Investing

IBM Shares Wildly Underperform Over 5 Years

Douglas A. McIntyre

Published: January 22, 2017 8:20 am

Last Updated: January 12, 2020 3:40 pm

A recent rally in International Business Machines Corp. (NYSE: IBM) shares has taken them out of a nose dive, the drop based mostly on revenue which has dropped 19 consecutive quarters. However, a longer term look shows just how poorly Wall St. thinks of the company. Its shares are off 10% during the last 5 years to $171, The S&P 500 has risen 72% to 2,271 over the same period.

The key to the huge difference continues to be skepticism about the turnaround plans of IBM CEO Ginni Rometty. Her comment about the company’s prospects were light on details once again when results for the 4th quarter and full year 2016 were released:

In 2016, our strategic imperatives grew to represent more than 40 percent of our total revenue and we have established ourselves as the industry’s leading cognitive solutions and cloud platform company. IBM Watson is the world’s leading AI platform for business, and emerging solutions such as IBM Blockchain are enabling new levels of trust in transactions of every kind. More and more clients are choosing the IBM Cloud because of its differentiated capabilities, which are helping to transform industries, such as financial services, airlines and retail.

Revenue for the entire company in the fourth quarter was $21.8 billion. IBM’s pitch was that its new “strategic initiatives” revenue base was increasing.

IBM’s comment about the business which is supposed to save the company were not very clear, especially when taken year over year;

Revenues from continuing operations for the twelve-month period totaled $79.9 billion, a decrease of 2 percent year to year compared with $81.7 billion for the twelve months of 2015.

And,

Strategic imperatives revenue for full-year 2016 of $32.8 billion up 13 percent (up 14 percent adjusting for currency) represents 41 percent of IBM revenue
Cloud revenue of $13.7 billion for full-year 2016, up 35 percent

Buried in the figures is revenue from the Watson artificial intelligence program, which has become the IBM flagship brand. Management must be painfully aware each quarter when it offers no clue about the performance of this initiative.

If IBM is turning around, long term investors can’t see it.