IBM Financial Analysis

Analysis Date: 1/30/2025

Business Model

IBM generates revenue through Software, Consulting, and Infrastructure segments

Revenue Sources

• Software (45% of revenue): Includes Red Hat, Automation, Data & AI, Security, and Transaction Processing
• Consulting (33% of revenue): Business Transformation, Technology Consulting, Application Operations
• Infrastructure (22% of revenue): IBM Z, Distributed Infrastructure, Infrastructure Support

Income Statement Analysis

• Revenue grew 1% YoY (2% constant currency) to $17.6B driven by Software growth
• Gross margin expanded 40bps YoY to 59.5% reflecting improved business mix
• Operating expenses increased 9.6% YoY including pension settlement charge

Balance Sheet Analysis

• Strong liquidity position with $14.8B cash and marketable securities
• Reduced total debt by $1.6B during 2024
• Total equity increased 21% reflecting retained earnings and pension adjustments

Cash Flow Analysis

• Generated strong free cash flow of $12.7B in 2024, up 13.7% YoY
• Continued commitment to shareholder returns with $6.1B in dividends

Capital Allocation

IBM maintains balanced capital allocation strategy focused on: 1) Investing in growth through R&D ($7.5B in 2024) and strategic acquisitions, 2) Maintaining strong balance sheet and investment grade credit rating, 3) Returning capital to shareholders through dividends ($6.1B in 2024)

Management Commentary

Double-digit Software revenue growth in Q4 led by Red Hat acceleration

Generative AI book of business >$5B inception-to-date, up $2B QoQ

Expect revenue growth of at least 5% and FCF of ~$13.5B in 2025

Overall Sentiment: Confident in execution of strategy and ability to capitalize on AI opportunities

Recommendation

Rating: Buy

Reason for Rating: Strong software growth momentum and AI opportunity support positive outlook

Disclaimer: This analysis is based on company filings and public information. It is for informational purposes only and not financial advice. Past performance does not guarantee future results.

Generated on: 1/30/2025, 6:06:55 AM