Stock Market Commentary for 5/25/2021:
- Stock Talk:
|The Winner of the Day: Virgin Galactic|
|The short-squeeze is on. $SPCE announced a successful test launch on Monday, paving the way for commercial space flight. The stock soared on the news, as shorts scrambled to cover their positions.|
|What’s Moving Pre-Market: CarMax ($KMX) ↑ | Cigna Corp. ($CI) ↓|
|The Loser of the Day: NGM Bio.|
|$NGM cratered Monday, after the firm’s Hepatitis drug failed mid-stage trials. The firm joins Gilead, among others, to have experienced major trial fails over the last 6 months.|
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Top Investment Story #1: Amazon Looks To Streaming
What is Happening?:
Late Monday, reports leaked that Amazon ($AMZN) is in talks to purchase MGM Studios for approximately $9B. The move indicates that Amazon is preparing to become a major force in streaming and content production.
Why Does This Matter:
Amazon appears close to closing the firm’s second largest deal in its history. The $8.5 – $9B deal to take over MGM Studios is only eclipsed by the firm’s acquisition of Whole Foods for #13.7B in 2017.
MGM is famous for its production of multiple well-known television series and films including “Rocky,” “James Bond,” “Shark Tank,” “Real Housewives,” “Survivor,” and “The Voice.” The production studio has been looking for a strategic buyer for years, according to recent reports. Multiple private equity firms were responsible for reviving the film house from bankruptcy over the past decade.
The acquisition comes at an interesting time, since just last week it was reported that AT&T would sell a majority of WarnerMedia to Discovery. The consolidation within the media industry has picked up at an unprecedented rate.
For Amazon, the move comes at a pivotal moment while the firm enters the streaming war against Netflix, Disney, AT&T, Discovery, Paramount, and others. Supply gluts due to Covid-19 have hit content production with force. The acquisition of preexisting hit content will help Amazon Video navigate these production delays in the near term. For the long term, Amazon adds an impressive portfolio with a management team that has decades of experience. The Seattle mega-cap also recently agreed to an annual $1.2B deal with the NFL, for exclusive streaming rights to Thursday Night Football.
Amazon continues to do it all. Just when some speculated that the firm had little interest in pursuing the streaming audience, Amazon makes a massive splash. If past acquisition results are any indication of the firm’s performance in the streaming space, it is likely that Amazon will be a streaming staple in short time.
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Top Investment Story #2: Peloton’s Expansion
What is Happening?
Peloton ($PTON) announced Monday that it plans to implement a $400 million investment to create its first U.S.-based factory. The investment appears to be a strategic move to speed up production and delivery of its popular cycles, and high-end treadmill machines.
Why Does This Matter?
In Q1 of 2021, Peloton’s ($PTON) total revenue surged 141% to $1.26 billion, from $524.6 million a year earlier. Peloton expects sales in Q2 to be $915 million. They are planning to put the money right back into furthering the business.
Peloton selected a 200-acre site in Wood County, Ohio to construct more than 1 million square feet of manufacturing, office, and amenities space. They expect to break ground later this summer, which should bring more than 2,000 jobs to that area. The facility should be up and running by 2023.
Currently all of the production of Peloton’s products are through third-party facilities in Asia. In February, the firm said it would spend more than $100 million to speed up shipments using air and expedited ocean freight.
Peloton also acquired fitness manufacturer Precor for $420 million, gaining manufacturing facilities in North Carolina and Washington as well.
Earlier this month, Peloton recalled both of its treadmill machines over safety concerns however. The company’s less-expensive model, the Tread, was slated to go on sale in the U.S. this week. Respectfully, the launch was delayed to add new safety features, which could come as soon as this summer.
Peloton fell nearly 1% Monday afternoon, but rebounded and managed to finish the day positive. The frustrations around supply should be alleviated, expansion is on the horizon, and this is should be great news for consumers and investors alike.
Expect further announcements on Peloton’s expansion plans to impact its share price.