IBM Stock Tumbles After-Hours On Flagging DOGE Hit, But Retail's Impressed With Q1 Beat

synopsis

International Business Machines Corp. (IBM) fell nearly 7% in Wednesday's extended session after the company flagged potential revenue loss from the Department of Government Efficiency (DOGE) initiatives.

For the first quarter of fiscal year 2025, the IT services and consulting behemoth reported adjusted earnings per share (EPS) and revenue that exceeded estimates.

The company maintained its full-year guidance and issued an above-consensus revenue outlook for the second quarter.

Here's how the key metrics compare to Finchat-compiled consensus expectations:

• Adjusted EPS: $1.60 vs. $1.42
• Revenue: $14.5 billion vs. $14.39 billion. 

Revenue was up 1%  from the year-ago period, while the EPS fell year over year (YoY) from $1.68. For the seasonally strong fourth quarter, the company reported adjusted EPS and revenue of $3.92 and $17.6 billion, respectively.

Among business segments, software revenue rose 7% YoY to $6.3 billion, or roughly 46% of the total, while consulting and infrastructure revenue slipped 2% and 6%, respectively.

The non-GAAP profit margin expanded by 1.9 points to 56.6%.

CFO James Kavanaugh said the company's software business led the revenue growth, while gross margin expanded due to productivity initiatives.

The company also noted that free cash flow for the quarter topped expectations.

CEO Arvind Krishna flagged strong demand related to artificial intelligence (AI). He said, "There continues to be strong demand for generative AI [GenAI], and our book of business stands at more than $6 billion inception-to-date, up more than $1 billion in the quarter.

On the earnings call, Krishna said the consultancy business is susceptible to discretionary pullback and DOGE-related initiatives, although he did not quantify the impact, according to the Koyfin transcript.

While answering analysts' Q&A, CFO Kavanaugh said, "We've had a handful of contracts, either statement of work that have — or canceled."

"And on our annualized backlog of over $30 billion in total Consulting, this is like less than $100 million of backlog over a duration of multiple years."

IBM also maintained its full-year guidance of at least 5% constant currency revenue growth, with forex expected to be a 1-1.5-point headwind. It also continues to expect free cash flow of $13.5 billion for 2025.

For the second quarter, the company expects revenue of $16.40 billion to $16.75 billion, compared to the $16.30 billion consensus estimate.

On Stocktwits, sentiment toward IBM stock improved to 'bullish' (68/100) as of late Wednesday from 'neutral' a day ago and the message volume increased to 'high' levels.

IBM sentiment and message volume as of 10:08 p.m. ET | source: Stocktwits

A bullish watcher was hopeful that IBM stock would bounce back to $240 on Thursday.

Another user referred to the quarterly print as a "good report" and cited the company's $13.5 billion free cash flow and $7.5 billion cash in hand.

After ending Wednesday's regular session up 1.90% to $245.48, the IBM stock shed 6.86% to $228.64 in the after hours. 

The stock has gained over 12% this year.

The Koyfin-compiled consensus analysts' price target of $245.49 implies over 7% upside from Wednesday's close.

For updates and corrections, email newsroom[at]stocktwits[dot]com.<