Kyndryl’s stock sinks on revenue miss and lower guidance – News

Shares of the technology consultancy Kyndryl Holdings Inc. were battered and bruised today after it failed to meet Wall Street’s first-quarter revenue projections.

It also offered underwhelming guidance for current quarter sales, and that helped push its stock down more than 13% in extended trading.

The company reported earnings before certain costs such as stock compensation of 37 cents per share, in line with the Street’s expectations, but revenue came up short. It delivered just $3.74 billion in sales, flat from the year-ago period, but well below the analysts’ consensus estimate of $3.83 billion.

However, Kyndryl did at least improve its bottom line, with net income of $56 million, surpassing the $11 million profit it posted in the same period last year.

Kyndryl is focused on providing information technology consulting services to enterprises, having split off from IBM Corp. in November 2021. It’s organized into six global managed services practices, each managing a different aspect of technology: applications, data and artificial intelligence; core enterprise and zCloud, IBM’s mainframe-as-a-service offering; digital workplace; network and edge; security and resiliency; and cloud. It also offers a customer advisory practice that combines managed services, advisory services and implementation.

In addition to its six core practices, it offers services designed to help companies set up and maintain their workloads on leading cloud infrastructure platforms, such as Amazon Web Services, Google Cloud, Microsoft Azure and IBM Cloud.

Kyndryl Chairman and Chief Executive Martin Schroeter (pictured), put on a brave face, saying in a statement that the company made steady progress in “key growth areas,” with contributions from Kyndryl Consult, hyperscaler-related activity, scope expansions and productivity gains.

In an interview with the Wall Street Journal, Schroeter elaborated on the company’s strong fundamentals, saying it’s seeing a lot of progress from businesses that are investing in productivity-boosting technologies and require assistance to get them up and running. “Customers are completely willing to engage in discussions to help them take advantage of opportunities like AI, or prepare for challenges such as cybersecurity and new regulatory environments,” Schroeter said.

The CEO alluded to strong demand for Kyndryl’s consulting services, as well as its AI and cloud partnerships, adding that the strength here was the main reason for the company’s higher profitability during the quarter. He said companies continue to up spending in these areas, despite facing economic uncertainty.

According to Schroeter, AI is critical for the company’s long-term growth strategy, because it’s the one area where technology investment continues to grow. He explained that many businesses need help in readying their infrastructure and workers for AI.

There’s a lot of work that goes into it, he said, from strengthening security to improving day-to-day operations to staff training. That’s why Kyndryl continues to invest heavily in supporting this kind of work, building strong partnerships with companies such as Nvidia Corp., Dell Technologies Inc. and Hewlett Packard Enterprise Co., which provide the data center infrastructure needed for running AI on-premises.

During the quarter, Kyndryl announced a new Agentic AI Framework that’s designed to help enterprises overcome the complexities of deploying AI-powered agents that can automate business tasks with minimal human supervision. They’re notoriously tricky to get up and running, as they must be integrated with dozens, if not hundreds, of different business systems and applications to make themselves useful.

It’s also striving to help companies with their on-premises AI deployments. In April, it announced a new set of AI Private Cloud services, aiming to help customers design and deploy “enterprise-grade AI solutions” in their own data centers with full regulatory compliance. It services here extend to the identification of high-return use cases, designing and building prototypes and moving deployments into production.

Schroeter also talked about Kyndryl’s progress in the cloud. He said revenue tied to cloud hyperscalers such as Microsoft Corp. and Alphabet Inc.’s Google Cloud hit around $400 million in the quarter, up 86% from a year earlier, putting the company well on track to achieve its target of $1.8 billion in the fiscal year.

Despite all of the positivity mentioned by Schroeter, it didn’t mask the fact that the company’s guidance came up short of expectations. Kyndryl said it’s expecting revenue of around $3.81 billion at the midpoint of its forecast range, trailing the Street’s forecast of $3.87 billion.

Investors voted with their feet, and the sharp after-hours drop means Kyndryl’s stock is now up just 6% in the year to date, trailing the broader S&P 500 Index, which is up 7% in the same timeframe.

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