, we come away a bit more positive, mostly driven by consulting and our enthusiasm for services generally — though our previously voiced concerns about the durability of software growth, keep us on the sidelines," he added.
