IBM Q1 2024 Earnings: Mixed Results Amid Software Growth and HashiCorp Acquisition

IBM reported its Q1 2024 earnings on Tuesday, with non-GAAP earnings per share (EPS) of $1.68, surpassing analyst estimates by $0.09. However, the company's revenue of $14.46 billion fell short of expectations by $80 million.

Despite the revenue shortfall, IBM's software revenue increased 6% on a constant currency basis, propelled by strong performance in Hybrid Platform Solutions and Transaction Processing. The company's consulting business also experienced growth, with revenue rising 2% and a trailing 12-month book-to-bill ratio of over 1.15.

IBM maintained its full-year guidance of mid-single digit revenue growth and $12 billion in free cash flow. The company generated $4.2 billion in net cash from operating activities and $1.9 billion in free cash flow during the quarter, both increasing year-over-year.

In addition to the earnings report, IBM announced its intent to acquire HashiCorp Inc. for $6.4 billion. The acquisition is anticipated to create a comprehensive end-to-end hybrid cloud platform for the AI era and assist enterprises in managing complex tech estates across multiple clouds, on-premises environments, and applications. The deal is expected to close by the end of 2024 and be accretive to adjusted EBITDA in the first year and free cash flow by the end of the second year.

Why this matters: IBM's mixed Q1 2024 earnings and the HashiCorp acquisition emphasize the company's focus on hybrid cloud and AI as key growth drivers. The deal highlights the increasing importance of multi-cloud infrastructure automation in the enterprise tech landscape.

During the earnings call, IBM CEO Arvind Krishna discussed the growth opportunities from the HashiCorp acquisition and the challenges and advice around implementing generative AI. Krishna stated, "The acquisition of HashiCorp is expected to help IBM address the growing complexity in enterprise infrastructure and application management." Despite the missed revenue target, IBM's stock has gained 12.4% year-to-date and 35% in the last six months, as the company's advanced business segments, including artificial intelligence and hybrid cloud, have fueled its financial performance.

Key Takeaways

• IBM Q1 2024 EPS of $1.68 beat estimates, but revenue missed by $80M.
• IBM's software revenue grew 6% on constant currency, driven by Hybrid Platform and Transaction.
• IBM maintained full-year guidance of mid-single digit revenue growth and $12B in free cash flow.
• IBM announced intent to acquire HashiCorp for $6.4B to enhance hybrid cloud and AI offerings.
• IBM stock gained 12.4% YTD and 35% in 6 months, driven by AI and hybrid cloud growth.