The Canadian Investor - Airline Metrics and Apple Closing in on 3 Trillion

Episode Date: May 11, 2023

In this episode, we break down the recent earnings of shopify and why the stock was up big. We discuss the Federal reserve’s most recent move and discuss the recent raised guidance by Air Canada and some useful passenger airlines metrics.We also go over the recent earnings of Apple and Aritzia.  Symbols of stocks discussed: SHOP.TO, AC.TO, AAPL, ATZ.TO,  Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Bélanger. The Canadian Investor Podcast. Today is May 9th, 2023. My name is Brayden Dennis, as always joined by the presidential Simon Bélanger. Good sir. Like your back is going to hurt after this episode because I just got back from Omaha and I'm going to carry the next episode, but you are carrying me on your back for this

entire episode. So like, I'm just, I'm just long for the ride. I'm like a jet pack for this episode. Figuratively. So my back will be be fine it's actually trending quite well so yeah it's getting much better so i'll be good uh you know for when i go in toronto for the the meetup which we're finalizing so we'll have some uh more information soon so stay tuned for those who are interested so that is what's the date july 7th july 7th mark it in your calendars tickets will go extremely fast so july 7th that evening that's a friday evening put it in your calendars now and we'll have final details for you soon um so the episode that's going to come out next Monday, I'm going to do a recap of the Berkshire Hathaway weekend. Everything I learned, the people I met, what I did, who I hung out with. But I guess I can do like maybe just a quick synopsis now.

Yeah, go for it. Does that make sense? I don't have anything prepared. I'm going to do our best Warren Buffett or Charlie Munger impression for the podcast as a preview. Warren Buffett or Charlie Munger impression for the podcast as a preview. Dude, they crushed it, okay? Because I'm going to have, I think I have written like nine takeaways from everything they said and my favorite quotes of the weekend that we're going to record and that's going to come out Monday. But my first very quick thought was,

you know, the two of them, they sit down, they, they wheel out Charlie in the wheelchair and Buffett waddles over to his chair and sits down and he was pumped. Like he, you know, he, he's got the whole crowd of his standing ovation. And he's like, I'm so glad you guys are here. Me and Charlie love it. Like, this is awesome. And I was like, Warren got a good sleep. Because last year, he was not nearly as sharp. And of course, I mean, he's in his 90s. You know, day to day, he can be off or on.

Last year, it felt like for the first year he was a little off uh it took a while for him to formulate some opinions and thoughts and answer questions but oh man on saturday he got a good rest because he was on and uh i was blown away honestly he he crushed it yeah i mean i watch about an hour and a half, I would say, of the Q&A. Because I find that's the best thing is just a Q&A. Because, you know, them going through the results is just like, okay, like, I can read financial statements too. Like, I mean, they do a good job. But I think just the questions and some of them were pretty, you know, hard hitting.

I know they talked about some of the issues they had with the railways they own and things like that. So I do like that they don't shy away from these harder questions. Was it the first year that they didn't have Wells Fargo? So they didn't have to answer any questions on that. Yeah, the only bank they've held into this into this uh 13f is yeah okay yeah and there was lots of questions on banks of course um with you know the the big bank some some fairly large u.s banks failing over the past months. And they certainly had many questions fielded on that. And I have tons of just gems of quotes from the two of them that I'm going to talk about next episode. So,

so stay tuned for that. But my God, I mean, it's, it's now 1130 AM and they've been up there answering questions since 9 AM. Cause they do this, like they did this movie and then they come on and it's like 1130. I've now gone out into the concourse to many times. So I've met two friends and two investors that I know for a quick break and a coffee out on the concourse. I've gone for two coffee breaks. I've went to the bathroom like three times. You know, I've been like out of my seat and like moving around and, you know, this kind of thing. Use the restroom.

And these guys haven't moved an inch. And they are just folks. I'm like, dude, don't like more geriatric folks like need to use the bathroom more frequently than me in my late 20s. It's called adult diapers, Braden. That's what it is. I'm not saying they are. I'm just joking around if anyone's getting.

I don't want anyone to get offended here, but yeah. No, like, honestly, I mean, just wildly impressive. And the amount of focus. I mean, just wildly impressive. And the amount of focus. And at the end of the day, you can tell, like, they just love doing this, right? Like, they love this day. They love this event.

They love the whole&A resumes. And he goes out in the main exhibit halls where they have all the Berkshire Hathaway brands. He goes, the people are telling me we're having a record year of sales. So like, make sure you go back out there and buy more shit. Like, it was just incredible. Like you, you can't shake that off him. He's just loves making money and that that'll never change. No, no, exactly. So see, you know, join, listen to the podcast that's comes out coming out next Monday.

And we'll, we'll go over that. And like I said, I did listen to a decent chunk of it. So I'll be able to aspirate in some questions as well during it, but he'll be the one leading it and giving us his experience. I told you, I'm like, we're going to have to ham and egg the next two episodes. And you're like, ham and what? It's not a French expression. Yeah. I kind of knew what you meant by how you said it but i never heard that before all right let's get into uh the part where you carry me this episode uh big pop on uh this stock here what do we got first yeah yeah so i'll do a kind of hybrid

between earnings news and also i inserted some concept in there as well, but it'll be mostly earnings and news. So because there's a lot of stuff going on. So Shopify, they came out with their earnings. The market clearly liked it because it was up 20% at some point. Some big news came out first. They're selling their logistic business or assets to Flexport. Flexport is an American company that focuses on supply chain management and logistics. The deal gives Shopify 13% interest in Flexport on top of its existing equity interest. And Flexport will become the official logistics partner for Shopify. On top of that, which I think the market liked, unfortunately, for the people impacted, but they will be reducing their workforce by 20%.

Clearly, the market right now is rewarding businesses that are looking at efficiency. But, you know, it sucks for those impacted, but probably needed to be done. Now, for the earnings, revenues increased 25% to $1.5 billion. GMV increased 15% to $50 billion. Monthly recurring revenue, MRR, increased 10% to $116 million. And they said that gains were driven by more merchants converting trials to standard subscriptions. One of the lackluster lines was that gross margins dropped 450 basis point to 47.5%. And those not sure what basis points are, it's just basically like four, you reduce by 4.5%. That number. Earnings per share was 0.05 cents per share versus a loss of $1.17 last year. And Freecastle was $86 million compared to negative $41 million last year during the same quarter. In terms of Outlook, they said

that their revenues would grow at a similar rate in Q2 versus Q1 that they just saw. Gross margins to be similar to the first quarter and operating expenses to decrease in the mid single digit as a percentage. So that's some really, you know, there's overall quite good and the stock has been a bit of on a tear since they came out with those earnings. So I know, you know, we both own shares full disclosure. What are your thoughts on those earnings? At first I was like was like okay it looks like they're taking the margin profile seriously uh for what feels like the first time but what did the stock jump like 28 percent that morning like yeah something like that it was crazy and the next

day was still up pretty big too it is is up 36% since May 3rd. So that's last Wednesday. When you have highly valued growth stocks with huge expectations, things have to go right for a long time where you face major drawdowns like the stock has. right for a long time where you face major drawdowns like the stock has. And then to the upside as well, you have gigantic overreactions as well. Now, I think the price action on this stock is just a giant collection of overreactions on both the upside and the downside. This feels like a bit of a rich swing up from here just based on that. I think they still have a lot to prove on the margin profile. If you just plot out the margins, it's pretty grim.

And clearly, my fellow Canadians in around the world that are affected by this layoff, I'm really sorry to hear that. And we definitely don't want to encourage that. But this business needs to be successful long term, be a little bit more prudent with capital allocation and expense management on the operation side. So a lot of this kind of makes sense. The diverser to flex port of the logistics business, I think, kind of makes sense. They've had some pressure on this overall. And then you just kind of look and you're like, logistics business is really, really hard. And, you know, it's not just them that have been dragged for spending a lot of money in this category.

I mean, look no further than the trillion dollar Amazon as well. Yeah. And I think it shows that a company like Amazon or Walmart, it shows how, I would say, how strong of a mode they have to some extent with that logistic business. Clearly, you can have a business and have a third party like a FedEx, like TFI or, you know, UPS do handle most of your logistics, but it's not as seamless as having it in-house like Amazon does, or I think Walmart to some extent. And, you know, I've been saying that I own Amazon for a while, but I think that will become a stronger and stronger mode yes it might be a lowered margin business but i think as time goes by it'll be harder and harder for

competitors to compete with just that logistic infrastructure that they've taken what like at this point like decades to build right yeah amazon has i think on their latest 10K, and we track it year by year on Stratasphere, 650 million square feet if you include leased and owned warehousing facilities. That's why you look at the CapEx line item and it's just like nosebleed, mind-numbingly high. But at some point, I think they'll be able to turn to levies and really leverage that. It's probably going to take some time. So if you've bought Amazon the last couple of years, you're probably down on it, but I still think it's a good company longer term. 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. 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. Now moving on to more macro stuff, I'm kind of mixing it up here. There's going to be some more earnings and definitely some canadian content so fed the fed increased rates by 25 basis points so they hide their benchmark to five percent to 5.25 so it's always a range when it comes to the fed it was widely expected by the markets and the markets were really watching what Mr. Powell, Jerome was going to say afterwards during the press conference. It's actually quite fascinating

if you're fascinated by psychology in general, just to see, just looking at how the S&P 500 reacts during the press conference. So first you look at how it reacts with the release and then during the press conference um it's it's crazy it's like a roller coaster um you can literally see if he says something that people will pick up on whether there's a big impact on the s&p 500 so i encourage anyone who has you know time the next time it does come out to just listen and look in concert with what's happening. It's always pretty interesting, I find. Now, he started by saying that the U.S. banking system was strong and resilient. I wonder why he said that, but obviously it's on the mind of a lot of people. And he did get a lot of questions from reporters

regarding the U. the US banking system. I thought that was pretty funny because despite First Republic failing just a few days before and some other regional banks struggling, I mean what is he going to say obviously but it's kind of funny saying that after all these events just happened. And he also mentioned that the economy is showing signs of slowing down. It's most likely going to slow down further because of tighter credit conditions created by the rate hikes, but also the stress happening in the banking sector. So they are seeing lenders kind of tighten their criteria. So what they're saying is because of that, they're going to take a wait and see

approach going forward, just rely on the data. They also, he highlighted during the press conference that they actually changed some of the wording in their release to say that now they were no longer anticipating future rate hikes to they will look at the data and decide whether it warrants future rate hikes or not. So that sounds a lot like what the Bank of Canada has been doing now for a couple of meetings. So nothing really new, I would say. It's kind of what the market expected. It'll be really interesting what happens, especially in the banking sector, and how that may affect some of the rate decisions going forward from the Fed. With the rapid change in rates that we've seen and the mismatch on balance sheets and duration,

I had a lot of interesting discussions with people who are much smarter than me times 10 on this topic because they're bankers and their job is to manage risk. And one thing that Charlie said on Saturday that actually really resonated with me is, well, as an engineer, I'm very biased towards this, but he said, bankers should be more like engineers managing risk, not trying to get rich. And so I thought that was really profound. And just, I mean, I can obviously relate as being an engineer, like that's kind of your job is like managing critical infrastructure. And then Buffett also said, he said, banking can and should have new inventions,

but it has to have old values around managing risk. And it's so true. And I know this is tangentially related to your topic on the Fed hike, but that's where my brain went right away. management has to be accountable as well. And I've said it before where, you know, they're going to pass regulation to try and mitigate this kind of issue in the future, but they're not going to be forward looking and they're not going to look at other potential risk management practices that might not be good enough. And then, you know, hopefully bank managers actually do their job correctly and do manage those risks that may not be addressed in new regulation. Now, moving on, speaking of regional banks, so TD and First Horizon mutually agreed to terminate their merger agreement.

First Horizon is a regional bank, so it is kind of telling that they are terminating this. TD has to pay a termination fee of $200 million to First Horizon. Now, TD's not been getting the best press lately. No. And actually, Dan from the Canadian real estate investor we were texting just before we started recording, sent me an article about why the regulators were probably not going to approve this deal. Because originally, I thought, you know what?

It's weird. Why would regulators not want to approve this deal when clearly regional banks as a whole have been struggling, to say the least? I think that's probably- And are for sale. And are for sale. to say the least. I think that's probably- And are for sale. And are for sale. And the US government clearly, in my view, should be open to a large, well-capitalized bank looking to buy a regional bank and making it more stable for the system

in general. Well, it turns out that I thought it, I thought it was total BS, a regulatory thing, because, you know, they offered 13.4 billion to buy First Horizon in February of 2022. And now it has a market cap of around six billion. So clearly paying a 200 million dollar fee is probably not a bad idea. said that one of the reasons, well, according to Wall Street Journal article who interviewed people familiar with the situation is that U.S. regulators were reluctant to give TD a clean bill of health on its anti-money laundering policies related to some suspicious customer transaction. Yeah, so this is definitely not a good look. And now it makes a bit more sense in terms of not thinking they would get the regulatory approval. Granted,

probably TD wasn't, you know, was okay with not getting the deal through. But if this is true, this is not good for TD because it's probably going to put them in the crosshair of regulators, whether it's in Canada, the U.S. or I know they have some operations in Europe, too, going forward. And that usually can impact the bottom line. So it's something just to keep an eye on. This just came out. I think it was yesterday, the article for the wall street journal so to be continued but uh that would make a lot of sense in terms of the regulatory approval

not being there yeah i i was just learning about it yeah an hour ago too like in the same time you did in that text group chat that we have um yeah, the $200 million breakup fee, it stings, but I'm sure they're like, 13.4 billion dollars for a $6 billion asset is probably not the best use of capital. So I'm sure they're happy, not happy, that's probably not the right choice of words, but happy to pay $200 million in a breakup fee.

But what a what a difference you know a year can make because that offer was february of 2022 no yeah exactly a year and i mean a year and what 500 basis points of interest rate hikes later like a lot of things change like i mean it's crazy how quickly things change in the span of a year and change when you kind of take a moment and look back of you know people may think like how the hell would why would td offer that much i mean it was a completely different environment silicon valley bank was what three hundred dollars a share or something like that at the time so yeah things have changed quickly over a year

yeah you know you asked someone you told you told someone that in february 2022 you're gonna you're gonna short silicon valley bank to zero and they would say uh you sir are 100 on crack look at the deposit growth. Yeah, exactly. That's all I have to add. No, that's it. Now we'll move on to some news from Air Canada. So they updated their guidance.

And I'm also going to go over some useful airline specific metrics for people who want to invest in airline stocks. Not something I do. I know you don't because I know you have in the past. But I mean, airlines are notoriously hard to predict. A lot has to do with demand, but also their operating costs are variable for the most part. So it's very, you know, you do have some good airlines, but it's a business that will typically be cyclical. So get back at Air Canada.

Their stock increased more than 10% last Friday when it updated its guidance. It said it was raising its guidance because of stronger than anticipated demand and lower than expected fuel costs. ASM outlook, which I will explain what ASM is, but raise its adjusted EBITDA guidance by 36% for the year compared to their previous guidance issued on February 17th. So just a couple months later, let's say two months and a half and a pretty big difference on the guidance. They also said that they are now comparing their adjusted CASM, which I will also explain what it is, to 2022 instead of 2019. So instead of looking to 2019 results, now they're going back to 2022. They think it's a better measure of the current environment. And I probably agree at this point.

I think in 2022, 2021, it was much easier to go back to 2019 because those were more normal times. But I think last year things got back to a bit more normal and now it makes a bit more sense to compare that. So now talking about some of the concepts or some of the metrics that are useful for airlines, I'll go over four of them. Two that I mentioned already. So ASM capacity. So ASM stands for available seat mile, which is a widely used metric in the airline industry.

So you calculate this by multiplying the number of miles by the number of available seat for sale. It's simply a way to measure the amount of seats that are available for sale or generate revenue. That's because not all seats generate revenues for airlines. For example, you could have a crew that's on a flight and not working because they need to commute to get to another flight. So those would be seats that are not part of the ASM that are not generating revenue. Any comment on that, Brayden? No, just that you can build some really beautiful comps with this metric like for like across airline industries. Like if you go on Stratosphere and use the company KPIs tool, you can use available seat miles and compare Air Canada versus Delta versus American airlines versus you know

some of the other public names yeah american era and stuff like that and it's it's super good to it's super nice to see this metric right which is just like how what is their capacity to move move people in terms of like the miles that they're flying and seats that are on the plane. Yeah, exactly. And move like paying passenger. Exactly. So now CASM is very similar to ASM that I've just went over. So it stands for cost per available seat mile, which is another widely used metric. CASM is operating cost divided by ASM. So so in other words it's a way to measure how efficient an airline is so the lower the number the better here now our asm is stands for revenue per available seat mile so you calculated by dividing the operating income by asm so in other words the

higher the metric, the better it is. So it's almost like the opposite, I would say, of CASM. It's like looking at real estate. And so you have vacancy rates versus occupancy rates. So they're kind of, they're the same thing. They're just the opposite. So as long as you understand, you can use those numbers that way. Now, the last one is RPM. So RPM stands for revenue per passenger mile. So this measures the number of miles traveled by paying customers. So you simply multiply the number of paying passenger by the distance. So for example, if you have 100 passengers traveling 250 miles, then it has generated 25,000 RPM. So when you look at the, oftentimes it will be in the supplementary data, this information, but you'll see all of these metrics, like Brayden said,

if you go on Stratosphere or you look at the financial statements, you will see these metrics over and over for airlines. So it doesn't have to be overwhelming. Just, you know, I went over them. These are just good metrics. And like Brayden said, it's really important just to compare them with other similar airlines. And I will emphasize similar airlines, because if you have very regional carriers, I mean, don't compare regional carrier with Air Canada will make no sense. Like it will look very different yeah good point these are really good kind of key performance indicators that that the industry provides so you can actually do some decent like for like comps on the names and and

they're they're telling metrics too as well like especially when you look at like casm it's like how that's the cost per available seat mile so like how efficient are they being um for this specific case is there one that documents kind of almost like the equivalent of occupancy rates like seats seats filled um because you know if you look at like a if you're looking at a reit like the thing that you care about so much is occupancy rates like how much of their portfolio you know 93 percent occupied so the seven percent of the of the suites are empty i would love to know a metric like that for for airlines if they disclose it i'm not sure i i would think there probably is but i only took

these four because i know they're widely used but there's definitely more so i think there's probably around 10 of them that are pretty common for airlines i wouldn't be surprised if there is there is one yeah yeah because they have it like per available seat mile but i want to know like i guess there's passenger mile. Yeah. Yeah. I mean, yeah. Revenue per passenger mile. That helps.

It's still not like an occupancy, though, you know. No, it's not. You can kind of derive a couple things to understand the efficiency, but. No, no. I'm sure, like, there probably is, to be honest. Like, there's a lot of airline. And I think it's important to specify passenger airline. Don't take cargo jet and apply these metrics. It will not work.

These are really for paying passenger, not cargo airline. Yeah, good point. 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. 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. Let's move on to the giant. The giant the almost three trillion dollar company if you can believe it i think it's like 2.8 it's freaking crazy um so apple for those that weren't aware and so they released q2 earnings um if you add the cash pile it's very close to three trillion it's crazy i mean the market liked the earnings, although I'm more kind of, you know, that was OK, but the stock was still up 5% after the release. So revenues were down 3% to $95 billion. The bright spots here is services revenues hit a record high, increased 5% to $21 billion.

percent to 21 billion iphone sales were up 1.5 percent to 51 billion and that's one of the big reasons right here i think is because people were predicting that iphone sales would either be flat or potentially go down so just the fact that they're up and it's by far their biggest segment it's encouraging now the not so great as mac and iPad sales were down for the quarter, while wearables and home accessories were essentially flat, just very slightly down. Operating income was down a bit more than 5%, meaning that margins did definitely take a hit. Net income was down 3% to $24 billion, while EPS was flat at $1.52. billion while eps was flat at a dollar 52 that's because apple is notorious at buying doing some share buybacks which i'm sure uh warren buffett probably alluded to during the the meeting he's a big fan of that um he had uh he actually had a nice little i don't know i guess nice i don't know if that's a word but he had a kind of entire segment on their love affair with apple and

reasons xyz why why it's such a great business um and uh i'll touch on that after maybe yeah i know i mean i agree it's a great business and um look they're buying back shares at a crazy rate. And I saw a tweet. I'm just going based on memory here. I think Apple has done something like $700 or $800 billion, something like that, in share buybacks, which is more than the market cap of, I think, like 590 S&P 500 companies, something ridiculous like that. I'm sure I'm off a little bit. I'm just going on memory, but that's how staggering the amount of buybacks they've done. It is staggering.

And like on that same note, the like other than the other than NVIDIA, maybe like if you haven't owned Apple and Microsoft year to date, you've just underperformed the index, like just given the weight of them and the return of them at their size, with a few rare circumstances, someone who has 15 stocks or more with maybe the exception of Nvidia in there, you've probably underperformed the market. Yeah, exactly. I mean, it's definitely one of those stock.

And they also launched, I don't know if you knew that, a savings account. I think it's hosted by Goldman Sachs. So now they're definitely getting into the- FinTech. Kind of FinTech, exactly. I think they're probably bypassing having a banking license by kind of having that you know having that partnership with Goldman Sachs but it's pretty easy to make partnerships when you're Apple when you're that big exactly so they generated 56 billion in free cash flow for the first six months of the year that's actually down

20 versus last year they authorized an additional 90 billion in share repurchases. Now, just a little asterisk here. Apple, I think they'll probably use it. But when companies authorize something, it doesn't mean that they have to. And I think that's really important for people to, those are maybe new to investing, just make sure that it's not a promise of doing it. It's just an authorization that they can do it. I think that's really important. They raised the dividend by a whopping 4% to $0.24 a share. And at first, Glenn, I think it was pretty good overall. I mean, not great, but the market clearly liked it.

I think stock buyback authorization had something to do with that. The results were better than expected, like I mentioned for iPhones. And I just think Apple is like the ultimate blue chip safe stock for most people. I think that's just what it is. I think a lot of people, it's like, you know what? Just put money in Apple. Like, you know, it's going to be here in 5, 10, 15 years. And I don't know.

What are your thoughts on that? I think it now has become the ultimate kind of safe. In air quote, nothing's safe. But yeah. I think the ultimate flight to safety is Microsoft personally. But again, we're splitting hairs here. They're the two biggest companies on the planet. And that's just the way I see it.

But you're right. I mean, the entrenchedness that this business has was so undervalued not so long ago. long ago because if you looked, if you just looked backwards at the previous 10 years, you found a pit of dead bodies in the hardware space. Like that's why in what, like 2014, 2013, you could buy Apple for like 12 times earnings,

12 times gap earnings. And a lot of people had insight to that thinking, Oh man, like the iPhone's different of people had insight to that thinking, oh man, like the iPhone's different. But I mean, it's hard to say that when you look back and just find the likes of RIM hiding in the tar pit. Hardware was a tough place to be and so i think if you look now the question that was thrown around this weekend a bunch was for a two car you guys have two cars right one or just one just one car okay we're probably gonna buy a second with the baby going to daycare but for now uh two okay so you guys are just one car perfect okay so this is a perfect question

for you this is a perfect question for you the question is you both of you and your wife you guys get a second car or have to use a non-iphone phone you like you have to be out of the apple ecosystem so the question for you is do you want a second car or be able to keep using your iphones i'd probably go with the second car for the convenience and i would learn i mean i learned having a macbook pro from pc so if i need to you know get out of the ecosystem and use an android um i'd probably suck it up mostly for for my little lady so yeah i do it for her so fair enough i i'm not saying one answer is the right but it's not an easy easy one yeah that's the that's the point is that like no other consumer product, that question is hard, right? Like no other consumer product, that question is difficult to answer.

It's, oh, of course, second car. And so that's why it's so powerful. It's so sticky. And that got brought up again a bunch last weekend. And so I think that that's why it was so powerful and so sticky. And that got brought up again a bunch last weekend. And so I think that that's why it was just so undervalued is the staying power was grossly misstated and including by me. Well, there was also, wasn't it like 2017, if I remember correctly, the stock took a dip when they said they would stop saying how many units of iPhones they sold and just say the revenue. I think that was around that time, if I remember correctly, where, yeah, people were kind of down on the stock. They were saying that, you know, that Apple was doing it because the iPhone

sales were declining and it was just a way for them to kind of hide it. And then now no one bats an eye. They just switched to iphone revenue and the installed user base instead of like number of devices sold um but i mean they're still breaking out the revenue and it goes up and to the right consistently actually no not that consistently it's hardware but you know the december quarter is monster as you can imagine i mean honestly even if it stays relatively flatter like increases low single digit for years to come as long as the services kind of keep increasing the margins are fantastic there it doesn't really matter as long as they just keep getting more people in the ecosystem

that's what really counts for them that's right like i'm gonna share this this you can see on my screen here this is the iphone user installed base and so i guess to them they thought this is a better story than the number of iphones sold in that time period, because these are all the people in the ecosystem who are spending money on the app store consumed by our services and living inside of Apple. And paying that Apple tax. I think it describes a better story, obviously more bullish for the company but pretty fair to be honest like the way i see it no exactly uh now so we'll go on to the last names i wanted to finish with a canadian name one stock that uh or yeah a company that we

talked quite a bit and uh it's aritzia they released their Q4 in full year earnings and it was a rough one for Aritzia. It was down 20% after the earnings came out. I'll break down why. There's a couple of reasons here. First of all, the good net revenues were up 43.5% to $638 million for the quarter. For the year, 138 million for the quarter for the year it was up 47 to 2.2 billion I mean that's essentially for context here that's about a quarter of what Lululemon does and I know like I compare Lululemon a lot but it is a fashion play and Ritzia is also expanding to the US I know there's differences I know it's more focused well it's focused on women, but I think it's a good comparator to what, you know, hopefully Aritzia will achieve, you know, looking at Lululemon. US revenue was up 55.7% to 337 million. And now their US revenue is actually a couple percent higher than Canada.

So it's shifted. It used to be the opposite where Canada was the majority. And with less stores. Yeah, exactly. So that's definitely interesting. The not so good is coming up. So gross profit margins were down 240 basis point to 38%. Lululemon also saw their gross profit margin, I think, down in the same,

around the same amount, but their gross margins were way higher to begin with. So there's a big difference there. Operating margins were down 270 basis point to 13%. Net income decreased 9.1% to 37.3 million. And this is for the quarter just because I feel like it's a bit more appropriate where we've talked about them in previous quarters before. Earnings per share was up 10% for the quarter. Free cash flow negative of $48 million versus free cash flow positive of $273 million for last year. And this is for the full year. That's usually how they provide free cash flow. I could have reverse engineered it, but I figured I'd provide the full year number here. They opened eight new boutiques during the quarter and relocated five. Inventory levels are quite

high, and that's something I mentioned for Lululemon when we went over their last quarter, and that's something people should keep a close eye on for either businesses. I own Lululemon, but whether you own Aritzia or Lulu, I think that's something you have to keep an eye on. So to give people context here, I went back to all their quarters last year. So Q1, they had 298 million in inventory. Q2, 455 million.

Q3, 508 million. and Q4, 467 million, which is down 8% from that previous quarter. Their overall inventory turnover, which is a metric that you can use, is just the average inventory level. And you just divide that by the cost of goods sold. So that's just shy of three which is not bad it's actually a bit better than lululemon on that metric but it's something to keep an eye on because it's a big risk for a retailer to just over purchase and then they're stuck discounting things and that's when the margins take a hit And the other reason why the stock was down was because the guidance was definitely light for a stock that's kind of seen as a growth stock. They are guiding for an increase of between 10 and 14% in revenues for the year.

And if you compare that to Lululemon, which is much bigger, they are guiding for 15%. So, you know, the growth is definitely slowing down. I think that's why it took a big hit. And they also said that gross margins will decrease another 200 basis points this year, but they should improve longer term. Oh, and they will be opening eight new boutiques and relocating four slash doing expansion. So I think, you know, it wasn't a great quarter. There's obviously the fashion risk here. One of the other risks with Aritzia is it's not the cheapest clothing either. So, you know, the more we're seeing, you know, this banking crisis,

credit and Titan, potentially the job market Titan as well, though the recent data isn't showing that. But, you know, they may see some headwinds going forward. So these are all things you have to think about. And clearly gross margins, that's definitely something to keep an eye on. But the good news is it is trading relatively cheaply for company growing sales, 10 to 14 percent at ap of 21 um can't tell the price of free cash flow just because they were free cash flow negative yeah if there was an opportunity to buy this stock and you believe in the story let me ring the bell for you and and i won't be joining you on that path because I don't

invest in clothing companies. But if I was going to, it would be after this reaction to the earnings results because the top line is still exceptional. And the direct to consumer numbers are bonkers did you highlight that number it was it was no i didn't but they're they're doing well it was up like to 40 percent of of net revenues or something like i was good in line with the lulu greatness right yeah like i look at the results and think okay maybe there's a slight growth hangover and the guidance Yeah. opportunity with this growth story after this earnings result feels like the opportunity. Because I do think the results were solid with a light guide. If you have a solid to, I would even say good quarter, I think the results were good with a light guide and the market sells off the stock 25%. It's like, let that happen. This is your

chance. Yeah. I mean, the biggest thing I think is just the uncertainty going forward. I think there's a lot, they're guiding better longer term, but a lot of things could happen that can put a wrench in what they're saying will be improving longer term. So I think that's definitely one of the risks, personally. And the reason why I prefer Lululemon, and that's because it's a more established brand. Like, there's no denying that. I know Aritzia has been there for a long period of time, granted, but it was definitely a smaller business that has been growing but we've seen unfortunately not you know tons of fashion companies that get pretty mainstream that

you know less than a decade down the line they're just fighting to survive so that's why that's where i think lululemon has kind of passed that it It's kind of in a tier of almost in the Nike type of tier where I think it's a very well established and I don't think it's going anywhere anytime soon. Whereas I think Aritzia just still has, in my view, probably has to prove that over the next five years. I think the next five years. The array of outcomes is way wider. And obviously, if they prove it and you invest in it now you're gonna be

crushing your investment you're gonna be you know you're gonna be hey you know you were wrong and you know i'm not saying i'm you know one way or the other i'm just saying there's really a like you just said a wide range of outcomes with aritzia a lot more than other fashion plays that are more established you have to believe in this story of course like like being the shareholder of any company what i'm saying is this is not investment advice but when i do see after earnings i try to ring some bell of opportunity to to people who do believe this story. And this is me doing that right now, because the upside is ridiculous. It's very high. Yeah. And I mean, if you're going to be, I'm not saying this is a value play, but, you know, when you invest in companies where there's a decent amount of uncertainty, if you do it correctly and your assessment is correct and the company ends up

turning things around or what your projection ends up coming true to the upside, I mean, that's when you make some outsized returns on your investment. But the opposite is true as well, right? If you project the upside and you think it's going to go that way and then it ends up going the other way and ends up bringing a pretty bad investment. So that's why investing is so great. Different people can have different takes on it. Thanks so much for listening to the episode, guys. Simone, I got to show you this after. But if you have not already tried fin chat.io,

do it because now you can actually screen the market by turning words into results. So you could be like, come on, tell me 10 fashion companies or 10 retailers that have grown by X amount are trading in North America, are profitable and have a price to free cash flow under 40. You can just be super rough and type that in via the English language or any language, uh, cause GPT is by very by late or multilingual, uh, that'll actually break it out into a, uh, into a table and answer the question that you're looking for. It takes a little bit longer, but it's pretty sweet. So go ahead and check that out at FinChat.io. That's being released tomorrow, but this is coming out Thursday. So go ahead to FinChat.io right now. Bye-bye.