The Canadian Investor - Going Meta & Earnings Galore

Episode Date: November 4, 2021

In this episode of the Canadian Investor Podcast, we cover the following companies latest earnings release: Apple's success despite chip shortages Facebook to Meta? TFI International is crushing it MasterCard The long view on Teladoc Shopify's greatness Canadian construction giant, Aecon Suncor Tickers of stocks discussed: AAPL, FB, MVRS, TFII, MA, TDOC, SHOP, ARE, SU https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/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

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We're into November and earnings season rolls on and we're here to be that news source for you guys. As you guys know, Monday recording we do investing strategy, what we're thinking about with our own portfolios, and then lots of news coverage on the Thursday morning release, which is timely right now during earning season. Simon, we have an interesting episode here today. earnings season. Simon, we have an interesting episode here today. We have partnered with Quarter, the investing app that lets you listen to conference calls right on your phone. I describe it as like Spotify for earnings calls. And it's really helpful. They introduced it. So like, hey, let's sponsor the podcast. And I was like, sure. And then I have used it as a customer, like out of my own time,

religiously, because Simon, this is a real gap in the market. So they're doing a good job. But we're going to put in some snippets from their app right in here as we talk about some of the earnings calls and we can get some voices from management teams around these companies. Do you want to kick it off here with what is no longer the largest publicly traded company as Microsoft has passed Apple as the number one in market cap? What do you got for us around Apple here? Yeah, so Apple released their Q4 results and full year results, of course, whenever a company releases Q4. Revenues were up 33% to $365 billion. Yes, with a B. Product sales were up 34% to $297 billion. Services sales up 27% to $68 billion.

And services now represent 18% of total sales. And that's really interesting for me as a shareholder because Apple started transitioning a few years ago and putting more emphasis on that SaaS revenue, so their services. And it's great to see that it's increasing quite rapidly and making them a bit less reliant on the hardware sales. But obviously, it's still a small portion of their revenues, but just nice to see that grow quite significantly year over year. Net income was up 64% to $94 billion. The gross margins were actually up more than 300 basis point to 41%.

Always something nice to see. And free cash flow was up 27% to $93 billion. Again, I love free cash flow was up 27% to $93 billion. Again, I love free cash flow. Again, nice to see from Apple that they're still generating cash hand over fist. Their dividend of $0.22 a share announced, which is the same as the previous quarter. And they returned over $100 billion to shareholders in the form of share buybacks and dividends for 2021, which is just mind-boggling. Tim Cook also mentioned during their earnings calls that they estimated that the supply chain issues would cause them an additional $6 billion driven mostly by chip shortages.

And on that note, let's hear about Tim Cook on the actual earnings call. We estimate these constraints had around a $6 billion revenue dollar impact, driven primarily by industry-wide silicon shortages and COVID-related manufacturing disruptions. Even so, we set an all-time record for Mac and quarterly records for iPhone, iPad, wearables, home, and accessories, representing 30% year-over-year growth in products. So as you guys can see, it is definitely a concern for Apple, but in the grand scheme of things, it shouldn't be too much of an issue with all the numbers I've mentioned. $6 billion is almost a pocket change for Apple. As a side note, I found something interesting as I was doing my research.

I ended up on the CNBC website and I noticed they actually made an error on their headlines for Apple where they were referring to revenue increases 29% for the full year, which is untrue. Like I mentioned, the increase was 29% for the quarter year over year. It just reinforces when you're doing your research on a company, make sure you look at the numbers yourself. News outlets, sometimes they're humans, they can make mistakes. And that's just an example right here. It is incredible that we have a company where we say, ah, it's only $6 billion. Well, we say, ah, it's only $6 billion. That is the scale of profitability and cash flow that this business is generating.

$93 billion in free cash flow, returning over $100 billion to shareholders because they have that outrageously large cash pile as well. This business just prints money. And, you know, from a margin profile perspective, from a free cash flow perspective, from a top line revenue growth perspective, and I liked how you pointed out the services business, you know, it does make up such a big portion of Apple's total revenue pie and the bottom line as well because it is so high margin. But the services do something really interesting with Apple is the services segment makes the rest of the hardware ecosystem so sticky because that is what kind of glues together all of their products from what people call the Apple ecosystem. And so the fact that they're actually monetizing that so well now,

it's interesting here with a business, with all of the shortages that we've seen, especially in the semiconductor landscape, Apple still gets it done with 33% growth on the top line. It is just remarkable. And Tim Cook is a very good CEO. Yeah, well said. Well put. And now, so one of your Canadian darlings, you want to tell us what's going on over there? One of my Canadian darlings, you want to tell us what's going on over there? One of my Canadian darlings is right. TFI International, ticker TFII.

They had revenues just past the $2 billion mark in the third quarter, which is more than double this time last year. It's actually up 124%. And if you back out the fuel charges, it's about 116%. But more than double on the top line. The third quarter operating income from continuous operations of $192.8 million increased 65%. That is the KPI they discuss a lot just because there's the fuel surcharge and other nuances to the business and operating income from continued operations is one of their highlights that they like to point out.

And that was up 65%. So they're benefiting from a continued rebound in both economic activity and transportation demand. Free cash flow was up 38%. Simon, winners keep winning. And with TFI International, here's a stock that is still not expensive, given the surprising growth profile and superb management team. Alain Bedard and the team, they're wizards at acquisitions. And one question I have for you, Simon, here is, is this a real thing that if you're from Quebec,

you're French-Canadian, and your name is that if if you're from quebec you're french canadian and your name is elaine you're good at global acquisitions is that just a fact at this point i guess that's hard to argue i mean i think it's probably uh i'm not sure yeah they've they obviously have a good track record yeah with bouchard and bedard, I mean, these guys know what they're doing. And they are value creators, good at buying pretty boring businesses overall, potentially distressed businesses, taking them, making them great. And that's the secret sauce here. I did not expect when I was buying TFI International stock at nine times earnings,

I did not expect revenues to be doubling a year later. And this just goes down to stock investing. You can do all of the research that you can. And that's what I think I did with this name. And sometimes the results may surprise you for better or for worse. And sometimes just flat out, the company does way better than you could ever expect. But the key here is you don't sell these winners because they can continue to impress. And it still is a trading at a very reasonable price tag here.

Yeah. And obviously, I think the at a very reasonable price tag here. Yeah. And obviously I think the pandemic may have been a good thing for them. It probably pulled forward and definitely some big tailwinds in terms from them. And clearly no one could have foreseen that before it actually happened. But a lot of people could have foreseen that e-commerce and last mile delivery and so on would have had tailwinds in the next decade. So I think it just goes to show you clearly did your due diligence on them and you like the company, but this was a nice surprise as well. I was trying to buy e-commerce plays without paying 55 times sales. And I arrived at trucking and it was a good trade.

So let's transition to the story that was basically, even if you don't listen to this podcast or work on Wall Street, you knew that Facebook has changed their company's name to Meta. Now, let's pull a little timestamp out of the call here because the announcement to change the name was a few days after their conference call. But I think there's an important point here to pull out of the call.

And Mark Zuckerberg has touched on this many times on the latest conference calls, is he is very serious about the metaverse thing. And call it what you want. Say, yeah, I know it's a rebranding, get away from the icky Facebook branding. Yes, don't get me wrong. That's probably a smart idea. But Mark is serious about owning this next computing platform. And it is a pivotal moment in their history for better or for worse. And I think we're going to see that play out. But let's hear from Mark about owning this next competing platform. Beyond reels and commerce, I also want to share some thoughts on our longer term efforts to build the next computing platform and help bring the metaverse to life.

This is a major area of investment for us and an important part of our strategy going forward. And I view this work as critical to our mission because delivering a sense of presence, like you're right there with another person, that's the holy grail of online social experience. Over the next decade, these new platforms are going to start to unlock the kinds of experiences that I've wanted to build since before I even started Facebook. Okay, yeah. So we've been hearing that from Mark Zuckerberg for quite some time now. And obviously afterwards they came out to say that their new name would be Meta. Obviously, afterwards, they came out to say that their new name would be Meta. And this would take effect in terms of the symbol, which would be MVRS on December 1st, 2021.

You know, Mark Zuckerberg has been a big proponent of that, saying that's the future of things. And I get to some extent to the name change with, you know, putting all the bad publicity aside for a second. Just the fact that yes, being named Facebook when you have apps like Instagram, you have apps like WhatsApp, it's kind of weird to have them just named Facebook. And I'll just say I'm not a big Mark Zuckerberg fan to begin with. I think a lot of people know that about me, but I'll give him credit where credit is due. He's created a lot of shareholder value. For me, the thing that I don't love is really, you know, if we're talking about ESG, it's the S and the G. That's really concerning for me. So the social and governance. Having said that, great numbers from Facebook for their latest Q3 results. Sales up 35% to $29 billion. Net income was up 17% to $9.1 billion.

The daily active users was up 6% year over year to $1.93 billion. That's really crazy if you ask me that they're still seeing that growth in daily active users. Monthly active users was up 6% to 2.9 billion I probably fall in that that category over here because I don't do that Facebook on the daily basis but I do use it once in a while mostly in the form of Instagram they repurchased total of 14.3 billion in shares in q3 and they really they stated that they'll incur an additional 10 billion dollars in expenses for investment in Facebook reality labs which is a big part of the new metaverse that we just mentioned that Zuckerberg is trying to build. The segment also includes

augmented reality, virtual reality, hardware, software and content and I don't know about you Braden for me the metaverse I think it's and you see a lot of different definitions but for me it's almost you know your your digital self right how you kind of interact with you know whether it's Facebook whether you play different types of video games online just kind of your digital digital self and that's how i see the metaverse i don't know if that's the kind of vision that zuckerberg has i don't even know if that's the definition you have in your mind yeah have you ever seen the movie ready player one yeah oh yeah a lot of people reference that that's that's the metaverse right it's it's going into a virtual world and being engaged with it in a virtual reality space.

And that's why he's building the hardware side with Oculus and spending $10 billion on Facebook Reality Labs. So this is very interesting. The official name on, when I go on Stratosphere and type in FB ticker now, actually comes up as Meta Platforms Inc. Meta Platforms Inc. Which I find very interesting.

So we'll see. I mean, there is a lot of we'll see happening with Facebook. It is still a distant future to the metaverse. And I've been saying this for a long time. There are companies building for the metaverse not named Facebook. And it's not new. Tencent has been investing in the metaverse for a long time.

And they own the gaming side of those those engines like unreal engine as well unity so those game engines are a powerful proponent of the metaverse and i see facebook's been quietly actually buying gaming studios game development studios and uh so they're gearing up for it and spending 10 billion and on r&d for facebook reality labs means they are really willing to push this and he is a founder leader so he doesn't care about wall street's opinion that they he should just buy back stock and not do any of this stop stop spending 10 billion when you can just buy back stock but mark doesn't care he's a founder visionary and he wants to build the next platform that's what he's going to do because it's his company yeah i saw an interest i actually saw an interesting take uh quickly um on twitter

and i listened to it on another podcast as well is um you know some people are speculating that also Facebook is seeing some threats from decentralized platforms because I know we talked about Ethereum in a previous podcast and just the potential that those type of platforms could actually eat up some of the metaverse markets so that's just kind of an interesting take that I saw. I, you know, who knows what will happen, but a lot of people are speculating that they're trying to get ahead of it. So Facebook is still able to capture a lot of that audience, you know, 5, 10, 15, 20 years from now. Yeah, I think it's smart from that perspective to start as early as you can, because like you're mentioning, this decentralized

or what people are calling Web3, even play-to-earn gaming, which we should probably do a segment on play-to-earn gaming. It is fascinating. It seems like what's going on in the Philippines and in Venezuela is that people are earning more than minimum wage for playing video games in the form of basically earning Ethereum by playing. I did not know that. Yeah.

That's hilarious. That's crazy. It is mind-boggling. And this goes down to the metaverse where people are actually earning money in a virtual world better than they could earn minimum wage in some of these countries that are economically distressed, like Venezuela, for instance. 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

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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. We should do an episode. Just try to play to see how we do. Oh God. I know. Like I'm, I'm a rookie with understanding it, but I understand the gist of it and it is wildly fascinating. Okay, let's move on to MasterCard. Y'all know on the podcast, I love the payments, rails, MasterCard and Visa. I own them equally in large concentration at this point. Revenue is up 30%. Earnings per share increased 62% from Q3 of last year and cross border volume was up 52 percent they returned capital to shareholders with 1.6 billion in share buybacks and 403 434 million in dividends paid now let's discuss this business between 2021 now and 2019 pre-pandemic because the payment rails business visa and

mastercard are greatly affected by consumer spending and international travel due to cross-border transactions like when you use your card in another country that makes up a good portion of their revenue they make more money on those transactions. So cross-border volume is now only down 15% for MasterCard of the volume we saw in Q3 of 2019. So it is only down 15% from the cross-border volume we saw pre-pandemic. Now, that is remarkable given the challenges traveling outside of your country and people's hesitancy and willingness to do that. And Simon, I was so curious about this phenomenon. How is travel down so much, namely international travel, yet cross-border volumes for Visa and MasterCard

are only down, well, MasterCard in this example is only down 15%. According to the World Tourism Organization, an agency of the United Nations, international travel was down 67% from 2019 in the month of July this year, which is this summer. Yet cross-border transactions are only down 15%. How peculiar is that? There is a mismatch between volumes happening and cross-border transactions. We now have total revenue in Q3 on MasterCard higher in 2021 than it was in 2019. Even with all this difficulty, this is a tremendous business. Let's hear from Michael Maybach, who has an interesting little snippet here, which is about the omni-channel experience that people are using the cards for and an update on cross-border transactions.

In terms of how people are spending, card present volumes continue to improve as people are getting out and shopping more, while we're still seeing sustained strength in card not present spend. So regardless of whether people want to shop online or in person, our solutions support that choice and position as well to participate in both trends. Now let's take a look at cross-border. Overall, cross-border returned to 2019 levels in August, driven by improvements in consumer and commercial travel,

as well as the ongoing strength of cross-border card not present spending X travel. Now cross-border travel improved from 48% of 2019 levels in the second quarter to 72% this quarter, with substantial upside potential still remaining as and when borders open. Now, we saw him touch on cross-border there as well, but I thought it was worth mentioning that he called out the strength of people using their cards, whether it's debit or credit. When card is not present, like when you shop online, like that segment is growing so fast. So they're navigating a changing landscape with super apps and e-commerce and your card not being present. It's no longer about the car, right? It's about the network. It's no longer about the credit card business.

It's about this protocol business that they have created that facilitates transactions. The card business was just one method of making that happen. And now we are seeing it transcend into all kinds of distribution channels, whether it's card not present, whether it's super app, or whether it is with your credit or debit card. This is a fantastic business with margins that make no sense. They're incredible. And so that's what I'm taking away from MasterCard's latest results. Yeah, yeah.

And I mean, I think that the market reacted a little adversely because they thought cross-border would probably be picking up a bit more. But I'm going to go and venture to say that probably the discrepancy we're seeing with the World Tourism Organization is that they're probably getting the data as a whole and it doesn't necessarily weight it for maybe richer countries for example the u.s canada west western europe um so that's probably where there's a bit more of a discrepancy most likely those richer countries it increased a bit more than people expected and countries were you know

they're not as rich as those uh countries it's not picked up all that much. But yet their usage, they may not have as much disposable income that they would be using on the MasterCard network. So my point being, that's true. That's going to make up some of it. usage of credit cards and debit cards cross border is accelerating in terms of percent of transactions. And that is what is the telling sign for me. I can wait for travel to come back, but the fact that the real tailwind underpinning this digital payments growth is cash and check are not good means of actually paying and transacting in commerce in 2021. It's just not a good way to go. And we're seeing that play out. Yeah, yeah, exactly. And I think, you know, we talked about inflation the last

episode, and I think MasterCard should do pretty well in an inflationary environment. As long as we don't see like extreme inflation, I think they should do well because, right, it's a percentage of each transaction. So it's not as much an issue for them. That's correct. Okay. And now we'll move on to our next earnings. We don't have a clip for this one, but people know this company. It's Teladoc. So they released their Q3 2021 earnings. They also provided some insight on their full year guidance.

So third quarter revenue grew 81% year over year to $522 million. They updated their revenue outlook for the full year. They actually just narrowed their range on the lower side. So now it's between $2.015 billion to $2.025 billion. They're forecasting revenues of $2.6 billion for 2022. They did say, however, that they'll provide more information during their full year earnings release, which is pretty typical for them and companies in general. Organic revenue grew 32%, which excludes acquisitions in the past 12 months, so it excludes Livongo. Total third quarter visits topped 3.9 million. That's 37% higher than Q3 2020. Adjusted EBITDA grew 71% year over year. Gross margins were steady

in the 67% range. 75% of visits were non-infectious disease-related visits and mental health-related visits doubled year-over-year. So the non-infectious disease was actually 50% pre-pandemic. So actually, they're less reliant on things like COVID, for example. The percentage of chronic care members enrolled in more than one program has grown three times year over year to 24%. They have significant new agreements with CVS Health and Centene to provide Teladoc Health Primary 360 to deliver greater care access and health engagement. And it was ranked first in consumer satisfaction by J.D. Power 2021 for U.S. telehealth satisfaction study. So obviously overall, great results from Teladoc. Their business is growing well and the fears that some people had that the pandemic was a temporary tailwind,

I think in my mind, they're starting to show that that fear can be put to rest. The Livongo acquisition really seems to be paying dividend. I've been seeing that since it happened that we'll have to wait and see. A lot of people said they paid a lot for the acquisition. They weren't sure how it would work well. But now what's starting to emerge is people really want one platform that can do it all. They don't want to go to various virtual care platform. And Teladoc is really starting to establish itself in the US as the best total virtual care solution. So I'm still a shareholder, have been for close to five years now, just on top of my mind. And

this was definitely a great earnings result in my view. The stock was actually up 10%, I think, the day that it came out. Interesting. And we've seen the stock pull back way from its highs. And this is what happens when stocks, even as a shareholder yourself, Simon, you can agree, the stock got ahead of itself, yet the long-term fundamentals were solid the whole time. And this just goes to show you, especially if you own growth stocks like a Teladoc, if you own high-valued growth stocks and they get ahead of themselves or the momentum and they get ahead of themselves or the momentum wanes off because momentum is very much at play with stocks,

especially with the liquidity around the world right now. Yet the fundamentals were strong. So if you believed in the business and you believed in the long-term story, who cares about the stock price on a two-quarter basis? It's irrelevant for long-term shareholders. It's completely irrelevant for long-term shareholders. So this goes back to time and time again, focus on the business. Because if you saw Teladoc stock go bananas and Simon became a gajillionaire,

and then it pulled back, you know, on a short time horizon. But Simon's not looking at the stock price. You're looking at the business fundamentals. And that is a very important takeaway. And I think that everyone can kind of learn from that. Yeah. Yeah, exactly. And I had someone, I can't remember who remember who like told me they paid like over $200 for the stock. And then it had gone down to like $140 should they sell and so on. And like honestly, you really need to have conviction in the business you invest in. And it's unfortunate in the short term that you're looking at a loss. But again, if you really believe in the business, you shouldn't get too worried about short-term price fluctuations.

I mean, I think the stock from this peak is probably half price at this point, right? It's gone down about 50%. So I think it's just a reminder. Make sure you know what you're getting into. And when you're looking at growth stocks, I mean, you're going to be in for a ride. So make sure you have conviction in that business. Yeah, and that goes to another point, which is you can't borrow conviction from someone else. If someone tells you, even if Simon and I tell you it's a great business, we might be, that might be correct.

But if you don't have the conviction in it yourself and you see a little bit of volatility, you might not know. You know, we're texting each other going back and forth going, don't care. Business is doing great. But if you don't know the business, you won't have any sort of insight on what you should do with your portfolio. So you can't borrow conviction. You can't borrow conviction from us. You can't borrow conviction from anyone. And that goes down to, uh, got to do some of your own research. Shopify. Canadian tech darling. Shopify revenue is up 46% year over year. Subscription solutions were up 37%. I'm going to touch on that metric in a sec.

Gross merchandise volume was up 35% year over year. And they reported $102 million of adjusted net income. All right. Now, let's double click on the subscription solutions. We're up 37%. This is the software as a service subscription revenue so that when you sign up for Shopify, yeah, they're taking a cut on gross merchandise volume from when you make sales, but that is the actual subscription cost to having Shopify. Whether it's $18 a month or whatever plan you are on, depending on the size of your business.

But what that means, if it's up 37%, is mostly, largely, that new customers are signing up for Shopify and using their platform. So then they're going to on-ramp more gross merchandise volume as they go. So there's that lag between subscription solutions and then gross volume actually going up. So that is a metric that I really like tracking because it actually speaks to their core customer base. All right, so the reason that Shopify has been so successful is their agility. And what I mean by that, and software developers will know, but agility is their ability to develop new features and products to serve entrepreneurs with speed and with greatness, but definitely with speed. They're a truly product first company. And Toby and Harley have deserved some serious credit around developing this product first company. In Q3, they launched

Shopify markets, which is a product that helps cross border commerce easier, makes it easier for entrepreneurs. Shopify balance, which is a money management product to merchants. They're launching that first in the States. They introduced TikTok shopping to merchants. So I don't use TikTok, but if you do, you'll notice now you can buy things right from TikTok accounts. So TikTokers can set up merchant stores right on their page. And we've seen that with Facebook as well. So now TikTok doing that. Now, this leads me to something very interesting that's happening that is kind of underpinning Shopify's growth moving forward, is their partnerships with social shopping,

like what I just mentioned with TikTok and with Facebook, is they win deals left, right and center with the biggest platform, like the biggest social channels, to be the enabler of e-commerce on their platform. So to speak on that, I want to show a clip of Harley Finkelstein, who is the president, discussing this from an analyst question on their quarterly call. It's quite clear at this point that Shopify really, we believe the future of commerce is going to be everywhere. And the demand for more services to conduct commerce will continue to grow.

And so as entrepreneurs grow and succeed, they will need multiple channels. We are seeing more commerce happen through Shopify on social channels. That includes Facebook channels, Pinterest, TikTok, Snap as well. And actually, the GMB contribution from social channels grew year over year. GMB attributed to social channels grew several times out of online channels and more shops were successful making sales to those channels in Q3 this year versus Q3 of last year. Part of the reason also we're introducing things like TikTok shopping is that it's not just a new channel, but it allows this organic product discovery right into the shopping, right into the videos and also creates these new shopping tabs. So you will see Shopify show up in

more of these surfaces where commerce can be conducted. Now, what you're hearing from Harley is Shopify, they're a very mission purpose driven company. And what they're doing ultimately serves entrepreneurs and the creator economy. So if you are a TikToker or a Pinterester, you can easily set up these merchants. Now, creators need to serve multiple channels when they're what they're following and customers because they need to be able to sell to wherever their customers are, whether it's TikTok, Facebook, Pinterest shop, Shopify is powering this. And it's one of those things where Shopify must be doing something right. that these large tech companies are not for these large multi-hundred billion dollar firms to not develop it in-house, but to actually lean on Shopify as a partner to roll out

this merchant service for their social platforms. So I found that really interesting, and it's something I never really got correct in the Shopify thesis. And I can't really blame myself. It's still fairly new. And maybe it's still very early in the story. Perhaps it is. But I think that these kinds of telltales and how they win customers and demonstrate their value proposition is very important to start paying attention to. Yeah, no, exactly. So well put. I mean, I didn't look at their earnings release, so I'm just going to go with what you said. But definitely Shopify is just, you know, it's impressed. And if it wasn't for the valuation, I'd be a shareholder and I keep saying that and I'll probably eat my words

and I'll probably regret it forever as we keep going forward. But yeah, I mean, they just keep, you know, powering all these different platforms and like you said, it seems like large tech players are just not challenging them for whichever reason, but it just goes to show that Shopify is doing something right. 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

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Okay, so now we're going to finish off with two Canadian businesses. Bit different, so not big tech by any stretch of the imagination. The first one, I don't think we've talked about them before, Akon Group. So they released their earnings Q3 2021. For those who are not aware of Akon, you probably, if you just kind of keep an eye out for them,

especially for construction projects on the road and so on, you'll probably see their name quite a bit. It's a large construction firm and they have segments in civil construction, urban transportation, nuclear utilities, and industrial sector. As a side note, my dad retired, but he did some consulting work for them when he was retired for people who had claims with WSIB and they had injuries following workplace injuries and had to get their homes retrofitted so they could have someone who lost the use of their legs and then needed everything retrofitted so they could access, you know, washrooms and things like that. So just to give a little bit of context to what they do. The reason also I wanted to talk about them is first they're Canadian and second it'll give us some good insights on all the investments that are happening in terms of infrastructure as well. So revenue was up slightly

less than 12% to $1.6 billion year over year for Q3. Almost identical increases if we look at nine months in terms of percentage increase. Net income was down 50% year over year to $38 million. Cash flow was negative, mostly with a decrease in unearned revenue, which means that they had received advance payment for services they had done but not yet provided. You'll see that from time to time, especially for things like that, large companies like this where they win a contract, they may get an initial payment, and then there's later on some payments as well. They have $6 billion in backlog and $40 plus billion in active bids for potential projects. On that, they had a record level of infrastructure

investment underway across ACON's focus area. They have government investment in infrastructure as a key source of economic stimulus as part of the COVID-19 recovery plan and they actually had that in their investor presentation. So it just goes to show that it's starting to be a big tailwind for them. For those interested in dividend, they have a quarterly dividend of 17 cents and 50 per share. It has grown at a rate of 8% annually over the past five years. But you'll see when you look at their statement, it can be very lumpy because it's a bit of a cyclical business. It relies on investment for the most part from governments.

So that's pretty normal. And some things like I i mentioned they might receive payments in advance for some projects that they still haven't completed so you have to keep that in mind when you're looking at you know their net income or their cash flow statements i actually met john beck the guy the founder of of acon at a conference because he's uh an engineer by background graduated from mcgill and uh mcgill university and i used to be in the power and infrastructure engineering business you know before before going stratosphere full-time so i met him at a conference and he was one of the better speakers.

He was one of those people who stood up on the stage and I think he kind of kicked off the conference because he was definitely one of the bigger names there. And he's one of those figures where you just don't look away when they're talking. And he's obviously an incredible leader and built this massive billion dollar engineering firm and construction firm. But I just wanted to highlight that because I'm always interested in these founder stories. And yeah, I don't have really anything more to add than that, other than it's very hard not to be bullish on infrastructure, whether it's locally or globally. I think it is incredibly difficult to not be long infrastructure here. Given everything going on, it all points to infrastructure. And that's a

long-term bet from my perspective. And that's why I own Brookfield Asset Management. It is the behemoth of infrastructure globally. And they have scale competitive advantages that a lot of people just don't have from a global perspective. So it's another infrastructure play here, Akon. Probably really well run, not one that I know particularly well, but again, it's really hard not to be long infrastructure

from my perspective Yeah, yeah exactly and this one like it might also fly a little bit more under the radar too. So obviously people Do you sex right? yeah, yeah, I believe so and I know their shares went up a few years back when there was a Chinese firm that was trying to purchase them and that ended up not going through. But it's not a company you hear that often about, at least on the public market. So I thought it was interesting just to bring it in. No, not on the public markets. Yeah, but I feel like everyone knows who they are, maybe at least where I live, because

they are a big player in a lot of the – when you're stuck on the highway. Oh, you see them. When you're stuck on a traffic jam because there's construction, ACON usually has something to do with that. So that's how a lot of people know who they are. But yeah, they're $1 billion in market cap on the TSX ticker ARE. It's been a volatile up and down stock that pays the dividend

because it does have quite a cyclical nature to it. Yeah, exactly. And now we'll move on to another Canadian name. So one we've talked a bit before, Suncor. They had their earnings release. They announced that they are doubling the dividend to 42 cents a share, which is what it was in 2019 prior to them slashing the dividend due to COVID-19. This will start with their upcoming dividend in December of this year. The board also authorized

further share repurchases, which means that they could have repurchased 7% of their outstanding shares compared to January 31st, 2021 levels. As of September 31st, 2021, net debt was reduced by $3.1 billion. They are anticipating that net debt will have been reduced by $5 billion overall in 2021. Revenue increased 58% year over year to $10.1 billion. Again, keep in mind here, base effects, what was going on last year, price of oil was very low. A lot of people were not traveling. So this makes a whole loss of $12 million last year. Again, let's keep in mind context here. Almost a 10x increase in free cash flow to $3.5 billion.

It was $300 million last year. dividend has grown 10% of, sorry, dividend was about 10% of free cash flow, which makes sense that they are doubling it going forward. So it's not going to be a big percentage of free cash flow, even with the doubling here. You know, I'm not an investor in oil. I know you're not as well. But if people are looking for value plays, I mean, this is definitely an area where I think there's some value to be added. Still, a lot of people are down on that industry. But I like what Suncor is doing. They're reducing their debt. So they're reducing their leverage.

They're returning more money to shareholders. So really, if you're a shareholder, I'm not, you know, it's a very good earnings release from Suncor. This is a space that you got to play the quality names. You have to play the quality names. And Suncor is one of the quality names. They just are. It's a well-run company. And you know what? This cycle looks pretty good for them. And that's not something that I have any sort of insight on predicting, and that's why I don't play there. There's no pricing power and for all the other reasons. But you could probably make a lot of money on some of these things looking forward. I'm not going to lie, Simon, because you're going into a very favorable cycle

from my perspective, which is to be taken with a grain of salt when it comes to predicting these cycles, but could be a phenomenal cycle. The stocks trade for very cheap valuations based on what they're able to produce. Now, they did say at the COP26 thing that was happening yesterday that we are going to, Canada is going to be, whether it happens or not, is Canada is going to be a part of because it makes it a very difficult, challenging environment for these businesses to operate. your perspective and many people's perspective it's the the fact of the matter is it's a very difficult business environment to navigate when regulators want you to not be producing emissions and for an oil and gas company it is just very difficult to operate in that yeah and it's going to be there are certain types of industries where regulatory risk is always going to be a very high risk. And, you know, oil in 2021 and beyond is one of those industries like you can't get around it. It is a regulatory risk. We just saw it with what you said.

I saw that too. Hard cap being imposed. Will it change? it change maybe but again it's hard to make a thesis on that it's kind of out of their control what happens in that in that standpoint and there is other industries like that but that's a perfect uh perfect example of it if you're buying these things you're hoping for correct me if i'm wrong but i know i know if this is for me if i'm buying suncor i'm buying cnq can I'm buying CNQ, Canadian Natural Resources, I'm hoping for multiple expansion, right? You're hoping for some multiple expansion. And what are the chances you actually see that re-rate on the stock

and get multiple expansion? Probably not great, right? Like tobacco investors have been waiting for a re-rate for how many decades now? Is it ever going to come? Probably not, right? Like tobacco investors have been waiting for a re-rate for how many decades now? Is it ever going to come? Probably not, right? So that is another thing to consider that value investors have, or at least some value investors have got burned on in the past, which is expecting that there has to be a re-rate on a stock. It's just not true. There doesn't have to be a re-rate on the stock because the sentiment around oil is not getting better tomorrow than it is today.

And that's something to be aware of. But Simon, natural gas is going to rip. Natural gas officially has passed the highest it's been since December of 2009. It is basically 4x in price since the summer of 2020. We're in for an expensive winter of natural gas. Yeah. And I was going to say, just to add what you were saying for the multiple expansion, if I were to invest in Suncor, I think I would have the mentality of, you know what, I'm calculating my returns on what they're returning to shareholders

through dividends and share repurchases. And anything beyond that is kind of gravy. That's almost like, yeah, that's kind of how I would approach it. You can't underwrite multiple expansion on these things. And if you do, I think it's short-sighted. Yeah, and anything, it's basically a bonus bonus that's almost how you have to approach yeah yeah all right guys that does it for this episode i hope you like this format uh we did partner with with quarter they have all the companies we're talking about on their on their uh on their app you can

you can find their earnings call and listen to it kind of like a podcast they're not quite as exciting as our podcast simon some of them are more exciting some some of the some of the earnings calls are more exciting and i think you can kind of figure out which ones are exciting after listening to a few yeah i use it too i find it super useful and i used to like find it so annoying to go on the ir website and then I create a fake email because I didn't want them to have my information. They don't want you spamming them with the IR stuff. Yeah, exactly. And now it's at the fingertip. You can search for whichever one you want to listen to.

So it's a really great tool. It is. And you can just get it on your phone for free. All right. Thanks so much for listening guys if you have not been to stratosphereinvesting.com i strongly encourage you to do so because it is the easiest way to ask us questions and we'll be answering some questions for the podcast shortly here you can just write them there in uh in the community forum you just make an account

press log in on the uh the community forum and you are off to account, press log in on the community forum, and you are off to the races. You can ask Simon or I a question. Just like that, in two minutes or less, guaranteed. Thanks so much for listening. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice.

Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.