IBM Stock Jumps 5.5% in Pre-market after Q2 Earnings Report, Cloud Revenue Growth Spikes 30%

UTC by Bhushan Akolkar · 3 min read
IBM Stock Jumps 5.5% in Pre-market after Q2 Earnings Report, Cloud Revenue Growth Spikes 30%
Photo: Depositphotos

Despite the COVID-19 slowdown, IBM managed to deliver better-than-expected results for Q2 2020. The company said that many small businesses that were using IBM’s services have turned cash conservative and now want to spend less.

Computing giant IBM (NYSE: IBM) unveiled its Q2 2020 results on Monday, July 20 with better than expected earnings. The IBM stock jumped 4.65% in the extended trading session on Monday and is now 5.55% up in the pre-market.

The IBM earnings for Q2 stood at $2.18 per share against the analysts’ expectations of $2.07 per share. Similarly, the company clocked $18.12 billion in revenues against the analysts’ expectations of $17.72 billion. However, the consolidated diluted earnings saw a 38% drop year-over-year at $2.83 per share against $4.58 last year. Thus, the consolidated net income was also 38% down YoY at $2.5 billion.

Revenues for a six-month period ending June 30, 2020, stood at $35.4 billion a 4 percent drop year-over-year. This has been the second consecutive quarter of revenue decline for IBM as the coronavirus hits the company’s operations. The positive thing is that the company’s total gross-profit margins stood at 48%, up from 45.1% during the first quarter.

One of the major growth areas was the company’s cloud platform. IBM’s cloud revenue saw a 30% spike with the cloud revenue clocking $6.3 billion in Q2 2020. In the official press release, Arvind Krishna, IBM chief executive officer said:

“Our clients see the value of IBM’s hybrid cloud platform, based on open technologies, at a time of unprecedented business disruption. We are committed to building, with a growing ecosystem of partners, an enduring hybrid cloud platform that will serve as a powerful catalyst for innovation for our clients and the world.”

IBM Noticed Weakness from Smaller Customers in Q2

The COVID-19 pandemic has affected businesses across multiple verticals. On the other hand, with the constantly rising cases, the economic recovery looks long and prolonged.

Jim Kavanaugh, IBM’s chief financial officer, said that IBM saw major pullback from small customers for the company’s services. Speaking to CNBC, Kavanaugh said:

“While we have adapted quickly to conduct business virtually around the world, as expected, we did have disruptions in transactional performance and volume reductions. Many clients continued to delay projects, defer purchases, and favor opex [operating expenditures] over capex [capital expenditures’ spending in this environment. This pause in large purchases and discretionary spending was most evident in our perpetual software licenses and project-oriented services.”

“As the pandemic intensified and the macroeconomic climate worsened, clients quickly shifted their focus to operational stability and cash preservation. This resulted in a delay in both the existing projects and new commitments especially in projects that are more discretionary or with longer time to value,” added he.

IBM has ended Q2 2020 with $14.3 billion of cash on hand. This also includes marketable securities, up $5.2 billion from year-end 2019.

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