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Why IBM Stock Plunged Today

By Joe Tenebruso - Jan 22, 2021 at 7:35PM

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The tech titan's transition to the cloud isn't going as well as investors hoped.

What happened

Shares of IBM (IBM 2.47%) fell 9.9% on Friday, following the release of the tech giant's fourth-quarter results. 

So what

IBM's revenue declined by 6% year over year to $20.4 billion. That was slightly below the nearly $20.7 billion Wall Street had expected. 

IBM is streamlining its business to focus more on its cloud operations. However, the shift isn't progressing as well as many analysts anticipated. IBM's total cloud revenue rose only 10% to $7.5 billion, while competitors such as Amazon and Microsoft are projected to deliver much more impressive cloud growth in their upcoming earnings reports.

A downwardly sloping digital stock chart.

IBM's stock fell sharply on Friday. Image source: Getty Images.

Moreover, IBM's adjusted operating earnings fell 56% to $2.07, largely due to a $2 billion pre-tax charge related to its restructuring efforts. The company did, however, continue to crank out cash. IBM's 2020 full-year free cash flow checked in at $10.8 billion. 

Now what

IBM CEO Arvind Krishna is asking investors to remain patient as IBM executes its turnaround strategy, but the company's lackluster cloud growth is making it more difficult for shareholders to remain optimistic. Many decided to sell their shares on Friday rather than continue to wait for IBM's growth to rebound.

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