Will IBM Q4 2015 Earnings Indicate A Possible Turnaround?

  • IBM will report its Q4 2015 earnings on 19th Jan.
  • The company presents declining revenues across the board followed by falling stock prices.
  • After most sell-side shops downgraded IBM with a pessimistic outlook, investors are looking for any clue or indication for a possible turnaround in 2016.
  • Investors’ expectations are very low, and a slight positive surprise could trigger a sharp rise in stock price.

The tech giant IBM (NYSE:IBM) is expected to report its Q4 2015 earnings on January 19 after the market close. IBM’s fourth quarter earnings release will conclude another disappointing year for the technology conglomerate in which it generated lower revenues for each quarter than the previous year; the total revenues for the year are expected to drop by 10 percent YoY. IBM’s revenues have declined for a while as shown in the chart below, and the top-line decline pulled IBM stock prices considerably down – 15 percent in 2015 and more than 30 percent since 2013.

IBM_chart 1_011416

In the previous earnings release, IBM reported lower YoY revenues across all segments and markets: 10 percent decline in Global Tech Services, 13 percent decline in Global Business Services, 10 percent decline in Software, 39 percent reduction in Hardware, 8 percent decline in Global Financing Services, 10 percent decline in the Americas, 16 percent decline in EMEA, and 19 percent decline in APAC. IBM missed revenues consensus and cut its EPS guidance, which triggered some downgrades by sell-side shops that expressed pessimism about IBM's recovery in 2016.

Throughout the year, many investors, analysts, and journalists proposed many ideas to turn around IBM through strategic investments, acquisitions, spin-offs, and operational cuts. However, for a giant like IBM, it will take time to implement a new philosophy or execute a new strategy to trigger a trend change. In the upcoming earnings release, one of the items investors will look for is any remote clue about whether the company could begin its turnaround in 2016.

Other items to which investors will give attention are IBM’s progress in storage following increased competition in that market, developments in enterprise software initiatives following recent partnerships, monetization of Watson in healthcare analytics, and big data and analytics development in light of the increasing demand for these services. IBM was rumored to be interested in acquiring the data analytics firm Splunk (NASDAQ:SPLK) and the data visualization firm Qlik Technologies (NASDAQ:QLIK) to increase its presence in these niches.

IBM has problems across the board, and the market expects these problems to weigh on the company’s results, driving quarterly revenues to an 8% decline YOY and annual revenues to a 10% decline YOY. Unlike revenues, analysts expect a significant YoY increase in EPS driven by operational spending reductions (in SG&A and R&D) thanks to headcount cuts and the forex.

On top of the many operational and financial problems that investors will monitor IBM’s earnings for, the stock repurchase program and dividend announcements should also be on investors’ radar to see if there is any change from previous reports that could indicate further trouble for IBM.

These are the comparable figures to watch in this earnings:

Q4 2015 Consensus Q4 2014 Actual 2015 Consensus 2014 Actual
Revenue $22.1B $24.1B $83.8B $92.8B
EPS $4.76 $5.54 $14.88 $11.97

Conclusions

IBM is expected to report its Q4 2015 earnings this week. After such a long period of declining revenues, stock price, and earnings, investors are looking for every sign to indicate a possible turnaround in 2016. Since problems exist across every business line and division in IBM, investors’ expectations are low, and even the smallest positive surprise could boost the stock price.

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