Down Debt

Why IBM Stock Dipped Today

What happened

Actions of IBM (NYSE: IBM) fell 9.5% on Thursday after the global tech company’s third-quarter results fell short of investor expectations.

So what

IBM’s revenue grew 0.3 percent year-on-year to $ 17.6 billion. Wall Street expected sales of nearly $ 17.8 billion.

Even after adjusting its results to reflect the upcoming sale of its Kyndryl-managed infrastructure business, IBM’s revenue grew only 2.5%. The company’s core cloud and cognitive software business, which includes Red Hat, achieved revenue of $ 5.7 billion, an increase of 2.5%. That, too, was slightly lower than analysts’ estimates for $ 5.8 billion in revenue.

IBM’s weak third-quarter growth indicators disappointed investors. Image source: Getty Images.

CEO Arvind Krishna tried to reassure shareholders that better times are ahead. “With Kyndryl’s separation early next month, IBM is taking another step forward in our evolution as a platform-centric hybrid cloud and AI company,” Krishna said in a press release. “We continue to make progress in our software and consulting businesses, which represent our highest growth opportunities. “

In total, IBM’s adjusted earnings per share fell 2% to $ 2.52.

Now what

Yet IBM continues to produce abundant cash flow. It generated operational and adjusted free cash flow of $ 16.1 billion and $ 11.1 billion, respectively, up slightly from the prior year quarter. The tech giant is prudently using some of that money to pay off debt and return money to shareholders. Its stock pays a large dividend, which currently yields 5.1%. So while growth-oriented investors might find IBM stocks unattractive, income seekers might find them more attractive.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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