Technology
Software revenue growth falls short of expectations and FCF misses in 2024 - some on the Street appear to have become more sceptical of the way IBM’s management has gamed its growth targets. Besides excluding acquisition costs from the FCF calculation, OWS notes that IBM moved its declining security software business from Software to Consulting in 1Q24 to show ‘strong’ Software segment growth. Over the past year, bulls have been arguing that the firm is an AI value play. OWS counters that IBM is no such thing. Revenue growth, whether from AI or otherwise, has been ~3% with acquisitions and the EV/FCF is 30x if one were to include acquisition costs. TP $85 (50% downside).
Edition: 185
- 03 May, 2024
Broadcom's uplift in pricing shocks VMware users
Technology
SPR provides recent field feedback on AVGO’s actions, users reactions and vendors who are benefitting. While many acquisitions do not produce the increases in revenue and cost synergies that were promised, based upon AVGO’s aggressive approach, SPR expects it will immediately deliver strong results for both metrics. Despite the disruption and animosity it is creating, SPR is picking up many examples of end users who are paying much more to AVGO then they were prior to this acquisition (price hikes of 100-1000% have been reported). These end users are locked into some or all the VMware products. The cost of switching is very high and, in some cases, will take years. Other vendors discussed include Nutanix, IBM Red Hat and HashiCorp.
Edition: 183
- 05 April, 2024
Technology
Accounting games create illusion of earnings growth - IBM is “misleading” investors into believing the company is growing EBIT at a considerable pace following the spin-off of its IT services business, Kyndryl Holdings. The perception of growth in the RemainCo has been the primary driver of the stock’s material outperformance. However, “real” EPS power is more like ~$8/share and applying IBM’s long-term average ~10x P/E multiple results in a TP of $80 (45% downside).
Edition: 152
- 20 January, 2023