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Will Software Revenue Improvement Buoy IBM's Q3 Earnings?
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International Business Machines Corporation (IBM - Free Report) is scheduled to report third-quarter 2023 results on Oct 25, after the closing bell. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Software segment driven by innovative products and services.
Factors at Play
The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.
During the third quarter, IBM unveiled watsonx, a cutting-edge enterprise-focused AI and data platform designed to harness the power of advanced AI capabilities for businesses. Watsonx offers a new and innovative approach to integrating AI into business processes, enabling enterprises to advance their objectives and expand their commercial horizons. This is likely to have driven the top-line growth in the Software segment.
During the quarter, IBM collaborated with Salesforce, Inc. to facilitate higher adoption of AI by business enterprises. The partnership is likely to drive increased productivity and help accelerate business transformation with generative AI. IBM is further likely to help the clients complement Salesforce's generative AI tools with watsonx. Moreover, IBM will work closely with a diverse AI partner ecosystem through an open and collaborative approach to plan, build, implement and operate generative AI solutions. This open ecosystem approach is likely to help clients define the right models and architecture to deliver their desired outcomes.
IBM also partnered with ESPN to introduce new features in the ESPN Fantasy Football app, powered by IBM watsonx.ai. Leveraging the right AI will enable ESPN to transform structured and unstructured football data into valuable insights. This will empower fantasy team owners to make more informed decisions when they set up their match-day lineups.
Key Developments in Q3
During the to-be-reported quarter, IBM inked a definitive agreement with Francisco Partners to divest its weather business to focus on core operations. The transaction for an undisclosed amount is likely to close by the end of first-quarter 2024, subject to the fulfillment of regulatory approvals and other mandatory closing conditions. The Weather Company's assets set to be acquired by Francisco Partners include digital consumer-facing offerings, The Weather Channel mobile and cloud-based digital properties, including Weather.com, Weather Underground and Storm Radar. It will also own the enterprise offerings for broadcast, media, aviation, advertising technology and data solutions for other emerging industries.
IBM, however, will retain the sustainability software business, including its Environmental Intelligence Suite (EIS), to help clients curate, measure, report and operationalize ESG (Environment, Social and Governance) data for informed decision-making. It intends to continue leveraging The Weather Company's weather data for EIS to track land use changes, monitor natural disasters and predict crop yields.
Overall Expectations
Our estimate for revenues from Software is pegged at $6,164.3 million, up from $5,811 million recorded in the year-earlier quarter.
The Zacks Consensus Estimate for total revenues for the company stands at $14,804 million. It generated revenues of $14,107 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.12 per share, indicating growth from $1.81 in the year-earlier quarter.
Earnings Whispers
Our proven model does not predict an earnings beat for IBM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
International Business Machines Corporation Price and EPS Surprise
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:
The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +3.00% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Nov 1.
The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +3.98% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 25.
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Will Software Revenue Improvement Buoy IBM's Q3 Earnings?
International Business Machines Corporation (IBM - Free Report) is scheduled to report third-quarter 2023 results on Oct 25, after the closing bell. In the to-be-reported quarter, the company is likely to have recorded higher revenues from the Software segment driven by innovative products and services.
Factors at Play
The Software segment includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & artificial intelligence (AI) businesses and Transaction Processing.
During the third quarter, IBM unveiled watsonx, a cutting-edge enterprise-focused AI and data platform designed to harness the power of advanced AI capabilities for businesses. Watsonx offers a new and innovative approach to integrating AI into business processes, enabling enterprises to advance their objectives and expand their commercial horizons. This is likely to have driven the top-line growth in the Software segment.
During the quarter, IBM collaborated with Salesforce, Inc. to facilitate higher adoption of AI by business enterprises. The partnership is likely to drive increased productivity and help accelerate business transformation with generative AI. IBM is further likely to help the clients complement Salesforce's generative AI tools with watsonx. Moreover, IBM will work closely with a diverse AI partner ecosystem through an open and collaborative approach to plan, build, implement and operate generative AI solutions. This open ecosystem approach is likely to help clients define the right models and architecture to deliver their desired outcomes.
IBM also partnered with ESPN to introduce new features in the ESPN Fantasy Football app, powered by IBM watsonx.ai. Leveraging the right AI will enable ESPN to transform structured and unstructured football data into valuable insights. This will empower fantasy team owners to make more informed decisions when they set up their match-day lineups.
Key Developments in Q3
During the to-be-reported quarter, IBM inked a definitive agreement with Francisco Partners to divest its weather business to focus on core operations. The transaction for an undisclosed amount is likely to close by the end of first-quarter 2024, subject to the fulfillment of regulatory approvals and other mandatory closing conditions. The Weather Company's assets set to be acquired by Francisco Partners include digital consumer-facing offerings, The Weather Channel mobile and cloud-based digital properties, including Weather.com, Weather Underground and Storm Radar. It will also own the enterprise offerings for broadcast, media, aviation, advertising technology and data solutions for other emerging industries.
IBM, however, will retain the sustainability software business, including its Environmental Intelligence Suite (EIS), to help clients curate, measure, report and operationalize ESG (Environment, Social and Governance) data for informed decision-making. It intends to continue leveraging The Weather Company's weather data for EIS to track land use changes, monitor natural disasters and predict crop yields.
Overall Expectations
Our estimate for revenues from Software is pegged at $6,164.3 million, up from $5,811 million recorded in the year-earlier quarter.
The Zacks Consensus Estimate for total revenues for the company stands at $14,804 million. It generated revenues of $14,107 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $2.12 per share, indicating growth from $1.81 in the year-earlier quarter.
Earnings Whispers
Our proven model does not predict an earnings beat for IBM this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
International Business Machines Corporation Price and EPS Surprise
International Business Machines Corporation price-eps-surprise | International Business Machines Corporation Quote
Zacks Rank: IBM currently has a Zacks Rank #3.
Stocks to Consider
Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:
Intel Corporation (INTC - Free Report) is set to release quarterly numbers on Oct 26. It has an Earnings ESP of +12.98% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Earnings ESP for Silicon Motion Technology Corporation (SIMO - Free Report) is +3.00% and it carries a Zacks Rank of 2. The company is scheduled to report quarterly numbers on Nov 1.
The Earnings ESP for Meta Platforms, Inc. (META - Free Report) is +3.98% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 25.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.