What happened
IT infrastructure services provider Kyndryl Holdings (KD 2.70%) wrapped up its fiscal year and reported Q4 2023 earnings last night, and the news was not good.
Instead of the $536 million in sales and $1.03-per-share loss (which already wasn't very good news) that analysts expected, Kyndryl reported sales of only $476 million and a loss of $3.24 per share. Investors are in revolt, and as of 10:15 a.m. ET, Kyndryl stock is down 10.7%.
So what
For those not familiar, Kyndryl is a 2021 spinoff from IBM (IBM 0.16%), representing the tech giant's old managed infrastructure services business. More recently, Kyndryl made headlines when it tied up with cybersecurity operator Cloudflare (NET 3.77%) earlier this month in a deal to the former's clients. Investors were not impressed.
And today, they got another disappointment from Kyndryl. Sales declined 4% year over year (YOY) for the quarter, and 7% YOY for all of fiscal 2023. Losses for the quarter were three times worse than a year ago (when they were $1.02 per share). For the year, however, Kyndryl lost $6.06 per share, which on the bright side was only two-thirds as bad as the company's $9.09-per-share loss in fiscal 2022.
Now what
So I guess you can understand why IBM wanted to get rid of this division -- especially when you consider Kyndryl's forecast for the year ahead.
Management says sales will continue to deteriorate this year, down another 6% to 8% in fiscal 2024. So assuming no change in foreign exchange rates, Kyndryl forecasts sales of between $16 billion and $16.4 billion this year. "Adjusted" operating margins on these sales will be somewhere between 0% and negative 1%.
About the only good news here is that this implies Kyndryl will probably lose less money this year than last and could potentially break even. But analysts who follow the company say you probably shouldn't expect to see Kyndryl report any GAAP profits before 2026 at the earliest. Given this, investors may be wondering why they're being asked to pay nearly $3 billion for a money-losing company that will remain unprofitable for years.
I kind of wonder about that myself.
