Tuesday's Headlines: Virgin Orbit Tanks as Rocket Launch Falls Short
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
2U (TWOU) +14.4%
Snowflake Inc. (SNOW) +8.4%
Redfin (RDFN) +8.2%
THOR Industries (THO) +8.0%
Zillow (Z) +8.0%
Moving Down ⬇️
Lululemon (LULU) -9.3%
Sea Limited (SE) -4.8%
Chegg (CHGG) -2.5%
Calavo Growers (CVGW) -2.4%
Virgin Orbit Tanks as Rocket Launch Falls Short 🚀
Shares of Virgin Orbit fell as much as 30% in after-hours trading yesterday evening as news of its latest rocket launch was released. The satellite company announced that its first UK launch failed to reach orbit.
While the company, which live-streamed the launch, originally tweeted that it had “successfully reached earth orbit”, it would later announce that there was an anomaly and that the satellites the rocket was carrying failed to meet its target. It would go on to delete the original tweet. The crew involved in the launch all returned safely.
Virgin Orbit provides launch services for small satellites. This is the sixth launch to date from Virgin Orbit and its second failure. Its two launches in 2022 also fell well short of its targeted 4-6 space missions. Before today’s expected dip, the stock was down roughly 80% since its public debut in late 2021.
Lululemon Falls on Margin Contraction 😅
On Monday, Lululemon released a business update that disappointed the market and sent its stock down more than 9%. Management opted to brief investors prior to its Q4 release as the leggings-maker is participating in the ICR conference this week where analysts are likely to demand information on the upcoming quarter and the company’s handling of the challenging macroeconomic climate.
While final numbers still need to be confirmed, Lulu expects revenue growth between 25% to 27% year-over-year, beating previous forecasts, and is on track to meet its earnings per share (EPS) guidance. Management stated the company should see EPS up more than 26% year-over-year, coming in at about $4.22 per share.
However, analysts found something to balk at when it came to profitability. Lulu now expects gross margins to fall 90-110 basis points during the holiday quarter compared to previous estimates of an increase of 10-20 basis points. This is likely due to a decrease in demand forcing discounting.
Pessimistic analysts believe this is just the beginning of trouble for Lulu which has so far managed to avoid the broad market sell-off and outperform its contemporaries. Randal Konik at Jefferies stated: “Looking ahead we see dark clouds forming with difficult compares, peak margins, high inventory, and rising competition”.
Time will tell if this blip is a short or long-term concern.
Microsoft in Talks to Invest in ChatGPT 🤖
Microsoft is in talks to invest $10 billion in San Francisco firm OpenAI, the owner of ChatGPT. The investment, which would include funding from other firms, would value OpenAI at $29 billion.
ChatGPT was made available for free public testing in November last year and has taken the internet by storm with its ability to mimic human conversations and provide detailed answers to questions.
Semafor, the site that broke the news on Monday, claims the deal would see Microsoft receive 75% of OpenAI’s profits until it recoups its investment. After that threshold is reached, Microsoft would own a 49% stake in the company. The Wall Street Journal reported last week that the company was allowing early investors and employees to sell their shares at the $29 billion valuation.
Microsoft had already invested $1 billion in cash and cloud credits into OpenAI in 2019 according to a report in The Information.
Some analysts believe that the success of ChatGPT and future iterations of the technology could challenge the dominance of Google in search. It was previously reported that Microsoft intended to integrate ChatGPT into its Bing search engine.
Google parent Alphabet acquired Deepmind in 2014 for around $650 billion. In 2020, it was reported Deepmind was bringing in revenue of over $1 billion and was profitable.
Elon Musk was one of the founders of OpenAI in 2015 along with entrepreneur Sam Altman. Musk stepped down from the board in 2018 but has continued to donate to the project.