On Wednesday, shares of International Business Machines Corp. (NYSE:IBM) jumped more than 10% on its better-than-expected earnings report.
The stock closed at $133.34, up 8.8% on the day.
Calling that remarkable is like calling the Grand Canyon a ditch.
It’s remarkably ridiculous, because IBM is the worst managed company in America – and its stock is heading right back where it belongs, in the garbage heap.
And if you play your cards right, you could make a quick killing as it falls…
It All Starts At the Top
While there are twenty-five reasons I could give you why IBM is so crappy, there’s only one reason that matters.
The one reason IBM is heading back down is Virginia Marie “Ginni” Rometty.
Ginni Rometty is chair, president, and CEO of IBM.
She’s arguably the worst CEO, president, and chairperson in America.
Ginni, unfortunately for IBM shareholders and the company’s employees, reminds me of two of the worst CEOs in the history of giant companies: Jeff Immelt of General Electric (NYSE:GE) and Steve Ballmer of Microsoft Corp. (NasdaqGS:MSFT).
Under Jeff Immelt, the worst CEO in history, who ran GE from 2000 to 2017, GE’s capitalization, its equity value, went from $601 billion to less than $70 billion. That’s a loss of $531 billion dollars.
Steve “pom-pom” Ballmer (pom-pom because he was nothing but a useless cheerleader) was Microsoft’s CEO from January 2000 to February 2014. During his shouting, cheerleading tenure, Microsoft lost 40% of its value.
GE’s still in trouble and will eventually be broken up, with the sum of its parts not adding up to its capitalization now.
Meanwhile, Microsoft isn’t only out of the woods, but it’s now the world’s most valuable company.
That’s because Satya Nadella, who co-founder Bill Gates and the board elevated to CEO in 2014, is arguably one of the best, if not the best, CEO in America.
Why am I talking about Immelt and GE, and Ballmer, Nadella, and Microsoft?
Because Ginni Rometty is no different from Immelt or Ballmer. IBM will never recover any semblance of its former glory until they get someone like a Satya Nadella to run the company.
IBM’s market capitalization, its equity value, is down more than 30% since Ginni took the helm.
Since Ginni got her board seat and became CEO, president, and chair, IBM’s spent some $50 billion on share repurchases.
That money is gone.
Sure, there are fewer shares against which earnings are calculated to come up with earnings per share numbers that mesmerize Wall Street analysts.
So what?
Under the Rometty regime, IBM’s stock went from a high of $174.86 to its recent low in December at $105.94, a 40% drop.
What a great buy, buying IBM stock all the way down for six years.
And Ginni’s not done.
She just announced another $4 billion would be added to the current share repurchase program, and at the same time, she confirmed the company’s dividend payout, which IBM spends 65.3% of its net income on.
Oh, and those announcements came at the same time Ginni announced that IBM was buying Red Hat Inc. (NYSE:RHT) for a mere $34 billion.
Red Hat? A company that does some of the same stuff IBM does and has mostly stuff IBM should have built itself years ago? Yeah, Red Hat, for $34 billion.
IBM is also sitting on $47 billion in debt.
So, what was the impetus in IBM’s earnings that launched its stock, besides short-sellers covering?
They’re increasing revenue from their cloud business.
Yeah, that’s the big news.
You know, the cloud – where Amazon.com Inc. (NasdaqGS:AMZN) rules with 52% of cloud business, according to Gartner Inc. (NYSE:IT) research figures. Where Microsoft has 13% of all cloud business and its Azure (cloud) sales rose 76% last quarter. Where Google has a huge chunk of business.
Yeah, that cloud. That’s where IBM is hunting for revenue and market share.
Good luck with that.
IBM is on the same path as GE. It’s trying to look like Microsoft and switch up its focus.
But it’s too slow, too monumentally wasteful, too old-school top-heavy to ever grow again like Microsoft is growing now.
This week’s stock pop is a gift for investors. That is, for investors who bet IBM’s stock is coming right back down earth with a thud.
Sincerely,
Shah
Source: Wall Street Insights and Indictments