The Canadian Investor - List of 100 Quality Stocks

Episode Date: December 25, 2023

 Braden interviews the newest employee at FinChat, Ryan Henderson, to discuss quality investing and opportunities in some 'unloved' names and sectors. 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 for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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. Welcome into the show. My name is Brayden Dennis. Today, I'm joined by Mr. Ryan Henderson, one of the newest team members at FinChat, doing content and research full-time. And you're a bit of a podcast veteran yourself. So I figured

with everything you're working on, you and I had been getting to know each other, talking about investing all the time and your background. It just made sense. You come on the Canadian Investor Pod. So Mr. Henderson, welcome to the show. Thanks, Brayden. Yeah. Big fan of the podcast myself. So nice to be on the other side of the mic this time. You've been doing content full-time now for FinChat for a couple of weeks. You have an Big fan of the podcast myself. So nice to be on the other side of the mic this time. You've been doing content full-time now for FinChat for a couple of weeks. You have an interesting role, which is a hybrid between content marketing, but also just a lot of investment research. And that's what I really want to focus on today and talk about some of the stuff that you and I have been looking at a lot lately. And so the style of investor

that you are personally is a good place to start, I think. And then we'll transition more over to what we've been looking at content pieces. So first of all, how about this? I'll give an assessment of what I think during getting to know you of your investing style. And you tell me what's wrong, where I'm off a little bit and where I should give you a little bit more credit. This is a time for you to pump yourself up. So I think you are a quality investor, but value buff first.

I think that you really like diving into unique businesses and are very attracted to businesses where you think the market is not rewarding fundamentals and kicking it to the curb. Match group, tobacco, these are the perfect examples. Where am I right? Where am I wrong? I think that's all pretty accurate. And probably to my detriment lately, I don been, I don't know if it's like attracted to ugliness in the stock market, but like a lot of these ones that are, a lot of the companies that are kind of discarded, a lot of people don't think that much about them. Maybe it's just the valuation or the face valuation that attracts me. But yeah, I've kind of leaned

more into that. For a while, I did own kind of big tech quality, but I find it fun to go kind of dumpster diving and sometimes pick up stocks that the market seems to hate at the time. Yeah. Well, what I will give you credit on is I think investing in companies that the market hates, but for really good reason is a really good way to lose a lot of money. But the companies you're talking about, the market hates, or at least the ones I see you really drawn to, the market hates. But you look under the hood, you go on FinChat, you look at those KPIs and you're like, this is a volume growth business. I'm drawn to those names as well. And I think

that that's a good theme of maybe what we'll talk about today and some of the companies we'll dive into. But first, we're going to be talking here for the better part of an hour. How's working at a startup? This is not an opportunity for me to get some sort of evaluation on how I am as a manager, but what stuck out to you? How has anything you've learned here maybe been useful in assessing large public companies as an investor? And if that's too far of a stretch, then just let me know. No, it's been good. My boss is great. Yeah. So, you know. Yeah, he's fantastic.

No, it is. I really enjoy it. And I love the team. And there's something nice about not being too big right now where change can be made really quickly. There's no bureaucracy where if we feel that the platform needs some sort of a tweak or a fix, I can go straight to one of the team members and be like, hey, can you implement this? And it's done instantly. There's no needing to go through higher ups to kind of get things approved. I love that part. And then on the flip side too, if you're too small, you can sometimes be spread too thin where you've got all these responsibilities and you can't get to all of them. It feels like FinChat's at a really kind of unique spot where you've got

enough people that you can get everything you need done while also being agile and fast. So I really like that. As for kind of translating it to analyzing public businesses, I'm not sure I have that many broad strokes lessons yet, just because generally the businesses I'm looking at are so much larger than where Finchette is today. But I guess the one thing I have learned is that software companies at their core are really good businesses. If you can build a platform that's critical to the customer, critical to their workflows, like what FinChat's trying to be for investors, there isn't that much cost to serve once you've got them hooked onto the platform. So it can be a really profitable, really nice business model, which makes me wonder why there's so many public software

companies that are unprofitable, but that's besides the point. It is certainly a head scratcher. And I think I resonate with that quite a lot when I see the insane amount of inefficiencies with these large public software companies. And you see how fast we move. And I'm just like, we've had so many investors that joined our previous two rounds just message me and be like, dude, enjoy this team size right now. There's nothing better. When you get to 15, we get to a hundred people, you're going to be like, ah, with the good old days at 10 to 15. And so I agree, join it. It's a good spot to be in. You and I are working on a wide moat content piece right now. And by you and I mean you. And there is this awesome list that's put together. Is it Mobison that puts it together for Bank of America?

Yeah. And one other author. Okay. Got it. So for me to set the stage on what you and I are looking at here is they put out a hundred company wide moat list of stocks. It's global, obviously a lot of US listed names here. And the back test on this basically is saying that this portfolio, this wide moat portfolio has achieved a 10-year CAGR of 21% and has significantly higher cashflow return on investment in these companies than the S&P 500 and MSCI world. Now, of course, every back test with a list of, hey, look at all these awesome companies tends to outperform the market. That's why they're awesome is because they've been doing well and the business has been doing well. This list we're looking at here is names from Adobe to Amazon to Autodesk,

Black Knight, to the exchanges, to the CN, Canadian National Rail, CP Rail, S&P Global, Visa. You're getting the idea here. This is the list of compounder bro stocks. What do you see in this quality list? What is an overarching theme beyond like, yeah, these stocks have done well and they're probably good companies? Yeah, there's a couple of commonalities. The other thing, I'll use this as a chance to quickly plug FinChat because there are companies on this list that i had never heard of the china tower corp maybe i should have heard of them but they operate cell towers i think ret like uh not railroads but like customer passenger trains and like it's just

kind of this like obscure most american investors aren't going to follow it. So it's like a railway plus American, it's like CN rail plus American tower in one? Yeah, I guess. That's crazy. Yeah, they have like some random investments in there as well. But every single one of these companies, it's a list of 98 different companies. FinChat now has KPIs and segment specific data on every one of them. Now part of that is because I went to Adrian and I said like, hey, can you get these four companies or whatever that you don't have on? And it's a perfect example of being in a small company, instantly you can get them uploaded. So commonalities between them.

One big one that I noticed, and it seemed to pop up a lot, is they've got some sort of a scarce asset, whatever the company is. So oftentimes it's real estate. I'm thinking of airports here. There's a lot of airports on this list where, one, you probably couldn't build one. You have to get legal approval to build it. But even if you did, it wouldn't really make that much economic sense to build an airport right next to another one. They're typically local monopolies. Other ones that come to mind, railroads. It would be absolute hell for anyone trying to build a railroad today. I don't think it could be done.

So another kind of scarce asset, cell tower operators, there's all these zoning rules, American Tower, American Tower, Crown Castle, stuff like that. So having that kind of scarce asset has, I think for a lot of these businesses driven a lot of pricing power. I see some regulatory moat in there by nature as well. Yeah, definitely. And there's even a lot of government contractors on this list where it's just like, they've been operating for so long and they have these existing relationships with sometimes it's a longstanding customer that is in the government. Sometimes in the government contracting case, it's the actual governments themselves. But it's just like if you're the U.S. government and you need a new tank or a new submarine built, you're probably not going to go to a startup.

You're just going to go to general dynamics. And the same applies for other kind of critical things that the government might need. And it's just because they've had, they've got kind of that rapport with the U S government. They've got all the people and employees with us clearance that are needed, that kind of thing. So I saw them

pop up a lot, make sense that they're on the wide moat list. And then the other one I saw is, I don't really know how to, I call it kind of the stuck with it for life software bucket, where it's software systems, whether it's Adobe, Autodesk, Intuit, less so, Microsoft, where you learn the systems in college. I'm thinking specifically with like Autodesk, Intuit, less so, Microsoft, where you learn the systems in college. I'm thinking specifically with Autodesk. You learn the system in college. It's required for your degree. You have classes around it. You put it on your resume because it's required in the workforce. And then everyone at your company is proficient in whatever, AutoCAD or Revit. And it would just be a nightmare for that company to

switch software systems. So I don't know what to call it, maybe the resume moat, but lots of these software systems, they're basically the people they serve, it's mission critical. They are pretty much stuck with it for life. And oftentimes this all kind of leads to pricing power. And in this case it does as well. Dude, that's amazing. The resume moat. This is actually really key. I've never been able to put into words why I own Autodesk better than it's on your resume. It's a requirement to be... How about this? Let's put this in a bucket of companies where the HR screening tool will throw out the PDF of your resume if it doesn't say AutoCAD or Revit in anywhere. If it does detection on the entire PDF and the string of text, AutoCAD is not in there, it gets thrown out.

This is the resume mode. I really like this. Other things that come to mind reading on your examples is not so much that these companies are irreplaceable, like no one can ever replace what they've done. It's more so that there's actually just no incentive from their customers to do so. If I look at those defense contractors, there is no incentive from the government to take risks on new defense contractors. There's just who's sitting in that chair as the buyer who they don't have any upside in taking a gamble on some new defense contractor or the rails, some of these other names, the regulatory moat kind of things. I look at these, I'm just like, okay, so say to connect two cities, there is a giant mountain between them and there's going to be some gigantic mega engineering project to connect cities A and

B, but it has to go through this mountain. No other way can be done it. So you've gone through these extensive tunnels before. You living out by the mountains, you've driven through these tunnels before. There is no incentive for another tunnel to ever be created, right? Ever. There is literally no incentive. Even if it was a monopoly, it has a toll, there's going to never be an incentive for the government to ever approve it being done again. And that's the way I think about it with these customers with the defense contracts. Is that resonating at all? Yeah, that makes sense. I mean, there's situations here where it's just such like a Herculean task for any startup that it pretty

much prohibits them from ever wanting to compete. So let's think like Amazon's a good example. It's 30 years of CapEx built into their logistics network that to try to compete with them on shipping, it's pretty much not doable. And you would also have to steal all the customers away from them that already know the Amazon brand. You need the revenue in order to finance that CapEx. It just really isn't possible. And so I don't know what to call it. Maybe it's economies of scale, but really it's just the fact that a lot of these companies have been reinvesting for so long that it's really hard to overcome that if you try to compete with them in any way. Yeah, I'm just pulling up on Stratosphere. We track KPIs for CapEx by region. Total CapEx

spend on Amazon in 2021 was $72.3 billion. It was $60 billion in 2022. What was that in North America alone was nearly 38 billion in 2021 as they built out that scale. That results in total square footage, which we also track, 661 million square feet of warehousing facility. That's absurd go now i believe this probably tracked on finchette as well but you go to shopify and you know people like to think of shopify arming the rebels the the anti-amazon amazon spent i think he said 60 billion dollars in capex last year shopify spent 500 million so it's just not, and then they bought that delivery company, ended up having to sell it. It was just, it was never, I don't think they were ever going to be able to compete with Amazon on the shipping side of things. Now they have another core

competency, which is helping people get set up as fast as they can online to sell things. And that's a huge, you know, that's a lot of value, but it's a perfect example of a company that should be well-positioned to try to compete with Amazon. And there's just really no overcoming that logistics lead at this point. Right. And you might say, well, that's the bull case. They only spend 500 million. And I think that they do have, they don't have stuck for life software, but they have, if you want to switch, it's like trying to change the airplane engine while it's flying type software. So that makes it quite sticky as well. But I totally agree.

It's this CapEx that's in the world where it was so sexy to be a capital light business. to be a capital light business. It's like the whole time, it's like the astronaut meme, it's like always has been where the CapEx spend is actually really what makes it defensible. 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. On that same vein, what do you view as the Mount Rushmore of quality stocks right now? Let's throw value out the window. I know that's hard for both of our brains, but let's give it a shot. What's the Mount Rushmore of quality of moats today? So saw this question and Costco was instantly the first one that comes to mind. And I think it's the whole Nick Sleep scaled economy shared where it's just been the self-reinforcing cycle that has led to so much value delivered to customers that it seems like kind of in the same vein as Amazon's logistics lead. to be hard to replace the mindshare that Costco has with the customers, not to mention the actual reverse pricing power where it's like they can still make money while selling goods at so much cheaper than all their competitors. You can't really replace that without having all the stores that they have and the membership network that they have. So Costco is the first one that comes

to mind. Never owned it. I've always thought it was too expensive, but still. Join the club, brother. Every listener of this podcast has heard me give that same pitch and then go, yeah, best business ever, but I'm too big of a wuss to pay the price. Exactly. Visa is another one that comes to mind for me. Just a really kind of strong network effect and really only gets better with time. As more merchants kind of join, well, it's really, they're kind of helping facilitate

communication between banks, but the more banks that are on Visa's network, the more valuable it is to the next merchant or the next customer to be on there because then you can use your card basically anywhere. And so really it would be pretty much impossible to start one of these from scratch at this point or for a bank to try to do all the communication themselves. So I think the advantage is there. And that's kind of a digital toll road if you want to think about it like that, where I think people have called them the rails for payments. I think that's a good analogy. Third one for me would be Amazon. We already discussed this, but that logistics footprint just allows them to not only keep

investing because they generate so much revenue now, but that lead and delivery also gives them the ability to add higher margin products to their business. So they can offer fulfillment services to the merchants. That's a higher margin product. They can say one day delivery included with Prime, that Prime subscription can be a higher margin product. The proximity to their customers with all these delivery centers, it makes it less costly to serve the customer. So it really is starting to show up, I think, in the bottom line for them. Last one here, and this one might be a bit of an oddball, but I've been looking at them this week. And I think Ferrari is very unique, where

it's really not even kind of a, like, it's not a company. It's more like a club for billionaires. Yeah. It's not a company. It's more like a club for billionaires. Yeah. And you look at the typical business and you think, okay, volume times our price, that's going to give us our revenue. Subtract our costs, that's our margin. Whereas for Ferrari, it's almost the reverse. They basically say, here's how many cars we're going to produce this year. Here's how much it's going to cost. This is the margin we want. So this is the price we're going to make customers pay. And there's a three-year waiting list. So it's like they pick their margin and then the customers, once they get to the front of

the waiting list, they're not going to say, no, I don't want to pay for that car because it's such a social status symbol. It's kind of this, the cost is not the main concern for them. I think feeling wealthy and having- It's true luxury. Yeah. It's true luxury, price insensitive customers. Yeah. I mean, you even think about like LVMH, like a Louis Vuitton bag that's luxury, but

I could go above my means and buy a Louis Vuitton bag that's luxury, but I could go above my means and buy a Louis Vuitton bag if I really wanted. It would be a waste of money for me because I don't think all my friends would know there was no point in that. But like a car, I could not go above my means and buy a Ferrari. I mean, the average selling price on the low end, first of all, even if I had the money, you have to apply basically to be on the waiting list. So you have to show them that you've owned a Ferrari before. You have to show them that you're going to take care of the car and be a good sort of brand ambassador. And so I think it's very unique. And the other part is a lot of why people are attracted to the Ferrari brand is

the racing heritage. They've won so many races, the Enzo Ferrari story, that kind of Italian craftsmanship. That's something that's built over the last century. I think that would be very difficult to replicate or it would at least take 30 years for a brand to do it. So I think I might throw them up there as well. No, I like it. It's truly luxury right it's like yeah right yeah we can go ball out and buy some expensive uh lvmh stuff i'm just gonna call it stuff because i don't know why people buy this stuff but a ferrari it's like yeah i mean like it's it's like when you're chasing something romantically it's, it's just so much easier if you're not desperate.

It's like if you're trying to raise money, you know, it's just like, hey, you know what? We will take your money, but it's going to be hard for you. You're going to have to really want it and you're going to have to pay a ton. And what you mentioned about the margin, like, you know, you pick your margin and then reverse engineer it. There's nothing better than businesses that decide the pricing in a boardroom instead of the market, right? Like price makers versus price takers. Exactly.

I have a strict rule in only investing in price makers because price takers, their top line is not decided by them. And it's not the type of company I want. So I'm looking at this. Okay. So scale economies, network effects, that's covering Costco, Visa for sure. Amazon as well. And then you're talking about the brand element here with Ferrari. I think all of those are really good. This checks a lot of boxes in the seven laws of power. I forget what they're called right now, but you know what I'm talking about. Yeah. The Hamilton thing, right? Yeah, that's right. Yeah, that's right. Yeah. All right. Well, let's shift gears from being

compounder bros talking about the stocks that everyone knows are probably pretty good when it comes to these names. I know you're a bit of a value buff. I've always liked many of your picks. Where are you seeing attractive prices today? Yeah, usually, well, yesterday was the whole Fed meeting where they announced rates going down. So today I'm seeing less than I was, I guess, a week ago because stocks have all ripped. And so I was liking a lot of the financials and I thought it was a pretty good place to fish. I think I still like them, but I'm talking about this a day after they've gone up like

15% or something like that. So the financials really after the rate hike, and then after the banking crisis, which I don't know, I put banking crisis in air quotes, it was pretty like localized to kind of one or two banks. And it was like a weekend of panic and then everything was fine. Yeah. I thought there was a lot of mispricings there. A lot of people that just didn't really seem like everyone was just afraid to be involved with them. One that pops out to me was Ally Financial.

This is a company I've followed for a little while. And the only thing that concerns me is like, I'm afraid I'm like the sucker at the poker table where I'm like, this looks really cheap and I don't typically invest in financials, but I seem to be liking it when everyone else hated it. So I'm worried that I was the sucker there. But most of the regional banks, if you get a decent valuation, you're going to be okay. But the upside is kind of limited because it's hard for them to really attract deposits. But with Ally, they are the largest online-only bank and they really do have sort of a structural advantage where they don't have physical banking branches. So they can take those cost savings, pass them through to the customer in the form of higher rates on their savings accounts.

And so that's really helped attract depositors over the last decade. So for reference, their retail banking customers have gone from 800,000 to 3 million over the last nine years. So, and that might not sound like explosive growth, but in the banking world, that's explosive growth. And they really, they take those deposits and they basically just lend them out on new and used cars. And they've been doing this for a long time. So they were, prior to being spun out, they were General Motors financing arm.

And General Motors did some, got into like the mortgage market and stuff like that. And so this has been spun out independently run business. And the auto loans are pretty predictable. The default rates- It's a big broker too, right? People want to own securities or do they not do that? If I want to buy stocks, I can do it on their platform too, right? Oh, I think so. Yeah, yeah, yeah. If they have a fairly large online broker. Yeah. I think it's an element of their banking app. They're trying to be kind of like a holistic

sort of the all-in-one finance apps, but I don't think- Yeah, they do have a self-directed investing app. Yep, that's right. Okay. I'd be surprised if it was a big part of the like, I think most people just hold cash there. And because the savings rate is whatever, four and a half percent, you can almost think about it as like holding bonds, but- Right. It's not like a Schwab or a Ameritrade in terms of scale. But with the auto loans, if you think, and this is kind of a bad, it's kind of a sad way to think, but when you think about ranking order of what loans are most important to pay off,

the car loan for me is number one, even potentially before the mortgage. And you saw this in a way, like the auto loan default rates didn't go that high because theoretically you could live in your car. So it's like, and you need your car to get to work, to earn income, to pay off your other loan. So it's a critical loan for you to pay off. And the default rates really don't get that high. And so, and not to mention, it's not that long of a duration loan. I think the weighted average duration for allies, three to five years, somewhere in that ballpark, because the loans are, you pay back your auto loan pretty quick. People sell their kidney before they sell their car, man. Especially outside of city centers. If you hear that and you live downtown in a metropolitan jungle,

concrete jungle, then that's crazy talk to you. But if you're in the Midwest and it's a 30, 40 minute commute each way, public transit, that's a joke, dude. That doesn't exist. Then you'll know what I'm talking about. Yeah, that's exactly right. I guess the moral of the story here is that rates have gone up. Their cost to attract depositors has gone up. Their interest that they earn on the loans has gone up, but gone up slowly because it takes time to increase that because you've got all these old loans in the books that are at five or 6% kind of thing. So right now it's just kind of about bridging that gap and they've seen the net interest margin, which is that spread condense. But I think over time it should get back to kind of where they were earning, which was kind of six to $7 in earnings per share.

And I think today the stock's around $34, but might've gone up a little bit since. So it's like five to six times earnings and they typically buy back a lot. So it's just one of those where I think people were afraid to be involved with anything financials related. And especially when rates were hiking because the net income really started to shrink pretty quickly. But I think if you've got a long-term approach and you think, as long as the loan book's going to be okay, I think the financials have been kind of an interesting place to fish. And they were so – it's not a group I follow, so I don't know how the multiples have acted. post SVB, there was a month or two where it just felt like every financial was being thrown out with the bathwater there just in terms of getting dumped. And so it definitely feels like a place

that's cheaper. If you were to look at what was ugly to own this calendar year, commercial real estate and regional banking, basically. I can't think of two more ugly, harder to own names. And a lot of regional banks had loans on commercial real estate. On luck. Yeah, yeah, yeah. Double whammy. Yeah, I hear you. 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. Speaking of potentially attractive, potentially unattractive prices, and maybe even attractive, unattractive people to swipe on your cell phone, Match Group, the owner of Tinder, Hinge, you could probably fill in the gap. Many of these more niche dating sites, but Tinder and Hinge feel like they're flagship services, is on a whopping... I had to triple check this, by the way, when I was looking at our drawdown charts, an 82% drawdown as of yesterday. First, describe the company in more detail. I'm sure many people will be familiar with Tinder or Hinge, but give me an overview of the company and then take it from there on opportunity today or value trap tomorrow. Yeah.

Love how you use this as your drawdown example because it's been a whole thing of mine for a while. Kick you while you're down here. Nice. Yeah. Yeah. I think it's an opportunity but i've been saying that screaming that on the way down so maybe no one should listen to me here but match group i

guess you mentioned it they own tinder and hinge it's really a collection of a lot of dating apps some of the other ones are kind of niche like blk chispa uhpa. They have Match.com still. There's some legacy ones. There's some Asia-specific apps that are less important to the portfolio. But for the most part, it's basically Tinder and Hinge. And when we look at the drawdown, what's happened, I think it's important to look back at the 2019 to 2020 time period and kind of where we started. So if you go back to 2019, Tinder was growing really quickly. It was catching fire globally, basically with a whole bunch of countries, that being the leading dating app. So it felt like at the time, sort of this perpetual growth machine that was, it's like this massive network effect, right? Because if you're single, you don't really want to be on a platform with like no other singles.

You want to be wherever the most singles are. And especially in like the early adoption stages, the network effect is really powerful because if you think about it like this, if there's 10 potential dates on the platform, that 11th potential one, it's a huge value add to the platform for you as a single dater. Tinder got to a scale where that started to go away. If you live in Seattle, like me, there's probably half a million people on Tinder. The next incremental user is not really driving a whole lot of value. In fact, it got to the point where the scale was kind of hurting them. So with Tinder, the whole point is you get set up really, really quickly.

It takes like three to four minutes to set up your profile. You just grab a bunch of pictures, put your name on there, your age, you're ready to go. With Hinge, it takes like 30 minutes. You're doing, you're customizing your profile. You're adding context about yourself, some of your preferences. It's very customized. And if you're a user on Hinge, you can literally go, show me men above six foot that are Catholic and don't drink alcohol or something like that. Like you can filter your search based on all these preferences. Tinder, you really can't do that. So the scale was starting to- Sir, you're looking at 0.006.6% of the population and no one within 80,000 kilometers. Yeah, exactly.

But it's- Must be six, five, tall five tall dark and handsome yeah it's uh anyway you can't filter like that with tinder at all so it kind of got to the point where looking through all these profiles it was very cumbersome there wasn't that like it wasn't providing as much value as kind of bumble and hinge and so they've started to see not the paying users, but well, they have seen the paying users decline, but that's sort of a different problem. They saw the downloads decline.

They've talked about this a little bit. They don't report it, but they mention it here and there in their conference calls. And like the active users is starting to decline. And then on top of that, they raised prices in the US. I think ARPU for US users grew 40% every year this most recent quarter. And so because they jacked up prices by a ton, they started to see big user declines as well or paying user declines. So a lot of people show that chart. We track it on FinChat and it's really useful.

But I also think that ARPU or the average revenue per paying user is you got to look at both of them. And the CFO said that before. It's like, we don't care about paying users. We don't care about ARPU specifically. We care about revenue. That's it.

And so whatever the formula is for kind of lasting revenue growth, that's what they go after. Anyway, long sidetrack. But the point is, if you think Tinder is a huge part of the portfolio right now. So basically, if you believe Tinder is here to stay, and it's had sort of a slow, it's had a kind of a falter, but it's not the end of the world. This probably looks pretty cheap. I think it's an opportunity.

but it's not the end of the world. This probably looks pretty cheap. I think it's an opportunity. But if you think this goes the way of Match Group's legacy brands, if you think it ends up like a match.com where it's a slow trickle away, then cashflow is probably going to be pretty stagnant for a while. And I'd be surprised if returns were that good. So if you're on the side of a fence of Tinder's here to stay for a while and it's been short-term blips, which that's kind of where I sit, then yeah, I'd say more of an opportunity than a value trap. Yeah, I know for sure. I mean, when you look at the, you just look at it surface level on the multiples and you see, yeah, that ARPU number, average revenue per payer, I guess, per payer, I guess, per paid customer. In the last 10 quarters, it's gone from $14 to $18.4.

Is that them just raising prices? Is that them adding... I see they recently acquired in July The League, which is kind of... How do I describe it? Is it basically dating for young professionals who make a lot of money or am I off? Like what is, what is this? Yeah. I think, yeah,

it's like really wealthy people. I think influencers too. Like you have to apply. Right. Kind of thing. Oh, okay. Okay.

It's like, you either have to have a lot of money or, or, or daddy trust fund baby has to have a lot of money, like one of the two. That's probably going to drive ARPU up a lot with these types of portfolio names in there. Yeah, it's not that – it's just so small relative to Tinder that it doesn't – that itself doesn't have a huge impact on ARPU. But yes, the ARPU for those users is going to be significantly higher than the typical Tinder pair. With Tinder, the ARPU has

mostly been coming from Tinder price increases. And they actually just rolled out a new subscription tier, which is $500 a month for Tinder. And it's- Yeah. Basically- My young kings are down bad if they're subscribing yeah they they say it's for their power users i i think it's just people with money they don't need or people that just really really value the tinder platform or super desperate right for our most valued desperate people yeah for even if they can drive just like a very small percentage of their users who have more than enough money to throw around and they like you said are quite desperate that can be helpful for the average revenue per paying user so

that part of it's the pricing mix and then part of it's moving the subscriptions to higher price tiers, or the subscribers are moving up to higher price tiers. Well, they do have one thing going for them, which is it has gone from very taboo to say that you met on Tinder or dating app in general to almost expected. I think I saw a chart. I'd have to pull it up, but it was just basically a survey of just couples formed over the last 10 years. I don't know if you've seen this same chart, but it's been remarkable how much that has increased. It was like people who met at their church has fallen off a cliff. People who met at work has fallen off. The only ones that were increasing was met at a bar or

met online, essentially. I think a lot of the met at a bar are what you would call liars. People who met online. They met for the first time at a bar. Yeah. Yeah. I've seen that chart and it's probably gotten even i think it was last updated in like 2018 i imagine it's higher after covid where it was i mean it definitely ballooned during covid but it's just like i think it affects the way daters kind of socialize at this point where like yeah't have the need to go find the date at the bar because if you're a girl, you can click through all your likes or whatever when you leave the bar and you've got all these potential dates on the app. So I do think it's going to continue to

kind of eat up share of the dating market, but it is kind of de-stigmatized in the US. I would say it's got a lot of room to go in some of the international markets where it operates, where it is still a little more taboo. Yeah, makes sense. And that didn't happen overnight. People are like, oh, overnight it became less taboo. Online dating was basically one of the first applications of the internet. one of the first applications of the internet. This was some of the most popular websites going back to when people were first finally using the internet. Okay. That's really interesting. And the businesses look so cheap. I guess the problem for me is, and this is not a novel idea

on a bear case for the company, but you reach and you're seeing this. Look at total payers has just been basically stagnant at 15 million for, I call it 14-ish quarters. You mathematically hit a saturation point when churn is so high and when the company's model success is defined by churn. And I know this is not a novel idea, right? Like what is hinge designed to be deleted is the tagline. So it's like, if this is successful and you meet someone, you no longer have the app and you're no longer a customer and it's okay. You can still make an amazing business. I mean, clearly Match Group has, but you reach a saturation point where the only way the

business can get better is on the macro of people using more online dating versus other methods. And so they've rode that wave. They've roamed that secular trend for 20 years now, but you run into a math problem when you have churn so high. The laws of churn and growth, you automatically, mathematically hit a saturation point. And I'm seeing that here. So I just wonder how much they can flex pricing power on. How many people are going to pay that

500 a month price point, right? That's pretty nuts. Yeah, probably not a lot. The, it is, like you said, the churn thing is an issue. The one advantage they really have is that it's not like they have to go reacquire them. Basically, if you're single, you know what apps there are. It's not like you're not joining Tinder because you saw a TV commercial, right? So the marketing has come down significantly for them as a percentage of revenue. But yeah, it's a good point. I mean, designed to be deleted, that's not great for lifetime value. But-

And I've kind of thought about that too. It's like, I don't really have any rebuttal. It's just that revenue has consistently gone up for them. The number of paying users up until kind of this last year has consistently gone up for them. So maybe it's just trying to drive more value to the people while they're on the platform. And that way you can kind of generate an increasing amount of revenue from them. Sometimes I also just think it's some pretty, I think it's durable dating apps that

generate like a billion dollars in cash flow a year. So that's how I'm trying to look at the business. But yeah, it's been a frustrating ride so far. And hopefully Tinder can kind of turn things around a little bit. Well, I think what it is, is just this huge multiple drop off when people are seeing that they basically rode this wave. And what is the next leg of growth look like? But of course, that doesn't mean the stock can't do well from here. I don't know what their capital allocation strategy is, but it can continue to be acquisitive and buy back stock.

Do they buy back stock? I don't know. They do now. Yeah, they buy back a lot now. They do now. Yeah, fair enough. There was this, on one of their conference calls, the CFO just made this word salad of an answer

when someone asked about buybacks. And he's like, yeah, well, it's really volatile, so we weren't able to buy any back. And it's like, what? And no one understood what he was saying. And then they reported a pretty bad quarter. And the next quarter, they bought back a ton of stock. So maybe he just knew.

And he had to come up with some word salad answer as to why they didn't buy back. So they've started finally buying back. But if you see them stop that, then that probably means the executives are seeing something in the business that is not good. Yeah, I think that that's a good point. And of course, you can follow Insider Transactions for every company on FinChat.io forward slash the company search, and then the Insiders tab will have institutional ownership and insider ownership. Henderson, thank you for coming on the podcast. We appreciate you. You're going to be pumping out lots of content on the FinChat

Twitter account, the LinkedIn account coming out soon, and a weekly email newsletter. So I think this is where I'll close out with my call to action is if you still haven't used FinChat, and I don't know why, but hey, if you still haven't used FinChat, go check it out. But hey, if you still haven't used FinChat, go check it out. But if you're like, I don't use any tool, but I could use this type of discussion and research in my inbox every week. Our first email newsletter came out last Sunday. It's going to be coming out every single week with this kind of stuff. The wide moat discussion. Last week, you did a deep dive into the Diageo family of alcohol brands. It's like Guinness. What are the other ones in there? Guinness is the flagship. Smirnoff, Johnny Walker, Casamigos, pretty much 20% of the hard alcohol industry.

Wow. Okay. So there you go. Fun fact to impress your family on Christmas dinner as they have their Guinness or alcohol Johnny Walker. You're like, ah, I know who the owner of that company is. So that's coming in your inbox every single Sunday. And if you're a FinChat user, you'll get it. Thanks so much for listening. We'll see in a few days one of the combination of myself simone and dan ken take care 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