- The Long & Short
- Posts
- đ§ AI Is Eating Education's Lunch
đ§ AI Is Eating Education's Lunch
Education stocks slumped on Tuesday after Cheggâs AI warning, HSBC continued a strong quarter of bank earnings, BPâs shares nosedived after slowing share buybacks and Morgan Stanley announced more job cuts.
Good morning. In todayâs update - education stocks slumped on Tuesday after Cheggâs AI warning, HSBC continued a strong quarter of bank earnings, BP shares nosedived after slowing share buybacks and Morgan Stanley announced more job cuts.
Markets
The large cap FTSE 100 closed at its lowest level in a month on Tuesday, weighed down in part by outsized falls from BP (-8.6%) and Pearson (-15%), as well as oil prices slumping to a five-week low. On the upside, Housebuilders rallied after the surprisingly positive Nationwide house price data, whilst travel stocks got a lift from an upbeat quarterly update from US-listed holiday operator, Norwegian Cruise Line. Overall, the FTSE 100 and FTSE 250 dropped -1.2% and -0.6% respectively.
Top Stories
đ§ Education shares slump on AI warning
Shares of FTSE 100 education giant Pearson sunk on Tuesday, after US-based rival Chegg issued a warning regarding the impact that ChatGPT was having on its business. After reporting disappointing Q1 numbers, Cheggâs management admitted the rise in popularity of ChatGPT amongst students was hurting sales and new customer growth. Despite attempts to reassure investors that the company would eventually be a net benefactor of AI, shares slumped 49%. Pearson themselves came out to reassure markets that its business was âfundamentallyâ different to Chegg, with the majority of sales coming from outside of higher education. Regardless, investors were spooked - shares fell 15%. (Official)
đ HSBC delivered a smashing set of Q1 numbers
The UK-based lender reinstated dividends and launched a $2bn share buyback scheme after profits smashed expectations in the first quarter. Revenue surged 64% to $20.2bn, benefitting from higher interest rates, whilst pre-tax profit came in at $12.9bn (up nearly 200% vs 2022). The earnings increase was partially due to the bank reversing a $2bn impairment charge it had booked earlier, to cover the expected loss on the sale of its French unit (which has now been called off). Shares rose 3.5% on the day. (Official)
đ˘ď¸ BP shares dived despite beating profit forecasts
The oil giantâs earnings were down from a record-breaking 2022, but still well ahead of market forecasts for the first quarter. Underlying profits came in at $5bn - above expectations of $4.3bn - driven by a strong performance in its oil and gas trading unit. On the future outlook - BP said they expect oil prices to remain elevated as Chinese demand continues to recover and OPEC nations restrict production. However, despite the outperformance, BP left its quarterly dividend unchanged and lowered the size of its share buybacks (to $1.75bn from $2.75bn last quarter), causing a sharp 8.6% drop in shares on the day. (Official)
What Else Happened?
Economics / Politics / General
Nationwideâs house price index broke a seven month losing streak as prices unexpectedly rose in April.
UK manufacturing slowed again in April due to âclient uncertainty, destocking and tightening cost controlsâ; despite this, optimism rose to a 14-month high. (S&P)
British food prices rose 15.7% in the year to April - the highest monthly gain in nearly 20 years - driven by coffee and ready meals.
Deals
Private equity firm Apollo Management has drafted in former executives from Coty and Holland & Barrett to advise on its bid for London-listed eCommerce company THG.
Secret Sales - the platform that allows luxury brands to sell surplus stock - is set to announce a $10m capital raise to fund expansion into Europe.
UK-based SMPnet raised ÂŁ1.1m to fund the growth of its software thatâs helping to modernise UK power grids.
Company News / Trading Updates
Shares of Videndum - the FTSE 250 producer of production equipment used by television and film studios - lost 9.2% after the company warned that a Hollywood writerâs strike was hitting demand for its products. (Official)
Airline Wizz Air saw a 32% increase in passenger numbers in April compared to the previous year. (Official)
đ Global Snapshot
Morgan Stanley announced its second headcount reduction in six months following a slump in dealmaking; 5% of the workforce is expected to be slashed, with those in the investment banking and securities divisions most at risk.
Revenue at Uber exceeded market expectations in Q1, rising 29% year-on-year to $8.8bn, driven by a big jump in demand for its rides business; shares rose 7%. (Official)
Global media business Vice is reportedly preparing for bankruptcy, unless a buyer of the business can be found; Viceâs largest debtholder, Fortress, Investment Group, could end up controlling the business in the event of bankruptcy. (NYT)
Mixed signals from the Eurozone inflation reading on Tuesday - headline inflation rose for the first time in six months, whilst core inflation (which strips out food and energy) slowed.
đ Share The Long & Short
Know any friends who would benefit from having a daily summary of all things UK business and finance news delivered directly to their inbox?
Copy and paste this link to others: www.thelongandshort.co.uk/subscribe
Feedback
Got any suggestions for how we can make The Long & Short more useful for you? Fire them over to [email protected] (or just reply to this email).