January 31, 2024
Fourth-Quarter 2023 Performance
- Revenue: $17.4 billion, up 4% (3% at constant currency).
- Software revenue: Up 3% (2% at constant currency).
- Consulting revenue: Up 6% (5% at constant currency).
- Infrastructure revenue: Up 3% (2% at constant currency).
- Profit Margins:
- Gross Profit Margin: GAAP 59.1%, up 1.4 points; Operating (Non-GAAP) 60.1%, up 1.4 points.
- Pre-Tax Income Margin: GAAP 21.6%, up 1.8 points; Operating (Non-GAAP) 24.0%, up 1.1 points.
Full-Year 2023 Highlights
- Revenue: $61.9 billion, up 2% (3% at constant currency).
- Software revenue: Up 5%.
- Consulting revenue: Up 5% (6% at constant currency).
- Infrastructure revenue: Down 5% (4% at constant currency).
- Profit Margins:
- Gross Profit Margin: GAAP 55.4%, up 1.4 points; Operating (Non-GAAP) 56.5%, up 1.3 points.
- Pre-Tax Income Margin: GAAP 14.0%, up 12.1 points; Operating (Non-GAAP) 16.7%, up 0.4 points.
Cash Flow and Balance Sheet (Fourth Quarter)
- Net Cash from Operating Activities: $13.9 billion, up $3.5 billion; Free Cash Flow: $11.2 billion, up $1.9 billion.
- Returned $1.5 billion to shareholders in dividends.
Segment Results for the Fourth Quarter
A.Software
- Revenues: $7.5 billion, up 3.1% (2.0% at constant currency).
- Hybrid Platform & Solutions: Up 2% (1% at constant currency).
- Red Hat: Up 8% (7% at constant currency).
- Automation: Up 1% (flat at constant currency).
B.Consulting
- Revenues: $5.0 billion, up 5.8% (5.5% at constant currency).
- Business Transformation: Up 6% (5% at constant currency).
- Technology Consulting: Up 5% (4% at constant currency).
C.Infrastructure
- Revenues: $4.6 billion, up 2.7% (2.0% at constant currency).
- Hybrid Infrastructure: Up 8% (7% at constant currency).
- IBM zSystems: Up 8%.
- Distributed Infrastructure: Up 8% (7% at constant currency).
- Infrastructure Support: Down 9%.
Cash Flow and Balance Sheet (Full Year)
- Net Cash from Operating Activities: $13.9 billion, up $3.5 billion; Free Cash Flow: $11.2 billion, up $1.9 billion.
- Ended Q4 with $13.5 billion in cash and marketable securities.
Full-Year 2023 Results
- Revenue: $61.9 billion, up 2% (3% at constant currency).
- Profit Margins:
- Gross Profit Margin: GAAP 55.4%, up 1.4 points; Operating (Non-GAAP) 56.5%, up 1.3 points.
- Pre-Tax Income Margin: GAAP 14.0%, up 12.1 points; Operating (Non-GAAP) 16.7%, up 0.4 points.
- Diluted Earnings Per Share (Non-GAAP): $9.62 (vs. Value Line’s expected $9.55).
Full-Year 2024 Expectations
- Revenue: Mid-single-digit growth at constant currency.
- Free Cash Flow: Expected around $12 billion.
Commentary:
“In the fourth quarter, we grew revenue in all of our segments, driven by continued adoption of our hybrid cloud and AI offerings. Client demand for AI is accelerating, and our book of business for Watsonx and generative AI roughly doubled from the third to the fourth quarter,” said Arvind Krishna, IBM chairman and chief executive officer. “For the year, revenue growth aligned with our expectations, and we exceeded our free cash flow objective. Based on the strength of our portfolio and demonstrated track record of innovation, for 2024 we expect revenue performance in line with our mid-single digit model and about $12 billion in free cash flow.”
“We again demonstrated the fundamental strengths of our business in the fourth quarter through solid, broad-based revenue growth, continued profit margin expansion, increased productivity gains and strong cash generation,” said James Kavanaugh, IBM senior vice president and chief financial officer. “Throughout 2023, those strengths enabled us to increase our investment in R&D and talent, and complete nine acquisitions to bolster our hybrid cloud and AI capabilities, all while continuing to return value to shareholders through our dividend.”
IBM Analyst Ratings:
Based on 13 analysts giving stock ratings to IBM in the past 3 months, there are 5 Buys, 6 Holds, and 2 Sells. The average price target is $187.00, with a high forecast of $215.00 and a low forecast of $125.00. The average price target represents a -0.46% change from the last price of $187.87.
Maverick Guidance:
Under Review for specific portfolios, but now considered investable for some Mavericks.
The problem has been that IBM has had very low historical revenue growth and growth potential. 2020 revenue was $73.6 billion, dropping to $57.4 billion in 2021, and was marginally higher in 2022 and 2023. However, recent EPS growth has been excellent. EPS was $9.97 in 2021 and $9.13 in 2022 but picked up to $9.62 for 2023 and is expected to be about $10.10 in 2024. There are clear signs that management is back on it’s A-game.