IBM (IBM, Financial) experienced a significant drop in its stock price, falling 9% despite surpassing earnings per share expectations and confirming its fiscal year 2024 forecast, which includes $12 billion in free cash flow and mid-single digit revenue growth in constant currency. However, the company's revenue increase of just 1.5% year-over-year to $14.46 billion fell short of expectations. In a strategic move, IBM also announced its plan to acquire HashiCorp (HCP, Financial), a leader in multi-cloud infrastructure automation, for $35 per share, valuing the enterprise at $6.4 billion, with the deal expected to close by the end of 2024.
IBM highlighted its strong performance across various segments in the quarter:
- Software segment saw a 5.9% growth in constant currency, led by Hybrid Platform & Solutions and Transaction Processing.
- Red Hat revenues increased by 9%, driven by robust performance across its key platforms: RHEL, OpenShift, and Ansible.
- Consulting grew by 1.7% in constant currency, with IBM capitalizing on clients' focus on large data and technology transformation projects.
- Infrastructure segment reported a slight increase of 0.2% in constant currency, with growth across all hardware offerings.
The acquisition of HashiCorp was anticipated, following earlier reports by the Wall Street Journal. IBM believes HashiCorp's expertise in managing complex infrastructure through automation, orchestration, and security complements its own hybrid cloud capabilities offered by Red Hat. With 70% of HashiCorp's revenue originating from the U.S., IBM sees a vast opportunity to expand HashiCorp's presence globally across its operations in 175 countries.
Despite these positive developments, investor focus has shifted to IBM's first-quarter revenue shortfall and concerns over the premium paid for HashiCorp, considering its stock was trading around $25 prior to acquisition rumors. Additionally, IBM noted a tightening in client discretionary spending within its Consulting segment due to persistently high rates. Nonetheless, IBM's successful track record with acquisitions, such as Red Hat, remains a strong point for the company's strategic moves.
