A Closer Look At IBM’s Valuation

by Trefis Team
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After several quarters of mixed results and revenue declines, IBM (NYSE:IBM) saw revenue growth in the most recent quarter. Cognitive Solutions has been a key growth area for IBM in the last couple of years, while the company’s core Technology Services and Business Services segment revenues have stagnated. IBM’s adjusted EBITDA margin has remained in 27% range in the last couple of years, per Trefis estimates. The trend is expected to continue through 2018, with a modest 4% growth in revenues. On the other hand, we forecast the company’s EBITDA margin to improve by over a percentage point through the year, with Cognitive Solutions helping to boost overall profitability.

We have summarized our expectations for the company’s 2018 results on our interactive dashboard platform. You can change expected segment revenue and net margin figures for IBM to gauge how changes will impact its value.

Revenues for Cognitive Solutions include revenues generated from IBM’s Solutions Software and Transaction Processing Software streams. This segment has primarily reported organic growth in recent quarters. On the other hand, services revenues have slowed down in recent quarters. Global Business Services revenues have declined 2-3% in the last couple of years despite an increase in new signings. However, with a sustained increase, net revenues are expected to pick up in the coming quarters. Similarly, Technology Services and Cloud Platforms revenue, which include infrastructure services, technical support services, and integration software, also declined at low single digits through 2017. This trend is likely to continue through the year. It should be noted that these three major segments combined form over 85% of IBM’s net revenues and operating profits.

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