IBM Stock Drops After Confirming HashiCorp Acquisition and Posting Q1 Revenue Miss

Shares in IBM (IBM) plunged more than 8% in extended trading Wednesday after the computing and consulting giant confirmed it will acquire cloud software maker HashiCorp (HCP) for $6.4 billion and posted quarterly revenue that came in short of Wall Street expectations.

Key Takeaways

• IBM shares dropped more than 8% in extended trading Wednesday after the computing and consultancy giant confirmed plans to acquire HashiCorp for $6.4 billion and reported quarterly revenue below Wall Street expectations.
• The company expects the deal, if finalized, to close by the end of 2024 and be accretive to adjusted EBITDA within the first 12 months after closing, and to generate free cash flow in the second year after closing.
• CFO James Kavanaugh said that macroeconomic uncertainty had led to more prudent customer discretionary spending during the quarter.
• IBM shares may attract buying interest around $165 near the prior December 2023 swing high and rising 200-day moving average.

The company said it plans to acquire HashiCorp for $35 per share in a cash deal, valuing the transaction at $6.4 billion, confirming a report in The Wall Street Journal on Tuesday that the two firms were closing in on a deal.

IBM expects the acquisition, if finalized, to close by the end of 2024 and be accretive to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) within the first 12 months after closing, and to generate free cash flow in the second year after closing. While the boards of both companies have approved the deal, it remains subject to approval by both regulators and HashiCorp shareholders.

“We see multiple drivers of product synergies within IBM and accelerating growth for HashiCorp,” IBM said, adding that the deal would also generate short-term cost synergies.

Turning to Big Blue’s quarterly results, the company posted first-quarter adjusted earnings of $1.68 per share, above analysts’ forecast of $1.60 a share. While revenue in the period of $14.46 billion improved 1.5% from a year earlier, it came in below the $14.55 billion consensus view.

Breaking down the company’s top line, software revenue in the period grew 6% to $5.90 billion, but missed estimates of $5.96 billion. Consulting revenue of $5.19 billion fell slightly from last year’s corresponding quarter, while infrastructure revenue tallied $3.08 billion, edging out forecasts of $2.94 billion. The company’s artificial intelligence (AI) book of business, comprising actual sales and bookings from various offerings, recorded sequential growth and topped $1 billion in the quarter.

IBM CFO James Kavanaugh said that macroeconomic uncertainty had led to more prudent customer discretionary spending. “You’re seeing clients in this uncertain macroeconomic environment. You’re seeing clients that are tightening discretionary spending,” he told Reuters in an interview.

Watch This Key Price Level

The IBM share price broke out from a multi-month rising wedge in late January but has failed to remain above the pattern’s top trendline, recently falling to its lower trendline. Amid follow-through news-related selling, investors should closely monitor the $165 level, an area on the chart that may attract buying interest near the prior December 2023 swing high and rising 200-day moving average.

IBM shares fell 8.5% to $168.51 in after-hours trading. Through the close of trading Wednesday, the stock had gained about 46% over the past 12 months.

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