IBM up over 9% despite falling revenue

Shares in IBM rose over 9 percent on Wednesday after the company reported that revenues and earnings beat forecasts, despite falling for the last 22 straight quarters. This was the stock's largest one-day gain since 2009.

The company reported earnings per share of $3.30, beating Wall Street's $3.28 estimate. Revenue came in at $19.15 billion vs. the $18.6 analysts were expecting. The company now expects to earn $13.80 for the full year in December.

While revenue continues to fall, the market is focussing on the growth in IBM's strategic imperatives; cloud computing, artificial intelligence and blockchain technologies. While legacy business revenues declined 8%, revenue from strategic imperative grew at 11% year on year. The company expects revenue from this part of the business to top $40 billion for the year.

The company also received a boost from the weak dollar. IBM does business in 162 countries, so the weaker US currency translates to stronger cash flows from around the world. The global business also contributed to IBM’s low overall tax rate of 11%.

IBM’s largest segment, Technology Services and Cloud Platforms, saw revenues fall 3 percent year over year to $8.5 billion. The Cognitive Solutions segment generated $4.4 billion, an increase of 4 percent.

IBM's Global Business Services segment grew revenue 2 percent to $4.09 billion while its Systems segment generated $1.72 billion, a gain of 10 percent.

During the conference call IBM’s CFO, Martin Schroeter, reiterated the fact that nearly all the growth in strategic imperatives was organic. The company is focussed on leveraging its existing relationships to grow its cloud and security business.

Schroeter also pointed out the opportunity presented by recent security breaches, including the Equifax breach. Cyber attacks are increasing in frequency and contributed to IBM’s 3rd quarter security business revenue growing 50% over same quarter last year. In September IBM began shipping its new z14 mainframe system which was designed with security as its core focus.

The company also hinted at the possibility that it will be able to end its long streak of falling revenue in the fourth quarter.

IBM is now investing heavily in artificial intelligence and blockchain technology which it hopes will drive revenue growth and margins in the future.

Investors are hoping the company is close to a tipping point and that the growth in strategic imperatives will completely offset the declining revenues from its legacy business.