The Canadian Investor - AI Spending Accelerates While Office Real Estate Crumbles

Episode Date: February 12, 2026

In this jam-packed news and earnings episode, Simon and Dan dig into the hyperscaler AI spending arms race—and what it could mean for shareholders. They break down Alphabet’s blowout quarter (surging Cloud growth, stronger engagement from AI-powered search, and a push to “own the transaction layer” online), but also debate the market’s unease as buybacks take a back seat to massive capex plans. They then unpack why S&P Global got punished despite only a slight miss, and discuss which parts of the business could be most exposed to AI-driven disruption (while also noting the durability of the ratings moat). Next, they touch on Allied Properties REIT after a brutal drop tied to equity issuance and weakening leasing trends. The episode wraps with Amazon’s strong AWS momentum and accelerating infrastructure buildout, a candid look at Lightspeed’s worrying sequential slowdown and its growing merchant cash-advance/lending exposure, and Spotify’s margin and free-cash-flow surge—plus the competitive threat from YouTube Premium as pricing converges. Tickers of Stocks Discussed: GOOG, AMZN, SPGI, AP-UN.TO, LSPD.TO, SPOT Watch the full video on Our New Youtube Channel! 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 Dan’s Twitter: @stocktrades_ca 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  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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Investing is simple, but don't confuse that with thinking it's easy. A stock is not just a ticker. At the end of the day, you have to remember that it's a business. Just my reminder to people who own cyclicals, don't be surprised when there's a cycle. If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time.

Welcome to the Canadian Investor Podcast. I'm Simone Berengen back with Dan Kent. We are back for news and earnings. Pretty jam-packed. We probably could have done a second episode this week. We will have it at one, but we'll try to do a couple episodes either next week or that week after. Still looking to do that live episode in the next couple weeks. So make sure you subscribe to our YouTube channel.

Our subscriber growth has been actually quite good. So we've, yeah, impressive. So we've been posting quite a bit of content, couple of videos, short clips a week, a lot of shorts as well. We'll be posting more and more content as the year goes through. So make sure you don't miss that. And we want to, like we said, test out the live functions. So see how that goes. And depending how it goes, we might do some more after that.

So let's get started. Like I said, it's jam-pack. Dan, let's start off with alphabet here. So the, what seems to be one of the super scalar winners, at least over the last, what, six months or so. Yeah, and I would say like even what was it, what would have been three years ago? Everybody thought that AI was going to kill. Well, I guess I don't want to say kill this company, but like the search. You know, they had a large mode on the search and they thought it was going to kind of come under fire.

But it definitely is not. I would say they're probably the front runner in the space right now. So revenue was up 18%. And annual revenue crossed the $400 billion run rate mark for the first time ever, which means going forward, they expect, you know, they're going to hit 400 billion plus. Google Cloud grew a mass of 48% year over year, and run rates are like 70 billion plus, I think now. And the company's backlog grew by 55%.

You've seen this with companies like Microsoft as well. I think, yeah, Microsoft, their RPO's or whatever went through the roof. believe it was and alphabets have gone through the roof. I mean, oracles for, you know, way back when went through the roof as well. I mean, I think the market is putting maybe a little bit less reliance on this than they used to. But the, the operating margins in the cloud segment are continuing to accelerate because the company is using their own TPUs versus buying from a company like NVIDIA. I believe they bought GPUs from NVIDIA and now they're using their own TPUs.

I mean, I, this stuff kind of confuses me a lot. So, but anyway, they're like, they're using their own equipment. And as a result, their cloud margins are going up quite a bit. Google search 17% year over year growth. And kind of the, the interesting thing here is users are spending three times the time on AI queries versus traditional search. So like when you used to type in, you know, basic information on Google, it just gave you an answer. Whereas now they have those AI overviews. I don't really know how much time is being spent on the AI overviews, like in terms of total time, but it's it's three X that of a normal search.

And I mean, most people, if you understand like the advertisement, I mean, longer dwell time is more eyeballs on ads, which means more revenue. That's why all these social media platforms kind of just, you know, serve you stuff to keep you on the platform. And obviously this is this is working. And I mean, I remember when GPD first came out and alphabet combated it with, you know, with these AI queries. there was so much criticism as to like how they monetize it and whether it would even provide value. And I think like at this point, you just kind of need to accept the fact that if there's money to be made, Alphabet's probably going to find a way. Yeah, they're going to find a way to do it. Yeah, it's crazy.

They chatted about, and this is like another avenue in terms of money, they chatted about their universal commerce protocol. So, which is effectively Alphabet's attempt to kind of own the entire transaction layer. of the internet. So like traditionally you would have went to Google and you search for like best sneakers or something. You you'd probably read some reviews and then you'd go to a website and buy it. Like what they're trying to do is effectively own that whole thing. You're going to go to AI reviews or Gemini. You're going to like look up reviews and they're going to allow you to make the actual purchase without even leaving like, you know, the interface there. So they kind of want to take control of that. And from YouTube, double digit growth again.

And the interesting thing here is Alphabet is kind of turning them into it like more of a recurring revenue stream other than like a straight up ad company. I think they hit over 300 million users. I don't know if you like I don't know if you've ever used YouTube plus. I've never used it. I can't imagine it being worth the cost just to avoid ads. YouTube premium for without ads. Yeah. Yeah.

I mean I've used it mostly when I'm traveling because it allows you to also save videos. So just save them so you can watch them later without an internet connection. So that's a big, big feature for me. The other reason why I used it was because you can listen to videos with your phone, like with the screen not open. Oh yeah, because it would shut off. Yeah, yeah, yeah. If not, I would shut off.

So I still do it. I don't have it now because I do have with my browser. I have a way to not have ads. But for the most part, I've used it on and off. And I'll be talking about that specifically when I talk about Spotify. Because I think that service is definitely. competing with Spotify. Yeah. Oh, definitely because podcasts and stuff, you can just throw up on YouTube as well now. So yeah, exactly. That's it. Yeah, it's, I mean, the more recurring YouTube

can be and a little less cyclical, I guess. But the, the other thing is I've mentioned this a few times, like it's so much easier to make video ads now. Like with AI, I mean, there's a lot of, I've noticed that on YouTube, there's a lot of bad, bad advertisements now. But I mean, like, people are just, they're spending more because it's easier to make. ads. It's not to say they're higher quality, but they probably will improve moving forward, but I mean, it's just ultimately more money for Alphabet. And like the most notable news, no question was the spending. So they're going to spend over $180 billion in KPEX next year. So just to give you an idea, yeah, if you look to the chart here, like 2025, they spent 91 billion.

And I remember when they said like at the end of 2024, that spending was going to be this high, everybody was shocked and now it's going to come in at double the rate here. And I think that kind of like I can't even remember the alpha like the reaction to alphabet share price. I think it did end up going down, but not a terrible amount because the quarter was actually was very good. But yeah, I don't know. It's going to be interesting to see if that's spending. But like how can you not spend that much when your when your cloud division is growing 50%? Yeah. No. And it's, uh, yeah, no. it's really, no, the numbers are just mind boggling.

Yeah. Like I'm lost for words. And do you know if they said they would stop share buybacks or they'll be continuing those and using money? I don't know. I couldn't see. No, I didn't look that up. I'm sure they spoke about it.

I mean, if you're spending that much, why? Why wouldn't you allocate the capital towards this spending? But the one thing I guess I'll say, and I'll go over when we do Amazon is, like Amazon is pretty much saying immediately when this capacity is available, it's full, and it's profiting. It's crazy. They just, they can't keep up right now. Yeah, it'll be interesting because I'm looking at share repurchases and it's gone down last

year. So they repurchase for the full year, about 46 billion worth of shares and the previous year is 62, the previous year before that, another 62. 60, you have to go back to prior to 2021, wherein they repurchase this amount of shares. So they're repurchasing less shares. The reason why I'm mentioning this is that if you start seeing a lot of these hypers, these mega cap, shifting from share repurchases to spending on CAPX, that can have an impact on this share price to the downside. I think a lot of people tend to forget about that because that's a lot, that's not a insignificant amount of money that's providing a bid in the market for

these shares. And I think that's something we have to keep in mind. If you see these stocks being a bit under pressure and then you start noticing that they're reducing buyback significantly, I mean, it definitely doesn't, like, it has a non-zero impact on the share price. So just keep that in mind because this could be something that is weighing on those shares going forward as they start shifting that capital to CAPEX. Yeah. And on the flip side, I guess you could say if they're scaling back buybacks to fund capital expenditures, they probably have a fairly good idea that that's, you know, the capital

spending is going to be more beneficial than buying back their own stock over the long term. Like I don't think they, I don't think they'd pull the buybacks back unless they thought the spending was going to be. Because I mean, we always talk about. like the profitability of all this. Like I, I don't think the profitability of, you know, companies selling,

say the computing and stuff is ever in question. It's more so down on the other side of the spectrum. But I mean, $180 billion is a lot of money. Yeah, it's crazy. But the demand is becoming clearer now. I guess you could say that it was like at the end of 2024.

I still question the profitability long term. And Brayden and I recorded, which will be coming out on Monday. And the problem is that especially, and I know they use it in different ways, so it's not all LLM. So I'm definitely aware of that. But at least on the LLM front, I'm finding more and more that I'm platform agnostic. Like, I do not care which one I use. I just want to use whichever one's the best.

And I will happily switch from one to another. I know I'm not necessarily like everyone, but I think this is where it gets a little bit dangerous profitability-wise is if you have, multiple similar tools that are simply competing on price, it may end up becoming not that profitable all this spending. And I think this is where there's some risk embedded in that. Yeah, definitely. I mean, even like the top tier subscription for something like Claude, like Anthropics, like, yeah. There's no way the way that I'm using that. Like they are making money. There's there's just no way. It's crazy. Having cash on hand is essential for any business. Traditional business accounts hit you with high fees while paying little to no interest on the

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My wife and I are currently planning a big summer trip to the Maritimes and our daughter will be visiting Halifax for the very first time. We're looking for a place on Airbnb right near the water so she can wake up and see the ocean every morning. We can already picture ourselves exploring the waterfront and coming back to a cozy house to cook a family dinner or for a quick change of clothes and head to a local family-friendly seafood restaurant. Finding the perfect home base is making the whole trip feel real. It also got us thinking about our own place while we're away. If another family's home can be the backdrop for our first maritime adventure, maybe ours could be that for someone else. Hosting our home on Airbnb would let travelers make their own memories in our beautiful neighborhood, while giving us extra money to put towards all those lobster rolls in Alifax.

And the nice thing is the flexibility. We can decide to host our home only when it works for our schedule. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. 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. Okay, so let's move on here. Another company that's been affected by the, I guess, the SaaS, not quite, I guess it is software as service a little bit. Data. Yeah, SNP Global, ticker SPGI. maybe more in the realm of not quite but a bit more similar to Thomson Reuters, although they do have for parts of the business,

but their business is more than that. They also have the rating agencies, which has a pretty strong moat, I would say, around that, especially from when you started thinking about regulatory moat. They also have the market intelligent, which is really information-based. I think this is the part of the company that is more susceptible to be

disrupted by AI because you can start getting competitors that will be able to get that kind of data that they provide easier. I know fiscal.a.i is almost kind of a competitor to them in the market intelligence segment here. And then they also have indices and commodities. I think there is some risk for disruption there, especially on the commodities data side, but maybe not as high a risk. I know they're not quite the exact segment that they give. But I think that's how I see the business, kind of those three big buckets if I'm looking from a disruption lens. But anyways, the stock was down. We were talking about it, texting about it, 20% in pre-market on Tuesday.

Actually, you were texting me while I was dropping my daughter off to daycare. So I'm like, I don't know what's what's going on. I haven't looked at it. I'm dropping my daughter. But it was really all over the place during trading hours. I think it ended up 9% down. So EPS and 2026 guidance for earnings per share. both came in below estimate. Not a lot, but I think it just goes back to tech and information

services. I've just been under pressure because of AI fears. And I think just that slight miss on both ends was almost a reinforcement to the markets that, okay, you know what? We might start seeing some cracks, even though it was just a very small miss. I think it was small miss and the guidance was just slightly below what the markets were expecting. But I think, you're starting to see that these companies, as soon as there is a reason to validate the fears of the market, the stock is just getting absolutely smashed. That's my perception. Do you tell me whether you agree with the assessment or not? Because they only missed earnings by, it was like 10th of a percent.

A few cents, I think. Like in terms of total, like, yeah, less than, you know, 25 basis point in terms of like the overall miss. I think the guidance went, like they guided to 9% where I think the market was expecting like 11. So yeah, obviously, I mean, the 20% drop was crazy. It was 20% pre-market. And I was going to buy it if it was 20% pre-market. And then it opens and it gets all the way like to negative 4. So moved like 16% and then, you know, settled at 9. It's, uh, and this is not a company that moves like this at all. Like normally, this is very unusual. The only thing, thing I would guess on the ratings area side of things where like some people might see potential

disruption is the fact that you know like a lot of the moat was the fact that you know they need to dig through a whole ton of documents and you know company information to come up with credit ratings like the the theory there is you know AI makes it a lot quicker I I don't think this is necessarily accurate because even if that's the case you'll still need to go to a company like Moody's or a company like SPGI to get a rating. So, but a lot of people are saying like it might be the price might be impacted like, you know, kind of the margins and the moat there because it's a lot easier to do it. Yeah.

Yeah. No, I mean, I think that's, uh, that's a valid point. I think at the end of the day here, what you might start seeing is just maybe overtime and gets eroded a bit more. But the confidence, there's also, I guess, a confidence aspect. But if the confidence wasn't shaken up from. those credit agencies during the great financial crisis or even, you know, they really didn't until it was too late Silicon Valley Bank and stuff like that. Like if companies still trust them

or banks still trust them for credit ratings or investors or when they like issue bonds, whatever it is and it survived that. I still, they should be okay for for a little bit if that didn't shake the confidence. I mean, aside from that here, the company's trading at some of its lowest valuation since pretty much 2020. Not quite to the lows we saw when the pandemic started, but pretty close to that. So just to give people an idea on, you know, where it's trading at right now. And to me, the market intelligence is definitely the one that's more likely to get disrupted, like I said. But it is just a third of the revenue. I mean, just, I guess that's still a pretty significant part of the revenues here. But is it overdone? I mean, it's down 29% over the last

six months, 26% over just the last month alone. And, you know, is it a goodbye? Is it not right now? I think for me, there's definitely some disruption potential here. I think it's the kind of thing where I look a bit more closely if maybe it dropped another 10, 15%, where I get a bit more of a cushion, that margin of safety in case as disruption insurance, if you'd like. Yeah. I mean, it's, nobody really knows. It's just like, it's such a new piece of tech because obviously we won't have time to talk about it, but Shopify,

they reported they were up 10% and then obviously something was said. And I think they're down like 10 or 15% now. And it's like as soon as something pops up or a company says something that, you know, the market's even slightly spooked. Like, yeah, you get a massive,

massive drop. Yeah, exactly. And speaking of company down, let's just talk quickly. Just go off the top Allied Properties. We're just talking about it quickly. The stock is down 25%. In short, from what I saw, just looking at a quick glance,

they will be issuing $500 million worth of shares via equity to pay down debt. So clearly, things are not improving there. A lot of the metrics are actually flat or down, some of the important metrics, including occupancy. I think that's slightly down. or about flat, but when the one that really hits hard, it's renewing rents is actually down the over year. So what that means is companies that are renewing or renewing at a lower cost than they

had previously. And that was not the case until this most recent release. So really a rough quarter here by Allied. And the payout ratios have improved a little bit, but not a lot considering they cut the dividend last quarter. So that's the other thing that's alarming is they're actually trending back up. So clearly there's a lot of trouble. I really haven't had the chance to listen to the call, but I know because it's a stock I did own for a couple, like maybe a year and a half.

And then I got rid of about two years ago when the signs were just not improving. I just wanted to mention quickly if some people are wondering why do you want 25%. The numbers don't look good and they're issuing more equity, meaning that you're going to get diluted as a shareholder. That's basically this store. Yeah. And if they're doing that to pay down debt and their, you know, average price on their new leases is going down. Like it's and they had to sell, you know, that data center, you know, infrastructure they had for a couple of years ago. One point one billion or something and that didn't even help.

Second dividend cut is not out of the question if it continues to deteriorate. But yeah, it's it's been an ugly while for them. I would say it's even probably even more likely now that it will happen. Because think about it, right? you're issuing more equity. So if you want to keep the dividend the same amount, you're actually paying more in dollar to dividends because now you have whatever the amount of additional shares that you have to pay that distribution on.

So I would say it's actually quite more likely that the dividend will get cut because then the dividend is going to be even more onerous on the company. But we'll just move on here. The other Iperscaler that reported last week, Amazon, pretty sure the stock got a pretty big hit, right? When they reported? Yeah. Yeah, I think it's a Cappex again, right? Yeah, I think so. It was down, I think, 10%. Like, I know it opened down 10%. I can't remember what it closed at, but it was a pretty solid quarter. But again, like the capital expenditures is, I think is what spooked the market on the quarter. Revenue, 14% increase. And earnings were, they came in at like $1.95 and estimates were for like $1.97. So it just, yeah, obviously that is is not going to contribute. beat well to the share price at all. And on the flip side, like from a quarter perspective, it didn't really look that bad because AWS, like Amazon Web Services is reporting pretty much the fastest quarter it's had in quite a few years. I believe it's 24%. And a lot of

people will probably look at like Amazon and Alphabet and be like, okay, well, Alphabet's growing cloud at 48%. But Amazon Web Services is much bigger than Google Cloud. The revenue is over double. So they're like they're working from a much larger base. Operating margins are also higher. They're 35%. I think Alphabet is like 30%ish. So the backlog was up again, 40%. Like you're seeing this with pretty much every hyper scaler out there.

There's, you know, in terms of buildouts, as I was saying, like the company is building infrastructure and is like immediately monetizing capacity as soon as it's built, which kind of tells you like there's a long lineup of demand for services. So you can't really blame them for the spending. Like what, in my opinion, like, what are they going to do that just not spend and not, you know, pick up the demand like people go elsewhere? It's kind of, you know, the profitability of it is, is in question. But I mean, I don't know what they can do outside of spend the money. Traneum, which is the company's AI accelerator chip now has 10 billion in ARR.

Growing at a triple digit pace. The company is mentioning they can offer 30 to 40% best. performance than GPUs. So what it's doing, it allows them to charge less to cut. So better service, less charged to customers, you know, higher margins for them and kind of stickier, you know, customer base. On the retail side, retail side of things, so revenue grew by 10% in North America, 11% internationally. Same day delivery is growing by over 70% year over year over year. Infrastructure spending is is pretty key here. It's, it's pretty much impossible to keep up with Amazon scale.

I mean, unless you're going to spend like, I don't know, hundreds of billions of dollars to do it. And even then it's a tough task. Like, I think companies like Walmart and stuff have kind of been in, in the,

you know, conversation in terms of competition. But like, I don't really know if, if Amazon is, is facing any of that. I mean, like my dad lives down in Arizona.

And he gets like three hour delivery. So you order it and it's like at your door almost immediately. It's crazy. Like that, that, network is is pretty tough to to kind of compete with advertising another strong area 22% year-over-year growth prime ads 350 million viewers in early 2024 was 200 million I mean prime ads is probably the most annoying ads that I faced out of all of them like yeah especially because

like Netflix I know they reduce their subscription and then you get ads like prime they just serve you ads some of them are 30 seconds some of them are two minutes but you You can pay to not get them. But you have to pay more. Yeah. Yeah, you have to pay more. Whereas like Amazon, well, I don't know, they kind of kept their, or sorry, Netflix kind of kept the pricing flat and then you could get ads for a lesser cost. Amazon kind of did the reverse.

They said pay more to not get ads or keep it the same and you get ads. I mean, yeah, it's advertising is big high margin business. So it's not really all that surprising. Capital expenditures, again, was the big issue. So $200 billion in 2026. And I mean, when you look to a company like Alphabet, you'd think Amazon is spending more, but it's also like Amazon has a retail network. So like they've always spent a lot of money, I would say. Amazon has over a company like Alphabet.

But yeah, you're looking at 131 and spend last year to 200 billion, you know, in 2026. And who knows? Like, they seem to be bumping KPEX guidance every single quarter. So yeah. Yeah. Yeah. Yeah, I mean, we'll have to see. I think it's just investors digesting.

I remember Q3, all the, all the hyper scalers were saying it's increasing. Yeah. And now they're almost saying it's increasing more than they had said. So it'll be, it'll be interesting. But yeah, those are big numbers. At the end of the day, I think, I don't know, I feel like some of that span comes out of fear of being outdone by comparison. Well, they've said like Amazon said that, like they're not interested in being second in the space. Yeah.

So yeah. Yeah. So we'll see. We'll see whether that, uh, that's good or not. Anything else on Amazon before we move on? Having cash on hand is essential for any business. Traditional business accounts hit you with high fees while paying little to no interest on the cash you need for day-to-day operations.

That was our experience too, until we switched to the new EQBank business account. Now, every dollar earns high interest with no monthly fees and no minimum balance. You also get free everyday transactions like EFTs, bill pay, mobile check deposits, and 50 outgoing and 100 incoming free interracket transfers. And to sign up quick and fully online, no branch visits because, let's be honest, no business owner has time for that. We use it for our own business and it's the first account that actually helps our money work harder while keeping operations simple. Check it out today at eCubank.ca slash business.

My wife and I are currently planning a big summer trip to the Maritimes and our daughter will be visiting Halifax for the very first time. We're looking for a place on Airbnb right near the water so she can wake up and see the ocean every morning. We can already picture ourselves exploring the waterfront and coming back to a cozy house to cook a family dinner or for a quick change of clothes and head to a local family-friendly seafood restaurant.

Finding the perfect home base is making the whole trip feel real. It also got us thinking about our own place while we're away. If another family's home can be the backdrop for our first maritime adventure, maybe ours could be that for someone else. Hosting our home on Airbnb would let travelers make their own memories in our beautiful neighborhood, while giving us extra money to put towards all those lobster rolls in Alifax. And the nice thing is the flexibility. We can decide to host our home only.

when it works for our schedule. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. 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 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. Okay, so the darling of Canadian investing, one of your favorite companies, lightspeeds. I forgot I had Spotify to do. So we'll finish with Spotify. I'll go to Lightspeed. So light speed. What a train rack here in this company. Just not really, I just don't know where it's

going to be honest. They were looking to, they put themselves up for sale right last year around this time, if I remember correctly. Oh, it has to be more than last year now. It was probably in the last like 18 months, I'd say that they, yeah, they love, they love to put headline movers out a lot, share my backs, like putting themselves up for sale, swapping the CEO, like three times. Yeah. Yeah, exactly. And it just doesn't look good here. And the first thing I'll say, so I want to show a chart here for our joint TCI subscribers just because I think this is the most telling that the business is in trouble. You start leaking at the revenues here. And I'll explain it for just our audio listeners is. So from Q3, so their financial year is just a bit different,

but it still follows the quarters here. So the quarter that ended in September. So, Q3, let's just say Q3 for the hell of it, they had 318 or 319 million in revenues and that dropped to 312 for the Q4 so the most recent quarter. I know it's not the exact ones they use their financial years, but doesn't matter. I want to keep it simple here. Now if you go back to a year ago, you'll notice that from Q3 to Q4, it went higher in Q4. And then you go prior to the previous year again Q4 was higher than Q3. It's actually the first time that Q4 is lower than Q3, at least as far as I can go here. It's always been, always been higher. I mean, they're by far the two strongest quarter in their year, but I just wanted to outline that that's not great. When you start seeing a decline like

that, I know the results don't look as bad because they end up talking about it on a year-over-year basis. But when you start looking at that doesn't take a genius to know that a point of cell company should have a pretty strong holiday quarter, right? Yes. Oh yeah. It's again, like I think it was one of their first like sequential declines as well in quite some time. Like it's they, I mean, I guess I want to speak about what you're going to talk about later. So I'll just talk about it then when you're talking about it. Yeah. Yeah, exactly. So and feel free to let me know when you want to chime in. So they did a slight beat on estimates. Oh, you are, over a year still look pretty good, up 11%.

Now the transaction-based revenue, this now makes up 67% of their revenue. If people remember a few years ago, they kind of shifted away from more the subscription revenue, so companies paying to subscribe to the service versus like taking a little cut of the transaction. They shifted more with that. One of the many times that they tried to shift their business model.

And the problem with that is, again, this was down the transaction-based comparison-based, compared to Q3. And then the subscription revenue, this is really single digit growth year over year. It was up 6%, so not great in terms of growth year over year. Transaction-based revenue was up 15% year over year. So not bad, but again, on the sequential basis, it's not looking good. Their average revenue per user decline, again, on a sequential basis, not good.

They had a net loss of 34 million, which was wider than the net loss last year of 27 million. The one thing that looks better is their adjusted EBITA was up 22% year over year. Of course, adjusted EBITA. Gross margins were slightly higher than last year, 200 basis point. The gross payment volume, 19% year. The gross payment volume now represent 46% of total GTV. So we'll have to, anyways, it just does not look good here. and they on the bright side they have generated 50 million in free cash flow they bought back 43 million

worth of shares in the last quarter which is I guess it's better than buying 116 million the previous quarter again they're buying back shares at higher prices and you can make a case that there could be better uses with that cash than buying back shares at hell like at the way they are at allocating capital they probably should do a special dividend over that and on the call they something I wasn't aware, but they've had that business for a little bit, is the, they have a cash advanced business for merchants where they give merchants an upfront amount for an account receivable that the merchant still needs to receive. So they, they sold a product or service or whatever and they're waiting to receive the money. So what you have lights be doing,

they'll say, okay, well, you have an account receivable for a thousand dollars, we'll give you the money now. And then when you get it, you get the payment. You pay us back the thousand plus an extra 100, for example. So that's how they did. But essentially it's a lending business. That's what. This is a part that I wanted to talk about. Like this is.

Yeah. Like businesses in good financial standing don't take payday advances on like cash, you know, accounts receivable. Like why would you ever, why would you ever do that if your cash flow was sufficient? You'd never, you wouldn't need the money. So, I mean, to see. It's almost a. reverse buy now and pay later. Yeah, effectively. Yeah, for like, yeah, for the for the

retailer that you're, yeah, you don't, this shouldn't be the fastest growing area of the business. I think that's a, a big warning sign. And yeah, stock base compensation is also starting to increase too. So yeah. So they now have 106 million lent out. That's a big area of growth for 34% you over a year. Again, not this. not the most reassuring thing, especially if you're a shareholder. Like, is that really an area you want them to be growing when the economy pretty much across the globe is as uncertain as can be right now? Like the most uncertain we've probably seen in the last like 10, 15 years with the exception

of maybe 2020 when COVID hit. Is that really an area that you want them to be growing? Like, they're a payments company. They're not a lender. And it's it just, I don't. I don't know. It's a bit of a head scratcher. I'll be very honest. Like, I know it was a darling during the pandemic. The stock ran way, way up. It's just not a company I would touch with a 10-foot pole. I think they're an area of high competition, whether you think about Shopify, POS, that's in that

segment two, or a toast is in there. Like, there's a whole lot. There's also square. A lot of businesses that are in that sector that are probably, you know, better or at least equally good options compared to them. So yeah, not a great quarter, I'll be honest, and they're still looking to buy back more chairs. Yeah. I mean, I think there's a correlation there between, you know, the economy being uncertain and bad and this area growing.

Like, I'm sure even light speed doesn't want this to be the darling of the business, but like, I think it's just kind of cause and effect, really. But yeah, it's ugly quarter. They probably, they honestly, I think it's, to me, it's just trying to show an area that's doing well in the business. That's just. pretty much. Some, an area of growth.

Yeah, exactly. But the last one here is Spotify. So revenues were up 13%. Monthly active users. So MAUs that reached 751 million up 11% over a year. And their premium subscribers were 10% higher to 290 million. They actually beat guidance a little bit regarding that. Their advertising business grew 4%.

Of course, if you're not a premium subscriber, this is how they make their money on those subscribers, gross margins hit a record eye of 33.1% while operating margin also reach a record high of 15.5. For the full year, they generated over 2.8 billion free cash flow. So very impressive, more than four times what they were generating just two years ago. And earnings per share more than doubled on a year-over-year basis. And overall, this strategy is really to keep growing these active monthly users. So it's kind of, I guess, a spinning wheel or revolving wheel. So the more monthly active users that you get, the more premium users they can try to get, which are much more profitable for them. So that's really the strategy that they're trying to keep doing.

They also were able to increase revenues with price increases. The problem with that is, in terms of price increases, so Spotify premium side, just a little bit of research. There's obviously different type of subscription you can get like there's like I think they have like a student deal they have individual they have family there are different pricing right Spotify premium I think the base one the most common one is 1269 a month and YouTube premium gives you access to tons of music YouTube ad free and the other things that we were talking about for 1399 a month so where I think you have to be careful a bit with Spotify and its growth is I there's definitely a, there has to be a relationship between like the amount of increases they can put and how close

they are to YouTube premium. I'm sure they're very aware of that because YouTube does give you some more things as well. Like it's different, I guess. So you can get like audio books more on Spotify. That's more your thing. But the value proposition, there's a lot of overlap in between both. So I think that is something to keep in mind for those interest in Spotify here. Yeah, Spotify is kind of a subscription. that I've had for years and would have never considered canceling. But I didn't know YouTube premium was even close to the same thing. I kind of thought like if I was like listening to a podcast or something that wasn't on

YouTube, then you know, I wouldn't be able to listen to it. I think you can add manually the RSS feed via YouTube. We've had people inquire that wanted to listen to it on YouTube and we didn't have it. But with the RSS feed, I think YouTube as a way you can add it manually if you want to. Yeah, because it's like it's. way down from last year, like 40% down, Spotify. And I was kind of, again, I was kind of going to ask why because, yeah, like, this is the one subscription that I just never pay attention to because like, they do a very good job

of making it so annoying for nonpaying. Like, you only, you only get like four skips and then, yeah, the ads. Yeah. So, I mean, it's like an instant upgrade for anybody who wants to use the platform. But I didn't, I didn't even know YouTube was a competitive. headator really like on the premium end yeah and there's also apple music um amazon music that's included as well i think some you know you get some stuff with amazon prime so there is some competition i think i think that's where they really have to be a bit careful i mean just to finish

up here danielac the former ceo is now the executive chairman so they've done the transition And overall, they see AI as an opportunity in several ways like content creation, unique data sets based on user preferences that are tied to the platform here. And as a way to enhance the platform more rapidly by allowing their engineers to be more productive. So they're clearly saying that they're able to upgrade or change or add more features to the platform with AI because it allows their engineers to be more productive, something we have talked about in the past here. They also are expanding their audiobook library. They saw double-digit growth from publishers. So overall, I mean, still I think a pretty good quarter from Spotify for Q1. They're guiding for a monthly active user and premium subscriber to increase by about 1%.

So not massive amount of growth. Obviously, it's probably going to come a little bit from the pricing. But again, I think they're in that situation where they have, there's a ceiling to where they can go into pricing where people just, you know, start saying, okay, well, I'm going to start looking at alternatives. Yes, it's going to be a pain. But so they really have, I think it's a fine line. They'll have to thread for a very long time. Yeah. And I think at this point in time, I don't even know if like monthly active users would be what you'd want to look at because everybody knows about Spotify. You know what I mean? It's more so. Yeah. How many people are they going to convert into paying

subscribers at this point because like they already have 751 million people like at some point yeah the the MAUs are not going to grow very much and you just need to turn more into premium subscribers like somehow but yeah I don't know the company all that well no I mean I know it a little bit but that's kind of the gist of it for this one I think that's a good point to wrap it up here thank you everyone for listening we really appreciate the support if you haven't done already. If you can give us a five-star review on whichever platform you're listening to us on, it's always appreciated it. If you want more content from us, you can always go on-join TCI. I will be posting my parents' portfolio this weekend. So stay tuned for that, which by the way,

has been crushing it this year. I wouldn't doubt it. Yeah. For a portfolio, that's designed to be more capital preservation with a little bit of growth. It's actually crushed the SMP 500 ever since I made those modification close to two years ago. So pretty happy for my parents for that. So it just goes to show there's different ways to do it. But so if you wanted that additional content or the podcast ad free, make sure you join for $15 a month on joint TCI. If not, we appreciate all the support and the love.

It's always fun to hear. So we'll be back. Well, actually, I'll be back with Brayden on Monday. And be on the lookout. We might try to do again, like we mentioned early on, an extra episode next week for, for earnings, possibly do a live one, but definitely looking to do a live one in the next couple weeks add the most. So make sure you subscribe to YouTube. Thanks again for listening. The Canadian Investor podcast should not be construed as investment or financial advice.

The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions. Thank you.