The Canadian Investor - Meta’s Historic Jump and Metro Increases its Dividend

Episode Date: February 8, 2024

In this episode of the Canadian Investor Podcast, we delve into the recent US Fed rate announcement and its impact on the Canadian bond market, particularly the 5-year bond.  We also go over the earnings of Meta, Amazon, Canadian Pacific, Google, ,Allied REIT and Metro. Meta's impressive financial performance and market cap gain take the spotlight, while Amazon's consistent earnings beat and operational growth showcase its resilience. We look at Google's strong earnings come under scrutiny, with a small miss on expected ad revenue affecting its stock. Tickers of stock discussed: CP.TO, AMZN, GOOG, META, AP-UN.TO, MRU.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 Dan’s Twitter: @stocktrades_ca 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.

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And finally, earnings are really kicking in. We even have a decent amount of Canadian names as well. So we'll be talking about Big Tech, Kansas City, well, CPKC, which is Canadian Pacific, Kansas City Southern. Same ticker as always, CP.TO. A couple other Canadian businesses. Dan, how are you doing? And any earnings you're most excited to talk about? I'm doing pretty good. I mean, it's not so much on the Canadian end still, mostly big tech in the US this week. But meta was definitely interesting.

I'll be looking forward to talking about that. The largest gain in history, market cap wise, in a single day. So it holds both titles. The largest gain and the biggest loss in a single day. It's pretty crazy. But no, overall, not too many canadian earnings besides you know like a grocer and a couple reits but they'll start to come in soon yeah exactly it'll start coming in i know we've been saying it for a little bit but we do have some canadian content here

before we get going so when are your oilers playing is that we're recording this on tuesday is it tonight they're going at the record? For the record tonight, yeah. Against Vegas or is it? Yeah, Vegas. And then they go against the Ducks to beat it if they get there. Okay, so tie it tonight and then the next game if they win it. Okay. Okay, so you'll be.

It's going to be nervous. I'm nervous. Are they in Vegas too? Yeah, they are. Yeah. Okay. And you're not like flying right after the podcast to go and watch? No, no, no, definitely not. Okay, well, we'll get started here. So there's a lot of stuff to get to. We'll start off with kind of some macro here,

not a super detailed review of what the Fed, the US Fed did last week. And to no one's surprise, they said that they were leaving the rate unchanged between, they always have a target, so between 5.25% and 5.5%. I won't do a full recap. There's tons of good information out there, whether you go on YouTube, other podcasts. But Powell said that they are prepared

to maintain the current monetary policy for longer if it is necessary to get inflation back to target, which is 2%. Now, keep in mind, the Fed has an explicit mandate of maximum employment, whatever that means, and price stability. So it is something that they have to juggle. They said that they will keep looking at data to decide whether or not they should be using monetary policy. But clearly, the market got a bit surprised by, you know, the statement. I think the market, well, the market was definitely pricing in a lot of rate cuts this year. They still are, but they're shifting the rate cut probabilities a bit later

this year. So we're not seeing any, you know, let's say 50% plus chance of a rate cut until the May meeting. The next meeting is in March. And according to the CME FedWatch tool, it's around 15% for a rate cut and 85% to remain unchanged. And then you're seeing the increases

go up pretty substantially as the year goes through. Again, I think it'll be interesting because especially the there's a meeting in September, another one on November 7th. So that is like right in the thick of it for the U.S. election. So it'll be interesting whether they try to get maybe a bit more cuts earlier on before those two meetings to show that they're not politically biased and try to get like Joe Biden in, for example. But something to keep an eye on. And I'll give a little bit of Canadian flavor here. So what was really interesting is following that meeting, Canadian bond markets really reacted, not only Canadian bond markets, the US as well, but the five-year Canadian bond went from 3.38%

to 3.63%. When I did my notes yesterday, it's a bit lower now. I think it's 3.6%. Now it's the highest level since the end of November of last year. And we'll have to see how bond yields progress and what the impact will have on the Canadian housing market. The reason I'm saying that is because the five-year Canada bond affects the five-year mortgage rate. So banks will typically price the five-year mortgage as a difference. So whether it's, you know, 150, 200 basis point higher than the five-year bond, that's because the way they see it is we can put our money in the Canada five-year bond in the air quote risk-free asset, or we can lend the money out for people to buy homes, but that is riskier. So we put a premium on that. So that's why it's

always tied to the five years Canada bond. So it'll be interesting where bond yields actually go from here, but it could definitely damper the housing market this spring if they remain elevated, because most people tend to gravitate around the five years or three years. So those are always impacted by the bond yields. It definitely doesn't seem to be slowing the housing market in Calgary yet. We had, they just report, I just saw this morning, the average single family dwelling in Calgary has gone up 12% year over year. So what's the average there? I think it just hit over 700,000.

Okay, okay. Yeah, which is like, that seems high to me. Like I haven't actually looked in, this was just on like global news or whatever this morning. But yeah, Calgary housing is pretty crazy crazy anything on our street typically here I'm just outside of Calgary but it's scooped up like almost right away it's pretty crazy but yeah the the rate cuts it's I think a lot of people were expecting at least a chance of a cut but he pretty much shut that down like it still could happen but his commentary

was pretty against it but i mean even if you look at this meeting this fed watch tool i mean they they predict what is that about a one in three just more than one in three chance that they're sitting at 400 to 425 in december which would be about 100 basis points worth of cuts, which would be pretty crazy, I think. Yeah, exactly. So it would be there's still pricing in quite a bit. So we can say that there's at least a, you know, they're pricing it a 50% more than 50% chance that it'll be like, yeah, 125 basis points or lower by the time the year ends so it'll be really interesting whether that actually comes true or not so they're still practicing it a lot of rate cuts i don't know it's hard to interpret that uh for the joint tci you'll see the the fed watch the odds right now you know

i find it just really interesting to have a look how the market changes and shifts just based on what is being said yeah exactly, exactly. And even, you know, from when I did my notes, I'm looking here. So now their probabilities have gone up for a rate cut in the March meeting, literally in a day. So they went from 15% now to 20%. Oh, yeah. So it does. Yeah. So it does shift very quickly. So something to keep in mind. But just I mean, at the end of the day, I know we have our own central bank, but the US is the largest central bank. So the Fed in the world and clearly our system is, you know, based on US Treasury bonds. And that's the basis of our system. So

they're going to have an outsized impact, whatever they do on the rest of the the world's central banks and economies so um just thought it was interesting with the bond yields anything else to add or uh we uh shift it up for some earnings here no that's about it pretty straightforward yeah so i'll start off for a quick one here for earnings just you know some canadian content before we get into big tech so metro uh the grocer reported Q1 2024 revenues were up 6.5% to just shy of 5 billion. Food same store sales were up 6.1%. Pharmacy same store sales were up 3.9% and they were led by prescription drugs, which increased 6.6%. Over-the-counter cells were actually not very robust with being up only 1.2%. They said that it's in part because last year they had seen a strong cold and flu season and people buying

those kind of over-the-counter medicine, which is kind of funny from my own personal perspective. Maybe it's because my daughter started daycare this year but uh the flu and cold season seems to be hitting me way more this year but i guess uh for the general population it's a bit different i think you're probably in the same boat as me huh so this year what for for sickness yeah for cold and flu yeah i've had a few of them but yeah like more than usual but yeah okay yeah it's been there's been a lot more people around me that are are got very sick i mean my wife was sick two or three times and somehow i avoided it completely but yeah it's uh yeah i'm not an expert when it comes to that stuff but i always get fascinated and obviously all the different colds are like they're all there's so many different viruses that will

cause colds and depending on which virus it is, I've noticed sometimes same thing, I'll get it worse than my wife or vice versa. So I'll barely have anything and she'll be sick for like a week. And it's just interesting how different immune system react differently. Yeah, you just can fight it off. That's it. Yeah. And now to get back to Metro, their food basket inflation was 4%, And now to get back to Metro, their food basket inflation was 4%, which they claim was lower than reported CPI. I mean, if it is true that it was 4%, it was clearly lower because CPI for food was 5.6% in October, obvious on year-over-year basis here, 5% in November and 5% again in December. Although, I would probably take the four percent claim with just a grain of salt because clearly um they're in pr mode the grocers have been under fire by the

government high food prices you know they've been now there's like what the grocer code of conduct the whole thing behind that so i i don't know i i mean i'll give them the benefit of the doubt but i would take that with a grain of salt here net Net income was down 1.1%, $229 million. They mentioned that an interesting thing is the labor conflict at 27 Metro stores in the GTA had a negative impact of $27 million. So I guess it's $1 million per store, but just goes, excuse me, just goes to show that i did have a bit of an impact here they generated 85 million in free cash flow which was a 27 decline from last year free cash flow can be highly variable on a quarterly basis so definitely again take this with a grain of salt i love this metric but it's more useful when you use it on a longer time frame. And they also announced a dividend increase of 10.7%.

Yeah, it was. I mean, if you look to store, like same-store sales, like when we look to food, they were pretty much flat when you account for inflation, unless they do net of inflation on these same-store sales. But I highly doubt they do. I don't think they do. Yeah, food prices going up 5% or 6%,

same-store sales 6.1%. So, I mean, we don't really have any Metro. I don't even think we have any Metro stores in Western Canada. So I don't know if they have like a discount line or if they're a pricier option. Yeah, they do so metros they're like kind of more i would say like pricier option i would say they do have let me check i think food basics is that what metro yeah i think it could be i think it is food basic and i'm pretty

sure it's super say on the qubit on the quebec side so i'm just checking here yeah yeah exactly so spicy and food basics are owned by metro yeah yeah it's it's i think a lot of you know grocers with like discount you know discount stores are are doing a little bit better now you see like you see it with loblaws a lot like they have a lot of discount lines like no frills uh superstore things like that whereas you know a company like empire who's pretty much just sobies and uh god what other one do they operate safeway maybe which are just i think they have don't they have a farm boy too i don't know if you have that in no i think we have sobies and safeway and I know Empire is making a pretty strong effort to convert a lot of those Sobeys stores to... It was one particular sort of discount store they have.

But, I mean, prices are pretty expensive right now. So I think people are going to be looking to shop discounted. And, yeah, in terms of the free cash flow like especially with a grocer like that can fluctuate so much yeah just based on you know expenditures they might have on the quarter so over an annual basis is probably like a better picture and you know if you even spanning that out to to longer but it's going to be interesting i find the grocers are best to just compare the three of them together. Like you look at Metro, Empire, Loblaws, that's going to give you a really good idea of just the overall situation. No, yeah, exactly. I totally agree with you there.

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It's a win-win since you make some extra money hosting on Airbnb but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Now, I think that's enough for Metro. We do have a full slate here. So we'll move on to the first of the big tech earnings. So Meta, so what happened with them? It must have been good because their stock jumped, what, like 25%? I think they closed 20% up. So they posted really strong earnings. So they beat street estimates on pretty much all fronts. Earnings per share were about 10% higher than expected. They gained a total of $197 billion in market cap when the

earnings were posted and when it closed. It closed $197 billion up, which is the largest gain in history. Prior to this, it was $190 billion in gains by Amazon and Apple in 2022. So again, as I mentioned at the start, interestingly enough, Meta also holds the single largest market cap loss in a single day when it reported earnings in February 2022, it lost $232 billion in market cap. I'm pretty sure this was back when Facebook was struggling. They had negative user growth. And in addition to this, I think that's when they were burning a ton of money in their metaverse reality labs type thing, which I think a lot of investors kind of thought was just going to be a constant cash burn, which up to this point, it kind of has been. So their

metaverse VR, they call it reality labs, revenue isn't really performing all that well. So it increased by 4x from 2020 to 2022. But this last year, it reported a 12.2% decline in revenue to close out 2023. I'm still fairly interested in this element of meta. I've played around with our little VR game. It's pretty cool. um vr game it's pretty cool we used to go like out to uh like actual physical stores to do that they had like little vr stores you could play the games on but now you can pretty much own it right in your house just on a headset which is pretty crazy i think back when we used to go you needed a pretty high powered computer to run the thing but for right now i think those vr machines are pretty pretty tough sell for those who are cutting back on spending, which is probably a lot of people right now. Ad revenue was strong, so they closed out the year with 16.1% growth and total active users were up 3.4% to sit at 3.065 billion.

There's 8 billion people approximately on earth. So that's, that's pretty high from a company standpoint, like year over year, it grew revenue by 16% operating income by 62% and earnings per share by 73% operating margins increased by 10%. So it went from 25% to 35% and its total headcount. I don't know if you know this off the top of your head, this would be the employees is 67,000. So this is 22% lower than last year. And I think this would have to be the largest decline out of big tech. Like I don't know if any of these other companies have laid off 22% of their staff. Yeah, I think you might be right.

Look, I know there's this really good website that is like a tracker. I don't know if you've heard about it before. It's like layoffs.fy. Oh, no. Yeah, yeah. It's really good. So it gives you its fur tech layoffs. It would include meta.

I'm looking at, I think they've, yeah, it's a bit. Like I know Google's probably, Google I think is down like maybe high single digits staff wise, but I know they're not down 22%. That's pretty drastic. No, I think they're probably up there because it just, it gives when the date of the layoffs happen. And based on meta,

there was a couple of big layoff of 10,000 plus layoffs. So I think that's the biggest one. Amazon also is pretty close, but not as in just absolute number. I don't think they're, they're anywhere near meta in terms of total kind of employee counter as a percentage. Yeah.

Yeah. This is definitely like, I mean, when you're growing revenue and you're cutting 22% of your, of employee count or as a percentage. Yeah. Yeah. This is definitely like, I mean, when you're growing revenue and you're cutting 22% of your employees, you're going to notice an instant boost in results pretty much. The big news among dividend investors, however, Meta is now going to pay a 50 cent quarterly dividend. So $2 a year. As of right now, it's about a 0.43% yield. And if we look to a trailing 12-month basis, like based on their previous year's earnings, it would be around a 13% payout ratio. If it can hit 2024 expectations of $20 a share in earnings, it drops to just 10%. So I mean, this is a really low, low dividend. I mean, it's the initial issuance of a dividend. So I wouldn't be surprised to see Meta, you know, become a pretty consistent dividend growth stock just because of the the room they have there. But I'm not exactly sure the strategy

on this, like why they would feel it necessary to issue a dividend. But I don't know your thoughts on that. It seems kind of odd. Yeah, I mean, it's a good way for large shareholders to get some money out of the company without having to sell shares. So I think that probably has a little something to do with it. I mean, I'm just guessing here. Yeah, maybe they're're trying to they know their business is kind of you know there's like maturity to it even though it's still growing maybe they kind of figure out there's a good base of free cash flow and profits that will you know there's a kind there's a floor that they're comfortable with with paying a dividend and kind of basing on that. That would probably be my best assumption, yeah. Well, a lot of dividend investors are probably happy

because another big tech, I think it's just, what do they have? Microsoft, Apple, Meta now. Amazon and Google don't quite yet. I don't see them paying one in the near future, but overall it maintained most of its guidance. It made some commentary on how Reality Labs is going to continue to incur operating losses. And they actually said that

they're going to increase meaningfully year over year. And I think, I can't remember the actual operating losses. I believe they were like 16. I can't even remember. 16 billion or 16 million or something like that. But this segment of the business is kind of burning quite a bit of cash. And they said that capital expenditures were going to come in $2 billion higher than originally expected. I think they boosted it from 35 billion to 37 billion. So I mean, it was definitely a good quarter, but it's a bit puzzling to me how it gained 20% on earnings day. I don't know.

It just doesn't seem like a quarter that would warrant a 20% gain. A gain for sure, but 20% was just pretty crazy to me. I mean, personally, from my personal standpoint, I've never owned meta just from a moral perspective like the business just has always kind of turned me off especially with that whistleblower situation in 2021 where they pretty much revealed that meta knew how harmful its platform was to like teenagers and misinformation and hate speech and all that so it's never really been something i've ever wanted to own and would never own despite how cheap it did get in 2022 is pretty crazy i'm i don't judge anybody who owns it but it's just not something that no that i would ever own

personally yeah that's a good point and he was i think in front of congress last weekend he actually apologized to families that uh there was armed cause because of you know teenagers on on meta so you actually turn around so i'll give him that that you know a lot of the times i mean we see we've seen it with i think uh galen what the blah blah yeah blah blah guy yeah yeah galen watson or no that yeah the name escaped me but everyone knows uh the least charismatic person in the world uh at least in canada and when he was asked like in person i think to weston weston apologize i think there was something about like higher food prices or he was given a story and he just

like did not want to even entertain that i'm trying remember. I may be a little bit off, but it was kind of telling. And but yeah, I mean, I think at the end of the day, too, there's probably a good societal discussion to have. Like maybe maybe there needs to be an age restriction for kids to be able to go on those platforms. I don't know how you'd enforce that. Maybe it's difficult. Maybe it's 15, 16, maybe 16 years old. I don't know. you'd enforce that. Maybe it's difficult. Maybe it's 15, 16, maybe 16 years old. I don't know. Obviously, they're a pretty addictive platform. So it's something maybe, you know, as a society and, you know, working with those companies that do own those platforms to put some kind of safeguard behind it. But it won't be perfect because kids are smart these days and they'll probably find a way to go around it. Yeah. We'll move on to something again. I guess I'm the

Canadian portion of the podcast today. So I like property read. I always have a couple of people reaching out to me when earnings come out because they know I own it. Most of the time, they're people that own it as well. So the full year results here don't matter as much. So I'll look a bit more at the quarterly. I'll be comparing some numbers on a sequential basis. So Q3 versus Q4 and some I'll look the year over year. I'm trying to give as much context as I can. I do own it full disclosure, but at the same time, I think there's some positive, there are some things that weren't as good. And I want to be give the most objective kind of review here of the earnings as

I can. There's been a lot of change in the office space as all in the past year. So I think providing as much context is really important. The stock was down close to 10% when the earnings release came out. And I think I'll just give my big thoughts of what I think really happened and why investors sold off. So once, well, first of all, once a potential client has interest in a property, they said that it takes them about 12 to 18 months to close that deal, whereas it was three to nine months pre pandemic. Now, a big concern here is not the return to the office. They seem to be saying the main concern is just the kind of uncertain macroeconomic environment.

So clients are extra careful to commit to new space. And for extra context, there is 1.1 million square foot that is generating interest from clients. About 60%, so 6 six zero of that is currently under negotiation with the rest of 40 just being about like more you know gauging and seeing if uh you know clients are kind of just doing their initial due diligence they still believe that they will be back to 94 95 occupancy right now they're in the high 80s and i'll talk about that in a little bit but it may take longer than initially thought and they did not provide a time frame on that so i think people were expecting i think in the past they were saying probably by the end of 2025 so i think the market didn't love that there was a bit uncertainty there they expect the first half to

be slower for leasing activity but to pick back up in the back half of 2024 and overall their outlook for 2024 is flat to slightly down on most of their important metrics like funds from operation or adjusted funds from operation and i'll talk about these a bit more as well they also rode down 772 million for the year on the value of their investment. Now, most of it being last quarter. So this is essentially just adjusting the value of their assets downwards. And I think that was another reason that the market probably didn't love to see. Now, on to the results. FFO and AFFO increased 2.7% and 3.1% respectively versus Q3. FFO is calculated by adding back depreciation, amortization, and losses on sales of assets to their net income.

And then subtracting any gains on sales of assets and interest income. Now, AFFO is similar but takes into account maintenance costs and also straight lines rent which is the average rent for the life of the contract. Leased area and occupied areas were down 30 basis point and 40 basis point respectively. Now leased area is at 87.3 percent. Occupied area is at 86.4 percent. They are well above market occupancy based on CBR figures in all markets except Vancouver. However, Vancouver is one of their smallest markets. Their two largest markets are Montreal and Toronto. It represents 78% of their total leaseable area. And the rest is divided between Inorder, Calgary, Vancouver, Kitchener, Ottawa.

Now, the interest coverage ratio improved from 2.5 percent to 2.9 percent versus Q3 and it's actually back at the level that it was about a year ago that's because they use some of the proceeds that they got from the sale of the urban data center portfolio to pay down debt and the average in place rent per occupied square foot, which is a very, you know, an important metric to focus on for a company like this, was up 4.3% year over year and up 1.3% versus Q3. Overall, I mean, they are faring very well when comparing to the CBRE office real estate report. And that report comes out every quarter. So the vacancy rate, if you compare for downtown Class A, because you have allied property REITs that are Class A office

building, Class A just means these are building with nice, like really, you know, they tend to be older buildings for allied, but these are buildings they renovated. There's all these amenities. They're really nice spaces to go work. And that's what the data has been showing, as people can see in the joint TCI, is the Class B buildings, especially the downtown Class B, so the ones that are kind of older building, the kind of classic cubicles, they might be fine to work in. But as you're trying to encourage people to come back to the office, they become a much harder sell. Whereas, you know, downtown class A, and then you have suburban class A and suburban class B, those have all performed much better than the downtown class B. And for the suburban, I would assume it's because it's probably closer to where people live in general.

So even the class B is performing better there. And the vacancy rate is 17% here for class A downtown and allied is around the 13, 12, 13% mark. So clearly they are doing much better than the market. And the last thing I wanted to chat about, and Dan, I'll be interesting to hear what you have to say on the fact that it's just not the same as before, that you essentially have less demand for the office real estate, which is completely true. There's less demand. Most companies are doing two to three days in person in the office. But if you continue seeing less and less new building comes on come online then properties like allied has become more and more attractive because you have less of these newer amenity rich

buildings that are coming online and then you start to have to use what is currently available and i think that will kind of provide a little bit of tailwind for companies like Allied. So it'll be interesting to keep an eye on. I mean, from my perspective, I'm still happy with my investment. I clearly I've said it from the beginning, there's a lot uncertainty ahead in this space. So it's an investment you should make fully knowing that there is some probabilities that goes sideways sideways and it doesn't pan out like I think it will a few years down the line. Just, you know, you have to be aware of these kind of risks. Yeah. Yeah. It's definitely like, I think it's like cheap enough that it's kind of like,

I wouldn't say a high risk, high reward play, but it's definitely like a contrarian play right now because office reads are, are not popular at all. The interesting thing I found is on this chart, the class A, class B is like the big increase in class B was post pandemic. So I kind of wondered like the downtown class A properties are going to be worth more on a rental basis. So I'm wondering if this was, you know, smaller companies that, you know, just couldn't afford it after the pandemic or, you know, cause it's steadily increased while, uh, the class A's kind of been maintained at a pretty low occupancy ratio relative to that. So, I mean, it's a huge difference in class A and class B, like occupancy

wise, you're talking like seven, 8%. that's yeah exactly that's a meaningful difference yeah and just to put some context here because not everyone's seeing the chart is that you know you had like in 2019 and just before the start of the pandemic class b office real estate so downtown was around i would say kind of ballpark like 12ancy rate. And it's jumped to 24% where you had office that was around, you know, seven and a half, 8%. And that's jumped to 17%. So it's still increased a decent amount, but it's still the, let's just say the sharpness of the increase. Yeah, the vacancy rate is not. Yeah. And I think, I don't know, I feel like it's just probably a symptom from, you know, working from home and then the return to office. And I think companies are

probably just deciding, look, if we want to encourage people to come in, we just have to make sure we get some attractive real estate and make it worth their while to come to the office. So I have a suspicion that a lot of the leases that expired from Class B are either going not renewed and businesses are just getting rid of office space altogether, or they are shifting to Class A real estate, or maybe even suburban Class A and Class B, if a significant portion of their employees actually live in suburban areas. Yeah, it's going to be interesting moving forward to see how, like, I think they're doing quite well, all things considered.

Like their payout ratios are in, you know, I think from an adjusted basis, they're in like the 80% range, I believe, which isn't all that bad for a REIT. Yeah, for the AFFO, which includes, I think it's a better metric because it's uh it's more hard it's harsher for the company than ffo so their payout ratio i think it's in the low 80s and that's quite good for a a reit uh pretty typical office real estate especially like yeah how hard it's getting hit like i think i think what was it just this quarter they had to write down they had to adjust $500 million worth of property. Yeah, and it was 700 something for the year.

So, I used a number for the year, but that's why I mentioned most of it was this quarter. And, I mean, I just think, look, I mean, if you're surprised by the adjustment, like, where have you been living is probably the first thing. Yeah. Because there's been, it's not like there's like a slew of office real estate transaction happening, right? There's a lot of private equity in their private real estate and they tend to not, you know, there's not a lot of transactions. So it's not the easiest thing to be able to put a price on.

So to me, that was always something that was highly likely to happen. And for investors that were surprised by that, I mean, they probably were living under a rock. Like, I don't know, like you clearly have not been paying attention what's been happening in this space. If you thought that there wasn't at least a decent potential of the the asset value to be written down a little bit. Yeah. And that's the one dangerous thing. I guess a lot of people look at REITs as as a premium or discount to their NAV which yeah i mean some of these some of these REITs especially the ones that um what were those office REITs i know there was TNT there's HR REIT or in the US

or Canada no just those two big office REITs well not big ones but they ended up cutting their distributions but they were trading at huge discounts to nav but it was pretty clear that you know they were not as discounted as it looked individually and yeah it's i mean it's a pretty rough space right now but allied seems to be uh seems to be doing pretty well and this is a company that we talk about quite a bit yeah it's yielding 10 and the last thing is i'll say is their their debt metrics look quite good. They do have some debt maturing mostly, I believe, in 2025, if I remember correctly, but they're well managed, they're doing all the right things. I think it's just the market being really bearish on the space. Of course, again, I own this. It's not without its risks. So it definitely could go sideways as an investment. I still like it. I mean, it's a small position of my portfolio, and I think that's something for people to just remind themselves. If you're taking maybe a riskier position, you can always allocate accordingly to mitigate

the risk. As do-it-yourself investors, we want to keep our fees low. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support

rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now

it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. But I think that's enough for Allied. We'll move on to big tech number two here with Amazon's earnings. Yeah, so they reported pretty solid earnings. They topped expectations on all fronts. And just of note, the year that Amazon has had, so Amazon has beat Wall Street expectations

by pretty significant amounts for a straight year now. So in the first quarter of 2023, earnings came in 50% higher. In Q2, they were almost double. In Q3, they were 63% higher. And in this fourth quarter, they were 25% higher. So clearly the company is just smashing expectations. And I mean, I believe in 2023,

it was up something like 83, 80 something percent, maybe operating margins have witnessed a significant recovery. They're now back to historical averages hovering just around their trending even slightly above. So margins were hit pretty hard in 2022. So they fell operating margins, they fell from 6.6% to 2.3. So this ended up hitting the company pretty hard. But at the end, as of the end of 2023, they now sit at 6.41%. And the company reported fiscal 2023 free cash flows of $32.2 billion. So if we look to this on a year-over-year basis, the company went from an outflow of nearly $20 billion to an inflow of $32 billion. So if we look to this on a year over year basis, the company went from an outflow of nearly 20 billion to an inflow of 32 billion. So this is a more than $50 billion swing in free

cashflow. And although the company's retail segment still continues to generate high single digit growth, one of the main drivers for the revenue growth and particularly margin expansion has been the growth in its ad services segment and its Amazon web services segment. So advertising services revenue saw a 27% year over year increase while Amazon web services grew by 13%. And in addition to this, it's third party services, which is, it's pretty much, they just act as kind of a middleman, I guess, to get sellers to sell their products on their network. Fulfillment provider, I think.

And they pretty much just take a cut of the sales. So that grew by 20%. This is typically a more cyclical segment of the business. So during the pandemic, it grew quite a bit, probably because of a lot of third party sellers on the platform. And during the pandemic, it grew quite a bit, probably because of a lot of third-party sellers on the platform. And then it kind of cooled down and now it is growing yet again. AWS operating margins, it came in at 29.6%, which is 5.3% higher than the fourth quarter of 2022. And on Black Friday, they sold, Amazon stated, they never really released like hard dollar numbers, but they said that they sold more than 1 billion items. So more than 1 billion items were purchased on Black Friday with the United States accounting

for about half of this. They said this was their highest volume holiday season ever. On a quarter over quarter basis, net sales of 170 billion was a 14% increase from last year. And both operating income and net income saw pretty big jumps as well. They grew sales by 12% on a year over year basis. When we compare 2023 to 2022, operating income tripled and net income grew by more than tenfold.

I really like what Amazon is doing. I have a core position in Amazon. I mean, like during the pandemic, they were investing a ton of money into infrastructure. I mean, I think they were spending something silly like 50, $60 billion a year just on expanding their fulfillment network, which I mean, right now it's looking like it's going to pay off. So the retail business is able to grow. And while under the surface, like it's ad network and Amazon web services are continuing to, you know, drive strong double digit growth. I mean, it's the company still does generate a ton of money from retail, but it's also expanding to much more than a retail company overall.

Yeah, I have here, I pulled up the CapEx, the capital expenditure by year. And you see, yeah, like 2021, 2022, it really ramped up, even 2020. And then it's kind of slowing down now a little bit for last year. I mean, it's still some massive numbers here. So you still have, you know, 52 billion in CapEx for last year. I mean, it's still some massive numbers here. So you still have, you know, 52 billion in capex for last year. But, you know, it's it's slowing down. It's smaller than their 63 billion a year before and 61 the year before that. Yeah. And it's pretty hard to argue like ordering on Amazon. I mean, I know some people we can't get it here, but I know some people get same day delivery. Like if you order before, you know, 10 AM or whatever, they can have it to your door by, you know, in the next four or five hours, which is, I don't think there's another retailer that could, that can

match that, especially in terms of convenience, like right to your door in that amount of time. They're definitely, they're definitely a people first convenience company. That's for sure. Yeah. Yeah. I'm not sure if they're an employee-first company. No, definitely not. Convenience-first. Yeah, yeah. No, I think, I mean, I've always, I had Amazon, and I just decided last year to get rid of all my big tech

and just put that money into the ITOP, which is very similar to the S&P 500. So market cap waited for those large big tech i just figured you know what just easier and i also get additional exposure to those other smaller companies clearly there's going to be a bit less upside but that's fine uh not have to stay on top of those companies as often but i i did think i owned it i bought it in 2022 because they had to build big pullback and everyone was bearish on amazon it just seemed like it was short-sighted and i think right now we're seeing that it was probably short-sighted when they were sent like saying that they had overbuilt some fulfillment centers and then they were leasing them out and stuff like that so i think it was kind of peak

bearishness for amazon yeah i think they lost they were definitely hit the out and stuff like that. So I think it was kind of peak bearishness for Amazon. Yeah, I think they lost. They were definitely hit the hardest out of all of the Magnificent Seven. I'm pretty sure like they lost maybe not Tesla, but I think they might have even lost more than Tesla in 2022. I think they were down 60 some percent. It was a pretty rough year for Amazon. Yeah, that makes sense. Yeah, I don't have it in front of me, but we'll continue here because we still have two companies to go over. I think we'll be good now. Canadian Pacific, so CPKC, Canadian Pacific, Kansas City Southern, Q4, and the full year. I'll mostly look at the full year revenues here, not just because we don't do it that often so i think it'll be useful for people so for the year revenues were up 43 to 12.6 billion now i think it's important to keep in

mind that the kansas city southern acquisition closed in april of 2023 and the result look fantastic here but again you're comparing against 2022 where that business was not part of cp so i think we have to take this with a grain of salt but nonetheless i think it was a pretty good year for um canadian pacific i'll just say canadian pacific i just find like it's too long to say it's very hard say the whole thing yeah operating ratio was up 280 basis point to 65 for for the year. It's definitely on the high side. They do have an adjusted one, but I prefer using the operating ratio. I suspect that you'll see it coming down next year.

I think that's probably in the low 60s. That would be my best guess. Earnings per share was up 12% to $4.21. Free cash flow was down 25% to $2 billion. Revenue ton mile was up 27%. Average train length was down 7%. And for guidance in 2024, they expect EPS to grow in the double digits, while they expect to spend $2.75 billion on capital expenditures.

to spend $2.75 billion on capital expenditures. Keith Creel, who is the CEO, is very excited in 2024 with what the year has in store for Canadian Pacific. Most of the segments did well, although there were two soft spots, so grain crop shipments and intermodal. Grain crop shipments was just an area of weakness. They said that farmers were holding on to more of it i think there was some price weakness there and intermodal i was still up 10 for the year but it sounds like it was down if you take out the effects of the acquisition

just based on what they mentioned on their conference call intermodal for those not familiar with it just means moving freight by two or more forms of transportation so for example by rail and then trucks so by using intermodal containers you can actually move the freight very quickly between rail and trucks it's just a more efficient ways of doing thing if you're using more than one form of transportation. On the call, they said that 2024 would be a strong year for them, but they did mention that there's still some macroeconomic uncertainty. The dividend remained the same. I didn't catch any comments about the future, about future increases on the call, but based on their investor day in 2023, they're definitely focusing on getting that down and on the call they seem to be more focused to do

buybacks in the next years as they they find you know the stock attractive or not versus raising the dividend yeah it's pretty interesting like there it seems like cn rail and cp are like two they kind of seem like two separate businesses right now in the way that like cn rail is you know they've raised a dividend for what 25 27 years whereas uh cp is like they're pretty much i don't expect them to raise that in the near future they're going to lose their so with canadian dividend aristocrat you actually get two years. So if you don't raise it in one year, they give you, it's very, very lenient. You can miss a year, maintain the dividend. And then if you raise it the next year, you keep your status. But this will be the second year that CP Rail hasn't raised a dividend.

So I would imagine they'll be removed from like all those aristocrat indexes like this year at some time when they do the rebalancing. But the double digit earnings growth is interesting too, because with CP Rail, they were very transparent on how many shares they plan to rebuy, which I think it was supposed to account for almost half of that earnings growth. Whereas I don't think CP came out and outright stated, you know, how many buybacks they plan. So I wonder how much of this is growth through actual earnings growth and how much is through buybacks. But it's definitely going to be interesting for the rails. Yeah, based on one of the questions they had, it seems like it'll be kind of a mix of both, I think probably coming because they have like a five

year plan something like that i think the buybacks will probably be uh increasing in you know subsequent years probably not that many buybacks this year but i think that's a smart move yeah you want to get the debt under control uh lower that to more appropriate levels and then you know focus on the integration that there's some costs related to that when you make such a big acquisition. Efficiencies that they can kind of get through the acquisition as well, probably less than they expect. They always think that it's going to be more than the companies. They always think efficiencies with the acquisition. But nonetheless, I think that's a good thing to focus. And then when things are a bit more stable and you're really just focusing on growth and your new operations are really well in place, then you can look at, you know, buying back more stock or raising the dividend.

I think that's a good approach. I mean, I'm debating personally just making equal weighted CNR and CP. Yeah. cnr and cp yeah just because i think they both have such such wide rail networks and it's such a concentrated market as well there's not that many players they have very strong modes i think you'll get more growth with cp but probably obviously they'll get more capital returns to shareholders i wouldn't be surprised if at the end of the day, five years from now, the total returns are quite similar for both companies. They would just be achieved in a different way. Yeah, they've kind of like over the years, they've kind of traded off. I mean, I know CP Rail struggled a lot not too long ago and CN was the better performer where I think as

recently, CP's really picked things up and outperformed. I guess the last thing I would say about this is in terms of the revenue, the operating results adjusted. So if you actually adjust the acquisition numbers out, they grew revenue by 4% and earnings by 4%. So it wasn't a bad year, all things considered, but those acquisition numbers definitely bloat the figures for sure. But yeah, and the last thing I'll finish on. So for joint TCI listeners, and I'll mention the percentages here. So, I mean, they're almost in completely lockstep for the last 10 years for returns. Not quite.

So CP has outperformed slightly 274% in terms of total returns and Canadian national REL, 242%. This is probably close to the index, I would think. I'm kind of curious here. It might even be more. Yeah, it's more. Yeah. So they are outperforming the index a little bit.

So, you know, there's something to say with these like boring kind of, you know, businesses that just chug along and have these really, you know, sustainable moats. I mean, they tend, they might not be the sexiest businesses, but if you just hold on to them for very long periods of time, you'll do pretty well. So yeah, no, overall, I mean, that's kind of my takeaway. Anything else to add or you'll finish with big tech here? No, I guess the only thing I would say is, yeah, they have the rails have a ton of pricing power just because I mean, when you just think of it, the railways, I mean, it's very hard to enter the industry and they just have incredible moats. So again, pricing power leads to earnings growth, which I didn't think they would have outperformed the S&P 500 over the last 10 years. That's pretty

impressive, but. Yeah. Yeah. Yeah. That's why, I mean, I like those businesses, even though they don't pay a big dividend. It's just the moat. And I mean, the total returns are just fantastic. So yeah, maybe that's what I'll do. I'll just equal weight a couple of percentage points in my portfolio, CNR and CP and just let them ride. Maybe one will perform slightly better than the other. I mean, I think you can't go wrong with doing a basket approach. And again, to me, it's not too much focus on the Canadian economy, both of them. They have so much of the railway in the US and then obviously into mexico for cp i think you really benefit from north america as a whole yeah so i'm not as concerned for the canadian exposure as much for them yeah the thing about the the dividend especially with a company like cn

rail who's increased it for you know two and a half plus decades is the only way yield can stay low if they're raising it that much year in, year out is share prices going up, right? So they've performed very well over the years. But yeah, I guess we'll move on to Google. Yeah, the Google machine or Alphabet, if we're using the right name. But everybody calls it Google.

But yeah, Alphabet, strong earnings, but they had a very small miss on its expected ad revenue which caused it to actually drop quite a bit i think it dropped like anywhere from six to eight percent on earnings day i can't remember but i mean it's not all that surprising because the company was up more than 50 over the last year heading into the quarter so i mean i think even like a marginally soft quarter might result in, you know, some people wanting to take profits. They grew revenue by 10% and increased earnings per share by 27% on a year over year basis. So they seem to be firing on all cylinders and pretty much every single one of its business

segments. So they had a pretty stagnant year last year when it comes to YouTube revenue, but it's back to growth, similar growth to their Google search revenue, high single digits. It's cloud segment is growing at a 26% pace. I think a lot of the concerns from an outsider looking in would be the fact that Google is not growing its main, you know, bread and butter segment, that being Google search, by that much. The small miss on expected revenue in this department is probably what caused it to take a bit of a hit post earnings. So Google search revenues make up $175 billion of the company's $307 billion in total revenue, and it only grew by 7.7% a year. And I mean, it's pretty funny to say only when we think

of just the sheer size of Google's business. So if you think about it, Google's annual revenue is 2.3 times the size of our largest publicly traded company, Royal bank. And even when you look on the ad side of things, so it made 175 billion in ad revenue. That's more than the size of Royal bank, just its ad revenue. So the fact that it can grow at a double digit pace is, is pretty amazing. But I think the main issue right now, I think with Google is a lot of investors look at Microsoft who is growing its cloud business at a similar pace, but it makes up a much larger chunk of overall revenue. So I think people, you know, they may think that Microsoft is a much stronger opportunity. But on that front, I would say that just from a valuation perspective, Microsoft is trading at

45 times its cash flows, trailing cash flows, and 31 times its expected earnings, while Google is trading at 27 times trailing cash flows and around 18.5 times expected earnings. So this is kind of an interesting element here where you have two similar companies. One's much, much cheaper, but growing at a bit of a slower pace. It's very likely the company's cloud segment becomes the second largest revenue generating segment next quarter. So its cloud segment fell behind YouTube revenue by only around 100 million last quarter. And just at the pace it's growing right now, it's definitely going to probably succeed that next quarter.

There's not much else to say. It continues to dominate search, but it's the slowest growing segment of the business while making up a huge chunk of its revenue. So it will have to ramp up its cloud-based growth to impress investors, especially when you see a company like Microsoft doing the things that it's doing. And I guess another comment on the state of ad revenue, and this is a bit anecdotal, but we do deal with some pretty large ad networks at stock trades although our ad revenue is much higher than they were in january 2023 you couldn't get much lower in 2023 it was absolute rock bottom they're still lower than they were pre-pandemic suggesting you know if there's some improvement in economic

activity we could see ad revenue growth in terms of you say an RPM, like a cost per thousand views increase, which ultimately would benefit Google because they can charge more, uh, to advertisers who want to advertise because they're, they're mostly competitive rates. You know, they'll Google will charge whatever, you know, the demand is for particular keywords, things like that on its search network. So generally the more activity you get there, the more that it is going to be able to grow its search revenue overall. Yeah, no, I think I think you're right, too, for Yeah, Google seems to be trading a little bit at a cheaper value. Well, yeah, definitely a cheaper valuation than a Microsoft, I think there's probably still the fear of, you know, Google search being replaced by AI.

I don't know. I feel like I'm still using Google as much as I used to. I use chat GPT, but oftentimes it's more as a kind of an assistant for like writing, summarizing stuff and things like that. I find it's really useful for that. But even if you do the pay version, I think it's never like super up to date. It's always a bit behind on actual data. So that's why I still go to Google. But yeah, it's a good point.

I mean, the ad business is always something that kind of ebbs and flows. And to get back to the valuation, I think it's a good reminder, especially for people who are new to investing, especially Microsoft. Microsoft is priced to perfection. Yeah. It is very expensive. I know Satya Nadella has been doing a fantastic job. I think he's been 10 years now as CEO. I think you just celebrated that or something. Yeah. So he's done a great job, but there's a law of big numbers and there's a high valuation and there's high expectations for Microsoft, especially when it comes also with kind of anything related to AI, but the cloud, as you said it, if they don't meet those high expectation, when you have such a high valuation. I mean, we saw what

happened in 2021. Obviously, sorry, in 2022, following 2021, obviously, there were interest rates, you know, pressures as well. It was in the free money environment like we had seen. But I think it's something to keep in mind for people that, you know, see these companies as blue chip and very little downside. I mean, they are priced to perfection. So if anything does go wrong, like you we saw with Google, you can get some pretty significant downward pressure. Yeah, that's pretty interesting as well. Because I think in 2023, I think Google was one of the best performing tech like outside of Amazon, I believe. I think it did pretty well.

And it's still, like valuation isn't everything, obviously. I mean, Google could struggle and Microsoft could keep crushing it, which could easily justify this. So like, it doesn't make Google the automatic buy over Microsoft, obviously, just because it's cheaper. But like, it is much, much cheaper,

which is, I mean, on a, on an earnings basis, it's almost half the price on an expected earnings basis. So like you got to kind of take all of this in and consider all of it. But I just felt that, you know, I would note the valuation just because of how wide, how wide it is, like how much more expensive Microsoft is than Google. And I think it is because of that cloud aspect of things, whereas it makes up a huge chunk of Microsoft's business growing at a similar pace. Whereas with Google, it's not very much in the overall grand scheme of things. It's mostly the ad base. And I think people maybe find that ad base less attractive, I guess. It's going to be

cyclical as well. But I mean, I like Google. It's the one I've been adding. I've been adding Google like out of the big US techs. I've been adding Google the most aggressively over the last five, six months here. So it'll be interesting to see how it plays out. Yeah. Yeah. And my point was more like the higher the multiples, the higher the valuation, the less of a margin the company has if they under deliver a little bit versus expectation. I think that's just important for people to just to remind themselves. I mean, Microsoft could double from here. Like, you know, I can't see in the future, maybe things get even frothier or, you know, revenues accelerate, or, you know, revenues accelerate, who knows.

But I'm just mentioning that when things are not, they're that expensive and you don't, I mean, they could do very well, but yet just miss like overall in expectations and see a big drop in their share price. And I think that's just a reminder there. But yeah, overall, I think that was a good episode. Finally, earnings is kicking in. Anything you want to add before we sign off, Dan?

No, that's it. Thanks for listening, everybody. I'll see you next week. Yeah, yeah. Thanks, everyone, for listening. If you haven't done so, we really appreciate if you can give us a review on Apple Podcasts, give us a five-star rating on Spotify. And obviously, if you want to see our

portfolios and videos, they're available on Joint TCI. And Dan and I are both on Twitter. You can look in the description for our Twitter handles. And obviously, Dan runs the stocktrades.ca site. So I think that kind of covered everything. Thanks for listening. And we'll be back next Thursday with another earnings and news episode. Thanks for listening, and we'll be back next Thursday with another earnings and news episode. 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.