The Canadian Investor - Major Layoffs & Canadians Companies Making Big Moves

Episode Date: January 26, 2023

In this episode, we start by talking about recent Canadian inflation data. We then discuss some recent moves involving some Canadian small cap companies. We also go over the earnings of Interactive Broker, Netflix, Metro, Lockheed Martin. We finish the episode by doing a live reaction to Microsoft’s earnings. Tickers of stocks discussed: IBKR, NFLX, MRU.TO, LMT, MSFT, WE.V, MAGT.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee 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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Can you see that or is it too faint? It's too faint. Yeah, it's too faint. I hit puberty at the age of 26, so I'm not surprised. You know it's January, not November, right? I'm in this surf town right now, and I'm living my don't wear shoes, don't get a haircut, don't shave, be a complete surfing dirtbag. I'm living that moment right now, so we'll see how it goes.

Okay, how's the girlfriend liking it? No comments yet so far surprisingly i think that that's how bad me growing facial hair is that she hasn't even really noticed i think that that's really the takeaway good to know good to know well you know let's uh get into the show and lots of news not too many earnings yet i think it's going to be starting pretty much the rest of this week and then get right into it for what the next month or so yep it is tomorrow is like ridiculous the amount of companies reporting today at the close there's quite a bit so i think let's do if we can if timing allows us to do maybe even a live reaction of Microsoft's quarter reporting at

the close today, tomorrow is nuts, the day after is nuts. And then yeah, you got like a week and a half of just nonstop earnings palooza. And I like this time of year for earnings because most often you're looking at full year results as well. So that's always nice to kind of zoom out and get big picture numbers. Yeah, exactly. Well, we'll start off with some news like we mentioned. First one is the big macro that came out last week. So December 2022 Canadian CPI. So it came out at 6.3% year over year,

which was a pretty significant change from November. I think it was in line with general expectations from economists. It also came in at negative 0.6% on a month over month basis. As a refresher, the headline number year over year was 7.6% in July and then was between 7% and 6.8% from August and November. So you can definitely make a case that this is the first month where it really dipped on a year-to-year basis. Now, it's not all good news. I mean, 6.3% is still pretty high.

That's the first thing. And we are still very far away from the 2% mid-range target from the Bank of Canada. And food remained elevated as well so that's another piece of bad news at 10.1% year over year and food has actually been over 10% on a year over year basis since September of 2022 and even before that it was very close to 10%. Shelter came in at 7% year over year and all categories came in higher year over year. However, I will finish with some good news here. All categories but food, shelter, services declined month over month.

So personal care was actually the only category that was flat. So on a month over month basis, it's definitely trending better. The other thing to keep in mind is the core CPI. So that's the metric that's used by the Bank of Canada. So there's three metrics that they look in terms of the core CPI. And that one has been leveling off. I wouldn't say there's a trend downwards. I added the data.

So September, October, November, December. downwards. I added the data. So September, October, November, December. So it's been pretty stable, not as downwards as the main headline numbers. So it remains to be seen where it's going to go. And a lot of people like to make predictions on what's going to happen with interest rates. I saw some people on Twitter saying, you know, there's going to be a 25 basis point increase by the Bank of Canada, and then we're done. I don't make predictions like that, because I don't even know that the Bank of Canada knows what they're going to be doing, you know, a few meetings down the line. So I think it's just a wait and see, but something to keep an eye on because they look at that core number here.

It's funny how we can look at numbers this elevated and think that they are month over month declines. It's kind of frame breaking seeing those kind of CPI numbers, but I'll say air quotes here, improving situation. The food one is the killer, man. That's the one I think I noticed the most. I mean, well, everyone deals with this. But like, I swear I'm leaving the grocery store no matter where I am in the world. And I'm like, I got like nothing. And the bill is what I would expect for a haul. It feels like that every time I go to the grocery store.

And I'm sure you're probably the same. Yeah, exactly. And you know what's fascinating is I sent out a tweet on a couple of days ago, just asking people what they've done to kind of lower their costs. Or even some people said they just increase their revenues, increase their income, right? So that's the other thing. Make more money, pal. Make more money, exactly. And a lot of people were saying they are changing their eating habits or buying habits in terms of food. A lot of people mentioned shopping more often at Costco. I know it's anecdotal. It's not a huge sample, but that came up more than once. People cutting back on dining out, that came up pretty often, and ordering food.

up pretty often and ordering food. So definitely things to keep an eye on because, you know, if you have the same or very similar disposable income, but your food cost is going up at some point, you do have to make some changes. I saw your poll or the question you posed on Twitter, and I liked it because I saw a lot of like very real and authentic answers in there, which is why I love that platform so much. I think I and authentic answers in there, which is why I love that platform so much. I think I replied, which is true, which is just when I'm out for dinner, I'm just not buying booze as much. One, because it's so expensive, you have inflation on that. And then you also have tip inflation, which I've hinted at quite a bit. It just becomes really hard to justify, especially if you're in an expensive city like TO. I mean, it's really hard to justify and it stings when you tap that credit card at the end

of the meal. Yeah. Yeah. No, exactly. But enough about inflation. What's your next piece of news here? My piece of news is about WeCommerce and a company called Tiny. So for some context, Andrew Wilkinson and Charles Sparling are two guys from Victoria, Canada, and they're fascinating entrepreneurs. I've been following almost all of Andrew Wilkinson's work for his company and media appearances he does because he's a cool guy and he's obviously an excellent entrepreneur. And he also just has this like very calming energy and philosophy about him. And the way he does business is just like really basic and simple. And he really tries to do everything very simple. And especially the transactions of the companies he buys,

that's what they say their edge is. It's like very simple terms. We'll buy it in like 30 days, no like nine month acquisition process. And so he buys and starts internet businesses. If you're a designer and you're familiar with that world, digital media design, you'll be familiar with a company called Dribbble. It is like the social media, it is the de facto platform for sharing designs online. And it's pretty cool. I think there's like 40 plus businesses in there. So they hold about 40 plus of them in this holding company called Tiny. They spun off a bunch of companies that were related to the Shopify ecosystem. So they bought and started a bunch of companies that are inside of the

Shopify ecosystem. So let's say you wanted to start an e-commerce store and you wanted an out-of-the-box design already built for you, like a Shopify theme or Shopify plugins. like design already built for you, like a Shopify theme or Shopify plugins. They own like a whole suite of them. They decided in 2019 to spin it off and list it public under WeCommerce, sticker We.V. Did you ever look at this name? No, I've never looked at it. It's like less than a hundred million in market cap now, but it did hit less than a hundred million in market cap now, but I, it did hit 1 billion in market cap post IPO on the TSX venture. So just doing that math in your head, let's just say it has not gone as, as expected, uh, for, for Andrew Wilkinson and Charles Sparling here. And now they're taking it

back, um, under tiny, the holding company. But the kicker is, and there's news here, is they're taking it back. And during that process, they're taking the entire holding company public under the Tiny company. So in essence, what happened was they spun off an operating group under the Shopify ecosystem business, took it public. That didn't go so hot. So now they're taking it back off the public market and doing so the whole holding company will be listing on the Toronto Stock Exchange. So I'm bringing it up because one, it's a big piece of news, but it's also an interesting stock idea moving forward because you have these excellent owner operators with significant insider ownership. This is not a typo. Andrew Wilkinson alone will own 71% of the public company tiny. Charles, another 10%. So 81% will be owned by

the two founders. And other significant shareholders already include Bill Ackman and Howard Marks, which are household names for sure. So I thought it was an interesting piece of news. It involves this Canadian entrepreneurship story, the TSX venture, it not going well, and then them taking the whole thing public. That is not what I had on my bingo card based on everything I've heard Andrew talk about with with WeCommerce. So anyways, that's one to look out at.

It's the company will be called Tiny. No, interesting name. Definitely. I wasn't aware really of all of that. So I'll keep an eye on that. Just looking at their IPO, I guess they timed it pretty well, probably to maximize the, you know, the IPO, but timed it pretty badly in terms of market afterwards. I think that's probably what happened. Yeah, it's true. Like so many tech or tech related companies went public

during this time period. And it looked great at the time. It was like the smartest move. And it only took like a year. In hindsight, it was like, oh boy, the public markets are not what we had expected. No, exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real

people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has

everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the

description of today's episode for full disclaimers and more information. Well, now I'll be, I mean, I feel like I should be called a grim reaper today like i i have some not the most positive segments but that's okay you know it is what it is the news i don't make up the news i just uh we just talk about them here now i talked about tech layoffs uh i think it was a week or two ago i i mean obviously it, it's all the big boy. I feel like time with a baby. Kind of forget. But there's more tech layoffs that happen. Obviously, headlining Google and Microsoft.

They both announced last week that they would be laying off workers. It seems, again, it was a result of overhiring in the past couple years. Google will be laying off 12,000 employees which represents roughly 6% of their workforce and then Microsoft will be laying off 10,000 employee which represent roughly 5% of their employee base and I did go back to that side that I had mentioned so layoffs dot FYI and it's pretty interesting when we talked about it was just a few days into Q1. And now, I mean, the layoffs are really piling off for just what I took the data here, 22 days into Q1 of 2023. And we're getting close to what happened in Q4.

We're probably roughly around like just shy of 400,000. Maybe we've hit it because I think there has been some more layoffs that were announced in the last couple days since I pulled that data. And what we had in Q4 of 2020 was about 500,000, so half a million. So it's, you know, it's, yeah, it's not looking great. Sorry, not 500,000. I messed up the numbers here. So was 80 000 in q4 of 2022 and now we're almost hitting 60 000 q1 but it's still not looking great and it seems the theme that's being reoccurring here is that a lot of tech companies just overhired during the pandemic and i know it's easy to get numb because we obviously hear about these numbers.

It seems like almost every day. But at the end of the day, I think we have to remember that these companies have to adjust as the landscape changes. And a lot of the smaller ones, because we see the headlines for these big mega cap tech companies. But a lot of the smaller companies, it's almost kind of a, how to put this in terms of, it's their survival, right? If they don't make these hard decisions, the full company could go under in the near, let's say, short to medium term. This is very confusing in many ways because you and I talked about in the third quarter, Google hired 13,000 employees. And just a few months later, they're laying off 12,000. And so it seems to me that they're either doing something that I don't know, or they're really bad at forecasting. And maybe just a little bit

of both, because it seems like every company was overhiring just like three months ago, compared to now. And so it's also, there's a couple other factors at play here, right? It's the dominoes kind of all fall at once, whereas one of the big major tech companies does a major layoff like this, and then they flow in. They flow in fast because no company wants to be the first one to do it because it's such a bad PR look. It never looks great, especially when you're talking about five figures of layoffs in basically one day, like one mass email, you log in and you're just not employed there anymore. And it comes quick, it comes fast, and it's sad. But a lot of these jobs were, like these people were just being hired with not much to do. A lot of these companies, what are the hundreds of thousands of employees doing? How are they hiring 13,000 employees

in one quarter? How does that HR and that onboarding process look like? If you look at that compared to Apple, Apple was basically the only big tech company that was hiring with some real common sense. And they haven't had to do any layoffs. So, I mean, the whole thing is just a little bit confusing to me. Like, as a manager of a company and having to make small HR decisions right now, it doesn't make any sense to me. Like, I don't know how this happens. Yeah, no, I mean, I do get it. I think it's probably hard to forecast.

And there's also the economic cycle a little bit, right? So typically what you'll get is you'll, as the economy kind of starts slowing down before that inflation typically happens, not to the level that we've seen. That's not really normal compared to the level that we've seen. That's not really normal compared to what we've been used to. So then companies, what they're doing is usually they'll try to increase prices during this period and avoid laying off employees. And then as margins start contracting, there's no more leeway to increase those prices and increase their revenue. So that's usually when they go into cost control.

And I think the labor shortage probably traumatized some of these leaders because they probably figured we worked hard to get these new employees. It was so hard to hire. We had to provide these bonuses. to hire, we had to provide these bonuses. If we end up laying off people too early, will we end up screwing ourselves if you like, down the line, because we were too easy to kind of pull the trigger. So I think what we're seeing right now is you probably have companies that were already seeing that they could have been doing layoffs maybe a year ago, six months, more than that. And they're doing it now after giving it a little bit of time. That's probably my best bet as well to think what's happening.

I mean, it's still a lot of people reaching almost 60,000 people for not even the first month of Q1. Hopefully it will slow down, but it's not looking good at least so far this year. I don't mean to make jokes in an obviously shitty situation, but have you seen the TikToks of tech workers will be like a day in the life at Google or a day in the life at Microsoft. And it's like, I started the day, me and my team, we got breakfast and iced coffees

at the local cafeteria and it's all paid for right at these tech companies you don't have to pay a dollar and then then i hopped in a call and then we all went for drinks for lunch and then after i went and got snacks and then me and my team did like a bonding exercise and then at the end of the day we got more snacks and some more iced coffee and they're like you know they're filming this whole thing and putting on tiktok and i'm just like oh no i see these i'm like layoffs are coming hard like this is like how many how many of these people are just doing absolutely nothing and i'm sure the tikts are exaggerated and they are doing real work

in some capacity, but something has to give. At Alphabet alone, the average salary, sorry, the median salary is 350,000 USD and the average salary is higher, closer to five, half a million dollars in USD. We're talking about a bloated workforce paid very well, which I'm happy that these people are making this much money. That's amazing. These high-skilled workers, a lot of them very skilled in tech, but a lot of these companies just go way in and over their heads and trying to do a talent land grab, you know, be, you know, be the company that has the best talent, grab it right away, especially when we had labor shortages to just try to land grab and expand on the talent pool. And then now it is just going the other way so fast. It's, it's, it's wild to see. No. Yeah, definitely. But, uh, anyways, I think we,

It's wild to see. Yeah, definitely. But anyways, I think we've talked enough about layoffs here in the tech sector. I think you have another piece of news before we get to earnings? I have another quick segment here on Canadian entrepreneurs making big splashes. I like highlighting these stories because it's a reminder you can build some amazing businesses in this country. And it's also nice to take advantage of the currency arbitrage. You run your business in CAD, you earn on the top line in USD. Boom, it's a beautiful thing

right there. You got margins right there. From TechCrunch here, Tama Bravo, the private equity firm announced it would spend $1.8 million Canadian dollars to acquire Magnet Forensics, spend $1.8 million Canadian dollars to acquire Magnet Forensics, Waterloo-based company used by defense forces and businesses to investigate cybersecurity threats. Their main, like police enforcement is actually their biggest segment. Magnet Forensics will be purchased by a newly created corp controlled by Tom Abravo called Morpheus. They're paying the shareholders of Magnet Forensics because it is a TSX listed stock,

a 15% premium over Thursday's close on the Toronto Stock Exchange. This is expected to close in the second quarter. And very similar business to Axon. If you can, on the software side, if you can kind of picture what they do. Interesting stock as well on the TSX, and it's a shame that I just get a hold of it now

with a big TechCrunch article about them getting acquired. Jad Salibo, here he is from their website, was working as a frontline police officer in Canada when he was diagnosed with cancer. After receiving treatment, Salibo was reassigned to digital forensics and quickly learned that the tools police agencies had at their disposal were insufficient to investigate cyber-enabled crimes. investigate cyber enabled crimes so very interesting and probably a business that is going to be in high demand because they're like the the police force isn't like the talent that they have and the the tools that they have are not well suited for dealing with cyber crime especially when it's not like you know like uh the government's not going to get involved in some of these cyber crimes right like they're too small for that yeah but they're still significant

um and so interesting interesting business huge props to these these founders out of waterloo ontario you've built an awesome business congrats on being mega rich uh That must be nice. The ticker was MAGT on the TSX Magnetic Forensics. Great growth story. If you get a chance, go look it up on Stratosphere. MAGT, 40% compound annual growth rate on revenue since being a public company and done it profitably for years now. I was pretty surprised that they got it for only a 15% premium on the listing. That's pretty uncommon for a growth stock. And I think that that's a sign of the times. Yeah, exactly. I think you're not getting 50% to 100% premium right now. It's probably actually a pretty good premium, like you said, considering the times. And I

wanted to double click, You mentioned Axon quickly. For those not familiar with it, Axon, they make body cams and also Taser. They used to be called Taser. So they have a very sticky ecosystem, especially their Evidence.com site, where police forces will have this footage that they'll get on those body cams that goes directly there and they use that so it would be very difficult for police forces to actually switch from them and uh they're definitely the leader in this space so just a quick because you mentioned it but i know some people may not be familiar with it because i think we talked about

it's a stock i own very small position uh but we talked about it maybe like the first year, I think, of the podcast. Yeah, it's a great business. I like it quite a bit too. It's basically just forever lives on my watch list. I think that you owning it makes it's a good business when you understand well. And this space is a good space, right? It's like, not only are you owning a lot of the hardware in Axon's case, but you're owning the sticky software that is required to run some of the important pieces of like a police department, right? And there might be no business I like better than software that

sells to government. I can't think of a better business, honestly, in terms of stickiness and especially in a space like forensics or at least accountability in police enforcement. That's a trend that these organizations are spending more and more money on every single year. So the macro picture is good for that as well. No, exactly. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual

RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians,

and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world. Well, folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple, yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly

recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Now we'll switch over, like we mentioned, to earnings. I'm going to talk about Interactive Broker. They released their full year's earning. It's a name we haven't really discussed. I know they they are present in canada i think they have actually i looked at them a while back i think

they have pretty good trading fees too if i remember um have you ever looked at them just as a platform i have um always left very impressed um especially on the fx. And I know what I've given interactive brokers is it's like, it's a good platform for anyone, basically, no matter where you are, like no matter what country you're in, like they serve it. And it seems to be solid, not only from the product, but also on the fee side, no matter where you are. And I can appreciate that. Yeah, exactly. So I wanted to touch on them. And there's something actually that as I was going through the earnings that I found really interesting, and then I did a bit more research. Now, first, let's look at the revenues, they increased 13% to 3 billion, commission revenue was down 2% to 1.32 billion, net interest income went up 45% to $1.67 billion.

For those of you who don't fully understand what net interest income is, it's because they do some loans, for example, margin loaning. So clearly with interest rates being higher, that's increased significantly here. Customer accounts increased 25% to 2.1 million. Customer equity decreased 18% to 307 billion. Daily average revenue trades, also called DART, decreased 22%. And net income was up 12.6% to 1.84 billion. EPS was up 12.6% to $1.84 billion. EPS was up 16%. Now, customer margin loans decreased 29% to $39 billion.

And I wanted to double click on that because that makes a whole lot of sense, right? We were in definitely a risk-on environment. And, I mean, it's no surprise to me that there's probably a lot of people that got wrecked margin trading. And I found some interesting data from FINRA, which is the Financial Industry Regulatory Authority. It's a US agency that is there to protect investors and safeguard capital markets. Margin debt in trading accounts, according to their data, peaked at a whopping $936 billion in October 2021. It was actually a pretty much double from the lows of March 2020. It was up 95%, so almost a clean double.

And it has been going down every single month since. But one, margin debt was sitting at at 607 billion as of December 2022 and that's a 35% decline from the peak so the customer margin loans that we just talked about for interactive brokers pretty in line with that again they are in several countries and I believe FINRA really only tracks US what tells me here is that there's probably a lot of people who were going long on margin and probably ended up selling either at a loss or getting margin calls. So I think that's just a good example of, you know, be careful with margin. It can be very attractive in a bull market, especially for a lot of people because, you you see number go up why not you know maximize

your returns with margin but we've seen you know kind of the frothiness of the market i mean the the peak in margin was essentially just in line at when the markets peak so i thought it was interesting just to double click on that i love when there's a name here that pops up on the earnings thing and we're like, you get more interesting data out of it from looking at these companies. That's my favorite part about the earnings show. So what do you think about their full year? What is your takeaway here? No, I think they definitely had a good year considering. I mean, it's kind of good and bad at the same time. Overall, I think it was a very positive year.

I'm saying it's good and bad because clearly commission revenue, which is the trades essentially that people make on their platform, that was slightly down, which kind of goes in line with when we looked at bank earnings, capital markets, things being, you know, down. But then again, they also do loans and we're seeing that the net interest income went up 45%. So it's actually a pretty interesting business when you think about it, because, you know, if interest rates are going up, chances are your net interest income will be going up as well. Commission will be down. They're not so reliant on trading volumes. No, exactly. It's kind of like if one goes up, the other one maybe goes down.

So one kind of offsets the other. So it's definitely an interesting business. Not a small business, but not a mega cap. I think it's around 30 something billion in terms of market cap. I'm just impressed that commission revenues were basically flat. Yeah.

Like down 2%. Commission revenues were, for all intensive purposes, mostly flat. Like that's impressive. Yeah. I mean, obviously, on a customer basis, it's definitely not flat because customer accounts increase 25 customers increase 25 yeah i mean i'm gonna go on a limb and say that that speaks to the product yeah right like that is entirely product driven that

customers because we didn't get 25 increase in net new opening for brokerage accounts. That's people switching. From maybe Robinhood or something like that. From Robinhood. Yeah. Yeah. I can see. So that speaks to the product being superior to a lot of the other ones. And so, hey man, got to give it to them.

That's pretty impressive in a year where you would think a business like this would get wrecked, like fundamentals wise. Yeah, no, exactly. So no, it was an interesting, it kind of took me more time than I thought looking at it. And then I started digging into the margin data as a whole. So yeah, it's fun when you look at a business and then you just kind of go down into the rabbit hole a little bit. I deeply apologize because part of your segment, I looking up microsoft's results which just came out yeah

you want to go and do that so let's get to it at the end uh we'll do kind of a live reaction because i have some some stuff on netflix here um i'm just happy that i own microsoft's stock is a five percent offer after hours it is my most recent purchase. I finally, what was it, like last week? I think I texted you. I was like, I bought a one and a half position. Yeah, I think so. And I texted you a few days after and I said, oh, your timing was good. It's even better now.

It's even better now. Let's talk about Netflix. They reported light last week, but it's one I promised that I would talk about here. I just want to start a quote because it sets the stage for the way this business is currently positioned. And the quote here is, 2022 was a tough year with a bumpy start, but a brighter finish. We believe we have a clear path to re-accelerate our revenue growth, continuing to improve all aspects of Netflix, launching paid sharing, and building our ads offering. As always, our North Star remains pleasing our members and

building even greater profitability over time. Now this quote says a lot, right? Because I have a graph here that you can see here on the doc, Simone, which is their revenue growth in a percentage. It is a graph that starts in the top left and goes to the bottom right, sustaining in 2018-ish 40% top line revenue growth, all the way into some quarters of negative and actually not quarters, that would be subscriber ads. But the top line is now just at a few percentage points coming in at 1.9% year-over-year growth on the top line for 2022 in their fourth quarter. So to re-accelerate their revenue growth is a priority, and it certainly needs to be because this has gone from an explosive world-changing growth business to barely growing even at all and that changes the landscape a lot do you have any comments on that uh yeah i mean uh it's yeah it's definitely interesting the the

growth yeah like we're seeing them forecasting more growth in 2023 compared to Q4 2022. And what we had brought. Like you know it was a downward spiral a little bit here. It's still a wait and see for me. But definitely what was nice is their Freecastle positive for this year. I think produced over a billion if I remember correctly. So I think you know there's a lot. There's some things to like definitely. I listened to part of the call as I was preparing for the show.

And I know you're going to be talking about Ted Sarandos and Greg Peters that are now co-CEOs. And Reed A. Sting's, you know, leaving the CEO chair there. And they have their work cut out for them. But hearing them talk, it definitely sounds like they have a plan going forward so I've never been a huge fan of Netflix as an investment because I think it's just so capital intensive but you know if they have a couple years where they can pump some free cash flow improve their margins show that they do have some really valuable franchises. I'm not saying I wouldn't change my mind, especially if they are resilient

in the face of a lot of competition. I think that they've proved their resiliency. It's more so, can they prove that they can still grow? And I'm just not so sure of that. And the data would suggest that... The data suggests not a positive outlook for them to be able to grow like they used to. And I'm not expecting, of course, for them to grow 40% kegger all the time.

Of course not. My head's not in the sand there. But to see such a deceleration so quick as soon as a bunch of new players really put their best foot forward in the streaming business, it is thesis changing. I've never been a shareholder, but I'm pretty bearish on the business. I really am. I'm pretty bearish on the business. I really am. I'm pretty bearish on the business based on how cap intensive it is, the amount of cash that they're pumping out versus how many subscribers they have now, and how many real subscribers does this business look like at

maturity? I just don't know that it's that much more than it is today. And so that's why I'm a little pessimistic, but who knows? The valuation has certainly improved significantly at the expense of shareholders as of late. Now, you hinted at this, the big piece here, I think the most important part of the call was that Reed Hastings is stepping down from CEO. This business has been defined by its founder, Reed Hastings, who has been such a beast, such a great success story as a founder and then operator of this mega cap business. Ted Sarandos and Greg Peters will be co-CEOs in replace of Reed Hastings. Reed Hastings will become a chairman, executive chairman. And so still involved in the process. But he did say on the call, it's going to be like, you know, Jeff Bezos type situation. So I think he sees more yachts

than board meetings, because that's certainly how Jeff Bezos has handled his step down. So if he hinted at that, I see more yachts than board meetings. And so he should. So he should. Good for him. And I don't have really much more to add here, but I'm personally not that optimistic that they really pull off an acceleration of revenue growth. I hope I'm wrong, but that's my current position. Yeah, I mean, I think it all depends on the ad supported. I think they've been warning more and more about, you know, cracking down on password sharing with people. So I think, I don't know, for me, there's still a lot of uncertainty how that's going to move going forward. It could end up being good, could end up not being so good. Like, you know, I'll talk about a personal experience is, you know, if I, let's say, you know, I'll talk about a personal experience is, you know, if I let's say, you know, I would be sharing my password with other family members and stuff like that.

I mean, for us, we like to do a rotation in terms of what we're watching more. If you're not sharing your password anymore and they don't allow you to do it, then at some point you may just say, oh, it's easier for me to cancel it for a month. And then, you know, wait a few months until shows that I like actually come back on. We've done that with several services. And the only reason we haven't done it with Netflix is we have some family members using it because we paid for the plan where it was more expensive so you could share it. They actually had plans built like that. they actually had plans built like that. Yeah. It's so easy to say in a thesis for Netflix that you can unlock a bunch of subscriber growth by removing the password sharing. And you could end up at backfiring and you have a bunch of net churn, right?

Yeah, exactly. In your situations, those kind of investment thesis are never as black and white. It's the same. It's the same for Autodesk. Like they have like millions of users that use it on a non-compliant license, but they don't want to just say too bad. You don't have it anymore because there's a whole can of worms that open up in that scenario. They'd rather try to wean them in slowly and it makes it easier once it's cloud based um but just going cold turkey right away there's a reason they haven't done it um because it's not easy to do yeah and i mean the reason why we have i think we have the top tier subscription with netflix is for that exact reason because it allows you to watch like four people at the same time. That's the only reason. So I think we may I don't know if we'll

cancel it or whatnot when they, you know, really start cracking down because, you know, their policy has always been like they wanted to almost, you know, not do anything. So they get people hooked on it. That was always their policy. Now they're changing that a little bit. But maybe we also just get the ad supported version if we're, you know, just, you know, save a few bucks, something like that. So I think it'll be interesting. Those ads will come on and you'll want to lose your mind. Well, go to the washroom. There you go. It's a washroom break. P-break.

Yeah, exactly. I use Adblocker. Do you get ads on YouTube by chance? No, no, I use that as well. Yeah, okay. Every time I'm on my phone, I don't have Adblocker. I'm like, people watch YouTube without this? Like, that is a tragedy.

Yeah, I mean, I don't get that annoyed. I just wait the five seconds and skip ad, whatever it is. Sometimes they make you watch it. Yeah, no, it's true. But I personally, you know, if I can save 30, 40 bucks a month, you know, with all my subscription, just because I'm checking out a few ads, I might do it. You know, it's an extra dinner out or something or half a dinner out. Half a dinner. Yeah, exactly.

Depends on what you order. All right. Let's get into this last Canadian grocer here and then we'll do a Microsoft live reaction. Okay. Sounds good. So this one I wanted to do because grocers, obviously in Canada, I've been getting a lot of flack in the past year with food prices like we talked about with the CPI print being you know increasingly high Metro released their Q1 2023 earnings sales were up 8.2 percent to 4.7 billion food same store sales up 7.5 percent pharmacy same store

sales up 7.7 percent for those of you are surprised with the pharmacy element here if you were not familiar with Metro that's because Metro acquired the pharmacy chain Jean Coutu it's a mainly a predominantly Quebec based pharmacy so that acquisition was in 2018 they also have a few stores in the Ottawa area in the more kind of French speaking regions of Ottawa and neighboring cities. So just for those who are wondering what the whole pharmacy deal was, earnings per share were up 14% to 97 cents. Earnings were up 11% to 30 cents 30.325 so you got some fractional cents in there per share and free cash flow was up 62% to 102 million so overall a pretty good quarter I mean I know we've seen politicians kind of go after especially metro i feel like not as much

loblaws has really been in the crosshair of federal politicians especially i don't know if you've seen that i have seen it and i gotta say most of it is political theater yeah no real plan yeah yeah and when you look at the numbers you know know, for the most part, it's not like their margins are really increasing. Their margins have not expanded. No, exactly. So it's really, yeah, sales were up 8.2%, but their costs were pretty high as well. So I've looked at the numbers. I think Loblaws, when they released a few quarters probably last year, a few quarters back, and I was kind of trying to gauge and I mean it

was I couldn't really spot if they I could see the prize gauging obviously you know they they don't have necessarily the best track record with the whole bread thing that happened some years ago but I don't know it's hard to just look at the statements and see that I know a lot of people are trying to put it place of blame on them. But just to keep things in context, I know it's easy to cherry pick some numbers. But I would encourage people to actually dive into those financials and have a look for themselves and make their own opinion on that. Metro has achieved, as a public company, you go back to 1995, a compound annual growth rate on the stock of 16.63% over 28 years. My goodness. Yeah, it's just like up in the right corner.

Up in the right corner, man. Canadian grocers have been up and to the right corner my favorite one still is loblaws if i had to own one um i just think it's the best of breed but man that's more so anecdotally because i don't like shopping at metro like i just don't personally and if you shop at metro no offense um but my goodness these things have been no drama steady compounders unbelievable yeah and i think they have slightly different markets right i think metro tends to have like smaller locations for the most part where loblaws you know i know loblaws has some smaller locations too, but they have these like super stores, right, that are massive, where I can't recall any metros being that huge.

I think they probably have, you know, a slightly different approach when it comes to that. The metro, out in the burbs, they're full-on big boys super stores, supermarket stores. Are they? Yeah. Yeah, okay. But you're right.

I think they have, and no, no pun intended, maybe pun intended in the Metro areas, kind of built those like mid-sized ones that like be connected to like a apartment buildings, like high rises and stuff. And those crush it.

Those crush it. Cause they're just very conveniently located. Yeah. And they can probably, I know it's tends to be a little more expensive to at Metro. So maybe, I mean, from personal experience, I don't know if that's all over the place, but they do have some cheaper brands like Sparse on the Quebec side, Food Basics also. So they do have some cheaper alternatives, retail brands. I'm going to quickly gloss over Lockheed Martin because as you can see here,

I wrote an extensive earnings summary, but we're getting to time here. And what I'll just say is basically everything was flat, but they keep distributing lots of cash to the shareholders, generating over 6 billion in free cash flow per year definitely helps. Spending upwards of $8 billion on share repurchases in the year, this is a way to deploy cash to increase earnings per share, no matter what the top line does. And this is the level of maturity this business has been at. They delivered 141 F-35s in the year, which is insanely impressive. As a side note, I don't know if you saw this, but Canada made an agreement with Lockheed Martin to buy 88 F-35 stealth fighter jets in a $14.2 billion U.S. deal.

So that backlog for F-35s continues to grow. The backlog for the businesses grew 11% year over year while the top line and everything else was flat. There's more backlog to fill for this company. And it's insane because if you look, no U.S. president has ever decreased spending before on defense. So more of the same. That's my synopsis of LMT without getting into the weeds is more of the

same yeah and it's like it's sad to say but what we're seeing happening in russia and the geopolitical tensions we're probably going to see countries that are friendly with the u.s and that's important here they're not they're not selling to china um let's let's be honest here so they're not they have certain pre-approved countries that the U.S. will allow them to sell to. It's probably, unfortunately, going to be a tailwind for them. Obviously, I say unfortunately because you want, you know, peace in the world and you don't want, you know, countries kind of stocking up, expanding their military budgets. But a company like Lockheed Martin will definitely be the beneficiary of that. And for Canada, the F-35s, I mean, they've been in talks for, I think, over a decade for purchasing those.

I think because they're still using these. That was a political point made by Trudeau was that, you know, that conservative government, they're going to spend all your money on buying F-35s. This is what I mean about political theater. It's all a bunch of BS because they just bought 88 of them, or put it in order for 88 of them. Well, yeah, and I think the CF-18s were, if I remember correctly, because I used to work at the War Museum,

I think they came into service in 1982. So they've been due to replace them for some time so it's not you know we don't want to get political we generally don't talk about that but definitely you know there is a point to be made that you need to have at least a certain size military to defend your your national security so i think it's just it was kind of due i I think that's just clear and plain at that point. And, you know, dude, I'm like purely war is just the worst thing ever. Like, of course, that's my stance. But as an engineer, these F-35s, like, I nerd out a bit.

Like, I don't, like, they're killing machines like let's not let's not kid ourselves so i'm not into that but my goodness they are so cool like the the tech inside of an f-35 is absolutely mind-bending and so i nerd out a bit watching youtube videos of f-35s all right let's uh let's do Microsoft here. Do you have at least the press release up? I don't, so you go for it. Okay, I'll start. Revenue was $52.7 billion for the second quarter.

These companies are so big that you hear a number like that and you're like, that must be full year results. But no, this is their fiscal Q2 2023. So they're on a bit of a different weird schedule there. It was only an increase of 2%. And this is, again, just me going off the cuff. What it looks like is more of the same where you have not huge top line growth because the personal computing segment is in steady decline, but you have the cloud business just crushing it as per usual. Intelligent Cloud was up 18%, 24% in constant currency. The Azure business grew 31%. That's the pure play Azure Cloud, 38% in constant currency. So they're achieving that high 30s, low 40s. They're still maintaining that growth on the cloud business. And I think, you know, GCP, Azure, Amazon Web Services, they're all achieving that like really ridiculous sustained growth. And you know, I think they can

continue to persist on that really high growth. But the the soft spot here is that personal computing business down 19% on the top line. Windows, OEM, Xbox, yeah, not great. Direct revenue decreased 39%. I don't know what that is. So more of the same. Good on the enterprise business, great on the cloud, and some soft weakness in the personal computing segment. Yeah, which is not surprising, right? The personal computing segment was really turbocharged by the pandemic. So everyone was buying a laptop to work remotely. And I think that led into 2021. Their fiscal years are a bit weird when it comes to Microsoft.

But clearly 2020, 2021, a lot of people were still working remotely, needing those new computers. Lots of lockdowns still happening in 2021 across the world so if you're stuck at home what are you gonna do you're gonna play your xbox so i can see why that segment didn't do that well i think it's just uh you know it's just a cycle it's just just the economic environment. The times. Yeah, exactly. And one thing I think to double click on that you didn't touch on, but I think it explains pretty well why they did these layoffs that we talked at the beginning of the episode is revenues did increase, like you said, 2%. But operating income was down 8%. So I think that is right there. And net income was also down 12%. So I think right there, what that tells you revenues being up 2% operating income down 8%. And net income down 12% is that our expenses grew faster than that revenue in terms of percentage. So when that happens,

obviously, you know, you have a company as big as Microsoft and someone as savvy as Satya Nadella. Clearly, they're going to be looking at doing some cost containments. And unfortunately for the people affected, they decided that reducing their workforce was the way forward. Yep. Yeah, this touches back on this operating income and how heavily affected it is by the workforce. The huge layoffs from Google, huge layoffs from Microsoft. And there's going to be some pretty big impairment charges on the next few quarters because holy smokes. I do not mean to make any sort of positive light on people getting laid off, but these people are getting amazing packages, like all things equal. It's been great to work

for big tech, and it's pretty great if you are getting laid off, that you're getting laid off from big tech, because my goodness, the packages they're getting are amazing um and you know these companies can afford it so as they should yeah and i was listening to um to another podcast i think uh do you know the all-in podcast yeah yeah the chamath and those guys yeah yeah yeah and i was listening to them they were actually talking about tech layoffs and they said you, it's probably an opportunity for those who are entrepreneurial to actually team up in small groups of people. to create a potential new product and you can end up our new software right and end up you know becoming way ahead two three four years down the line so they were saying that you know you have to look at the positive side as well I mean some people will probably you know I know it's it's a hit to the ego if you're lay off it's not. I've never been laid off myself, but I've talked to people

who have and it's never easy to take. But at the same time, if you can make a positive out of a negative situation and bet on yourself, that's always something that can turn out to be positive. And I encourage people if they were affected, you know, bet on yourself, bet on yourself invest on yourself and just try to turn that into a positive situation the reason i went long microsoft officially as of last week was just seeing firsthand how well they're tying in the ai to azure and all of the developer ecosystem not not to mention they own GitHub. Like they went from owning basically no part of the developer ecosystem and under Satya Nadella being the dogs in the space within literally five years. And that is like Satya, like, you know, you got to own companies with great management teams and Satya Nadella has that dog in him, dude. This guy literally took them from zero to 100 in owning the developer ecosystem. And now with it all

tying in together with AI, GitHub Copilot is magical. We pay for it. OpenAI, they just invested $10 billion in OpenAI. Microsoft did. They already owned the sources I saw, 51% of OpenAI. Everyone knows ChatGPT now, another $10 billion in there. So they own, at this point, a majority stake in OpenAI. So they're putting their best foot forward on owning the next computing platform when it comes to machine learning. Yeah, and I mean, good on Satyen because he had big shoes to fill after Steve Ballmer. Ballmer, actually, you know what?

Ballmer kind of started the whole, like, we got to own the developer ecosystem. There's a famous press conference where he looks looks hammered honestly he goes developers developers developers and he's trying to get everyone to chant like he's trying to he's trying to get everyone hyped up on the the press conference and it's just so cringe to watch but uh yeah i mean i don't know if you've ever seen that gif developers developer developers no i'll have to look i mean i guess there is one good thing he did uh you know aside from burning tens of billions of dollars but uh yeah oh steve bomber uh he's too easy to pick on i'm sure he's on his yacht somewhere so i don't feel too bad for him yeah he is stupid rich um stupid rich and just from owning and climbing the corporate ladder and owning a bunch of stock

of Microsoft sure is a good path to get there. All right. Thanks for listening to the pod today, folks. We really appreciate you. We are here Mondays and Thursdays. We're going to do a little bit of earnings as well, just because there's so much for the Monday release as well. Because why not? And there's lots to talk about here. So keep tuning in to the Canadian Investor Podcast Mondays and Thursdays. If you have not left a review for the show, we really appreciate that. You can do that on Apple Podcasts. You can hammer that five star button on your Spotify and it helps us grow the show. So thank you very much. Take care. Bye bye. The Canadian Investor Podcast should not be taken as investment or financial advice. it helps to grow the show. So thank you very much. Take care. Bye-bye.