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IBM Plunges on Topline Weakness

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IBM Plunges on Topline Weakness

So far this week we have seen a number of financial institutions and consumer favorites report their third quarter results. Up until this point, the results have been mixed to say the least. Economic conditions have seemed to vary greatly between different sectors and industries during the during. After the close on Wednesday a number of companies reported even more results. Technology giant, IBM (NYSE:IBM) , reported third-quarter earnings that beat Wall Street estimates but it missed revenue expectations. Following the results shares plunged by 5%, largely unexpected after an earnings beat. However, lets briefly take a look at the quarter to find the true reason for the sell off.

Earnings excluding items rose to $3.99 a share from $3.62 a share in the year-earlier period. On the top line the company’s revenue fell to $23.72 billion from $24.75 billion a year ago. Analysts had expected the company to report earnings excluding items of $3.96 a share on $24.75 billion in revenue, according to a consensus estimate from Thomson Reuters. While the company may have beat analysts on the bottom line, traders and investors alike have focused greatly on the top line in recent years. Top line weakness for the company has proven a far better indicator of company strength than earnings. IBM said its software revenue came in at $5.8 billion, shy of the $6 billion level analyst were looking for during the quarter.

At the time of this writing, shares of the company traded at $175.52 per share, a decline of $11.23 during the extended hours session. Roughly a 6 percent decline for the heavily weighted favorite. In coming days it is likely we see a number of analyst comment and adjust. Unfavorable reactions by the street could send shares to the downside next week. Time will tell, until then, the average investor may considering just watching during a time of turbulence.

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