Earnings Results: IBM stock slips as earnings, cloud revenue beat Street view

International Business Machines Corp. shares gave back gains in the extended session Wednesday and slipped to a loss after the tech giant topped Wall Street earnings estimates for the second quarter.

IBM IBM, -0.32%  reported second-quarter net income of $2.5 billion, or $2.81 a share, compared with $2.4 billion, or $2.61 a share, in the year-ago period. Adjusted earnings were $3.17 a share.

Revenue continued to fall year-over-year, declining to $19.16 billion from $20 billion in the year-ago quarter. Analysts surveyed by FactSet had forecast earnings of $3.08 a share on revenue of $19.17 billion.

“In the second quarter, we continued to grow in the high-value areas of the business, led by a strong performance across our cloud and cognitive software segment,” IBM Chief Executive Ginni Rometty said in a statement.

Cloud and cognitive services revenue rose to $5.65 billion from $5.47 billion in the year-ago period, while analysts expected $5.55 billion. IBM’s largest business segment, global technology services, saw revenue decline to $6.84 billion from $7.33 billion in the year-ago period. Analysts had forecast $7 billion.

Global business services revenue rose to $4.16 billion from $4.14 billion a year ago, while analysts expected $4.17 billion. Systems revenue declined to $1.75 billion from $2.18 billion a year ago, while Wall Street estimated $1.82 billion.

“On the plus side, the company beat on revenue, gross profit and EPS and its cloud and cognitive business was up 3%,” said Pat Moorhead, principal analyst at Moor Insights & Strategy, noting that only Amazon.com Inc.’s AMZN, -0.89%  AWS and Microsoft Corp.’s MSFT, -0.59%  Azure have larger cloud revenue and that 30% of its services backlog is cloud, calling that “a good sign.”

“On the downside, it’s the fourth straight quarter without revenue growth and the systems and financing business was down significantly,” Moorhead said. “In GTS (Global Technology Services), IBM is de-emphasizing lower GM business to focus on higher profit engagements. The Red Hat acquisition starts to become even more important to IBM’s cloud and services growth in the future.”

IBM reiterated it expects full-year adjusted earnings of “at least” $13.90 a share, while analysts expect $13.90. The company said it would update its outlook to account for its acquisition of Red Hat Inc., which is expected to close on Aug. 2.

For more: What is IBM’s plan for Red Hat?

IBM shares, which had been up as much as 3% after hours, were last down 0.5% in the extended session following a 0.3% decline to close the regular session at $143.06. In comparison, the Dow Jones Industrial Average DJIA, -0.42%  finished down 0.4%, the S&P 500 index SPX, -0.65%  closed down 0.7%, and the tech-heavy Nasdaq Composite Index COMP, -0.46%  declined 0.5%.

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