Cloud Stocks: IBM Trying and Failing to Reignite Growth

IBM (NYSE: IBM) reported its fourth-quarter results that continued to miss the market’s expectations on revenues. It is acquiring several cloud and AI-focused organizations to fuel its primary growth engine. But the transformation is taking longer than the market appears to have patience for. Its stock fell 7% in the after-hours trading session post the result announcement.

IBM’s Financials

Revenues for the quarter fell 6% to $20.4 billion, missing the Street’s estimates of $20.7 billion. Adjusted earnings of $2.07 a share was ahead of the market estimated $1.81.

By segment, revenues from Cloud & Cognitive Software that includes Cloud and Data Platforms such as Red Hat, Cognitive Applications, and Transaction Processing Platforms fell 4.5% to $6.8 billion. Within the segment, Cloud & Data Platforms grew 9% driven by Red Hat.

Revenues from Global Business Services (GBS) that includes Consulting, Application Management, and Global Process Services fell 2.7% to $4.2 billion primarily due to decline in Application Management and Consulting. Revenues from Global Technology Services (GTS) that includes Infrastructure & Cloud Services and Technology Support Services fell 5.5% to $6.6 billion. Revenues from its Systems segment that includes Systems Hardware and Operating Systems Software fell 17.8% to $2.5 billion and Global Financing revenues fell 4.8% to $286 million.

IBM ended the year with revenues falling 4.6% to $73.6 billion and non GAAP EPS of $6.13. It did not provide any outlook due to the current market conditions.

IBM’s Acquisitions

Last quarter, IBM had announced plans to spin off the managed infrastructure services portion of its Global Technology Services unit into a standalone public company so that it could focus on becoming a hybrid cloud platform and AI company. As part of that objective, IBM has been making several acquisitions to add to its AI and cloud portfolio.

Recently, IBM announced the acquisition of Wisconsin-based 7Summits. 7Summits is a provider of community-led, multi-cloud digital solutions built on the Salesforce platform. Founded in 2009 by Paul Stillmank and RJ Reimers, 7Summits is a leading Salesforce consultancy that provides access to digital experiences across industries. Prior to the acquisition, 7Summits had raised $1.8 million in five rounds of funding, from investors Salesforce Ventures, Sverica Capital, Matthew Garratt, and Holton Investments LP. The acquisition will extend IBM’s portfolio of both Salesforce services and experience design capabilities.

IBM also announced the acquisition of San Francisco-based Taos. Founded in 1989 by Ric Urrutia, Taos is the leading cloud-managed and professional services provider. It assists businesses in utilizing the cloud and DevOps for digital transformation and optimization solutions. The acquisition will allow IBM to advance its cloud migration and transformation capabilities, which is an important aspect of its hybrid cloud platform growth strategy. Taos’s funding details prior to the acquisition are not disclosed.

Last month, IBM also acquired Finland-based Nordcloud. Founded by Fernando Herrera in 2011, Nordcloud assists businesses with becoming more agile on the cloud. Its cloud-native approach assists clients with migrating, managing, and modernizing within the cloud. The acquisition adds expertise that will help IBM drive digital transformations and support the increased adoption of its hybrid cloud platform. Prior to the acquisition, Nordcloud had raised $25 million in three rounds of funding from investors Finnvera Venture Capital, OP Corporate Bank, LocalTapiola Mutual Insurance Company, and EIT Digital Accelerator.

IBM’s stock is currently trading at $118.61 with a market capitalization of $105.69 billion. It touched a 52-week high of $158.75 in February last year and a 52-week low of $90.56 in March last year.