The Canadian Investor - Earnings roundup - Square, CP, Enbridge, Topicus, Lightspeed, Mercado Libre and more!

Episode Date: August 12, 2021

In this second episode of the week, we’re doing an earnings roundup because it’s earnings season!  We’re talking about recent earnings of Canadian Pacific, Square, Enbridge, Ferrari, Pinterest, Mercado Libre, Constellation Software, Topicus, Lightspeed, The Trade Desk, Brookfield Asset Management and Etsy Tickers of stocks discussed: CP.TO, SQ, ENB.TO, RACE, PINS, MELI, CSU.TO, TOI.V, LSPD.TO, TTD, BAM-A.TO, ETSY Getstockmarket.com Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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We're doing another earnings and news roundup for the second episode of the week after some really strong positive feedback from you guys. So thanks for letting us know. I am Brayden Dennis, as always joined by Simon Belanger. Let's get right into it, Simon. We got lots of companies to cover. Earnings season is in full effect still. And it's interesting to see this year, I would say is the one comment is we're seeing a lot of big increases because Q2 last year looked a lot different than Q2 of this year. So that is something to keep in mind, but overall some really positive signs

we're seeing out of the economy. And maybe no better proxy than the railroads for the economy. So do you want to just quickly talk about CP Rail? Yeah, Canadian Pacific. So as everyone knows, we've talked a lot about CN Rail recently because of their new bid to buy Kansas City Southern. But of course, CP was the one that had done the deal before them. So CP came out with their earnings release, 15% increase in revenues versus last year for a total of 2.054 billion over 1 billion in free cash flow increase in train length and weight which is a reflection of higher demand they recorded 30 million metric tons mmts strong volume for potash coal energy chemicals and plastic and they believe that the auto sector will outperform as the chip shortage eases um that was the only part i was like okay i'm not 100 sure how that'll go but uh overall a very strong quarter for cp and like brayden said

we have to keep in mind of what was happening last year. Yeah, that's true. And it makes sense they're calling out the auto sector because it is a big part of that MMT, that metric tons that they move. And the auto sector is completely disrupted. All right. I'm not going to talk about Square's earnings so much as of we have not talked about the after pay deal. Square has agreed to acquire all of the issued shares of Afterpay, which is an Australian company,

for 29 billion US. Afterpay is a buy now, pay later service. And I thought it was funny because buying this in all stock is the definition of buy now, pay later. And it seems like a pretty expensive price. I mean, Afterpay trades at over 50 times sales. And the reason that I really wanted to bring this up is because I don't see anyone giving PayPal credit for building this system of buy now now pay later across their apps and their PayPal like web app ecosystem organically. You know, they did that in house and didn't have to spend 29 billion in their own stock dilution to do it. So the reason I'm bringing this up is the market seems to really like after pay the after pay acquisition

in combination with maybe some some solid earnings but where's the respect for PayPal for building this organically I think it is going unnoticed yeah I mean that's why I own Square and PayPal I don't have that dilemma but yeah it's an I mean it's definitely interesting whether I like it or not as a Square shareholder I mean, it's definitely interesting whether I like it or not as a Square shareholder. I mean, I'm kind of on the fence about it. It is not cheap. But on the one hand, you also have Square as a stock who is trading at a very high valuation. So you can make an argument that they're using that to their benefit. That's kind of offset, of course, with the price that they're paying for them. So I think you have to look at it that way.

Aside from that, you could potentially see Square using the leverage with Afterpay to acquire some new potential clients. So that's something to keep in mind as well. And the big thing I've been reading about it is Square is keenly aware that big banks are eyeing that sector as well and trying to come with a product of their own. And I think that's a way for them to definitely alleviate some of that pressure coming from the banking sector. Of course, you can easily compare it to PayPal, whether it'll make sense or not. But I can just assume they came to the conclusion that it made more sense to buy them than to try and build it well not from scratch they already had something a bit in place but

obviously just kind of grow that they just decided it was easier for them to pay 29 billion dollars in an all-stock deal just a casual 29 billion all on to some more, I don't know if regular is the type of businesses, but we talk a lot about tech here. But in earnings season, it's important to talk about everything. So let's talk about Enbridge here. And what's going on, Simon? Yeah, so Enbridge, I know a lot of our listeners love dividend stocks. So that is definitely one of those. So the increased system utilization of 1% to 5%, depending on the type of distribution, because they have a lot of different types of pipelines, the increase in overall fuel demand ranging from 2% to 21%.

That's gas, diesel, petrochemicals, liquid, natural jet fuel jet fuel actually had the largest increase again just remember what was happening last year the base effects baby exactly and the line three replacement it's in service in canada north dakota and wisconsin minnesota which has had a lot of legal battles is progressing well there as well. And the big thing about the Line 3 replacement is the old line is not even being used to capacity because it's in such bad shape. They had $10.9 million in revenues versus $7.9 million last year, which was largely due to an increase in pipeline usage. I'm not sure if I got that right.

I feel like it may be billion, but anyways, that's the... I'm going to say that that is billion. Yeah, that's what I think. I think I made a mistake, but that's all right. Free cash flow of 1.3 billion for the quarter. And one of the main metrics that they use is DCF, so distributed cash flow, which is a non-GAAP metric. It's kind of similar to cash flow provided by or funds from operation. I know Brookfield uses this. So they

define it as cash flow provided by operating activities before changes in operating assets and liabilities. So essentially, they make a bunch of adjustments. It's just to make it less lumpy, I would say. So it kind of takes in and out certain factors that would only be one-time charges. That's the easy way to sum it up. And the DCF was up 2.71% year over year. That is a metric they've been using for years. So it's nothing to be concerned about. It's just not a generally accepted accounting principle metric. It's like when companies use adjusted free cash flow and it's like, well, what did you adjust by? And you go in there and you go, huh? I guess that's not part of Gap, but you know what? For their business, a lot of this stuff makes a lot of sense. As do-it-yourself investors, we want to keep our fees low. That's why Simone

and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building and people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends. And there's other stuff like learning Duolingo style education lessons that are completely free. You can search up

Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, blossom social in the app store and I'll see you there. All right, Ferrari. Ferrari shipped 2,685 units in Q2, which is double of what they shipped last year. EBITDA tripled with strong 37.4%. EBITDA margins. 37.4%. EBITDA margins. Shocker that they have good margins. I mean, Ferrari has pricing power, like a great example of pricing power. I get questions all the time. How do I know if a company has pricing power? This is a company with pricing power. They have such strong branding.

They sell every car they make before they make it, they replaced one of their models this quarter with a new one. And it is $150,000 more than the previous model, which is like close to a third more than the price it retails for. So talk about pricing power, right? And the way I describe it is someone on the Stratosphere community said, how do I know if they have pricing power? And I said, think of a company like this one, Ferrari, you know, the price that they set for this car, this new model this year was basically decided in a boardroom. It was decided on a zoom call, what the price is. You know, they're, they're looking at all the input costs and what the gross margins are going to look like, but it was decided by executives versus a company that doesn't have pricing power.

The price of their product is determined by the market and is out of their control. So there's an easy way to think about this stuff. Simon, I'm going to put you on the spot. This is a real test to see if you were looking at the show notes. What is your favorite sports car brand? I would say i don't have a specific brand but if i would pick one model i would probably say the nissan gtr because it's good value like the gtr yeah it's good value i feel like i'm not overpaying like a ferrari value investor exactly so i'm getting the same kind of uh you know type of sports car in a much more affordable package and obviously we're still talking about really expensive cars there

so i think they're like 150k yeah but the performance on them is is unmatched for a company for uh for a car of that price how about you i'm a big porsche i'm a big porsche guy myself okay there you go or it might we say porsche but you know yeah you know the people on the street know it as porsche exactly anyways um switching gears a little bit simon what happened with pinterest because they're we're seeing lots of movement on this stock recently yeah it's one that i'm uh seriously uh considering starting a position uh it was one of the stocks on my watch list earlier this week um so what's going on with pinterest revenues were 613 million versus 272 last year that's an increase of 125 year-over-year growth of 227% in international revenues versus 107% for US that's the discussion we had up next so the monthly average users went down

5% the MAU went down 5% in the US but up 13% for international users so overall they had an increase in MAU ARPU was five point zero eight dollars US and zero point thirty six for international users so you see that big discrepancy and would also explain why the stock tank so much is because those US users are so much more valuable. And for context, our poo for Facebook in US and Canada is about $53 per users and ranges from $3 to $17 for the rest of the world. And like I mentioned, US users, and I think typically they'll include US and Canada together, tend to have a lot higher value than international users. And this is most likely one of the big reasons why it tanked because those monthly average active users went down.

Not providing, they also did not provide any guidance for MAU for Q3 due to the uncertainty. So that's another reason that the stock probably tanked. Guidance of about 40% growth in revenue year over year for Q3. That's coming up. And net income of $69 million versus a net loss of $100 million last year. So they're doing some progress on that. And they were free cash flow positive as well for roughly $370 million, which was much higher than last year. So it's kind of a mixed bag quarter for Pinterest.

I think for the most part, people were concerned with the guidance. I think that's that and the valuation of the stock. I think that's the main reason why it tanked with like 20, 25% in one day. Yeah, this is the thing, right? You have a highly valued growth stock and delivers revenue of over 100%, 125% year over year. And the financials look absolutely great. They beat on every metric. But then they go, hey, by the way, we had less users than this time last year in the US. And we're not providing any guidance on those users in the future. So it's kind of like, what do I do with this? How do you sustain this growth and how do you have that kind of uncertainty and feel good about owning the stock? And that's why the stock is sold off so much. So I can understand from the perspective of technology growth investors looking at monthly active users

Technology growth investors looking at monthly active users going down as a bit scary. So you know what? It could be a buying opportunity. It could be a value trap. But I could definitely see how it is. Value trap is a bit of a stretch. This thing is still very expensive. But I could see how it made it to your watch list, Simon. Yeah, exactly.

So now on to our next name, Mercado Libre. Mercado Libre. This was a great report. Revenues were up over 100%. The payments business total payment volume was up 72%. That GMV number was up 46%. Unique active users grew 47.4%, reaching 76 million people. Envios, which is their logistics segment, shipped 230 million items. And the mobile payments segment of the payments business was up double. company that is benefiting from a mass increase in adoption of fintech and e-commerce in Latin America and South America. And this was a really solid report. Every single number across the board, really good. Now, when you read their reports, it is confusing because there's so many different currencies going on in the regions they serve.

And they do put it in these neutral foreign exchanges to help simplify it. But again, this is a business that is absolutely crushing it. It has been volatile as most growth stocks have been. But there's no reason to not think this business is executing extremely well. All right, moving on. there's no reason to not think this business is executing extremely well. All right, moving on. I'm bundling them together because they report their earnings together at the same time that press releases drop. And they talk about each other's company very often in their reports. And I wouldn't go on this podcast without talking about Constellation Software and Topicus reporting, Constellation saw revenues up 35% in Q2 compared to last year.

Organic revenue was up 14%. Now, 14% for CSU is a very high number for them. So that's great. But again, this time last year, organic revs were down 8%. So this came from a depressed number. The numbers on their income statement for the press release include with and without Topicus because the spinoff happened on January 4th of this year. So Constellation and Topicus are attached at the hip. And they have recently actually done an acquisition together just last week and for those who are wondering constellation owns 50.1 percent of topicus uh constellation software

known as csi but their ticker is csu on tsx and the topic is one is actually on the venture TOI.V. All right, so TOI.V, Topicus, a spinoff from Constellation, saw revenues up 54% compared to Q2 of last year. The business is still not regularly free cash flow positive. Organic growth was up 8%, which is a great number to see. Last year's organic growth was up 8%, which is a great number to see. Last year's organic growth was flat. Typically, CSU reports organic growth of basically zero on average, some years a bit up, some years a bit down. However, Topicus is a little different in that fact. It's kind of like Constellation 2.0 in the fact that they're going for better organic growth and bigger acquisitions.

and the fact that they're going for better organic growth and bigger acquisitions. And they are working with Constellation to get done some of those bigger deals if they can't do it on their own. So these two companies are under one umbrella with two different public listings. These companies are attached at the hip. And now we're seeing them do acquisitions together and bigger acquisitions. So they're deploying a record amount of capital. Everyone wonders how on earth is Mark Leonard of Constellation going to continue to deploy all this capital to buying private software companies. And he has deployed more capital in the first half of 2021 than ever before in any six month period of their existence. So

they keep getting it done. They have this decentralized organization for buying companies through their operating groups. And it is quite impressive. I encourage you to do some research on who Mark Leonard is and what they're doing over there. Simon, let's talk about another Canadian tech company here. Yeah, Lightspeed. So we spoke about Lightspeed a few weeks ago. Definitely an interesting business. They had total revenues $115.9 million. That's an increase of 220% year over year. Keep in mind that $50 million was a result of acquisition.

So on an organic basis, revenues were up $65.4 million, which is still 80% year over year, so still very strong growth over there. The recurring subscription revenues of $49.9 million, that's an increase of 115%. Transaction-based revenue of $56.5 million, that's an increase of 453%. And the net loss of $49 million versus $20 million of last year. So yes, they're losing a bit more money. They're also 16 million worth of free cash flow negative and compared to 9 million free cash flow negative last year. So they are burning some cash. It'll be interesting just to keep an eye on that. I've mentioned it when we did our review on them it is a growth company it's not the end of the world that they're losing money or burning cash um you definitely want to keep an eye on it because at some point you'll want them to have a path to profit profitability

so hopefully that will come sooner rather than later they also had some transactions that they did. One that closed on July 1st, 2021. New Order, which is a business-to-business e-commerce platform. The purchase price was $206 million in cash and a bit of shares, but that was the bulk of it. And they also are going to make an acquisition, so it's not closed just yet ec wid uh do you know how to pronounce that equid equid okay anyways if someone knows it's an e-commerce platform for small and medium businesses so both seem to fit in well with the mandate or what light speed does and they'll about $20 million each per year in terms of revenue. And they are growing at 30% and 50%, so 30% for New Order and 50% for Equid.

So definitely some strong growth over there. And again, it'll be interesting to just keep an eye on them going forward. It seems like the acquisition base play is still holding true for Lightspeed. Yeah, they're really executing on those acquisitions. So the business strategy is changing. And yeah, they're deploying a lot of capital. So good for them. Yeah, they're deploying a lot of capital, so good for them. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select

ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are

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

community today. I'm on there. I encourage you, go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas, and using the analytics tools. So go ahead, Blossom Social in the App Store, and I'll see you there. So go ahead, blossom social in the app store, and I'll see you there. talking about that 50 times sales. And it's like, oh goodness me. But you know what? The growth is so sustainable. And I've been right on this so far. The revenue at the trade desk was up 101% on that top line. And here is a quote from Jeff Green. Revenue more than doubled year over year to 280 mil in the second quarter. Our growth speaks to the trade desk position.

As the default, DSP, so DSP is demand side platform for the open internet. Nowhere is this more apparent than in connected TV as more premium streaming inventory becomes available to meet growing marketer demand for data-driven TV advertising. Said Jeff Green, founder and CEO of The Trade Desk. So they're in a couple unique opportunities, right? That demand side platform for advertisers to go on and do all of their digital advertising, ad buying on one platform across all these different channels, like across all the Omni

channel that we talk about. And their big opportunity that they've been dominating recently is connected TV. So on those smart TVs, there's lots of advertising all over the place. And the trade desk is the leader in that. Brookfield Asset Management management no release in earnings but just i think just today they have agreed to buy american national group for 5.1 billion in cash under their reinsurance reinsurance partners business that they recently spun off of course they're spinning off a new thing every time i look at the company, they added. So this adds a company that includes life insurance, annuities, health coverage, and operates across all 50 US states. So this is a big deal. 5.1 billion in cash. Brookfield doing Brookfield things. All right, Simon, to close us off here,

one of your favorite e-commerce plays. Tell me about it. Yeah. So to finish off Etsy, everyone knows I own Etsy and I think it's a great business. Keep in mind with these numbers with Etsy, it's kind of the opposite of the base effect. So for them, they had like a lot of pulled forward growth last year, especially when we think about those handmade masks that people were buying. So it's kind of funny. It's a little bit of the opposite of a company, for example, like Enbridge

or CP. So gross merchandise sale, GMS, was $3 billion, which was 13% year over year. GMS per user on a trailing 12-month basis grew 22%. Revenue was $528 million, up 23.4% year-over-year. Net income was $98.3 million, up 1.9% year-over-year. We talked about this. They acquired Depop and Elo7, and they were both completed in July for $1.625 billion and $217 million respectively, mostly cash use in those transactions. They did not provide any full year 2020 guidance due to the uncertainty with COVID-19 and again we saw the stock kind of take a hit when the release came out for their earnings. release came out for their earnings. Their third quarter guidance is $2.9 to $3 billion for GMS and revenue of $500 million to $525 million. And free cash flow for this quarter was $270 million for free cash flow versus $250 million year over year. And that's also one of the reasons why i like etsy because they are

bringing in some cash everyone knows i love to look at free cash flow so they've they've been free cash flow positive for quite some time now so yes they're richly valued but with the hype of the pandemic and stay at home stocks kind of coming down a little bit it may be uh something to keep an eye on for those interested in etsy because the valuations they're still expensive but they're coming back down to uh slightly more reasonable level yeah slightly more reasonable i think that's a good description of what that is this is like you said it, it's interesting because we are in, we're seeing these Q2 reports. And Q2 last year was weird. It was really strange, right? And then Q2 this year, it's like comparing year over year to what those levels were. And then

you have a business like Etsy that just exploded during that time period of everyone staying at home and needing masks and buying homemade masks. And again, that is a small part of Etsy's business now. And they're happy to point that out. They're like, hey, we don't just sell masks. So it's interesting to see. And you know what? Maybe this is a hot take, but 23.4% revenue comps to when their business exploded is pretty good. I mean, you're seeing all that pull forward growth last year and they're still up 23.4%. Now, is that a small revenue growth number for a company valued as high as it is yes but i think my hot take from that is that's actually a great number considering the pulled forward growth and pretty difficult comps when their business exploded this time last year yeah and etsy

isn't the only business so just think about all those those stay at home stocks, whether it's Etsy, Zoom, Amazon, Teladoc, like all these businesses saw a lot of pulled forward sales last year. So just keep that in mind, especially I think DocuSign is another one that's a bit like that, saw a lot of growth pulled forward. So keep that in mind if you're interested in those type of companies. The numbers may look a little bit lackluster compared to companies that were hit really hard by the pandemic. So you have to keep that in mind. I mean, we've been reminding people of those base effects or hard comps last year, but always put things into context. I think that's the biggest takeaway from that. Well, you just get a business like Google

that prints absurd growth no matter what the circumstances are. And that's what we will continue to be dumbfounded by when big tech reported two weeks ago. All right. Thanks for listening, guys. I'm glad you guys are enjoying the news and earnings roundup. As the earnings season cools off, we're going to mix in some other topics as well. Maybe some interviews. Time will tell. And we'll keep reporting on Canadian earnings as well because obviously it is an underserved market, especially in the podcast arena. So we appreciate you guys very much. Go to getstockmarket.com. It is the last month to get the lower pricing before my new product launches later this month.

Again, that is getstockmarket.com. It is also the easiest way to ask Simon and I questions is on the community forum. By far, it is the easiest way to engage with other podcast listeners on the community forum. Again, go to GetStockMarket.com. We'll see you next week. Peace.