The Canadian Investor - A Review of 2022 Returns and What to Expect

Episode Date: October 20, 2022

Aritzia continues to have impressive results quarter after quarter. We also look at the recent returns of the S&P500 by sector and how it can be a good indicator of where to find value in the stock market. We also have a look at the recent US CPI release and what it means for inflation. Based on popular demand, we do a live reaction of Netflix earnings which came out as we were recording the podcast.  Tickers of stocks discussed: ATZ.TO, BLK, DAL, PEP, ABNB, JPM, BAC, MS, WFC, NFLX 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.See 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. Today is October 18th. Welcome into the pod. My name is Brayden Dennis, as always joined by the Simon with a giant wall in front of his face recording on the podcast today. This is quite the interesting schematic

you have on the studio today. Yeah, yeah. I mean, for those of you not aware, so obviously I have a little baby girl and, you know, babies cry. So I moved into the basement, which is also known as a dungeon. And it's a bit echoey here.

So I got a little wall that makes the audio way better until I finish this room. And it looks like a real podcast studio. Oh, you're going to make a sweet podcast studio. I got to do that as well. So we can look like some high production studio like we deserve. Simone, today we are talking earnings and news. It's going to be a fun one. I'm going to give the update on Aritzia's earnings last week. We're going to talk about,

yeah, the market's been rough for the S&P 500 and equity markets around the globe for this year, but I'm going to provide some data on why you should be optimistic for the future. And then we'll get deep into the earnings. Simone, two quick things, two quick reminders here, administrative items. You can go back and listen to all 215 episodes in our catalog now, because we're currently recording episode 215, which is kind of nuts. What a ride. But before you could only see the previous hundred that we had recorded because of a silly setting on our podcast distribution technology. So if you want to binge the show back way, way back, see, you know, how things have evolved on the show.

You can now listen to all 215 episodes in the category if you keep scrolling along in your podcast player. Second note here, you can join TCI, support the show. That is join TCI.com. We appreciate the love. We appreciate people subscribing. We appreciate the questions. As of now, you can get access to our own portfolio updates each month, as well as a Google Sheets

portfolio tracking sheet that we both use to manage our portfolios. It uses something called Modified DITs, which is a way to measure portfolio returns. My engineering degree came in handy creating this because there's some fairly complicated math, but you can take advantage of that. It probably took me 40 hours to build the spreadsheet. So go ahead and make some use of it. Yeah. Yeah. I mean, we post it religiously every single month and I'm thinking about adding a little thing, maybe once a quarter, we're thinking about it, about a dividend specific portfolio. I know a lot of people are interested in that. Maybe I'll approach it the way of what I would do if I were to retire into next year. Yeah, I think that's solid. Like income portfolio,

there's so many. You know, the Canadians, they love their divvies. They love the dividend stock. So I think income portfolio is wanted by many of the listeners who are at that stage. So let's kick it off here with your first segment with an update on inflation. We've been talking about it a little bit less recently, but it's still here. Yeah, yeah. Inflation is still here. CPI in the US came out, always comes out a week before in the US, then Canada. So CPI increased 0.4% on a sequential basis. So August versus September, and then year over year, 8.2%. The consensus was around 8%. So it's slightly higher than expected. The markets have been really on a roller coaster ride since then, right? I think the day of, they were down

something like 2% when it came out, and then they finished up like 2% or 3% was kind of crazy. I think it was the fifth highest intraday swing in history for the S&P 500, something like that. And now if- Just when you think you have a single clue of what's going on in the short term. Yeah. And I heard a few takes on it and essentially even traders, they were asking professional traders and they're like shrug. They had no idea. They're like, yeah, it's probably algorithms and we're not really sure why the swing. So yeah, it's like it's algos moving on 0.01% in like bond yields. Yeah, exactly. And then the day after it was down. And then this week, markets have been doing well so far. So don't try to predict what will happen short term, because I think you just flip a coin,

you'll have a better chance of figuring out. What do we call that? Crapshoot? Yeah, I think so. Now, the overall food costs went up 11.2% year over year and 0.8% compared to August. That's one of the things, obviously, that is key for the CPI print, whether it's US or Canada, because it does affect everyone across the board. Shelter was up 6.6% year over year, 0.7% versus August. Again, that remains really high. And there's also an argument to say that's also a bit of a lagging indicator. It could tick up in the upcoming months for the shelter specifically. Energy was up 19.8%, although down close to 5% compared to August. Gasoline came in at 18.2% and down 4.9% versus August.

And then one that I know is quoted a lot, used cars were down 1.1% versus August, but up 7.2% year over year. I think the consensus out there is that with these news, it basically locks in a 75 basis point interest rate hike from the Fed. I was looking at the CME tool that gives you the odds of the next rate increase. And 97% goes to a 75 basis point compared to 3% for 50 basis points. So it looks like we're getting another increase. It's not surprising the Fed has been saying so. And I think we should expect probably a 50 to 75 for the next increase in Canada as well. That's what the Bank of Canada have been saying and the Fed as well for the US. What has persisted to stay hot has persisted to stay hot.

Like especially with food here, 11.2, 0.8%, close to 1% sequentially. Yeah, they're like very noticeable right like super noticeable day to day especially with here in canada where if you are going out for delivery takeout or you know sitting down for dining have you noticed what i call tipflation have you noticed tipflation running out of control yeah i mean i know the options are definitely when they give you the option it's like starts at inflation is out of control it used to be what 10 was kind of the baseline and that was like 10 15 20 15 something like that now it's like 15 usually 15 was the. Yeah, something like that. Now it's like 15. Usually 15 was the baseline. I don't see that as an option very often anymore. Yeah. Like it's sometimes, but 18 is now like the baseline. And so then there's like another option for other if you want to go below 18. Now don't

get me wrong. I tip, okay, it's very customary to do so in Canada because service workers are getting lower than a minimum wage. And well, I want to tip anyway. So I do that. I tip even in places that you're not supposed to internationally. I did a Twitter poll and I said, it's anonymous, the results came in. 37.9% said yes, 62.1% said no on almost 400 votes. So it was split basically one third yes, two thirds no for tipping for takeout, which I was very curious because I don't remember tipping for takeout just a couple years ago like i i really don't remember that and then when it was the only option to eat out people started tipping for takeout you know like it was like to support local businesses with with the lockdowns why i was doing it yeah and i kind of kept doing it they kept doing it so like don't

hear what i'm not saying like i'm happy to tip. I tip. But there is serious tipflation going on, on top of you showing here 11% year over year on food costs. What's got to give? People can't afford 18% on 12% food inflation. Something's got to give. I don't like this. Yeah. And the last thing I'll mention here for the US CPI print, I'm not sure, but I think it could be the last print before the midterms in the US. So I know we don't get political or anything like that, but you can, if you are interested in US politics and you're following the midterms, keep an eye on it because depending on who you're listening to, they're going to try and

spin this in two different directions. And that's been the case for the past five, six months. Every time there's a CPI print, it'll be spin one way by the Democrats and another way by the Republicans. So it's going to be a big, big political issue definitely in the States. Yeah. And it will be here in Canada as well. No doubt. I already know it is. I'm just seeing it. Thanksgiving dinner rules on the podcast. Exactly. No religion or politics on the pod. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing

up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up.

Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. All right, let's talk about Aritzia because they did report last week and they reported like right after we recorded earnings release. So here I am touching on now, you can listen to a deep dive on Aritzia's business that I did with my analyst, stratosphere.io, Adrian, we talked about the business, go back, you know, maybe 10, 15 episodes and listen to that, maybe more, who knows at this point. So this is one of the few stocks you've been happy to own over the past 12

months, which is a very, very distinct category. They reported their fiscal Q2 of 2023. So that kind of strange supporting schedule, but it's the September ending quarter. Revenue was up 50.1%. So call it 50% on the top line revs. Here is the wild stat. Of course, 50% sales growth is amazing, but 28.3% of it is truly organic with same store sales growth. If they didn't even grow another store count, they had almost 30% top line revenue growth. That is wild. That shows the demand for this brand right now. It's pretty incredible. U.S. revenue. Now, here's the interesting story. U.S. revenue is up 79.8%. Let's call it 80% on U.S. sales from this time to the same time last year. This story is incredible. E-commerce sales up 33%. Gap net income of 46.3 million for the

quarter. Now on profitability, there was some softness for sure. Everything I've mentioned so far is a beautiful thing, but gross margins were down fairly material 2.7%. They saw SG&A increase 60%. Now, I mean, you have variable costs across a retail model here in SG&A built into that. So that's going to increase. But overall, their EBITDA margin adjusted was up, although I really got to look at what those adjustments are. Now, they hinted at there was some one-time COVID relief stuff that they were given that affects profitability that's not there anymore, and some rising costs across distribution and logistics, so kind of more of the same that anyone shipping a real hard product is facing. Now, moving forward, they're guiding for 35% REV growth, and they expect some really nice growth in the US to continue. Eight new stores being built, seven in the US, one in Canada. They're building a new distribution center in the greater Toronto area. Now, moving forward,

they're guiding for 35% top line revenue growth. They're expecting some nice growth to continue in the US. I mean, look at the results in the US. The story is amazing. Yeah, yeah, no, it's really, it's really good in the US. And I know it's definitely growing very quickly. It'll be interested. I think I'm keeping an eye on margins here, just because that's what I'm doing for every single business, because that's where we're seeing the pressure. So definitely want to keep those sales to keep increasing in the US, but the margins to kind of level out a little bit here. They have eight new stores being built, seven in the US, one in Canada. They're building a new distribution center in the GTA,

the greater Toronto area. Now, I know a listener of the show posted this on Twitter at Muskoka Investor on Twitter. He or she, I don't know, they're anonymous, said Aritzia as of today has no locations in Arizona, Indiana, North, South Carolina, Utah, Wisconsin, Kansas, Louisiana and Alabama. There are 54 Lululemon locations in those states. So that's kind of, it's interesting data, right? It's very nuanced. Like I appreciate them counting all those up and doing that legwork because of course that is a comp that we'll continue to talk about for this company. And there's just so much more room for them to continue to build actual footprint in the US. And they're hitting 30% same store sales growth. I mean, sky's pretty much the limit here. Yeah. I wonder if we would compare them to Lulu if they weren't Canadian though. I feel like

that's the main reason. And I appreciate it. Obviously, Lulu is kind wider spectrum of the population. Even if you forget about men, you know, you'll have a much wider range of women in terms of age that will love Lulu clothes where it's a bit more specific when it comes to Ritzia. Yeah, I think that that's a fair take, especially because, you know, one third of the revenue is now in the men's category for Lulu. One other quick thing before we move on. I know we've been talking about clothing stock so much, what feels like, you know, the last three to six months. And so if you're not interested in the names, well, I apologize. But I mean, of course, this is one of the most interesting stories coming out of the public markets in Canada. So that's why we keep talking about it. interesting stories coming out of the public markets in Canada. So that's why we keep talking about it. Now, I just want to mention Jennifer Wong took over as CEO of Aritzia in May of this

year. So this marks her first full quarter being the CEO. She's already doing a great job, clearly. And this is pretty cool because this has been a historic rise from a salesperson on the ground floor to taking the top job of now a billion dollar public company from the founder, Brian Hill. Jennifer Wong has been with Aritzia for 35 of 38 years of the company's existence. So she's been right there with Brian pretty much the whole time. There's no part of Aritzia she hasn't seen or worked in very closely, it seems. So I have full confidence she's going to continue to crush it. I should probably smarten up and enter a position before this thing's like a $20 billion market cap stock and they have some US listing. position before this thing's like a 20 billion market cap stock and they have some U.S. listing.

But instead, I'll probably keep talking about it on the pod and keep telling you I'm not very smart for owning it. I see that as also a very likely scenario. Yeah, I mean, it's not easy to start fashion plays. And, you know, I'm hoping Aritzia definitely keeps growing and stands the test of time. But standing the test of time is the hardest thing for fashion brands. That's what it is, right? They don't stand the test of time. That's the whole thing. But we've, you know, we've discussed that time and time again. So let's move on to some other names here.

Yeah, so I actually just wanted, I found this website, which is really interesting. It's sectorspeedyr.com. And essentially gives you some really interesting data on the S&P 500. I took out here the last month. The reason was not to freak people out here, because obviously the returns in the past month of the S&P 500 are not good. It's down 9.2%. That was taken like yesterday. So maybe it's a bit less now, but down 9% the past month. And then it gives you each sector. The two worst sectors are real estate and utilities. And the reason why I wanted to talk about this is mostly because this- How often does that happen?

Well, I mean, I think it's just a reflection, right? It doesn't happen often. It's because these are typically bond-like stocks where they pay a pretty high yield on average. And traditionally, with bond yields being so low, people have kind of flocked to these kind of names to get yield when they couldn't get them on bonds. And now that rates are increasing, well, you can actually get the U.S. Treasury now is yielding for a percent. I can't remember the last time that was the case, but it was a while back.

But the main reason I wanted to say is, you know, things like that can be really useful, especially if you're using a screener and you're trying to figure out where you might be able to find some really good value. I mean, when you see sectors as a whole that are down massively like that, if you can find the really good businesses within those sectors, you can really find some good opportunities. Obviously, this is one month. Utilities and real estate have done, I think, decently well over the past year. You know, decently well is a pretty generous term because… It's a frame of reference.

Yeah, because everything's pretty much down in the S&P 500 the past year. But just, you know, just to give people another way of using data. I find that very interesting, especially if I'm thinking of, you know, investing in real estate or utilities. And then I see this, I'm like, oh, there might actually be a lot of value there. Obviously, you have to keep in mind that interest rates can put pressure on these, but just giving a little bit of more information to dig into. If you look across the one month returns, it's basically, like you said, an energy. It's a lot of things that are CapEx heavy and have a lot of debt on the balance sheet and don't like rate hikes. I mean, that's basically what's been hurt the most. So I'm not surprised, but again, this is one month of data and, you know,

you, you specified that. And really this podcast is about not one month, not one quarter, not even one year. It's about compounding for decades or more. And so, yeah, this is a great place to find deals in the short term, though. I think that that's probably smart. Yeah. And you can find, you can use, I chose the one month, but I think there's three, six month, a year, five years. So you can really dig into the different sectors and then it actually gives you each company in that different sectors, which by the way, don't ask me why, but Google is a communication sector.

Of course. Yeah. I was surprised. No one thinks it's an advertising business for some reason. Yeah. No, I guess. No, I personally would think it's more tech, but I guess comms. Yeah.

It's, I mean, it's so hard to categorize these big tech companies. Yeah, exactly. Yeah. It's like, because they are, they fit comms. Yeah, they fit comms. They fit tech. But for whatever reason, for me. They fit utility at this point because of how staple it is.

But if you ask me without, you know, knowing, my first instinct would have been tech. Would have been tech. Yeah. Yeah. Interesting. I want to add on to this segment because, you know, we've talked in time and time again during these Thursday episode releases about how crappy it's been to own equities in the market in 2022. And no one's, no one can escape real harsh market drawdowns,

but the reality is real harsh market drawdowns and public equities is the most normal thing that any investor should really come to expect. And unfortunately, we had record inflows of new investors learn that the hard way very quickly when the market didn't turn not so fun in late 2021 up until now. And so, you know, it's great that a bunch of new market participants have come into the market. That is a fantastic thing. People recognizing, hey, if I just stick with this for a long period of time, I can compound my wealth. That is, of course, if they're not trading in and out of stuff and treating like the stock market like a casino, but actually like buying great companies or buying the

index and holding on for a long time. For those people, I want to provide some reminders on some data here. Since 1949, every time the S&P 500 entered a bear market, these are the gains that followed until the next bear. So bear markets happen all the time because every single one of these periods, a bear market followed it. So it's very normal market declines should become the only normal thing for people to expect. But long-term investors benefited from some wonderful gains during this time. So from 1949, every time the S&P 500 entered a bear market, these are the following gains that followed. Okay. 267%, 86.4%, 79.8%, 48%, 73.5%, 125.6%, 228.8%, 582.1%, 101.5%, 405%. So 405% is from great financial crisis up until COVID crash. And then from COVID crash, you had 114.4%. So market declines, and this data was up until September of this year. So it's recent. Market declines are so normal. And it can take a

long time for them to recover. But historically, they've never not. So unless you have some real reason to think that this time is different, the most dangerous words for foreign investors, these are the things we can come to expect. And this is the data to kind of back that up. Yeah, exactly. Nothing more to add there. And speaking of record inflows in the past two years, let's talk about the largest asset manager in the world, BlackRock, who released their Q3 2022 earnings. And the one thing I'll say for people who were really bullish on BlackRock, I think it's a great company, but you have a lot of exposure to equities and market downturns with BlackRock. And I think that's one of the biggest issues,

one of the biggest downsides for BlackRock, especially if you're all in stocks, because, you know, as their asset under management go lower, they actually have less fees. So that's something that you'll see. And I'll talk about it, you'll see the results were, you know, they were not great. Obviously, it's still a really good company. But when there's market downturns like this, BlackRock earnings will be affected. So they saw strong demand for bond ETFs and strong demand for alternatives. Alternatives, they qualify as private equity. Real estate are two examples of that. Asset under management have decreased since last year by 16% to $8 billion.

Remember, we were talking they were over $8 trillion. We were talking they were over $10 trillion last year. Over $10 trillion. Yeah, exactly. Revenues down 15%. Net income down 16%. Overall, they continue to have strong inflows, especially for long-term institutional. And I got this chart that they have in their earnings supplement PDF, which I encourage people to look at if they're interested in BlackRock.

And if you compare, it's just interesting, especially if you start comparing it with last year, you'll see that the percentage in terms of client type, style, product type, region, in terms of client type, style, product type, region, where the money is actually flowing. And in terms of percentage, you'll start seeing a little bit different since last year. So one of the things I've noticed is there a bit more cash than there was. I don't have both charts in front of me, but I remember when I was actually looking at these. And definitely, there's a bit more inflows into fixed income. That was another thing. Not a lot, just like I think 1% or 2% difference. But it'll be interesting with the quarters if we start seeing those vary. Because right now, as of this quarter, they were looking,

for example, in terms of product type for assets under management, equity was 50%, fixed income 30%, multi-asset 8%, alternatives 3%, and cash 9%. So I'll be interested to see how that actually fluctuates with depending where the market goes, but also interest rates. That's the one thing, right? Interest rates will pay a big role in here because the fixed income will probably vary as well. This graphic, I've just been kind of looking at it as you've been speaking. And it's really interesting to see, you know, not only has inflow still been strong for institutional, but their AUM, I mean, you see it go down 16% or whatever, you see it go down and it's reflective of the market, right? Like look at how

much of the product type here is 50% of their AUM is in equities. So when equities get smashed like they have, then that's obviously going to affect the AUM. So you have this weird connection and correlation between the market and BlackRock, the business, and their equity on the market. So it's just like, it's really hard to kind of dissect like, what's the business execution versus just the greater market. I think that that's what's made some of these asset managers such a complicated black box. But ultimately, I mean, this company is just insanely gigantic in terms of what they have under management. Well, even fixed income too would have – they would have been impacted by the asset under management because the value of existing bonds would have gone down with interest rates going up. That's right. short there because, you know, it goes down on their asset under management, but it probably creates, well, they said it, there's more inflows into it because they're now becoming more

attractive because they're providing higher yields. And I guess the last thing here that's really interesting with this chart is 57% of their asset under management is institutional, yet only 32% of their fees come from institutional. So they make a lot more of their money from retail and ETFs. So that's just something, you know, if you own BlackRock, you should know this. We don't own it, but it's something, those supplements are really interesting for most businesses, but I found for BlackRock especially. Yeah, no, it's cool. It's a cool graphic. We've got to start doing some video, throw this up on there, you know, put the chart on, then people can see it. I am amazed at the base fees. Like they're just collecting

such higher MERS on some product. Some products have clearly, you know, three times the MERS of institutional. Is that what I'm seeing? Kind of roughly. I mean, institutional. Yeah. I mean, it institutional has a lot more money. So they have to offer lower fees to be competitive and they are. They got to compete.

Yeah. Yeah, exactly. No, that's a good point. I knew it would be some multiple higher, but three times, I didn't think it would be that high. So I learned something new today about BlackRock. 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 is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know,

I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. All right, let's talk about another fairly large US name that everyone knows. I think Delta Airlines trades at about 20 billion in market cap. Let me confirm that. So I'm not just saying some 20.6 billion on market cap. Hey, okay. I didn't think I was going to be that close. All right. So this is one of those fun industries to keep an eye on. It's a bit of a barometer, no better way to highlight it than looking at the largest airline by market cap, Delta Airlines. And airline demand has come back with a vengeance, man. And I'm going to use some

non-gap metrics here. Delta achieved their highest revenue and unit revenue quarter in the company's history for the quarter just ended. So it is the summer month. So this is a good quarter for airlines typically. But it's kind of like, how long till we get past the 2019 numbers? And here we are. We have officially surpassed them for Delta Airlines. Revenue of $12.84 billion, which is 3% higher than the quarter ended in September in 2019. higher than the quarter ended in September in 2019. So we're 3% higher than pre-pandemic on the top line sales. Operating margins of 10.4%, which is historically quite good for airlines, actually. They're expecting 5% to 9% growth on the top line next quarter. Now, here's the thing that I really wanted to highlight. They paid down $1.8 billion in debt in the quarter, and they still have $23.2 billion in net debt, which is pretty staggering given the market cap. Their total long-term debt ballooned when 2020 hit. And so I didn't really follow this that much. I looked it up on stratosphere.io. You go on there, you press long-term debt and see how it trends year over year. The long-term debt went from 15.1 to 33.1 billion in just one year. So more than doubled

on LT debt. And overall, the recovery seems to be there in terms of demand. But the balance sheet got smoked, clearly. And the stock is trading at exactly half the price it did at its peak. Yet it looks like sales and demand is at all-time highs. What do you kind of make of that? Yeah, I'm not sure if the debt. I think that debt may have been a mixture of government loans when COVID started and obviously private debt. And then the stock trading at half. They just needed to fortress up the balance sheet ASAP. Yeah, exactly. They needed

to survive basically like every other airline. And the other thing, the stock being down, I'm going to go ahead and say that it's probably investors maybe being cautious about the outlook of airlines with the economy slowing down. Because, you know, one thing you can cut is, you know, going on a vacation or even business flights, obviously, would being remote. I think that's something that businesses can probably try to cut on if they're trying to cut costs here and there. try to cut on if they're trying to cut costs here and there. So I think, you know, maybe the market is saying that we're not believing you that it's going to increase five to nine percent next quarter or even next year. Right. So I think it may be that. And obviously, the debt is also not great with rising rates. I don't know when it's rolling over and when they have to refinance. So that's something people should look into if they're interested in this. Yeah, I think that that's a good point. We actually thought you were going to go

is that investors, maybe, you know, they're just looking at these names quite a bit differently than they did beforehand, which is, you know, you're going to sign a different multiple to them because investors with airlines, it's a bit of a fool me once situation. And then a lot of them got fooled twice, including the Oracle of Omaha. And so when they basically bottomed, Buffett sold every single airline position with just like, you know, it's so many of these investors that were just like, I knew these were crap businesses. Why did I get fooled back into them? And you just get big money like that. Never going to, at least until they get fooled again in other 20 years

to go into airlines. It's just like, you know, oh yeah, they still suck. The businesses still suck. And so, you know what I mean? Like there's just not going to be the same multiple assigned to these that they were rewarded with in 2019. No, that's a fair point. Yeah. Now we'll move on to another well-known company. I wouldn't say it's kind of a barometer because they tend to do all right, whatever is happening in the economy. Name, I don't think we've talked a lot on this podcast. So Pepsi, they had their earnings revenue increase 8.8%. All segments were up with Frito-Lay leading the charge by being up 20%. Operating margins did fall 40 basis points.

But considering everything, I think that's pretty good. Free cash flow is down 14% for the first nine months. I said 36 months, but it's actually the first nine months of the year, but still looking at $3.8 billion in free cash flow for this year. Guidance is pretty good if you ask me for a mature company like Pepsi. So for 2022, the company now expects to deliver 12% organic revenue growth, previously 10%. And then 10% core constant currency earnings per share growth. And that was previously 8%. So they increased their guidance. They expect to return a total of $7.7 billion to shareholder, $6.5 billion in dividends,

and $1.5 billion in share buybacks. And they did say that they are seeing going forward a bit more foreign exchange headwinds. So 2.5% hit there versus 2% previously. So overall, I would say, you know, increase the guidance. And that's a name that clearly you'll be getting quite a bit of your returns with, you know, capital being returned to shareholders with it for whether it's dividends or share buybacks. Yeah, very mature company, for sure. And just how Frito-Lay 20%. Yeah, it's been actually one of their better performers for the past several years. They made a really good acquisition when they purchased that.

Yeah, no kidding. And I mean, I'm not super surprised. I mean, the quality of the brands is solid. It's Lay's, Doritos, Cheetos, which I can just smash a bag of Cheetos. Fritos, SunChips, don't let me touch the Sun Chips. They'll be gone. I mean, Tostitos is an iconic brand as well. I'm just looking at them here. Rolled Gold is a very, you know, popular pretzels brand. Yeah, pretzels. So, I mean, I'm not surprised. I mean, Doritos. I mean, who just doesn't love a bag of Doritos?

Oh, I know. Yeah. Maybe with eventually legalization of marijuana in the States, those Doritos. Do Fritos going to smash? If they legalize weed in the U.S., buy aggressive amounts of Frito-Lay via Pepsi stock. There's going to be no Doritos or Cheetos left on any store shelves anywhere. Yeah. And this one is, it's a consumer staple. I mean, I think it's definitely a great company to have if you're looking at a dividend portfolio or just having something to kind of balance out some more volatile names. I actually, I think I prefer Pepsi over Coke because of the Frito Lay segmentay segment personally. some of little bit of boots on the ground internet research. Okay. So the Airbnb sentiment on Reddit

r slash Airbnb, Airbnb has been an absolute nightmare. Like go check out Reddit r slash Airbnb and just read some of the comments. Feel free to take a gander. But the short of it is people are realizing the unit economics of short-term stays and organizing the cleaning. It just sometimes doesn't make sense compared to hotels from an actual economic standpoint. Hotels, for instance, they're full scale, refined operations that benefit from economies of scale across their not only chains of locations

with like supreme economies of scale, but also on a per unit basis. You know, the cleaning staff is serving potentially hundreds of units each day. And so with unique Airbnbs, this kind of falls apart. You have to charge some of these like ridiculously high fees on the cleaning side or really high fees for the, you know, for the host, for it to make sense. Because you have to have someone come in and manage the property or, you know, you're doing it yourself, elbow grease wise. And so I think that Airbnb's positioning, and I think that it's probably smart, is to really try to dominate those longer term 28 day stays. It's a number that Brian Chesky consistently calls out at the top of their press release

on the calls. And it's a number we track for Airbnb on stratosphere.io. So it's these longer term 28 day or longer stays. I think that that's really long-term where the product market fit for this product may sit. Not without competition, but I think that that could be long-term where it sits. I think ultimately folks are confused by the pricing, the high cleaning fees, especially when, you know, you're asked to clean the place before you leave. It's like, it's like, wait, but the Ojo still has to make sure it's clean. Like they can't rely on me to make sure I Lysol wipe the counter good enough, you know, like that's not good enough. So yeah, where do you, where do you stand on this? Yeah. I mean, personally, I don't really use Airbnb unless I'm staying somewhere a week or

longer. So I definitely reflect that trend just because yeah, it's just, I find it just easier to book an hotel. And oftentimes the pricing is actually pretty competitive or better. Yeah. Or better if you're in a city and it's just, I don't know. I just, it's, you know, you know what you get with a good chain of hotel. Obviously, if you go to your sleazy motel, you don't know what you're going to get. But if you get a reputable chain,

it doesn't have to be a five-star. It can be like a three-star, you know, something that's a holiday inn or something like that. You know what you're going to get. It's professional service. Airbnb, even with reviews, it's always, you know, you never really know. That's probably where I stand. I mean, I think for me, what makes the most sense is, you know, if I want to rent a cottage, then I'm going to go Airbnb because there's, you know, it's pretty much the only option there unless there's other sites, but they're smaller. That's the type of thing I would use Airbnb for personally.

Yeah, I think that that's a very solid take and shared across a lot of people for sure. And I just think that maybe that's where the product market fit sits over the next 20 years. I'm not sure. I'm just speculating. Did I tell you about when I got banned from Airbnb for six months? No, no, you never. How'd you get banned? I'm back now, baby. But I just booked a bunch. What'd you do in Portugal? No, it wasn't in Portugal. I just booked a bunch of Airbnbs because I'm staying in Costa Rica for six weeks and I'm doing the pod live from between surf sessions and work. But I, I got banned from Airbnb for six months because, you know, you go on a, you go on a boy's trip skiing to Whistler and I took the liberty to book the Airbnb. So, you know, I'm just fully at fault for anything that happens,

of course. Right. Like I'm the only one on the name on there and we were actually not bad at all because you know after a day of skiing like you're like absolutely wiped like you can't even keep your eyes open past midnight when you've been waiting for first track since 5 30 a.m on the hill and so we were not up late but everyone and the whole neighborhood probably heard us in the hot tub before that. And so we got some complaints. And I was officially banned from Airbnb for six months. But I'm back, baby. I've come out a new man.

I've righted my wrongs on Airbnb. That's why I don't book Airbnb. I make sure other people book it. You're that guy. He just makes someone else get the short end of the stick. Hey, but I want those credit card points, man. Come on. Give me those.

Okay. Yeah. At least that's the bonus so you can go to Costa Rica on points. That's right. Exactly. Yeah. So I guess here the last ones is going to be rapid fire. And then did we want to do kind of a quick take on Netflix?

They just released their earnings. We can do a quick one, sure. Yeah, kind of live. And I know it's pretty good. I saw it. It's 4.45 here. So we should have everything out from Netflix. Yeah.

So when you pull that up, I'll kind of rely on you for Netflix. I'll go over here. Holy smokes. Don't look yet. Yeah, I won't look yet. So let's keep people waiting. Now, I wanted to do rapid fire for U.S. bank earnings will be very quick. So here, I'll just mention, I'll go over JP Morgan, Bank of America, Morgan Stanley and Wells Fargo. So JP Morgan, they beat earnings estimate by 8%. Earnings did fall 17% from a year ago. They added $808 million of loan loss provisions. Net interest income went up 34% because of higher rates. So that's really good for them. Heard of, said that consumers and businesses were strong during the quarter, but the economic picture was darkening. It's not surprising.

Diamond has been saying that for months now. And this is the trend you'll see from U.S. banks. So it may sound like it's good, but it's definitely going downwards a little bit. They are beating earning estimates for the most part, but it's still much lower than last year. Same thing for Bank of America. Beat earning estimates for the most part, but it's still much lower than last year. Same thing for Bank America, beat earning estimates by 5%. Earnings fell 8% compared to a year ago. They had better than expected fixed income trading profits. Net interest income is another thing that's gone up for them, which is good. But they've also increased their loan loss provision

by $600 million. And that's what we're seeing. And I'll just do one last one here, Morgan Stanley. They came in slightly below earnings estimate. This is mainly an investment bank. So keep that in mind and obviously capital markets. So investment banking revenues fell 55%. Big part of this is the drop of IPOs. Like we mentioned, there's been a big drop this year compared to last year. I think it's like 80%. It's been abysmal compared to 2021. Yeah, I think it's been crazy. Investment management revenue dropped 20%. So the last one I had here was Wealth Fargo's. But one thing to keep in mind is We, Fargo is a big mortgage bank, and they saw their mortgage origination and renewals drop because the 30-year mortgages in the U.S. are near 7%.

So just to keep in mind, because that'll probably give us a little bit of an indication where the Canadian banks will be when they do report. One thing that's clear is the banks are doing well. I think the Canadian banks as a whole should be doing pretty well. But you can see that there start being downturns here. Their profits will most likely be lower, just like the U.S. banks. And expect to see some more money put into those loan loss provisions with higher rates and indebtedness levels being at pretty much all-time highs right now. So that's going to weigh on banks definitely for, you know, the foreseeable future as the

interest rates keep going up. Yes, they make more revenue on interest, but if they get, you know, more delinquencies on those loans, you know, it may spell a little bit of trouble. I don't think any of them are in trouble, but something to keep an eye out. We'll definitely talk about the Canadian banks though when they do report. Yeah. No, I think that that's a good roundup. The investment bank, the capital markets thing is just like, yeah, you've talked about the IPOs. This segment's just- Oh, it got crushed. Yeah. It looked a lot different last year.

Holy smokes. Yeah, I mean, that's why it's good to be a diversified bank. I think JP Morgan's probably the most diversified in the US. Yeah. So that's why they've done pretty well. A bit like Royal Bank in Canada. The market cap reflects that. Yeah, exactly.

All right, let's talk about Netflix. Yeah, yeah. We're here after the close and so we got some data on netflix's and intuitive surgical also just reported some great results so we're not going to touch on that because the pod will go forever but uh that's a name i follow very closely as well so intuitive surgical just reported as well maybe next week we can do that one yeah we'll touch on it next week all right for netflix so someone i just copied and pasted the excel doc that netflix puts in their press release dude the screenshot that they put in their press release

with this just clearly a screenshot like a screen grab from excel it's just like so funny that they put this in the press release i just always laugh every time it's in their press release yeah yeah it looks like something i just threw in the doc, but no, they provided this. Yeah, they do that. I've noticed. I remember when we've done them a few times, I was like looking at their earnings. Spotify does it too. It's like an Excel spreadsheet basically that they provide.

Oh, it's an actual screenshot from Excel. Yeah, if you go through to get the statements, they give it to you, which is kind of cool. If you want to do percentages, it's much easier to do. But no, they do that. That's why it looks like that. Yeah. All right. So let's go through the results here. So they have, yeah, this was Q3, right? Q3, 20. Yeah, because Q4 is forecast. Yeah. All right. So revenue, operating income and membership exceeded is forecast. Yeah. I don't know what that is. The Gray Man and the Jeffrey Dahmer story have been their key shows that they launched in the quarter. Very interesting. That's cool. Let's talk about the results. Revenue is up 5.9% year over year. And so, you know, you've seen a real deceleration year over year on this top line. Now we're into like mid single digits. I don't know where this finishes steady state. Yeah. But one thing that comes to that pops out right away, I'm looking at this is revenues. Yes. You over a year and increase, but you're not there yet, but essentially

revenues actually decrease on a sequential basis. Yes, they did. Oh yeah. You know, you're right. Despite the user growth. And they're guiding for a sequential decrease again. That's because of the new ad, right? I think they're probably forecasting that some people, because in the US, it's launching early November. So they're probably forecasting that some people will be downgrading from the more expensive membership to the ad supported one. Right, because now they're even starting to break it out ahead of time with global streaming paid memberships and paid net additions because they're probably going to start doing ad-supported in this same spreadsheet.

Yeah. Right? So global streaming, okay, here's the one bright spot that I'm seeing here is that they broke their back-to-back quarters of negative net subscriber growth. So they had 2.41 million net new additions of subscribers on Netflix after, you know, having net negative ads in Q1 and Q2. Yeah, and they're probably baking in because their forecast is looking pretty good. So 227 million, so 2.6% year over year for the next quarter. So right now, this quarter, they were at 223 and 227 is the forecast next year. So that's great. But again,

it'll be interesting to see what the breakdown and actual, you know, the lower tiered versions versus the more expensive one with the ad supported one. Because typically, I think, you know, you're a Spotify owner. So typically, companies like this, they don't make as much for the ad supported models. Yeah. Yeah, true. So the stock's up 13% on this news. And I wanted to say that after we give... Okay. I didn't see that. Yeah.

Yeah. I wanted to give that after because there's such a reaction to the stock price, especially on a day like today where the S&P is up so much. I feel like that just gets exaggerated too. So I like talking about the results before the reaction from the market because it can skew your behavioral bias towards one way or another. I look at this and I go, it's better than what everyone expected and everyone expected horrible. So if you have better than, if you have okay when everyone expects horrible, the stock's going to jump a bunch, right? Yeah, yeah, exactly. And I think anyone interested in investing, I mean, I'm not just because I just see that there's just too much competition now in this space, whether it's Disney, whether, you know, in Canada, we have different ones. There's Hulu in the US, I guess it's owned by

Disney. It's just I don't know how the next five years will look for Netflix. And if you're thinking of starting a position, my thing would be give it a few quarters to keep just see what happens in terms of that ad supported model because it's uncharted territory. They may be forecasting, but we don't know until you had at least a couple of quarters of sample to at least get an idea of what the breakdown will be. Yeah, that's a good point. Looking here, free cash flow, $472 million for the quarter. I mean, so like, you know, on a trailing 12 months, they've generated like half a billion in free cash flow. That's it, right? Well, it's super capital intensive, right? They publish it in terms of the expected spend that

they'll be doing in the upcoming years. And it's in the tens of billions of dollars. That's the thing with these streaming content. And that's why I think Netflix has such a big edge because, no, sorry, Disney has such a big edge over Netflix is that they have this intellectual property and these timeless classic and Netflix, you know, they have some good shows too, but I don't think they have anywhere near close to the intellectual property that Disney has. Yep. Good point. So yeah, no, sorry, let me correct that. It's about 750 million in free cashflow on a trillion 12 months, but I mean, Hey, that's not that million in free cash flow on the trailing 12 months but i mean hey that's not that much different and it's still not a whole lot for something supporting a market cap

like they have which it doesn't say much after getting absolutely decimated the market cap has like yeah it's 107 billion in market cap now let's say 115 with the it was like 250 billion in market cap last October. Yeah, I mean- Right? Oh my God. It's just, to me, there's just a lot of unknowns still with Netflix, right? They've always said they would never change to an ad-supported model, and now they are.

So I'm kind of- Ding, ding, ding, red flag. I mean, yeah, I guess it's not great. And that's why I would at least give it some time personally just to see what happens. Because clearly, you know, something changed, you know, with their business model. And I think it's kind of funny that they're making forecasts because, you know, you don't really know how it's going to pan out. They have no idea. And none of the analysts do either.

And they're never really accurate, right? One way or the other. They either blow past them or they don't. So I would take those forecasts with a big grain of salt. Well, yeah. Look at the market moves on Netflix's results for the last four quarters. One of them was, the stock was down 47%. This is up, you know, 15%-ish now after hours. So,

you know, that big of jumps, it means that the estimates, including the estimates from the company, are just so off. No one has a single clue. We'll leave it at this. I mean, obviously, there's lots of competition. I still think that Netflix's management team is quite good. I still think that the business is quite good. I still think their pricing power is quite good. All of those things haven't changed for me, but I'm still just not interested in owning the name. That's basically where I'll cap that off. Would I surprise you to say i'm not either no i know you're not i know you're not have you watched the lord of the rings amazon prime show

by chance yeah yeah i i mean obviously they're gonna do another season i don't know if you finished it what's your take what's your take i haven't finished it on purpose it's pretty good it's just yeah there's it's definitely slower than the trilogy i would have liked a bit yeah like because even after each of the trilogy there's always you know a big battle happening and there are some in the show but it's not like i feel like that's what it was missing like i know they want to create the epic big, big, Helms Deep type battle. Yeah, basically, Lord of the Rings, the battles kept being bigger and bigger at each movie, right? That was kind of the big thing. And there was a lead up to it.

And that was probably the thing is I know where they're going with it. They want to keep people wanting to watch more. There's clearly like there's going to be another season. They said it like i just expect when i see a billion dollar budget for them to be some outrage like some episodes that consumed like 200 million like double the allotted budget that the other ones got and there's like some crazy helms deep type episode i just yeah no i mean man i'm i've watched the two towers the second one like more times and i'm willing to admit it's like a kind of egregious how many times i've watched

that's my favorite one yeah i love the series like the inner nerd in me just absolutely loved it and i couldn't even finish the second episode so i'm a little disappointed yeah i mean i i thought it was okay but, yeah, they say it's the season finale. So clearly they're planning on having a second season. Right. Yeah, I'm sure. I mean, they've bet too big on it. They've bet the farm on this to make it work.

Maybe Jeff is just a big Lord of the Rings fan that he's like, we're making it. I don't care if it costs us tens of billions of dollars. I'll pay for it. Jeff is all in on NFL football and Lord of the Rings. Two distinct interests of mine. I just hope he doesn't mess up Lord of the Rings for me. All right. Thanks for listening to the show today, everyone.

Really appreciate you. You can go to join TCI.com, support the show. We talked about at the beginning what you'll get from that. Stratosphere.io. we have some amazing platform upgrades you're going to want to go on there if you're thinking about locking in a paid account i'm not going to put this anywhere on the website i'm not going to put this in an email for you to find if you are thinking about getting an account the pricing is going to change quite significantly in mid-november so if you're thinking about getting an account, the pricing is going to change quite significantly in mid-November. So if you're looking to get an account, it's probably a smart idea.

We'll grandfather you in on everything, but get an additional 15% off using code TCI. In December, late November-ish, we're going to have a price increase. So you're not going to hear it anywhere else. Here it is, TCI. Get 15% off on stratosphere.io if you're thinking going to hear it anywhere else here it is tci get 15 off on stratosphere.io if you're thinking of getting a paid plan smoke anything else no anything anything hot off the press no i think it's good for today and we'll have a fun episode for next monday that we're

recording tomorrow yeah we got a good one that i know people are going to like that's going to come out this coming Monday, which is going to be 10 stocks. Yeah, 10 stocks. Yeah. We're going to do 10 stocks that we think are quite attractive right now, current prices. It's basically like a giant stocks on our watch list episode. Yeah. That'd be pretty fair to say. Thanks for listening. We'll see you in a few days. Bye-bye. 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.