The Canadian Investor - Air Canada’s Strong Quarter and BlackBerry Gets a New CEO

Episode Date: November 2, 2023

In this jam-packed episode, Dan and Simon start by discussing the recent Bank of Canada rate hold and John Chen leaving BlackBerry for retirement. We then talk about the earnings from Air Canada, Allied Property Reit, Canadian National Rail, Alphabet, Microsoft and Amazon. Symbols of stocks discussed: BB.TO, AC.TO, AP-UN.TO, CNR.TO, GOOG, MSFT, AMZN 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  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. Welcome back to the Canadian Investor Podcast. I'm here again with Dan Ken. Welcome back, Dan, to the podcast for the Thursday News and Earnings. How's it going before we get started? Heard you had a good weekend. Yeah, it's been a long weekend. Went up to the Heritage Classic

on Sunday, sat in the cold for three hours, watched my Edmonton Oilers beat the Flames. Somebody had to win that game, so they've both been sucking pretty hard. But yeah, it was pretty fun. Really cool experience. We had pretty good seats and it was still next to impossible to see anything, but it was pretty cool nonetheless. And yeah, thanks for having me on again. Yeah, so you live in Calgary, but you're an Oilers fan. Yeah, I have a lot of family. Am I getting that correctly? Yeah. I had some family that grew up more north and just kind of grew up to be an Oilers fan. We have no Flames fans in my immediate family. And we're all from Calgary.

And I didn't check the highlights or anything but was connor mcdavid playing or yeah he played yeah okay because he was injured right if i remember yeah yeah he was hurt for they said two weeks but he came back in a week i would imagine he just didn't want to miss that game okay okay but yeah well i mean i'm pretty envious i've never seen an outdoor hockey game but who knows maybe i'll have one at some point and And I know they have in the past, but another one in Ottawa or Montreal. So I might try to see that. The Edmonton Stadium is definitely, it cannot handle that many people. It was an absolute gong show around there.

So yeah, I don't know. They need to put it in a nicer stadium, maybe. I don't know. It was cool nonetheless. Yeah, you can send your suggestions i'm not sure they'll listen no they won't anyways i'm sure people don't really want us to talk about hockey they really want us to talk about you know what's going on in earnings and use so we'll start last week the bank of canada had you know its update in terms of what they would do with the

interest rate and it was the old hawkish pause. That was my kind of sense here with what they did. So they said, look, we'll keep the rate at 5%. They will continue quantitative tightening, which just means that they are reducing the size of their balance sheet with bonds. And then inflation has come down, but they said it is still too high. They left the rate unchanged because they said the monetary policy tightening in their view is working and they want to give it more time for it to work. They also mentioned that it seems like the Canadian economy is cooling. Their GDP growth forecast is going to be below 1% for the next several quarters. They weren't more specific

than that. That's actually the language he used during the press conference and by he was Tiff McLean. And they expect GDP to pick back up in late 2024. But they also admitted that their projections have definitely shifted over the last few months. And I think that's important for people to remember because, you know, they have a lot of smart people working for them. And I'm sure they get tons of data. And, you know, even them, I would say at best are 50% accurate. I think that's pretty much what I got from that. And they said they expect inflation to be 3.5% up to the middle of next year. But they did say that it should get back to target in 2025. Although there is some potential upside or downside to those forecasts. So

translation for that they don't really know. And the last thing I'll add and feel free to add your comments on that or your take on that as well, Dan, is that they had a question from a reporter was asking, are they concerned about, you know, the weakening of the Canadian dollar? And Tiff McLean went into a long answer, but all that to say that, you know, they do keep an eye on that, but their big target is inflation. So they said there's pros and cons and they kind of acknowledge that it could create some inflationary pressure, especially for the goods that we import from the US. But it's something they keep an eye on, but they really just, their main mandate is to target inflation. Yeah, and I think it's just a pretty tough situation overall. And it's so hard to like predict what's going to happen. I mean, even these guys, like you said, they're probably 50 50. I mean, even I think it was back in 2021. They said that rates would remain low for

a very long time. And now, you know, like, I don't even know if it was six months later, maybe eight months later, like the fastest increases we've ever seen. It's kind of tough. Like they did mention that, like I had showed you, that if they see signs of inflation maybe peaking or starting to decrease, they could start cutting in advance. So they said if they expect it to be 3.5% in the middle of next year, it's kind of interesting to see if they think it'll plateau there, which would mean that they might likely start cutting rates earlier. I don't know.

It's tough because middle of next year is not that far away. So it's pretty hard to predict all this kind of stuff. I think it's pretty important that, you know, you don't really base your investing strategy around policy rates because it's like it's next to impossible to predict this kind of stuff. Yeah, exactly. And I think that was probably even him saying that, you know, there's also a lag effect on the other way around. So even if they do cut rates, it may not have some inflationary pressures for some time a bit like we've seen the other way around, right? How, you know, long it's taken for rates to really be felt in the economy. Definitely in Canada, I think sooner than the US, just basically just how mortgages are structured,

I think has a big impact right there. But it'll be interesting. I mean, I think at the end of the day, they're not quite sure. That's pretty much what they're saying. They're kind of hedging. I think recently I saw, too, that they've mentioned that, you know, government, high government spending is a concern. I think they're trying to tiptoe around it. They're probably not trying to, you know, blame too directly the federal and

provincial governments for spending, but they have been saying here and there that, you know, high fiscal spending, so what government spends and high deficit do have some inflationary pressure. Yeah, I think they've come right out and said it like, even they've spoke on the carbon tax and the impact to overall inflation and just yeah overall government spending and they kind of said they need to tame it down if they really want to get inflation under control but that's kind of a whole topic for an entirely other discussion yeah no exactly now we'll move on for some news that came out just yesterday so and something that people have been listening for a while someone someone I've been quite critical of, John Shen, who's no longer the CEO of BlackBerry. So the news came out yesterday,

his five year term was actually set to expire on November 3. So there was a lot of uncertainty whether he would remain with BlackBerry or not. And especially with the upcoming spinning off of the IoT, which is the Internet of Things, vision and connected car business. From its cybersecurity business, I think the board decided that it made the most sense. He's also not young, so they're kind of framing it as more of a retirement. I believe he's 67 or definitely in his late 60s.

And it's been almost exactly to the day 10 years since he joined BlackBerry. And I shared something on Twitter for those who follow me, but for those who are following on JoinTCI, the returns of BlackBerry since he's taken over, and Dan, it's pretty horrible. Since he's taken over, BlackBerry is down 30%. And if you compare that to investing in XIU, the ETF, which follows pretty much all the big names from the TSX, that's up 101% total returns, including dividends. And then if you invest instead in the S&P 500, you'd be up 178%. So you'd be up more than 200% versus BlackBerry if you kind of account for the fact that it's down 30%. So not

great. I mean, what I've said before, and Dan, feel free to give me your opinion on that is that, you know, he had a really tough job to do. But in the last couple years, I did wonder like why he was staying on because at the end of the day, he was there to turn around the business. And it's been almost like a slow bleed, I would say. Like, granted, they shifted to a completely different thing. They no longer, you know, sell or even support handheld devices or smartphones. But, you know, I think a couple of years ago, easily, they could have said, OK, I think we need someone new at the helm. But for whatever reason, I just stayed on until I think, yeah, when the writing was on the wall just now.

Yeah, I was looking up because it was kind of nice. It was almost 10 years to the day. So looking up a 10-year chart was pretty easy. But I looked it up over the 10-year term, BlackBerry's revenue fell over 90%, which I think was, as a result, in 2014, they still had, you know, old business model kind of transitioning. So I think it was somewhat expected, but even after like a sharp decline to like 2016, they never really did anything. I mean, the transition to the different type of business has generally been, I mean, a failure, really. The only time you could have, like you said, outperformed this company relative to say the s&p 500 is for like the short 30-day period that it just became a complete meme stock and went through the roof

but other than that yeah it's just this was like canada's tech darling really like i remember a blackberry that was pretty much the first smartphone i ever owned like blackberry messenger was was game-changing yeah it was big. I mean, it was kind of the OG of like the iMessage, right? Like where you could kind of text outside of SMS, so the regular text message. But I mean, I'm with you. One of the things they had done over a while is they kept selling intellectual property assets. So patents, they kept selling that. I think that kind of helped them stay afloat for a bit, but I haven't looked at their balance sheet recently, but I'm assuming they're running out of those. And that's probably why they decided to split

the businesses off. And I think their IoT smart car business is doing better than the cybersecurity one. So I think that's probably the reasoning behind it hoping to unlock shareholder capital. But yeah, I think it was definitely time it ran its course. I mean, I guess it could have been worse, but I think it could have been better under john chen too. Yeah, I mean, after 10 years like this, they only had one or two profitable years, I think even throughout that whole time. So I think just time to move on, really. Yeah, no, exactly. 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.

That is questtrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away.

Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. That is airbnb.ca forward slash host. Now moving on to a much more profitable company. Do you want to tell us what you got from Amazon's latest quarter? Yeah. So it was actually a really good quarter from Amazon, even though they're not really a tech company, they kind of get bunched in with just a big tech co's in the States. And they definitely had probably the best quarter out of all three of them, or not all three of them. Three of them we'll talk about today, but revenue of 143 billion was right in line and earnings came in way, way higher, 94 cents versus 60. And they actually guided to some pretty strong growth

for the fourth quarter. So on a year overover-year basis, they figure 7% to 12% higher and operating income to increase quite a bit. The company, like back in the pandemic, 2020, 2021, 2022, the company spent $165 billion on capital expenditures. So just to get an idea of how much money this is, it's bigger than Royal Bank, which is like the largest publicly traded company in Canada. And a lot of it was strictly, I would have to go back to the actual statements to see what it was, but I know the vast majority

of it was just on infrastructure expansion, really to just more efficient deliveries, everything, more warehouses, stuff like that. But it's pretty clear like this year, they've kind of flicked the switch. So trailing 12 month free cash flows are 21.4 billion, 15.9 billion after all their financing obligations are paid for. And this is compared to an outflow of nearly 20 billion the previous year. I know a lot of people, even in discussions that I've had, they've been pretty critical about Amazon, you know, in terms of profitability and high valuations. But I mean, the investments were mostly made in the company's network.

And now that they're kind of flicking the switch, not investing as much, reducing that, they're generating a ton of cash flow. And the network investments, especially at, you know, such low interest rates, should start to pay off. Yeah, exactly. I mean, I used to own Amazon. I sold it not long ago, mainly because I decided to sell my big tech and just divert most of the proceeds to ITOT, which is just a US total market ETF, just because the big tech has still pretty outside allocation in those index funds. And I just found that time wise, I needed to just reduce the amount of holdings just because I don't have time to stay on top as much as I would like.

And, you know, the index fund just allows me to to keep that exposure at the same time and diversify a bit more. But when I did own Amazon, I think that was one thing is they were pretty straightforward to that they kind of overexpanded a little bit during the pandemic. And then they started kind of reducing that I think they started leasing out some of their warehouses that they weren't fully utilizing. So I think they're doing the right things. I always saw kind of what you're saying is that their logistics network is almost second to none, right?

So there's just a handful of companies that, in my view, have that kind of distribution networks. I mean, there's them. I would probably say a Walmart, even maybe to a lesser extent, a Costco Home Depot. But even then, I think Amazon is almost a step above. Yeah. In terms of a retail moat, it's kind of hard to deny just how wide they are. I know I have family that lives in Arizona and you can get same day delivery. So if you order that morning, they can have it to you in the afternoon. It's pretty crazy. Like we don't have that here, but they do have that, you know, in some large scale markets. Just in terms of the money spent on the warehouses, like prior in the previous three years before the pandemic, they only spent $42 billion.

So $42 versus $165. And now they're kind of scaling it back again. But pretty much, I think one of the main theses is with Amazon is you rely on that retail segment to pretty much, you know, drive not too much, not an insane amount of growth, but then you look to AWS. And even more importantly, their advertising segment, like the advertising segment is actually outpacing AWS in terms of overall growth. So if we look to quarter end in September 2020, they generated 5 billion in advertising revenue, and it's now 12.2 billion. I mean, advertising, it's a highly profitable business. And it's tough to keep up with, you know, pandemic level advertising, just because of how, you know, much ad spend was there. But this is definitely a segment

of the business that is growing at a pretty quick pace. And same with AWS as well. But I think in terms of the recovery, I think Amazon is up. It's got to be 50 plus percent this year, pretty close. I think they just got up against some really tough comparables like in 2022 versus 2021 when everybody was just locked down and pretty much doing all their shopping online. So it was pretty hard for them to keep up with that, but they look to be turning it around right now, which I did mention, I mean, maybe a catch 22 in a way, because you're supposed to see economically, maybe a little bit of a slowdown, but Amazon's still just turning it out like a $1.5 trillion company growing at a 7% to 12% pace. And we're supposed to be seeing a slowdown.

But yeah, it was a pretty good quarter by them. Yeah, exactly. And I have here for Joint TCI listeners, so I'm just looking at a quarter basis. But AWS revenue, AWS revenue looking back as far as December 2019, it's grown at a compound annual growth rate of 25%. I don't have the growth rate of the advertising services revenues. But like you were saying, it is, you know, it's a bit ebb and flow, but overall, definitely growing. I think it probably goes with the period of year, right? It's probably a bit cyclical where businesses will pay a bit more for advertising at certain times of the year. It does appear to be that way where the, you know, with the kind of December quarter seems to be peaking a little bit. But I think there's still a lot to like about that business. And I think a lot of people were kind of writing them off, you know, just less than a year ago. writing them off, you know, just less than a year ago. Oh, yeah, for sure. I mean, expenses were going up activity was slowing down. Like I think there was one point during 2022, where they just weren't growing at all. And they were issuing like really poor guidance. I remember Amazon would,

like it would trade insane post earnings, like 1520% swings in price. But yeah, on the advertising front, like it's definitely going to be cyclical to the point where in the fourth quarter, there's holiday spending, but there's also a lot of these large scale advertisers have budgets. And if they have room in the budget, they'll spend it all in the fourth quarter. But yeah, it was a good quarter. Yeah, it'll be interesting to track this year, especially if businesses are trying to rein in expenses. Maybe they say, oh, well, that extra marketing spend that we had in budget, maybe, you know, don't spend as much this year.

I don't know. It'll be interesting to keep an eye on. But I guess we'll move on to the next one here on the slate. Lots of companies, lots of earnings. This one, completely different business, Air Canada. And after that, you'll be going over Google or Alphabet. So Air Canada, I was interested because that, you know, a lot of people have been saying that the economy is still doing well,

people are just shifting their spend from goods, and I guess closer to home services to traveling, because there's still some pent up demand because of the pandemic. And I would agree for the most part, but I think the numbers of Garrett Canada can be a bit misleading looking at them at first glance. So I'll go over it because they look on the surface extremely good. But when you start digging in, there's definitely some things where people should keep an eye on, especially for the next couple of quarters. So revenues were up 90% versus last year to 66.3 billion. Net income was $1.25 billion versus a loss of $508 million last year. EPS, same kind of thing, $3.49 per share compared to

a loss of $1.42 last year. Operating expenses were up 5% despite a decline of 15% in aircraft fuel expense. And for the first nine months of the year, they generated tons of cash flow. So free cash flow increased more than 330% to $2 billion. Now for airlines, I think it's always important to look at some of their, you know, some airline specific metrics. So revenue per passenger miles, so RPM, that's the amount of miles traveled by paying passenger. And I think it's a very important metric to keep an eye on in this space. So that was up 14% versus last year. And like I said, on the surface, it might look good, but it's more nuanced than that. Air travel has definitely some seasonality to it. So it's more nuanced than that air travel has definitely

some seasonality to it so it's hard to compare on a sequential basis or versus last quarter however we can look at the increase of rpm in q2 versus the prior year and that was at 32 percent so i think there we might start to see some deceleration because now it was just 14% year over year for this quarter. But I think it's really important to keep an eye on that one. So what will happen in Q4? How will that look versus Q4 last year? Are we going to be looking still at a 14, 15% potentially higher? Or is it going to be in the single digits? And if it's in the single digits, then I think there's definitely, you know, a case to be made that we're probably on the way to reach kind of a plateau in terms of air travel. I don't know. What's your take on that? Do you view things a bit differently for them or kind of in a similar fashion?

No, similar. I think a lot of the situation in 2022 was also a demand factor. And I think it's still carrying into 2023. I mean, 2022 in the latter half of 2022 was probably, or maybe in early 2022 was when restrictions really started easing and, you know, people really started traveling, things like that. And, you know, I think it's carried over until now. I've noticed just because I booked a flight recently with WestJet, prices have gone down quite a bit. And I think that might be demand related. I mean, even when we went to Mexico, our plane was maybe half, three quarters full. So it's, yeah, it wasn't, it wasn't very full at all. And this is like to a sunny destination in, you know, late October.

So I'd be worried about these numbers as well if they weren't just, you know, kind of a travel boom. And like you said, 32% year over year, but 14% quarter over quarter. So that'll be interesting. No, it was a 14% year over year, but the previous quarter was 30% year over year. Oh, okay. Yeah. Yeah, yeah. Because quarter over quarter, it's more, it's kind of difficult, right? Because of the seasonality.

But still, I think it's definitely a clear sign of deceleration at the very least. You definitely have to keep an eye on it. Yeah. So do you own airline stocks? Do you like airline stocks? Just too much cyclicality to it? I did own WestJet jet but they got bought i can't even remember when that was like 2018 maybe a couple years ago i think yeah or maybe it was

actually it was right before covid actually i'm pretty sure maybe a year before covid but onyx bought them yeah that was i wouldn't own knowing what i know now i i won't own airlines anymore i did own west jet, for quite a while. Yeah. And I think the last thing I'll mention here is something that, you know, nothing on Air Canada per se, but I think just buyer beware when it comes to airlines. So they have a section of key assumptions. And I'll just read this just because there's so much variability to that and how these

key assumption can definitely change. And I'm sure they're trying the best that they can. Now, Air Canada made assumptions in preparing its updated guidance, including moderate Canadian GDP growth for 2023. I think that's debatable right there, that the Canadian dollar will trade on average at Canadian, well, $1.35 per US dollar. We'll see if it's the average for the year. It's clearly trending towards that being, you know, much lower than that. And then the price of jet fuel per liter of $1.13 for full year 2023. So I'm not like, obviously, it's so hard to predict these kind of variables, but it just goes to show how this kind of business has so many different variables that they have to deal with. You know, obviously, cyclical demand, but all of these different other variables that they're trying to make projections with.

And I mean, I wouldn't hold that against them. It's just impossible to do. But just kind of buyer beware if you're interested in airlines. I mean, there's just, yeah, you can't exactly blame the airline, but there's like, this is pretty much saying we prepared this guidance. And if the stars align with the operations of the business, plus all of these other factors, then we should be able to hit it. And I think, I don't think the Canadianp has grown much at all this year at least i don't think it's grown i think it's pretty much flat since uh earlier in the year so they've

they're probably already gonna miss that mark um and who knows what your definition of modest yeah i mean it's yeah yeah yeah it's always these kind of, yeah, quant like, you know, qualifying kind of, yeah, things that, you know, could mean something different for everyone. But I think we'll move on. We'll get back to tech here. So you want to tell us how it went for Google or, you know, their parent company, Alphabet? Yeah. Yeah. So pretty much everybody refers to it as Google, even though it is Alphabet.

refers to it as Google, even though it is Alphabet. Earnings came in higher than expected and revenue was pretty much in line. Much like Amazon, the company is starting to return to double digit growth. In 2022, it had some crazy comparables that it was never going to be able to match up against because this is primarily an advertising company. And as we mentioned before, ad spend was through the roof in 2020, 2021. So there was a period where it went back, it went to pretty much zero growth, maybe growing one to 2% a quarter. But YouTube is actually one of the big notable segments

of turnaround segments. Back to double digit growth, it's been pretty volatile in terms of YouTube, because I think in 2022, 2021, a lot of people working from home, maybe off work, watching a lot of YouTube content. Now everybody's back to normal. Things will likely stabilize on the YouTube advertising front. And in terms of Google search, same thing. Cost of borrowing was very cheap during the pandemic. A lot of ad spend. Google was seeing some crazy growth in their ad spend.

It caved in 2022, but it's now starting to return. The main focus on the quarter was its cloud segment. So it was expected to grow cloud revenue at a 28% clip and it grew it at 22%. So that caused like a big sell-off. I think Google had its worst day. It was in years for a very long time. They lost 9% after it reported. And I think one of the primary reasons that it lost this much is because Microsoft's cloud platform actually hit guidance. I think it might've actually exceeded a bit. So maybe that scared a lot of people when it comes to their cloud segment.

I know I don't own Microsoft. I don't know too much about Azure, but I know it's probably one of the faster growing ones. I think it is. It's growing quite a bit faster than AWS. I don't know if you speak on that very much. Yeah, I mean, I used to follow it a bit more. I can pull it up here.

So in terms of segments segments what it looks like their their cloud revenue it makes up i know it makes up a lot more of microsoft's total revenue than google's does their cloud revenue in relation to google's total revenue it's only about 10 whereas microsoft is actually pretty pretty chunky portion yeah It's close to half. Yeah, it's like 40%, I would say. So I'll share here. So, I mean, it has grown quite nicely. And I think Microsoft's big advantage is probably with the business side of things where, you know, like all these companies are on Microsoft Office and end up getting Azure for, you know, transitioning to the cloud. So I think that's where Microsoft really has an edge. But yeah, it's grown quite nicely over time. I mean,

pretty consistent for those looking just looking at quarter for over quarter since December 2019. It's grown at a kicker of 21% since then. So I mean, pretty much has grown every single quarter. Well, there's been a few small dips, but definitely year over year has grown. And then even on a sequential basis, most quarter it's been growing. Yeah. Yeah. So I think when you look at that and the portion of cloud revenue that the portion of Microsoft's revenue that is cloud, like a lot of people would probably wonder why, you know, Google, they miss cloud guidance by 6% and they sold off 9%. It's a much smaller portion of the business. And I think maybe people saw that, you know, Microsoft was hitting guidance in that regard. And it's such a larger portion of the business that

maybe they because I know Microsoft was trading up quite a bit. Well, not a crazy amount, but the markets were kind of taking a dive. But I think that was one of the main reasons why Google kind of sold off post earnings, because they were pretty strong earnings. Google search is doing great. YouTube is doing great. The cloud platform, I mean, 22% growth, it's still growing at a pretty sizable pace. Yeah, exactly. And I think the biggest plus, I think, for Google was the kind of overreaction regarding ChatGBT that we saw in the probably first three, four months of the year. I think now we know that maybe Google search will erode over time. And obviously, there's also, I think they're still in court, right?

With the US government and for like anti-competitive practices with the deal that they had with Apple being the default search for, I think, Safari on Apple devices. So there's definitely some kind of pressure there. But I think overall, I don't know about you, but my habits in terms of searching for stuff hasn't really changed. I do use chat GPT from time to time. But I think one of the issues with it, it's never like, fully up to date, right? So it's always like, at least at the very least, a couple months old. So if you're really looking for some more up to date kind of information, you have to use a good old Google

machine. Yeah, I don't really use it all that much either. We use a lot of the DALI or whatever for the image generation. But in terms of chat, GPT, we don't utilize it very much or even just in search. I mean, Microsoft kind of says, you know, typically every quarter that they're gaining search share, but like Google is still, it's like 91, 92% market share. Everybody's still going to Google. And as a result, like advertising on,

and I mean, YouTube there's, I don't know if there's a big competitor to YouTube. I mean, maybe Twitch or something like that, but. Well, I know I,

Twitch is very much gaming, right? So it's, I think YouTube is still, still the place to go. I think if you're looking to advertise video wise, you're probably going to YouTube. So no, exactly. Okay. Well now we'll move on to the next, unless you had, um, that kind of covers it for Google. Yeah, that's pretty much it. The cloud revenue was, was the main thing. That's what caused the slide, but a one-off. Yeah, exactly.

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So now next one again. So I guess I'm doing more of the Canadian businesses for this one, but that's okay. I know you know the Canadian space quite well too. So Allied Property REIT. I know you know this name pretty well with stocktrades.ca. I think, do you guys recommend that one or is that yeah so we it's covered now on our list it has been for a while a bit earlier this year but uh yeah it's it's i mean i think it's a pretty solid office read that's taking an absolute beating

right now yeah exactly i think i i agree with. I'll kind of give my overall thoughts, but the big numbers here. So FFO fronts from operation again, without going over all the metrics, this is typically used for REITs and AFFO is adjusted from from operation. Those are two metrics that are widely used in the space are non gap metrics, but still very useful. So FFO was down 1.3% year over year, but AFFO was up 3.6%. Both were slightly up though on a sequential basis. So definitely something we'd like to see. They had 5% more leasing tours than the previous quarter, which is definitely a pretty significant increase because I was listening to the call and they said typically that's slower in the summer months. And the CEO was actually saying that she was surprised of the uptick. But they did say that they're gaining, seeing some pretty good momentum. The leasing prices are actually doing quite well.

But it is, companies are still taking their time because of the uncertain economic environment. And AFFO payout ratio, which is a payout ratio for the dividend or distribution payment, that was down 60 basis point to 82.6% year over year. So that's a good thing. The average in place rent was up 1.1% versus Q2. Overall rent increases were 3.8% on renewals versus the end price of the previous lease. That's important nuance because typically the leases will be longer term and they will increase the cost of the rent will increase every year. So obviously at the end of the lease, if they're doing a renewal to get a 3.8% increase is actually quite good because at the end of the lease was not the average lease, if you'd like. They had an occupancy rate of 86.8% and a leased area rate of

87.6%. Difference between the two is just a company can be leasing but not occupying it. So that's why there's a slight difference here. And that's really good comparing to the rest of the office space industry. So I pulled the report from CBRE. So every quarter they come out with report on office real estate and the state of it. And Alline had a 13.2% vacancy rate versus 16.3% for Class A office real estate in Canada. So that's your comparable because I think that's important to compare to similar office because there's Class A, B, and you have C as well. And it's even better if you compare to the whole office real estate space, which is closer

to 20%. I think it's 19 point something if I remember correctly. So they definitely had much better occupancy than their competitors. They also announced that there will be a special distribution in December because of tax impact on the proceeds of their data center portfolio. It will be approximately 47 cents per unit. And with the sale of the data center portfolio, they repaid all of their credit facility and also set aside 200 million to repay debt that's coming due in December. So overall, debt related metrics clearly improved because of that repayment and should continue improving as new projects come online and add to EBITDA in the

coming years. These are existing projects that will be coming online. So that's kind of sums up what your thoughts on that then. Yeah, I was actually trying to dig up here the occupancy per city, but pretty much they have, I think there's one area that they're struggling in. I can't remember it off the top of my head, but then outside of that, they pretty much have the best occupancy rates among office REITs in all of the major cities. Yeah. I think it's Kitchener. Yeah. There's one that they're quite a bit lower. Yeah. It's one of their smallest markets. Relatively small. I know this special distribution is in relation to just

in terms of how these REITs can't really book excess profits, they have to pay them out. Yeah, exactly. The one thing that I mean, would kind of suck is if you had this in a non tax sheltered account, because you'd be getting hit with that pretty big distribution. Yeah, it wouldn't be good. I mean, that's why I usually try to tax shelter all my REITs, because they don't really pay very efficient distributions at all. But in terms of payout ratios, they're really strong. Like this thing is yielding, like I think it's 11% right now and it's got... Yeah. I mean, unless people think that these coverage ratios are going to drop significantly. I mean,

this is... Typically, if you see AFFO payout ratio below 90% for a REIT, it's usually a pretty good sign because as mentioned, these companies pretty much have to pay out the bulk of their profits back to shareholders. I mean, that's how they're lined up just so they get specific tax advantages. But they're doing well. But the whole office space, I mean, REIT space space in general but office space in particular is getting absolutely crushed i think yeah there was something in relation to like allied is trading i can't even remember what it is at a 60 plus discount to its nav we keep we update navs every quarter i can't remember the exact numbers, but the discount is just, it's crazy. Yeah, exactly. And even if, let's say, I haven't looked at the NAV discount when I was doing the notes here, but let's say it's 60%. And let's say you make a case that their assets are

slightly overvalued. Well, even if they're 20, 30% overvalued, they're still trading pretty cheaply. And I know it's very hard to like value right now office real estate because there's not that many transactions for these large buildings. So there's not much of a market. But I think I agree with you. I mean, I started a position earlier this year. I think my timing might have been a bit early, but I thought it was kind of a quality name in a space that's pretty hated

right now. And I think it's just people putting all office real estate in that same bucket. And especially looking the US where you have cities like San Francisco, which are really getting hammered by, you know, you have these tech companies laying off people and they're not using the space anymore. They're not renewing. So I think the occupancy rate is extremely low in some of those cities. And I think people will see those headlines and they just see the fact that it's an office and they automatically assume that it's going to be in trouble. But once you dig in, I mean, there's a lot to like. And one of my other bullish kind of cases for them, probably years, you know, three,

four or five years down the line. Well, you know, there's not going to be a lot of money invested in building office building in the next few years. So at some point, demand will probably increase and there's going to be zero new projects coming online. So demand's going to, you know, the offer and demand will at some point kind of even be more in equilibrium, if you'd like to call it. Yeah. Yeah, I would agree. Like, I think, you know, often, something like this has to take an absolute

beating like this. And you'll look back, you know, 5-10 years down the line, and it'll just look like an opportunity, really. But right now, it's really tough. I know, I don down the line, and it'll just look like an opportunity really. But right now, it's really tough. I know I don't own Allied. I know Matt does, the other guy over at StockTrades. He bought Allied earlier in the year. Like me. Yeah. We thought it was a pretty good bargain there. And I think it's down like 25%, 30% since. It's pretty crazy. And like you said, like a 60% discount to NAV, even if you make the assumption that, you know, maybe that's a little bloated, is it 60% too much?

You know what I mean? Like, are they really going to be worth that much less? And yeah, I don't know. It's crazy times. And even when the way the debt is structured is actually pretty good too. So yeah, I mean, my consolation prize is I'm dripping a few shares every month. So at least I'm getting that cause basis a bit lower.

But no, it'll be an interesting name to keep an eye on. So now, I mean, you talked about it a bit earlier when you were talking about Google. Do you want to give us a quick overview about Microsoft before we finish with Canadian National Rail? Yeah, so I guess Microsoft will probably be a bit shorter because we did talk mostly about the cloud. So revenue of $56 billion was higher than expected. Earnings were higher by quite a bit too, $2.99 a share versus $2.65. So double digit growth in revenue and earnings. Again, it's kind of like every single one of the other major techs in the States. They really struggled in 2022 on a year-over-year basis just because of some pretty tough comparables. But now they're

starting to show some signs of pretty strong growth again. They issued next quarter's outlook, which now includes Activision because that closed on October 13th. So they expect either low double digit or high single digit growth in pretty much all of its core business segments. But in Azure, it's expected to be pretty much the fastest growing cloud platform out of all three. So they think it's going to grow at a 26 to 27% clip. And I think that's important when you look to Google's growth or Alphabet's growth versus Microsoft's cloud growth is what we talked about just in terms of how much more revenue Microsoft generates from cloud. So it just means as a company overall, Microsoft in terms of the

guidance is expected to grow quite a bit faster, even though, you know, all these tech companies, their cloud platforms are growing similarly, but it just makes up so much more of Microsoft's overall business. Yeah, no, definitely. So it'll be interesting to keep an eye on how the Activision Blizzard is accretive to revenue, profits, and the overall, because, I mean, I've talked about it with Braden before, but I like to, in before but you know I like to

when my younger days I like to play Diablo 2 which is one of the properties that they'll be getting and there's been you know I do watch some videos from gamers sometimes and the most recent release from Diablo 4 but also other titles they've had and I think a lot of the community is critical on how Blizzard was traditionally a company that would push out games that were quite polished. And over time, they were really pushing kind of the games to be done by the deadlines they were setting, whether they were ready or not. And that's definitely alienated some of their fan base. It'll be interesting if Microsoft kind of comes back a little bit to those roots of,

you know, waiting, making sure there's a good product and making sure they have a longer term vision where, you know, sure, let's push it back a quarter or two. That's fine as long as there's a good product. And we know that our customers will actually come back for more. Yeah, I mean, I think with it getting kind of merged in the fold of Microsoft, they probably are in a situation where they're able to do that much larger company. Activision, I never really looked too much into the gaming space overall, but I did own this because I bought it right when the acquisition happened and they had that. It was pretty big the buffet arbitrage

play yeah i think it was i can't remember probably 25 close to and it was crazy holding that thing because it would go up on a single news piece and then plummet the next news piece and i didn't i didn't sell it when it officially closed i sold it before it got i think i gave up maybe two or three dollars a share but i'm like i'm not i'm not going through it dipping to the low 70s anymore but yeah no good for you I mean it ended up closing once I you know they made the round with regulators and assure that they would allow I think what Sony to have access to the Call of Duty franchises and stuff like that so yeah I mean I wouldn't at some point I thought it would not close. But, you know, Microsoft found a way. Yeah, there was I mean, it was pretty notable acquisition.

I mean, they never thought it was going to close even from the start. But I don't know. It was interesting riding that one out for the it had to be. It was probably a year, maybe even longer. It was it was a long time. I held that thing. Oh, yeah, I think it was. Yeah.

Yeah. Wasn't it like almost a year and a half, something like that? Yeah. And it's like it ended up being if you had bought it for the arbitrage, like you ended I think it was. Yeah. Yeah. Wasn't it like almost a year and a half, something like that? Yeah. And it's like, it ended up being, if you had bought it for the arbitrage, like you ended up outperforming by quite a bit because over the same time period,

I think the S and P that was during the big drawdown in 2022. So it ended up kind of being a nice little market hedge there, but yeah, I mean, I think Microsoft is, is in probably one of the better positions out of the big techs i don't exactly know what valuations it is relative to the other big techs but i mean i mean to me it's the apple and them it's basically the ultimate like blue chip talk

stocks i think if people want to buy something they don't want to look at the valuation they just want something that they know is going to be there in five plus year from now. And probably at the very least, the same size, probably bigger. They pay a little dividend to, I don't know, to me, I think for a lot of investors, it's just like Apple and Microsoft are these two ultimate blue chip stocks because of how diverse their businesses are, the stickiness of their various businesses. I think, yeah, they kind of stand out from that perspective. Yeah, definitely. I mean, all of them have pretty strong presence. I mean, even something like Amazon and Google, just the overall reach they have, the moats they have,

like Amazon's business, Google's business, even Microsoft in terms of software and subscriptions and all that. It's definitely interesting. I don't think I don't think anybody's going to stop big tech. They're going to be around for a very long time. Yeah, definitely. Definitely. Now, I guess we'll move on to less technological technology that's been around for a couple of centuries. So Canadian National Rail, it was definitely a tough quarter for Canadian National Rail. I do own it. I added some shares this month as well because whenever there's economic slowdown, I think it's always a good time to buy these railways. Revenue decreased 12% to $4 billion. However, freight revenue was down 13% to $3.8 billion. I think it's important to look at freight because total

revenues will include gas surcharges. So I think those are just very variable. Operating ratio increased 480 basis point to 62%. This is not great. It's actually the opposite of an operating margin, but pretty commonly used for railroads. I mean, essentially, it's not like it's kind of leveling off, but clearly he'd want that to be trending in the other direction. Now, without going into a lot of detail, pretty much all their operating metrics wore down for the quarter. And I do encourage people to look at them. There's a lot of interesting metrics to look at for railroads. Earnings per share was down 21% to 525. Free cash flow was down 57% to 581 million.

They said there is uncertainty related to consumer related sectors. But aside from that, most areas are starting to show signs of strength. Most of the areas were negative in terms of revenue year over year, with the exception of automotive and grains and fertilizers so not surprising they said speaking of automotive they did say that the uaw strikes in the u.s only had a limited impact for q3 that overall auto shipments benefited from strong pent-up demand and volumes hit according to them a bottom in July. And volumes were impacted by some events that were clearly out of their control. So the BC port strikes, which impacted their US volume because it's common for US customers to get shipment by sea to Canada. So, you know, from Asia to Canada, then shipped in the US via rail. So because of the strikes that were happening, those customers had to pivot during that time,

and it's taking some time for them to return back to shipping to Canada and then using Canadian National Rail's railway to ship it to the U.S. However, they did say pricing remains above inflation, which is something that's good to see. Forest product demand remains below COVID levels due to a challenging macro environment. So I thought that was something interesting that they talked about. And plastic and chemicals straightened versus Q2, which they say is a leading indicator of

industrial production. So that'll be interesting to keep an eye on and i always get fascinated by canadian national rail cp as well but just to see in terms of you know what's going to happen with the economy what's happening right now overall they are predicting for 2023 to finish with a slightly negative to flat eps and for things to pick back up in 2024. Above the pace of the economy. And they said they expect EPS to grow at a clip of 10-15% annually from 2024 to 2026. So I think this is obviously a good bellwether stock. More for the North American economy as a whole.

Because obviously there is so much link between US and Canada here. But what are your overall thoughts on Canadian national world? Same as me kind of pretty tough quarter. Yeah, this is one I own too. I mean, it was it was pretty tough, but I guess kind of expected it was much the same as when we talked about TFI last week. Like, yeah, they're going to see a slowdown, obviously, with a slowdown in the overall economy. And I noted here that pretty much CP reported just as weak of earnings. I think similar operating ratios, I think they were 64%, so even a little bit higher than CN. And same thing, double-digit growth for next year and moving on. They just kind of stay that 2023 and maybe even 2024 is going to be a bit

rough. I remember CN Rail, they kept issuing guidance and it would slowly get lower quarter over quarter to the point where it was high single digit at first, and then they would go to mid single digit and then low single digit. And now they're pretty much saying they're not going to grow at all. And I think this is even with, I believe it's a 5% buyback. So it's probably earnings are going to continue to shrink even more than flat, but it'll obviously be offset with buybacks. But like you said, I think it's pretty much, these are all going to be cyclical. I mean, it's pretty good opportunity to add to rails when they're kind of in the dumps, per se. Yeah, definitely. And I mean, I don't know the exact percentage for buybacks, but they are definitely aggressively buying back shares. And as people can see, like this is just

on a quarter to quarter basis since December of 2020. Shares have decreased at a pace of 3.2% annually, compounded annually. So it went from 700 and I'm assuming that's going to be, yeah, 710 million to about 650 million. So they're aggressively returning capital to shareholders via buybacks, but also dividends. So yeah, just like you said, I think that's important to keep in mind because whenever you're looking at a per share basis, clearly it's going to look a bit better if you're decreasing the amount of shares. Yeah. And I would think they would be more aggressive, especially as their stock is kind of losing ground now. But yeah, I think it's just a matter of waiting it out. I mean, especially if, you know, the Canadian economy is not growing that much, the US economy is still growing quite well. But these stocks are just going to be very cyclical

relative to, you know, the growth of the overall economy, which right now, I mean, clearly, we can see TFI, CPC and rail is is slowing down quite a bit. Yeah, no, definitely agree. And that's why I love doing like earnings, especially companies that are good parameters for how the economy is doing. Because, you know, you can listen to TIFF all you want from the Bank of Canada. But if you want to really know what's happening, look at a company like Canadian National Oil, CP, TFI, can even look at big retailers, if they're starting to see like customers shift their spending from, you know, nice to have the must haves type of deal in terms of goods. So non-essential to essentials. The one I'm definitely looking forward to look at is Canadian Tire and what they'll have to say, not specifically for what they're selling, but what they're seeing in terms of their financial, their credit card business data and what people are spending on, financial, their credit card business data, and what people are spending on, because that will be a good sign on top of what we've been seeing, you know, where are things going, especially for Canada, and probably in the next couple of quarters, I would assume. Yeah, companies,

all these railroads, trucking companies, even the banks, to an extent, are going to be bellwethers. I mean, you're going to get a lot of viewpoints on the banks, which report a little later. I think they're usually like the last companies to report typically on the quarter. But yeah, I mean, that's kind of what I was saying, the catch-22 with Amazon, you kind of expect to see a slowdown. Although Amazon, a lot of people are probably buying essentials from Amazon. So maybe it wouldn't be as drastic as something like Costco, where they said they had a notable slowdown in discretionary items. But I mean, Amazon's expected to grow on the top end at 12% on a quarter over quarter basis. So yeah, it's pretty

interesting to see that, especially when you would expect to see a bit of a slowdown in that regard. No, it'll be interesting to keep an eye on. So I think that kind of does it for today was a jam packed. I'm sure there's some more names we could have talked about, whether it was TMX, whether I think Pinterest must have reported today

because their stock was up like 15%. I saw. So there's a lot of names. And, you know, we try to do our best to cover as many as we can with some obviously more Canadian names. But yeah, hopefully, you know, I think you'll be back with me next week, Dan. Awesome.

We'll cover the names we weren't able to do. And I'm sure there's going to be some more coming up this week. So before we let you go, if you want to make sure people that haven't done so, give us a review on Apple Podcasts. Spotify gives us a five star, really helps people, you know, finding us out. Or if you know people that are looking to start to invest and Dan has a fantastic site, which is stocktrades.ca that, you know, has some stock deep dive, some recommendations as well. So definitely we're looking at for people, you know, that may not have a huge amount of time, but still want to pick some individual companies. Anything you'd like to have before we let everyone go?

Lots of ETF stuff as well, I should say. We have a ton of stuff on ETFs. Yeah, a lot of stocks, a lot of ETFs, a lot of how-to guides. But no, it's been fun. Thanks for having me on again. Thanks for listening, everybody. Thanks for coming on. Yeah, thanks for listening, everyone. And we'll see you soon. See ya. 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.