The Canadian Investor - A Canadian Toy Company gets Bigger and Call of Duty is Now Part of Microsoft

Episode Date: October 19, 2023

In this episode, we start by talking about Microsoft finally closing the acquisition of Activision Blizzard. We then talk about recent US and Canada inflation prints, Spin Master Corp announcing that it is buying Melissa and Doug and big news on the Semiconductor front. We finish the episode by going over the recent earnings from JP Morgan and the recent uptick in IPOs. Symbols of stocks & ETF discussed: MSFT, TOY.TO, JPM,  Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. TD investor IndexSee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome into the show. Today is October 17th, 2023. My name is Brayden Dennis, as always joined by the brilliant Simon Belanger. Do you just bring your bike in? Is it all done for the season?

Oh, no, no. Oh, no. I'm going to be biking until there's snow on the ground. Until there's snow. Attaboy. Do you do the fat bike, the winter one? Yeah, I have a fat bike too. So I basically can bike outside like 11, 10 and a half months of the year

because when it's kind of melting it's not the best but yeah i busted my front suspension so i'll have to buy a new one well hey that means you're grinding out there i used to uh i used to bike to work basically 12 months a year because it was like a it was like three clicks each way and getting on the street car at my stop to get to the, to work was basically impossible. Like by the time it got in downtown, there was already way too many people on. So you could either be that guy and like squeak on there, you know, you're like, you put your shoulders in together and like a tail between your legs and try to get on there. Or you just hustle in the, in the snow, uh, the heel toe express or bike.

So I was that psychopath all winter. We have, we have lots to talk about today. I felt like last week was like, yeah, not much news. Earnings season is picking back up that acquisition that was left for dead. Uh, we'll talk about in a second ipos earnings like it's we're back baby so moment to kick it off here with the the transaction yeah go for it i mean something what how long has it been for uh activa activision blizzard and microsoft like two years now or almost i think 21 months 20 months 21 months so call it almost two years since

we announced it on this podcast which is kind of crazy uh so we talked about this deal call it 20 months ago and what a strange transaction this has been. Microsoft has finally closed their acquisition of Activision Blizzard for $69 billion. Nice. For those unfamiliar, Activision Blizzard, which really should be called Activision Blizzard King, since King is their mobile games division with Candy Crush as the big breadwinner there. Hit titles you've likely heard of or even played call of duty warcraft diablo overwatch candy crush hearthstone starcraft and more you ever given any of these a whirl oh i was uh i still play for once in a while diablo but yeah diablo

guy yeah diablo guy but i know they've had a lot of flack from the community and the past like seven eight years where they used to be this like awesome gaming company where they would have their products that were like you know when it was released it was a finished product very quality product and then over the years they kind of shifted to you know making more money profits and starting to release these products that were not that great still had bugs in them uh and if anyone is interesting the interested the most recent release is diablo 4 and although it did a lot of sales um it's having some major issues where the amount of active users has dropped like 95%. Is it just like really buggy or?

Really buggy. Didn't listen to the community, I think, from what I've heard in terms of what people were looking for. And they said they were like there's honestly, I think it may be a good thing for Activision Blizzard because I feel like Microsoft will inject some new blood, new perspective. And I think they might go back to the roots a little bit where they'll actually Activision Blizzard because I feel like Microsoft will inject some new blood new perspective and I think they might go back to the roots a little bit where they'll actually listen to their base and these people that are actually supporting them and buying their products because there's so many you know when you're a consumer and you're being told oh next time is going to be better and you believe them and you put faith in them at some point you know when

that's not coming true you just kind of give up and say okay i'm not buying your next game so i think from that perspective it'll be interesting what microsoft does with them maybe they can be a little bit more long term in the way that they think about like injecting cash out of these games against the community because mic Microsoft makes a few dollars. If you're, if you're not familiar with the billions of dollars that they print, I played an egregious amount of call of duty. And back in the day, you know, what's funny when you're talking about that, these games, I'm not a gamer these days, but I know that the games that they push, since it's all like over the cloud

they're able to push bugs and fixes it's almost like it's okay to ship like a half-baked game because they can just kind of keep working on it to meet their like they make they meet their release date but then they're able to just patch stuff over the internet bro remember when we used to get video games in cereal boxes oh yeah like that that was you ship that game if it doesn't work you are screwed like it's on a cd on your frosted flakes box uh you know that is that is the og right there so i remember like i used to go to costco with my parents when i was like probably 10 11 years old and they'd kind of go you know do the shopping and all that and i'd stick in that area the computer

slash video game areas with all those boxes and then i would always try to convince my parents to buy me one of the new games which was like maybe you know 10 cheaper cheaper at Costco compared to somewhere else. Good times. Man, that is some serious nostalgia, just picturing one of those cereal box games. So this acquisition has been quite the ride. It looked like it was not going to get approval, regulatory hurdles, crickets, nothing, like nothing really to talk about, to, oh, it's back, it's on again, to

crickets and, you know, just more dragging on. Again, this has been a long time, nearly two years. And then all of a sudden, like two nights ago, I'm scrolling the interwebs and boom, by the way, the deal is closed. It's like, oh, I kind of forgot about this. Now, big play from my view here is Microsoft being the owner of Xbox and Microsoft Gaming being a fairly large segment of the business. They want to keep growing the Game Pass business. Game Pass, which I estimate, I think I saw a Morningstar thing that said they have about 25 million subscribers based on estimates. They don't disclose this, but that's an estimate. And Activision has 360 million monthly active users these days. So from what I understand,

being a non-gamer these days, Game Pass is basically the Netflixification of video game titles. Think of video game discs like Blockbuster and Game Pass like Netflix. All the major publishers have been working towards this business model. And the whole idea here is video game titles and publishing is a very chunky business. It's like movies. Very chunky revenue and cashflow wise, create a title, create some buzz about it, sell a ton of copies on launch and trickle out for the rest of the quarter. And then pretty slow stream of sales until that next big launch. The subscription model fixes this. And net net, it's probably a great model for people who want to just pay i don't know what is it like 30 bucks 20 bucks i don't really know yeah there's different price

tiers i think too i had the one ea sports i think or ea electronic arts i won i i used it for like six months or so when i got a new computer and it was pretty cool it was like i think like six seven bucks a month there was different tiers so for the cheapest one you could have access to their older games so games that have been released for a couple years but for me you know casual gamer more than enough i was happy it was still really nice graphics chel chel 19 is gonna be just fine for me i don't need chel 24 yeah and they had like the star wars franchises so they had like i didn't care whether it was the most recent one or not and uh you had different tiers and then

the most expensive tier you had access to their new releases uh but that was yeah i think probably in the 30 40 dollar range yeah got it okay so 30 40 and then it games what like 80 90 bucks ish after tax. So if you're playing a lot and you want to play a bunch of different games, then it's probably not a bad deal. Regulators were rightfully worried about this because you can be pretty anti-competitive with this acquisition. Post-acquisition, if they wanted to own the publishing and the hardware side of the business and really like kind of wall garden all of it, then that's definitely a concern for regulators.

You know, the hardware being the largest competitors with Nintendo and Sony with the PS, whatever we are on, PS5. So in response, Microsoft signed agreements with Nintendo and Sony, promising them access to Call of Duty games for 10 years. I think there was some other big kind of compromises along the way, but this is the big piece, right? Call of Duty is the flagship franchise for Activision Blizzard. It's been like the best selling title for console games for like a decade and a half now every year. Current CEO Bobby Kotick will be moving on at the end of this year, at the end of this calendar year. So it's basically, all right, thanks pal. You got a couple months left and then go off into the sunset. He's had quite the controversy

in the HR department, right? Basically right before the acquisition was announced, like looking for this guy, a lot of heat got off of them, right? Immediately when this acquisition was announced, because there's a lot of HR heat on them. And then all of a sudden, everyone's just talking about this 69, nice billion dollar acquisition. Phil Knight, who's the current Microsoft gaming CEO, will take over this portfolio once Kotex steps down. Yeah, I think he's taken a lot of the blame in terms of the direction for at least from the gamers perspective, obviously, as investors, you want to maximize profits but i

think it's a fine line with maximizing profits and like i said before not alienating your fan base so i think i think it's a good thing um overall and do you know if warren buffett still still owns it as an arbitrage play as far as i know i'll check his 13f but he he has owned the arb for probably almost the entire existence pretty much announced right yeah i think it rolled out in his next is following 13f um so i think he's been playing the arb the whole time it's funny right like you get this monster acquisition go through with some compromises. It seems like Microsoft and Apple kind of get a free pass from regulators. Yeah. And the other big techs, not so much.

Yeah. And for those wondering, like an arbitration play, you're essentially when there's an announcement for like a merger acquisition like that, sometimes there's going to be uncertainty a bit like, you know, like we talked about whether in this case was regulatory uncertainty, but in some case it could be financing, could be various reasons. So, you know, usually the company purchasing all agreed to purchase at a certain price. But if the market thinks there is a not 100 percent chance of this happening, then the company being acquired might be actually

be trading below that acquiring price. And you're playing the arbitrage when you're betting that, you know, purchasing it at a lower price and the purchase price that it's being acquired in the long run will be beneficial for you because you think it actually will go through. Here on the Berkshire 13F, yes, they still are holding that position as of their latest filing at around 15 million shares. But that in their 13F filing in the quarter was down 70%. So it looks like they took a bunch off the table a few months ago when it looked more and more like the deal was going to close that they, you know, they saw less upside in it and closed some of the position. Probably the British, when the British regulators were not very in favor. And I think

they're the ones that turned around, if I remember correctly, they're the ones that kind of ended up approving it. That was the biggest sticking point. That's right. Yeah, exactly. As Simone says,'m going to play the ARB and I thought about it because right out of the gate, I said that I think that this will eventually close. It seemed like it wouldn't for a while there, but basically if I was to play it, I would say, I think the chances are it's going to close. I'm going to make a bunch of money when it does close because the acquisition takeout price is higher than the price that it's trading at on the open market. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing.

Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker.

Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. All right, let's talk about inflation. We're not done yet. We're not done yet.

We're still in inflation world. Still in inflation world. It's funny, what a week of difference it makes because last week there was not much news. And then this week, all these different news earnings, US CPI came out late last week. IPOs. IPOs. And then you have Canada CPI that actually came in just this morning. So I'll start with that one, although it came in after the US, but still. So Canada CPI came in at lower than expected at 3.8%. That's a headline number year over year versus September.

Economists were predicting 3.9%. And according to Stats Canada, and I'll kind of say according to them because they calculate the CPI, prices declined 0.1% from August to September. So the headline prices, I say according to them, because I'm sure a lot of people will say like, well, I don't feel like prices have declined. This is actually a decline, not disinflation, not a lower inflation rate. It's actually a negative price increase, very minor. But again, I think, you know, hopefully it's heading in the right direction here. And most items actually decline on the month over month basis, including food, which declined 0.1%.

The most significant decline was actually gasoline at 1.3%. And compared to last year, prices are still increasing at an elevated pace with the headline number, like I said, being 3.8%. And on a year-over-year basis, it's still pretty high. So food increased 5.9%. Shelter 6%. And on a year-over-year basis, it's still pretty high. So food increased 5.9%, shelter 6%. Energy as a whole category was up 5.4%, while gas was up 7.5%. And the increase in prices for durable goods is slowing down pretty significantly. And, you know, if people have been paying attention and we certainly talked about this in on the podcast, if people have been listening to what companies and retailers have been saying in Q2, so several months ago now, I think in July that started coming out. This is not really a surprise. Retailers were starting to say we're seeing consumers spend shift from these durable goods or things you keep for a long time so whether it's

household appliances furniture to more essentials and i think this is starting to reflect it so durable goods they were up 0.4 percent on a yearly basis but declined 0.6 percent versus august new cars were 1.7% higher compared to last year. Stats Canada did say in large part because of more inventory being available. Furniture was down 4.6% on a year over year and appliance down 2.3%. And non-durable goods were up 5.8% year over year but down 0.3% month over month. And this is really the one I think people need to keep an eye on because durable, non-durable goods includes a wide variety of items, but it's basically, you know, a lot of the essentials actually fall into that category. So this is what is still impacting a lot of people. So yeah, any comments on that before I move on to the US and the last

thing I'll say is that a core CPI is actually trending down on as well so it was in April there's three measures so it was five point six four point three and four point two and now there are four point four three point eight and three point seven so definitely an improvement but still definitely much higher than the target from the Bank of Canada. I haven't been following it as much, but does Canada have, you've seen this US Inflation Reduction Act, right? It's just the dumbest name of a legislation I've ever heard, but yes, I've heard of it. I don't know a whole lot about it. I can get your vibe on it from the reaction. Have we put out any fluff pieces?

Inflation Reduction Act, which is, I guess, an oxymoron, if I know my terms well, because or it's really like it's a massive spending bill. And their idea is that, I guess, it will help infrastructure and technology to the point that it will reduce inflation, which I don't know. It's a bit of a head scratcher. But if you talk to anyone following macro. a lot of push for drug prices to be reduced too because that's a big line item that's part of it for consumers in the u.s compared to here it's a definitely a bit of a strange name for the bill i think it's more you know political trying to spin things and right you know so that people yeah i mean we have an election cycle coming up in the u.s so obviously all the parties are kind of gearing up for that.

And I think, you know, you can even look at the term Biden. You've got to get your branding on point, right? Yeah, well, Bidenomics, I think, is one of the things I'm, it's just, yeah, the U.S. is something else. But anyways, so continuing to the U.S., so U.S. CPI, it increased 3.7% year over year and 0.4% compared to August. Food inflation was at 3.7%. But what really caught my eye was that it was 2.4% for food at home because they break it down and 6% away from home. So you're really seeing an increase, especially when it comes to restaurants. Energy as a whole was down 0.5% year over year, but up 1.5% month over month. Gasoline up

both on year over year and month over month, 3% and 2% respectively. And core CPI, again, this strips out the volatile food and gas and energy, I believe, came in at 4.1%. I always kind of laugh because, yes, they want to see it. You know, they want to remove the volatile elements. But at the end of the day, you know, energy and food is what, you know, they're essential for, you know, for everyone. You know, you need that. So it's kind of funny that they stripped those out, but they do use it to core, and it's still higher than they would want at 4.1%.

Used cars were down significantly, 8% year over year, 2.5% month over month. Not surprising, and same thing, vehicles that are new were up 2.5% year over year, but 0.3% month over month. So you're really seeing a slowdown on the vehicle side, which is something in the U.S. that's being impacted in Canada as well by higher interest rates. Because if most people do not buy cars outright, they finance the cars. And you're seeing the cost of financing go up so i wouldn't be surprised if the coming months um we'll see some not so great numbers from car manufacturers because uh price of cars are still increasing maybe a bit less rapidly but they're still increasing and the cost of financing is going way, way up. So something's

got to give. And that's something that that lag effect, we're definitely starting to see it with that because those are purchases that are more price sensitive or sensitive to interest rates. Auto manufacturers, they're in a bit of a weird spot right now. I mean, how are they still doing that uh up until what point were they doing that zero percent financing like that was yeah i think it was common that was like 2020 2021 or even before that uh yeah they did for several years are very low yeah yeah like um leasing a vehicle has changed dramatically for consumers. And so, man, I've never been one to want to own automakers.

And I don't know how you can get excited about that. Yeah, I mean, I would stay away from the big three like the plague. And I'll just go over something quick that I had done in the notes here. So, you know, whatever people think about Elon and Tesla, they've been very aggressive in price cuts in the US. And I think they've also had some in Canada. But in the US, Tesla has cut the price of the Model 3 by 17% since the beginning of the year and 26% for the Model Y. Obviously, I'm sure that's probably a double reaction. So first, BYD, which is the Chinese electric or auto manufacturer, I think they have some hybrid cars as well.

The one that's back, I think, by Charlie and Warren. I believe they have a stake in that. I think they're facing pressure from there. But also, I think they're also seeing that the consumer can't afford as high prices in terms of what I just talked for a high interest rate so and Tesla has much cheaper cost than the big three in terms of labor costs so I think you know depending what the outcome is with these strikes that are happening in the US with the. with the UAW, it could be a really difficult couple of years, if not beyond that for the big three, because

they're going to have a hard time staying competitive. That's what I think. Maybe I'm completely wrong, but for that reason, I mean, there's not really a price where I'd be interested in buying them. There's just too much uncertainty and just too much risk around them. Just looking here, I'm pulling up operating margins and putting it in the dock. They've seen some real pressure on operating margins down. I'm putting it in here in the dock. This is trailing. So every single point looks at the previous four quarters. And so it smooths it out and keeps it smooth looking at quarterly data. Peaked at around 16.8% operating margin for Tesla at the end of 2022. We've seen that drop to 13.5%. Still way up from kind of the pre-COVID days. They saw really nice operating margin expansion,

kind of hitting operating leverage as a business. And they've been the most efficient automaker, there's no doubt. You got to give them credit. They've built these plants in a way that is second to none in the industry. I'm trying to compare that to like, what's a GM operating margin? I'm going to look here. Yeah, GM's a good one operating margin i'm gonna look here yeah jim's a good one they've been probably the most consistently profitable over the last decade i remember looking at it not too long ago because ford has been more all over the place atlantis as well a bit more all over the place yeah so trailing 12 months operating margin for tesla is 13 and a half percent which is more than double or around exactly double general motors operating margins trailing 12 months at 6.6 percent that's a pretty

big difference right there and that's not even counting those higher contracts if they do ratify them yeah i mean like i think that just proves my point i don't know why you'd wanna you know it's one thing to own them when they have the union contract signed and you know what to expect for the next three, four or five years. But you don't even know that. And the margins are not that great. Plus the higher rates, the uncertain economic environment. I just don't know. I think it's there's red flags going on for me when it comes to the

big three. Yeah. Yeah. They saw some huge spike in margins in 21. You're seeing that come off a little bit normalized. But I mean, this is why people think you can't bucket Tesla with the other automakers. Look at the margin profile. It's entirely different. And I think that that's a fair comparison. I still don't want to own any automakers, but that's just my opinion. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission

free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing.

Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure

with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. We get to move on to IPOs? Yeah, let's do it. All right. So there's been a bit of a pickup in IPOs. I did a breakdown maybe a month ago on the S1 filing for Instacart.

They're corporations like Maple Bear or something strange, but the operating name of the company is called Instacart, which many of you know, it's the grocery delivery application. They IPO'd in late September. A few days earlier was Arm Holdings, which we didn't really discuss, but discussing it now. The semiconductor company hit a $60 billion market cap just after IPO. I think it's sitting at around 55-ish billion US today. This is a funny one because Arm Holdings, which is a semiconductor company, was a public company just a few years back. And they were bought by SoftBank for $25 billion off the public markets. And SoftBank's bet paid off because they flipped back on the markets for

about $50 to $60 billion IPO. Klaviyo, a software company, another big name debut on the public markets. That just hit a roughly 8 billion in market cap. So I'm not super familiar with the company, but it's like e-commerce automation. It's kind of like a Twilio type business. It helps people automate customer communications for e-commerce.

Now, we haven't talked about it yet. Birkenstock went public. Yeah, I know. I saw that. The Sandal Company. Yeah, I have a pair. I love them. Yeah. You love your Birkenstocks? Okay. I love my Birkenstocks. Just the one pair? Have you been a longtime Birks guy or is this your first pair? No, a couple of years, but my data has been for a very long time and there's just um i bought some fake ones before it's just not the same so i went there paid the paid the 100 bucks or so and uh no really good quality really like him yeah the way like yeah after like six

months of wearing them your foot just melds into them yeah exactly it's super anyone else yeah exactly anyone else anyone else trying them. Yeah, exactly. Anyone else trying them would probably be like, oh my God, this hurts my feet. Yeah, dude, what's wrong with your feet? IPO'd at 7.5 billion in market cap. It's fallen a little since. Fairly impressive business. I was actually kind of surprised.

They're selling a lot of sandals. 1.4 billion euros in sales in the trailing 12 months. That grew 30% year over year, very solid 63% gross margins. I mean, I'm not surprised they're selling $120 sandals. The CEO went on CNBC on the IPO day. Did you see this guy? No, I didn't. He was wearing a button up shirt and bro, he had like the top five buttons undone. Like I'm pretty sure he had like one button in the field of the camera. Uh, absolute power move. This guy was making me laugh. Uh, so unintentionally funny with his, with his accent there. But, um, um yeah this guy just was killing me bro he his chest hair just fly just flying out yeah big beard huh yeah yeah yeah big beard uh this guy's

this guy's awesome i wish they showed if he had like sandals on or not yeah yeah seriously with that look yeah for sure if he wasn't wearing yeah just google burton stocks ceo cnbc interview look in images you'll find it you'll see what we're talking about yeah i yeah i mean if he wasn't wearing birkenstocks uh there during ipo day i want a short stock for sure yeah you know that's a you gotta be that. So many IPOs have fallen in price since listing day. And here's my hot take. This is what companies should be shooting for. In 21, in 2020, when there was the onslaught of IPOs, it was just assumed you IPO and your stock goes up like 30% the next day with a lot of these hot unicorn tech listings. For some reason, the vanity metric has been how much the stock jumps

on public trading day. That's not what you want. You should want to sell the shares at a nice little premium, raise some capital, and then long-term execution, let the chips fall where they should be. Let the market value the business as you compound value long-term. If shares jump big on trading day, you're either in the market mania of 2021, or the shares were likely underpriced and your investment bank left money on the table. That's my opinion i don't know why that has become uh like a contrarian a take it makes no sense to me so i've always been of that idea yeah that's uh i mean you want the shares almost be flat once they're listed because you you maximize earnings you don't like screw anyone either at the same time. But yeah, no, IPOs have been, for the most part, I try to give it at least a year because sometimes, yeah, there's just a lot of hype around it.

I mean, some of the companies we've seen, like Arm and what's the other one you talked about? Klaviyo? Arm. Arm and Instacartart it's not like they've performed all that well either and uh in terms of softbank i mean they did okay but they only did i think they sold what like 10 they only and they basically said they're using the proceeds like as cash for them like it's not they're not reinvesting in the business or anything which is you know

which makes sense when you made some really good bets like we work for example um you know you need a little extra cash and i mean some bank has made some pretty poor bets in the last like five years um it used to be like i feel like he had this aura around him. Yeah. Masa was like, yeah, Japanese Berkshire Hathaway. Yeah. Now, like, what stupid bet is it going to make? Max is almost that. But yeah, I think that's just a good idea just to see how also management reacts to being publicly traded because you can, you know, there's countless CEOs over time that

have been CEOs of private and public companies, oftentimes the same company. And it's a very different beast. And you just want to see how the company performs, but also how management performs once they are publicly listed. Yeah, like they start catering to short-term stuff maybe or, you know, listen to a few earnings calls for the first time. listen to a few earnings calls for the first time, get a kind of look through in the business on a longer term than just what's in the S1. I think that that's pretty fair. You don't have to rush into anything, right?

There's no called strikes in investing. So I think that that's probably a sage point. All right, let's move on. We got still a couple more things here so let's uh keep it going yeah yeah so uh an acquisition a canadian acquisition uh so spin master corp uh will will announce that it will be acquiring melissa and doug so i'm sure for those of like our listeners that are especially younger parents that have younger kids I mean like myself they might be familiar with this but in case people are not I'll just go over give a little bit of

background what Spin Master Corp is and Melissa and Doug. So Spin Master Corp is a Canadian company awesome ticker by the way toy.to so they are a toy maker and they said they will be acquiring Melissa and Doug who is also a toy maker. So if you're not familiar with them, they do have some pretty familiar brands of their own. So Paw Patrol, I think most people are probably or at least have seen it on Netflix, for example. They have a lot of shows. Bakugan, Hatchimals, Kinetic Sand, Air Hogs. So these are their own property but toy companies also

tend well they will usually have licensing agreements in place as well whichever one you're looking at like obviously for example if you're a toy company and you have like the Disney licensing agreement that's a pretty good deal because obviously Disney comes out with tons of movies their intellectual property and so on so it's it's great for toys now one of their licensing agreement they currently have in place is the higher profile one is the one with Warner Brothers consumer products for DC superheroes such as Batman so the agreement was renewed in 2022 and runs through 2026 and like I said for toy companies this is actually quite important. Now back to the acquisition Spin Master Corp is acquiring Melissa and Doug for

$950 million USD, $450 million in cash and $500 million that will be financed by debt. The transaction may go up to $1.1 billion if they achieve certain financial metrics in 2024-25. And Melissa and Doug is a high quality, open-ended, creative, and developmental, sustainable wooden toys. I'm familiar with it because obviously I have a young daughter. We have a couple of their toys. They're very nice toys and they are really aimed at early childhood kids so you know I actually wanted to learn a bit more about all their suite a suite of toys and the toys tend to go from newborn to eight years old so definitely for younger children and they really have interesting toys especially if you're trying to get them to play and learn be entertained but without being glued to a screen, which I think

is probably what most parents want without having to put the TV on. And the acquisition will allow Spin Master Corp to expand even more in the childhood toys because especially the early childhood toys, they do have some offerings, but not very very extensive and I think this acquisition will help them make some progress there and Melissa and Doug actually had 489 million in revenue in 2022 so I mean from my standpoint I don't know the two companies overly well obviously Melissa and Doug I wouldn't know as well but Spin Master Corp it does make sense obviously it's a toy company buying another toy company I think it it does look like it fits well it's into its portfolio and these are toys that also kind of stand the test of time as well so I have to say it probably

makes a whole lot of sense we'll probably have a better idea a couple years down the line if it really does but not too much more to say there any any comments on that i was just doing some digging into melissa and doug i was like who who who is melissa and doug yeah they're the founders yeah yeah and uh they are you know a what looks like a happy married couple that went into business together, left their jobs, started this toy company. It looks like it sold to private equity years ago, but they grew it from the ground up in Connecticut there. Sold the private equity and then now bought by Spin Master, as you discussed. So, hey, Melissa, Dougoug we love a good entrepreneurial story congrats

on uh making a boatload of money again probably i'm sure i'm sure they were saying some yeah yeah exactly i would assume so um i mean i'm i think they're probably well off and their kids are well off now uh for a couple generations at least yeah exactly great toys so they're wooden toys i love wooden toys mostly i think they have some different ones but and the ones we have are definitely like really good quality too um yeah i love the sound uh wooden toys make when they clack together you know what i mean yeah very satisfying yeah uh like those blocks very cool all right let's move on to canon's advancements advancements in air quotes tbd still uh in challenging asml of course simone i buy asml for their monopoly in ultraviolet extreme ultraviolet lithography literally like two days

literally like two days before they break you know they got news of it they're like okay braden bought a smell issue the press release japanese company canon this is the the camera maker uh the camera maker nikon's another Japanese camera maker. They've been involved with lithography and chip makers for a long time. They kind of lost the war. They lost the war. ASML really dominated with the advancements of extreme ultraviolet lithography. Japanese company Canon says they can now rival ASML with nano imprint lithography. Now, both stocks really have not moved on this news. And you may be thinking how this is seems like a big deal. And here's why the market in my view, and myself and maybe I'll speak for you

is basically saying, okay, prove it. Because we have heard this song and dance before. There is a reason no one has been able to touch ASML's extreme ultraviolet lithography. It is an extraordinary complex, at the greatest lengths of human achievement with science and innovation, requires tens and tens of billions of dollars in R&D and deep, deep complex supply chain partnerships. And according to my just quick Googling research, Japanese lithography companies have been developing nano imprint lithography and had it announced as a breakthrough in 2004, 20 years ago, and ASML's dominance has reigned supreme. So I say this as a, I'm not going to, you know, in my hubris say, ah, ASML is the best business ever. You can't touch them. This is a prove it and wait and monitor it. It's no reason to freak out, but also no reason to be

complacent here. So this is just something that I'm going to continue to monitor. As all positions have extreme dominant market share positions, change is bad. Monopolies hate change. And so you're just monitoring for change here, but you're not freaking out. Yeah, exactly.

Because there's a lot of things involved. Like it's extremely complex. And if you take a company like TSMC, so Taiwan Semiconductors, is, you know, they have the expertise, but their expertise is used on working with certain tools. I think that's one thing that Canon will be facing is whether, you know, the semiconductors, so the ones that actually produce the chip like the TSMC, will be willing to invest in new tools that they, you know, I'm sure they're similar. But I know like, you know, having read enough that I know they'll be different as well. So are they willing to invest with, you know, invest time and, training employees on these new tools? And the other thing, it'll be interesting, is the failure rate. So for people that are not familiar with failure when it comes to semiconductors,

is that when semiconductors are produced, they're never perfect. So they're never perfect. they're never, they're never perfect. So they're never perfect. But in, you know, when you have a very low failure rate, it means that, you know, the imperfections for most of the vast majority of the chips are so small that it does not affect the performance. But when you have a higher failure rate, or the failure rate is actually that the chips cannot be, you know, sold essentially, because they're not working properly. And that's what you're seeing. So if ever you're reading on development and these type of technology, if you see a hype around the company, but they have a 30% failure rate, that's not very good.

If you get into the high 80s, 90s, that's when it starts being more and more attractive uh because at the end of the day they can't sell chips that don't work as they should yeah and the designers the foundry like tsmc in this case and the lithography equipment uh equipment broadly it's, you know, applied materials, ASML, the long list of people that are in this ecosystem. These relationships are very, run very deep. And the CapEx plans cannot be flipped on a dime as well. So again, this is not saying that disruption is never going to happen and can't happen. It's just that there's a reason that these are wide mode businesses, from my view, and for all the reasons that we just mentioned.

All right, we're kicking off earnings season. And we're going to start here. So over the next few weeks, tune in. It's kicking off. I know my team's gearing up pretty heavy there with the data updates for the strategy for KPIs and segments and stuff, which I see you have a nice, beautiful graph here on deposits.

Let's kick it off with, I guess, the world's largest bank. I was going to say the smallest bank or what? Yeah, the world's smallest bank. Yeah, I think it is up there, right? I haven't looked at the GSIB. I think it's largest by market cap. Yeah, I think so. I think you're right.

So anyways, yeah. So you have, you know, people may have guessed it. So it's JP Morgan Chase. So it is, yeah, in terms of GSIB, so globally systematically important banks, the ones that are considered too big to fail. JP Morgan Chase is at the top of the list. So there's five levels. The top level is there's none there. And the fourth level, which is the, you know, the biggest one is JP Morgan Chase solo there.

And then you have three, two, and then the lowest level, number one, which are Canadian banks, RBC and TD kind of fit in there. Now, JP Morgan. JP Morgan is almost double the largest, the second largest bank by market cap. It's almost double Bank of America. Yeah. Wow. Okay. That's why when Jamie Dimon talks, people listen.

That's right. Wow. Okay. So that's why when Jamie Dimon talks, people listen. I don't always agree with what he says. And I think people sometimes take what he says like gospel. But I mean, he's one, I would say probably one of the more influential people in the financial markets in the world, I would say. I think that's a safe bet. Now, deposits were down 4% year over year. And I wanted to have a look at that because we talked about deposits fleeing to larger banks in the wake of the SVB and regional bank crisis in the US. But I was kind of surprised to see that 4% down year over year. But then you factor in the fact that maybe we're know, we're coming out of

the pandemic, people are spending more, interest rates are higher, people have less, you know, savings, things add up, and maybe that kind of counterbalance the fact that I'm sure they got increased deposits following the regional bank crisis. But it's been relatively stable. If you look at the deposits for JP Morgan, there hasn't been that much change over time. It's been kind of hovering around the same type of levels. What quarter would the SVB and Signature Bank collapse have been? I think it would have been Q1 of this year. Yeah, Q1 of this year, because it happened in March. I would say you would have seen it in Q2 probably a bit more. Yeah.

Right. Okay. Yeah. Mix of Q1 and Q2 when those came out. Commercial banking deposits were also down 7%. So that's something just to keep an eye on. I think more as the, you know, JP Morgan being such a massive bank and it's one of those national banks in the US, that's more of an indication maybe where things are going a little bit for businesses. Asset under management for their wealth management business were up 22% to $3.2 trillion.

Although I think you can attribute that probably in large part because of the market performance year over year. So I think you probably take this with a grain of salt. Loan loss provisions were down 52% versus Q2. So on a sequential basis at 1.3 billion. And that's interesting because we see the difference now between JP Morgan and the Canadian banks because Canadian banks have been steadily ramping up those loan loss provisions. And the fact that they brought those down by 52%, who knows what will happen the next quarter. But I thought that was an interesting kind of tidbit to look at. Net income was up 35% to $13 billion. But $1.1 billion was because of the First Republic acquisition.

For those who don't remember, First Republic was one of these regional banks that failed following the SVB collapse. And JP Morgan, with some government assurances, basically capping their losses if they bought the assets, ended up buying the assets for First Republic. So, you know, I think you just have to keep that in mind because obviously, you know, there's 1.1 billion of that 13. It's not insignificant.

And the interest rate margins stay pretty steady over hovering right around 2% for the past year after climbing from 1.8%. So hasn't moved much, stayed steady. So probably tells you that, you know, with even interest rates rising even more, it feels like they probably had to increase a little bit what they're paying their depositors, because if they had kept the depositor interest kind of flat overall for the bank, you would have seen this interest margin kind of creep up in an even more. So I think you can when you look at bank earnings, you can look at these different metrics and this is obviously just an overview but it kind of gives you an idea like okay like if these things are happening then it's probably meaning this so I just find it a bit fascinating to look at banks for those reason but overall I think pretty

interesting like pretty good I mean in terms of earnings for JP Morgan. It'll be interesting what other big U.S. banks come out in the upcoming quarters. And, you know, the next year, I think it'll be interesting what happens with, you know, a lot of macro uncertainty on the economic front, whether we enter a recession or not, the U.S. as well. So it'll be interesting to see how those big banks fare. You know I'm not a huge bank guy, but this is the best bank run by the best banker. That's how I think of JP Morgan and who I'm now officially calling JP Diamond.

The dynamics of u.s banks how fragmented it is the the collapse that we just talked about with first republic svb people kind of worried about realizing hey you know my money cannot be 100 safe um unless it's with one of these g-sib banks even though maybe they bail you out but that's besides the point this is one of those things where coming out of the gfc now through what happened in q1 you know that the biggest and the strongest get bigger and stronger it's like how i view jp JP Morgan moving forward. Which I mean, I don't think personally that's a good thing, but some people may argue it's good for financial stability, but it does also reduce competition. seen as one that was very competitive because of all the regional banks and regional banks being able to oftentimes cater to more local businesses because they had that connection.

They had that, you know, that I don't know what the term is, but the small town feel exactly that trust established and that won't be present with big banks. So I no it'll be interesting how it develops in the next like five to ten years um my bet is still that we will see a significant reduction in the amount of banks in the u.s for better for worse the my hot take was that banking in the u.s starts to look more like banking in Canada on the long horizon. You know, few large oligopolistic players who have terrible service. Yeah.

Yeah, exactly. So look forward to that down south. All right. Thanks for listening to the podcast. We are here Mondays and Thursdays. News on Thursdays. Everything else on Monday. We have, so this next coming Monday, we have a good episode coming out.

We're going to talk about selling, frameworks. We're going to give an update on, what do we got? I'm going to explain how the Fed actually works we got uh i'm gonna explain how like the the fed actually works so uh yeah that'll be fun and then a little bit of a u.s cannabis update yeah that's right and then the following monday we're going to do a breakdown of all the stocks we each own so it might might take a little bit longer than normal. But we're going to go through everything. We're not going to go through a deep dive on every single stock because, you know, that would take a day, but we are going to talk about one driver

that we think that is really important for the stock to always track, to always think about whether it's, you know, quantifiable or, quantifiable or just like a competitive advantage to track. We're going to go through each single one in our portfolio that we own, every single one, and go through one by one. So you're not going to want to miss that on the following Monday. Thanks for listening. We'll see you in a few days. Take care. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.