IBM's stock heads toward its worst day since 2021 after earnings

By Emily Bary

IBM's earnings show continued AI momentum, though overall revenue comes in a bit light

International Business Machines Corp. came up a hair short with its revenue for the latest quarter, while announcing its intent to acquire infrastructure-automation company HashiCorp Inc. in a $6.4 billion deal.

But the big factor weighing on its stock in Wednesday's extended session could be the deceleration in the company's consulting business, according to an Evercore ISI analyst. That part of the business grew 2% in constant currency during the March quarter, compared with 5% in the December quarter.

IBM's stock (IBM) fell 8.3% in after-hours trading. That would make for the stock's worst single-day percentage decline since it lost 9.6% on Oct. 21, 2021, if the losses carry through to Thursday's regular session.

See also: Meta's stock decline could wipe out nearly $200 billion in market cap after earnings

On IBM's earnings call, Evercore's Amit Daryanani looked to square the deceleration in consulting revenues with IBM's disclosure of an AI-centric backlog upwards of $1 billion. Management said that the company is winning market share and expects accelerating growth as the year goes on.

IBM logged total revenue of $14.46 billion for the first quarter, up from $14.25 billion a year before. Analysts tracked by FactSet were looking for $14.53 billion.

"In the quarter we continued to focus on the fundamentals of our business, growing revenue, expanding operating margins, improving profit performance and increasing productivity and operating leverage," Chief Financial Officer James Kavanaugh said in a release.

Chief Executive Arvind Krishna said that IBM has been able to "capitalize on the excitement and demand for enterprise AI from our clients."

Net income grew to $1.61 billion, or $1.72 a share, from $927 million, or $1.01 a share, a year before.

Adjusted earnings per share were $1.68, while analysts tracked by FactSet had been modeling $1.60.

IBM plans to purchase HashiCorp for $35 a share in cash in a deal that has an enterprise value of $6.4 billion.

"The acquisition will create a comprehensive end-to-end hybrid cloud platform for the AI era," IBM said of the deal, which is expected to close by the end of this year.

HashiCorp shares (HCP) were up 4% in after-hours action. The company was previously reported to be an acquisition target.

-Emily Bary

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04-24-24 2052ET

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