IBM tumbles on soft Q1 revenue; announces HashiCorp $6.4bn acquisition

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IBM tumbles on soft Q1 revenue; announces HashiCorp $6.4bn acquisition
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(Updated - April 25, 2024 3:59 AM EDT)

IBM (NYSE: IBM ) has reported earnings that beat analysts' expectations for the fiscal Q1 2024, though revenue missed the mark. The company also announced it has reached an agreement to acquire HashiCorp (HCP) for $6.4 billion.

Shares fell over 5% in after-hours trading.

The company posted earnings per share (EPS) of $1.68, beating the consensus estimates of $1.58. However, the company's revenue for the quarter was slightly below expectations at $14.46 billion, missing the consensus projection of $14.51 billion.

Consulting revenue stood at $5.19 billion, also below the estimated $5.2 billion.

For the full year of 2024, IBM anticipates constant currency revenue growth in line with its mid-single digit growth model.

Despite this, the company cautioned that currency fluctuations could negatively impact revenue growth by approximately 1.5 to 2 percentage points.

The technology giant also maintained its projection of generating around $12 billion in free cash flow for the year.

Moreover, IBM also announced it has reached a definitive agreement to buy HashiCorp Inc., a leader in multi-cloud infrastructure automation, for $35 per share in cash. This acquisition, valued at an enterprise value of $6.4 billion net of cash, will be financed using IBM’s available cash on hand.

The acquisition is expected to be finalized by the end of 2024.

"Enterprise clients are wrestling with an unprecedented expansion in infrastructure and applications across public and private clouds, as well as on-prem environments. The global excitement surrounding generative AI has exacerbated these challenges and CIOs and developers are up against dramatic complexity in their tech strategies," said Arvind Krishna, IBM chairman and CEO.

"HashiCorp has a proven track record of enabling clients to manage the complexity of today's infrastructure and application sprawl. Combining IBM's portfolio and expertise with HashiCorp's capabilities and talent will create a comprehensive hybrid cloud platform designed for the AI era."

Analysts at Jefferies trimmed their target price on F stock from $210 to $190, saying shares "could demand a higher premium to its software peers as the transition to a software company continues."

"Concerns around the monetization of AI and the lack of a near-term catalyst keep us on the sidelines," they wrote.

Regarding the HCP deal, Jefferies sees the software maker as a strategic asset that should support IBM's software-first initiative.

Analysts at BMO Capital Markets also lowered their IBM price target to $190, saying they "did not anticipate upside to IBM’s initial FY24 revenue guide, notably in Consulting."

"We would view IBM’s updated segment guidance as net weaker given the trade from Consulting growth to less durable Infrastructure growth despite maintaining the total revenue growth guide," analysts wrote,

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