International Business Machines Corporation (IBM Stock) 4Q 2020 earnings

The pandemic has clearly changed consumer behavior over the past year, as almost all work is now done remotely through technology and digital services. The acceleration of digital transformation today is increasingly felt around the world, and many companies are starting to accept and adopt new technologies as a solution to stay competitive and relevant to the latest business competition.

This sector has been well utilized by cloud computing service providers, namely Amazon Web Service, Microsoft Azure, ServerSpace, Google Cloud Platform, Adobe Creative Cloud, Kamatera, Oracle Cloud, Dropbox and of course IBM Cloud Services. These companies are keeping work processes in check in times of tightening social distancing and are sure to progress and develop in the future.

International Business Machines Corporation (IBM) is scheduled to report earnings on January 21, 2021, after the market close. The report is for the fiscal quarter ended Dec 2020. In the 3rd quarter earnings report 2020, IBM posted revenue of $2.58 per share, with total revenue $17.56 billion, compared with an estimated $17.54. There was a decrease in income of 2.5% for the third quarter in a row on an annual basis. Global Technology Services as the largest service segment contributed $6.46 billion to revenue, down 4% y/y. Revenue from Global Business Services totaled $3.97 billion, down 5%. System revenue totaled $1.26 billion, down 15%. Cloud and Cognitive Software generated $5.55 billion, up 7%.

In the third quarter, the company generated net cash from operating activities of $4.3 billion, while IBM’s free cash flow was $1.1 billion. The company returned $1.5 billion to shareholders in the form of dividends. IBM ended the third quarter with $15.8 billion in cash including marketable securities, up $6.7 billion from the end of 2019. Liabilities, including $20.9 billion of Global Financing debt, totaled $65.4 billion.

IBM CEO Krishna previously suggested that based on input from shareholders, IBM plans to maintain its dividends and grow,  with Q42020 projections showing a seasonally strong quarter. With superior technology and products across hybrid cloud and data platforms, AI solutions, Cognitive Applications, the Global Business Services (GBS) segment and Application modernization offerings, it is expected to attract a lot of enthusiasts, so the Q42020 revenue is expected to surprise. IBM has increased the efficiency of its blockchain solutions, as well as quantum computing systems and services which will also become a strong base for generating revenue.

But IBM is not the only service provider; there are many competitors who benefit from similar services, and the decline in corporate client spending during the pandemic can also be a prospect in a decline in profits that will be reported later.

EPS

According to the Zacks Investment Research’s consensus forecast, for Q42020 earnings of $1.77/share are expected, which have been steady for the last 30 days. This figure indicates a decline of 62.4% from the same quarter last year. For quarterly sales, the consensus mark stands at $20.51 billion which represents a 5.8% drop from last year’s reported figure. The company had a surprise four-quarter earnings average of 1.71%.

The stock price rally that is moving like crazy, breaking its record from March 2020 lows is extraordinary. With so much money circulating in the market, the recovery mode “V Shape” graced the blue chip stock price board. But the facts in reality are unlike the numbers on the stock board; a paradox is evident between the comparison of stock prices and economic growth in the midst of a pandemic crisis.

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International Business Machines Corp (IBM) shares are trading fairly flat this week at an average high. The current price is in the range of $128.26, below the monthly resistance of $135.  Shares of International Business Machines Corp. hit a high of $158.69 on February 6 last year.

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IBM shares show quite a mixed performance when compared to some of its competitors this week, such as Apple Inc. which fell to $126.88 from $131.19; Microsoft Corp. (MSFT), down from $218.89 to $212.94, and Alphabet Inc. (GOOGLE), which fell from $1792.54 to $1,735.36.

Even though the trend is still on the upside of the 20-day moving average support (white line), it’s clear that the momentum is starting to slow. This is illustrated by the divergence bias from AO which is proportional to the rising price which is starting to fade.