The Canadian Investor - Record Black Friday Sales and a Huge Canadian Acquisition

Episode Date: December 1, 2022

Shopify shows that online retailers are still going strong with its vendors posting record black friday sales! Royal Bank of Canada announces that it will be making a massive acquisition by buying HSBC’s Canadian operations for 13.5B. We also looked at the recent quarters of software and retails stocks listed down south. Tickers of stocks discussed: SHOP.TO, ADSK, DLTR, PDD, ATD.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.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. How are we doing? Today is November 29th, 2022. I am joined by the very wise Mr. Simon Belanger. And I say very wise because we are recording this in the morning. And of course, you're a dad

now. So you've been up since like the crack of dawn. And, you know, but you're like, oh, I woke up early, did some stretching. This is when Simone goes full, like, just remember, because I was in your shoes 10 years ago. Like you go into full advice mode. And I appreciate it very much. Like, dude, make sure you do your stretching. Oh, yeah. Make sure you do it because then you'll end up playing like softball or flag football and everything's going to start blowing up when you're in your 30s. That's what happens.

Like this is going to hurt tomorrow. Our beloved men's national team got eliminated from the World Cup. But you know what? We got there. We got there. I got eliminated from the World Cup. But you know what? We got there. We got there. I'm proud of the lads. Good stuff. So I'm recording this morning from Austin, Texas.

This city is great. Everyone calls it a town, but obviously it's a city. This town is great. I'm having a good time here. It's a cool place. Have you been? No, I've not been. I came back from the U.S., from Syracuse, which, you know, has its cachet too, but probably

not the reputation of Austin and much smaller. But yeah, I've heard some pretty cool things over there as well. It's funny. I'm doing like, you know, I'm watching a YouTube video. It's like the 10 things you must know before visiting Austin, Texas. Because I'm like, okay, I'm here for a few days before work starts and I want to just check it out. And it's like, yeah, make sure you rent these bikes. We don't recommend getting a car because the traffic is

like one of the worst in all the cities in America. And I like, after being here, I like laughed in Toronto voice. I'm like, what do you mean? It's not gridlocked on every corner. This is amazing. Like I like laughed in Toronto. And so that I'm liking this place, man. All right. We, this was not going to be in the news, but you know, breaking news this morning, what just happened? Yeah. Just a good thing. I woke up early to stretch because I was able to see that Royal Bank will be buying HSBC's Canadian unit for a cool $13.5 Canadian dollars. $13.5 billion. Sorry, that would be quite the steal if it was $13. Yeah, we just bought HSBC for $13. Yeah, so $ so 13.5 billion the deal will be a cash deal and will allow rbc to expand its business down canada's west coast i didn't realize that i guess they

don't have that much exposure i wasn't aware of that personally because rbcs are just everywhere in ontario right every corner basically the deal is expected to close in the end of 2023 and will give rbc 130 more branches including 45 in bc and for additional context for people who want to wrap their head around how large of an acquisition this is well hsbc's canada had 134 billion in assets as of september 30th which is slightly more than a third of national banks' assets. So a pretty significant acquisition. Obviously, there's always a caveat of it has to go through regulatory approval. But yeah, definitely a substantial acquisition here. Yeah, just that headline number $13.5 billion. Very interesting. So they had $134 billion in

assets. So that would be end of Q3. Yeah, this is substantial. 130 more branches, like you said, almost half and maybe a third in British Columbia. Very cool. I mean, yeah, I don't see HSBC bank branches ever, like personally. And so I guess they're just scattered throughout the rest of Canada. Yeah, I think I can – I recall one in Ottawa. I think downtown Ottawa, I think there is one, but that's about it. And it's in this like big high rise, probably not to the norms of Toronto, but this big high rise that's full of kind of trade offices from different countries.

So it would make sense that they have a presence there. Right. Have you noticed when you get off a plane anywhere in the world, the walkways from the plane to the terminal, the bridges are always just floor to ceiling in advertising and HSBC. Yeah, I know. Have you ever noticed that? Yeah, I've noticed that. They're pretty international in terms of banks. So I don't know.

I don't know the reason why they're selling. Maybe they want to kind of lean up their operations. I have no idea, but big deal for RBC. Let's hit one more piece of news that I thought was quite interesting. And yeah, well, let me not just steal the show, but have you seen when Toby posts the CEO of Shopify, that link that shows all the transactions happening on Black Friday, they do it every year and it shows a globe and it shows this like 3D globe and you can go around and it pulses every time there is a sale in that geography on Shopify in real time.

And it is mesmerizing to watch. Have you seen that? No, I haven't seen that, but it must be flashing quite a bit just based on the number. It's flashing quite a lot. Yeah. So Shopify said that retail sales hit a record on Black Friday. They said that sales by their merchants on its system set a new record. Sales rose to $3.36 billion, a 17% increase compared to last year.

They said that at its peak, merchants were doing 3.5 million USD in sales per minute. So that must have been flashing quite a bit at the peak. And it's really impressive in my opinion because even if you factor in higher inflation it's probably still an increase of around 10 percent compared to last year so that's pretty impressive they also provided some other interesting black friday information in their press release the top performing countries for example were the US, the UK, and Canada. 15% of orders were cross-border and 27% growth in their point-of-sales. So the point-of-sales system, sorry, sales, is really interesting because that's what we've been hammering for a long time regarding Lightspeed

is that there is competition from large players in the space and that's a really good example of it so that's why I mean I've always been a bit reluctant for Lightspeed and let's be honest Shopify has way deeper pockets here Square as well and there's other big players in the space too yeah the shop pay and right like it's just so easy to integrate and use when you already have that distribution scale advantage so no I'm with you I mean it's just so easy to integrate and use when you already have that distribution scale advantage. So now I'm with you. I mean, it's amazing, right? Like I have two thoughts here. One Black Friday is like the most genius idea from retail marketers in history, which is just like,

okay, it's the end of November. People know they need to start buying stuff for the holidays in December. This is right about when they have saved some money because nothing really major has happened. It's the end of summer and boom, let's hit them with a bunch of deals and just try to just rake as much in terms of GMV as possible, because we're going to hit them all through December as well. And then don't you worry, Boxing Day, we'll hit them again. It's just brilliant marketing. And then Black Friday turns into Cyber Monday. And now there's going to be something on Tuesday at this point, but it's really brilliant. And then my second thought here is, what a weird, air quotes, recession. What a strange phenomenon. And of course, Shopify's GMV is not a perfect proxy for the economy. Don't hear what I'm not saying, but everywhere you look,

especially in the third quarter, results from these large public companies was cautious guidance. And then on the call, they're like puff out their chest and it's like, yeah, bro, to be honest, our numbers are amazing. And so it's a weird dichotomy between what they're saying and what the results are and then what they later say in the call, which is like Visa, MasterCard, Shopify, you know, large retailers just being like, hey, we're not seeing it yet, but that doesn't mean we won't see it in the future. I just feel like this has been a broken record for three quarters in a row now. Yeah. Yeah. I mean, it's hard to say exactly at this point, right? I think there are signs it's kind of sporadic right

it's more anecdotal i would say i think as a general rule it's better than expected i would say like i would tend to agree with you but there are still kind of cracks right in the foundation let's say totally and i'm thinking here we talk remember when i did whirlpool a few weeks ago not a name we looked at often and i thought the appliance company appliance company so that one was really starting to slow down so there are certain areas but clearly shopify hasn't been impacted too much about that it'll be interesting especially after the next quarter when you have the big holiday season how all the retailers do i think we'll probably have

to do some retail focus shows for a little bit. Yeah, no, for sure. And you're right. It's going to be a continual litmus test each quarter being like, has it happened yet? Yeah, exactly. Has it happened yet? And Whirlpool is an interesting one too, where it's like you have so much exposure from the housing market as well in terms of new builds and stuff like that. But very cool. Keep it up, Shopify. I mean, at the end of the day, they have a great product and they're going to continue to grow. There was some pulled forward growth, but they're going to continue to grow. And at the end of the day, these stores are very sticky. 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. information. Let's move on to a Canadian name. Another one here, Q2 fiscal 2023 for Alimentation Cousteau. Now, Simon, as per usual, I'm going to need you to repeat that in that beautiful French Canadian accent for me. Yeah, Alimentation. Sorry, I'm having trouble even too this morning. It's pretty early. It's early, man. It's all good. Animo Tassion Couchetard, they reported, yeah, their Q2 earnings.

Thank you for just saying that so much more eloquently for us here on the pod. Now, as most of you know, well, I don't know about most, many of you know, I just owned ETFs and chilled for many years when I started my investing journey. I didn't own pretty much any individual securities for many years when I started my investing journey. I didn't own pretty much any individual securities for many years. And by the way, that's still a absolutely great way to go for a majority of people. And if I never felt like looking at my portfolio and chilling on the beach for the next 20 years, I'd be happy to throw it in a global equity ETF and literally do nothing for a couple of decades. But Kushtar was one of the first stocks I ever bought at around $30, but split adjusted. So if you're looking at today's price, we're talking about like $15. And for those forgetting or

need a reminder, this is ticker ATD.TO on the Toronto Stock Exchange. They only trade on the TSX, and it's a $40-plus billion in market cap. What is the market cap? 63. Holy smokes. Okay, so yeah, it's one of the largest companies here in Canada, $63 billion in market cap. Now, it was one of the best investments I ever made. I sold it at like $45-ish, and so on a timeframe basis,

I made an unbelievable return because that didn't take very long for it to triple. You know, one of my worst mistakes is that I ever sold the freaking thing. And so, you know, when I entered the business, I was like, my main thesis is pretty simple. It's like the quality of the business, the management team, Alain Bouchard, put them on the Mount Rushmore of Canadian business people is trading just way too cheap. So maybe I can write some multiple expansion out of this too. And there are so many great stories out of Quebec, and this is certainly one of them. Now, what an idiot I am for selling it, but hey, in hindsight, it's 2020. I saw the multiple expand. I saw it grow. The thesis was right. And I wrote out what I thought would be most of the valuation multiple expansion. But it's a reminder to myself, in my investing journal, is never doubt absolute killers like Alain Bouchard.

This guy's got that dog in him. These people that just have decades of being supreme all-star capital allocators. You're assembling a team for the all-star game to just manage money and allocate capital in their business and understand the business perfectly operationally. Stories of him traveling across North America and just going to every location one by one by one and making sure they're all perfect. And so, it's a mental reminder to myself that you got to let those winners run when it's run by the Mount Rushmore of capital allocators. All right. Now, let's talk about the earnings. Net earnings grew a whopping 21% year over year. They've bought back stock at a nice pace, nearly 900 million in share buybacks in the first half of their fiscal so far. And they have continually

wrote down some impairments on fire and flour, which is a recurring theme for these companies that have large stakes in cannabis retailers. But this is not significant relatively for the business. And I still think if there's someone that needs to have some exposure or an octopus tentacles out there in the world for retail of cannabis and have that on their radar, it's Kushtar. Their network just makes a lot of sense to at least experiment with this. It's Kushtar. Their network just makes a lot of sense to at least experiment with this. Revenue grew to $16.8 billion, an 18.7% increase year over year. They raised the dividends 27%. That is a substantial increase for dividend growth investors. They continue to be acquisitive. Looking forward now, there are a lot of material needle moving acquisition targets out there

that are being looked at here domestically and in North America and in Europe. Any comments here before I go through some of their fundamentals on a longer view? I just felt like there was some more time needed, dedicated to CouchTard this morning because we don't, I mean, we obviously talk about them, but not enough for how well this story has performed. No, I was just wondering if you read anything about like margins being impacted due to inflation. I thought I saw like, I just read the headlines. I thought I saw something about that. Yeah, I mean, for sure. And there's also like a lot to consider just on a macro perspective

from fuel and stuff as well. Now, I'd have to look here. I didn't write down notes, but like any of these companies are seeing margin pressure for sure. That being said, they do have a lot of pricing power. And from an overhead staff perspective, it's a pretty lean operation in the grand scheme of things when you consider how many locations they have. So I mean, overall, EPS grew 21%, net earnings per share per dilute share. So it can't be affecting them that much. But later in the episode, I can try to look up the operating margin. I mean, but later in the episode, I can try to look up the operating margin.

Now, if you look on a long time horizon here, they have really, really got it done from a capital efficiency perspective, from a growth perspective. And look at the dividend. The dividend on a three-year is growing at more than a 20% year-over- year clip. On a longer basis, you're looking at around 17, 18% hikes consistently annualized and growing the top line at over 10% annually. They had obviously a slight blip in 2020, but nothing, not as much as I would have expected. And so, you know, lots of cash here on the balance sheet to do some large moving, needle moving type acquisition, I think over the next year. And yeah, today the business has over 14,000 locations. The long-term kind of question mark hanging over its head is what does this business look like with combustion vehicles, a thing of the past? That's the question mark.

And I know they've done all of these experiments in Norway with electric vehicle charging, and they're seeing good basket sizes on the convenience stores because you got to post up for 15, 20 minutes while your car charges, you know, stop in, get a coffee, get a snack. I get that. But the traffic will not be the same in those stores. You can't convince me at all that the traffic will be the same as much as, you know, the investor relations site.

They do their best to try to calm that nerve. This is the long-term question mark hanging over the business's head. Yeah. Yeah. And I think, look, depends where you live, right? If you live in a big city, you don't have a car, chances are you're going to buy stuff if you have a location near your place just because it's convenient, right? But for me- They do call it a convenience store. That's it. That's it. In French, it's dépanneur, which is, it's not really a literal, it's not literally a literal.

What does that translate to? It's more like, you know, it kind of helps you out, I would say, when like, dépanne, I guess. A helping hand. Yeah, a helping hand, basically. When you're in need for some M&Ms and ice cream. Yeah, that's it. For me, I probably would agree with you,

like from a personal perspective, is I would rarely ever go to a convenience store unless it's car related and I need to go put gas in. And then I may buy some overpriced water or something like that, yeah. Yeah, exactly. Some like $7 Red Bull. Yeah, the whole thing, you know?

So that's the big question, Mark. And I guess back to my previous point is never doubt a management team who's just been so good and able to kind of see ahead of that stuff. And they've done lots of experiments, like I said, in Europe and saw great results, but it's just not enough. It's just not a big enough sample size to really have a lot of confidence that that can be rolled out in North America because it's just just completely different ecosystems. under the assumption that there's, you know, cars that take gas and that's a big, you know, boost for their sales because just like people like me go there and then end up doing purchases. So having that change or being impacted, it's kind of, you know, I know they have a good track record, but at the same time, this is like, they've not seen that before.

Right. I'm with you. I'm with you. And it's just funny because it's because of that thesis, because of that narrative for the past five to 10 years, it just traded at such a discount. Like it's been historically so cheap. And I think that over the last three-ish years, people have just been like, yeah, but like at the business. Look how it's performing. Look at the long-term EPS growth. Look at them not only grow, but reward shareholders to do div hikes, buy back a lot of stock. And the shares have performed exceptional as a result of that and caught some multiple expansion. So we'll see what the next 10 years looks like because it's going to be different. And I think they have some stuff to figure out.

Yeah, yeah, definitely. Now moving on to some more news here. So some more fell out from the FTX scandal and bankruptcy, which was probably inevitable at this point. Everyone thought this would be happening and it did happen. So BlockFi files for chapter 11 bankruptcy so they announced that yesterday we're recording on tuesday here again it's another domino effect of the ftx candle and we're seeing some contagion here but this one was probably starting back in

june block 5 for those not aware was a crypto lending platform a centralized one which was facing major issues in June after the fall of the crypto hedge fund Three Arrows Capital that they had exposure to but it was issued a lifeline by FTX in the form of a 250 million dollar credit facility which was then increased to 400 million and then with FTX filing for bankruptcy it was really on the wall like I said and it's interesting because some of its creditors include and these are unsecured creditors include FTX US and the SEC I'm assuming the SEC was relating to a lawsuit that was settled with them for $100 million and the amount that's still outstanding is $30 million. I'm not 100% sure for that, but that would logically to me be the case.

It's so funny when I hear a now defunct bankrupt hedge fund was given a lifeline from now a defunct bankrupt exchange, which is causing contagion of now a defunct bankrupt BlockFi. It's just, it's like, you know, everyone who was against this in the past two years are just like, I told you so, man, I told you so. And rightfully so. I mean, you know, do your victory lap, do your dance, because this is an absolute mess. Yeah. And personally, I tried BlockFi just with a tiny amount because I wanted to try one of those centralized kind of yielding service just to see how it was. Right.

So I used like less than 5% of what I had in Bitcoin just to try it out. like less than 5% of what I had in Bitcoin just to try it out. And I kept it on there for just a couple months and withdrew it like a year and a half ago, way before all of this stuff happened. I did not feel comfortable with another company controlling my Bitcoin. I'd prefer to just have it in cold storage. So a lot of people are obviously realizing that now, including some pretty wealthy ones, that if you're going to own it, you better own your keys. But yeah, I think that's definitely a reminder, even for people like me that didn't have anything on it. I just tried it out just to see how it worked. But it's centralized.

It wasn't regulated or very little. So this kind of stuff happens. I remember listening to a podcast about, I think it was with one of the founders of BlockFi. And they were kind of just explaining, you know, just basically it was an hour-long sales pitch. And the whole time I'm in my car, I think I was like driving to go see my parents. And, you know, the podcast was on, you know, I listened start to finish during the drive. And the whole time, you know, hands on the wheel is when I had this face on just like eyebrows really low and just confused like head tilt like, huh? Like the whole time I just had that confused look on my face because it sounded like, hmm, this sounds really cool.

And I could see the appeal and I could see why they're getting so much traction because it sounds amazing. How on earth is this going to be sustainable? Like the math, like the meme of all the numbers going around while I drive the car on the highway on the 401 in Ontario was just WTF. This makes absolutely no sense to my brain. And I'm glad I had a lot of caution. It sounds too good. It might be too good to be true. 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 winningwinning 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. And now I guess we'll move on.

I thought it was a segment for you, but it's still me here. So some earnings released. I think I just missed the gap there that's okay you know what my excuse is i'm so full on texan barbecue brisket you know brains operating a little little low here let's head into dollar tree which by the way i checked just like yesterday because they i mean they reported earnings recently yeah i didn't realize this thing had compounded like the way it has at dollar stores just in general like dollarama here in canada too dude they're like absolute beasts yeah they've done they've done pretty well and i was just

curious because first there's not that many earnings right now going on there's tons of like junior miners but we don't have a lot of interest in that but you know some of the dollar stores have 48 quarters per year because Dollarama reports weekly at this point. Yeah, exactly. Every business week. And this one, Dollar Tree, I think it's just interesting just to have an idea of how they're doing. And we know Dollarama has been doing really well, like you just mentioned. And I wanted to see if it was also the K's down south with their actual

numbers right and I think it was pretty good overall I can't exactly recall what Dollarama reported in their latest quarter but they'll probably report I think it's in the next month or so they're always a bit after earnings season now net sales increased 8.1 percent to just shy of 7 billion same store sales for their dollar tree segment was up eight point six percent family dollar segment went up four point one percent and their enterprise segment was up six point five percent and i kind of just dabbled on their website and they do have different kind of dollar trees so their flagship in air quote Dollar Tree, they don't sell things above $1.25, whereas some of their other type of stores, they'll have like kind of two, three up to $5.

And what they'll do to keep it under $1.25, I think they've been known to sell things like single toilet paper rolls and stuff like that to reduce the size and make it more affordable. I guess shrinkflation would be it. But operating income here increased 22.8% to $381 million. Operating income, their margin improved 70 basis point to 5.5%. Diluted earnings per share increased 25% to $1.20. And for the first nine months of the year, they actually were free cash flow negative by $187 million versus free cash flow positive for $268 last year during the same period. They had some funky items, like I think it's more like one time type of cash kind of charges here so I don't think it's anything to be alarmed of but I think overall pretty good and they have a lot of stores I think

they have I don't know if I read that correctly but I think it's like close to 16,000 I don't know if I read it correctly it seems like too much they had like kind of eight for the dollar tree and then another eight for the family dollar so i don't know if i read it correctly it seemed like a lot but if it is i mean good for that i think that sounds right reasonably what i can do here is just check on on stratosphere because we have their kpis we just want by the way it was a late night for us because we ported over the platform at midnight last night. And, you know, that never goes super smooth. Oh, great.

I'm not logged in. So it's just blurred out. I'm like, dude, the founder of the company is blurred out from his own thing right now. If that was not saved anymore, I would have gone. I'll have to reset it. I don't remember. Oh, boy. If you're on the podcast i'm on my own own site and just locked out that's great let me let me sign up here but before we do that i mean this is a good point too right because you said 187 million free cash flow

negative this is not typically a company that produces negative free cash flow. And you look at the operating income up 22% to 381 million. It's just a reminder accounting wise, don't panic if you see a free cash flow negative quarter for a historically profitable quarter. Look into the line items, see what it is. You said like a one-time cash expense. What's going to be a lot more stable is operating income or EBIT or EBITDA. Just historically, if you're trying to find long-term profitability trends, there's going to be a lot more variance in free cash flow than something like EBIT or operating income. So just a quick tip there if you're doing some financial research. Yeah. And I would probably add to that and say what I like to do is usually when I see something that's a bit out of whack or a number

of when I'm expecting, like to see free cash flow positive in this situation, I'll look for a potential big number two in the cash flow from operations, for example. So that's how I'll spot it. Oftentimes you'll see some footnotes that will give you more information on that. So that's a good way to understand what it was. Even if there isn't for that specific item, you can usually if you're not sure what the lingo means, just Google it, right. And then you'll find something like Investopedia or something like that, that will explain to you in detail what these things mean. So there's ways right that to learn as you go, because I don't know about you. I did some accounting classes, but, you know, there's a lot of terms I would see that I never learned in my classes or it's just slightly, you know, it means what I learned,

but it's just spelled slightly differently. Right, right. I just looked here. We got up to the latest quarter family doll. Oh, cause there's family dollar and dollar tree as part of the ecosystem. And they weirdly have a similar amount of stores at 7,500 and 7,700. So it was right. Yeah. Over 15,000 total ending store count for them.

And they operate 64.6 million square feet of oh no total that was just for dollar tree total is 121 million square feet across the fleet so wow that's crazy that means that dollarama creates that crazy high valuation compared to them like dollar totally 10 times less stores something like that than them and their valuation is probably you know i don't know like 20 percent less in terms of i i mean their value in terms of market cap is about 20 25 percent less so there's a really big discrepancy there that's why i wasn't i was seeing those numbers and I checked Dollarama and I'm like, oh my God, am I like, this can't be right. But I guess it is. Well, the margin profile is quite different.

It's like so much competition for dollar stores in the US. Whereas Dollarama is just kind of like, it used to be really fragmented. And now they're just kind of the only game in town, minus a few like small town general stores that you'll find in like rural Canada. It's just been Dollarama. So, margin profile and pricing power are very different. Yeah. And if you're an investor too and you want to stick to Canada, it's your only option, right? For capital too. So, that's maybe has something to do with it as well. Yeah. It's hard to really say. All right. Let's move on to Autodesk, ticker A-D-S-K. When I think of durable, I think of Autodesk. And it's a company we talk about, I should say,

I talk about every quarter since they generally report later and I own it in my personal portfolio and I'm an engineer and I like to flex that on everyone on the podcast. So that's why it comes up on the show but before you get into the earnings it's just it's a very durable business in my mind and every moat needs to be monitored right there very well could be some competitors that come you're laughing with some crazy i know it's not going to be great if you're giving the you're giving like oh this is great they have a strong moment like oh boy the earnings wasn't good there they were fine they were fine i think they were fine the market didn't like it i don't care about the market no it's more teaching points you own no no i get it the mo needs to

be wandered and there's gonna definitely become competitors in tech over time. And I'm going to continue to monitor this thesis. But today's landscape is a roundabout way of me saying in today's landscape, in architecture what you would have thought, is the moat and switching costs of SaaS in general was overstated. In general, over the past two to three years. You saw it in the multiples and you saw it now in like, you, and construction, they're often fed by AutoCAD and Revit properties, which are Autodesk properties. And so it feels like it's become the rails of this vertical in technology. And it is demonstrated by their sustained 90% plus gross margins. So very interesting. Now, as for the business, they don't report total subscriptions on every quarter, but in their

Q4, you go on strides4.io, you can track the subscriptions over time on a long view. And they're tracking right now, Q4, do some quick extrapolation. Don't have the number yet until the fourth quarter, but we're looking at around six and a half million total subscriptions on the SaaS. Total revenue increased 14% year over year to 1.2 billion, and total billings upon their services up 16%. Operating income of 256 million, which was up 20%. AutoCAD is still growing double digits somehow. And it was hitting like 20 plus percent on the top line. So this is a slight deceleration.

You know, this and some weaker-ish guidance is probably what sent the stock down. But AutoCAD might be the Tom Brady of software. You know, 40 years later, they're like, yeah, I'm still good. I'm still putting up numbers. So AutoCAD is the Tom Brady of software. And moving forward, they're guiding for 1.9 to 2 billion. It's called 2 billion in free cash flow for the full year. Now, stock-based compensation is something to consider for sure. But I think it's a bit overblown on Autodesk from investors when I see discussion online in terms of dilution. Because over the past 10 years, yeah, they've issued lots of stock-based

compensation. But you actually have a decrease in shares outstanding every year, net, net. And so it's not a material decrease in shares, but it's not like stock-based compensation is being diluted AF like so many of software companies we've seen over the past decade or so. Yeah. No, no. i agree with you here like you know the name better it sounds like it's probably more short term and the long-term thesis should be good but not too much more to add here i actually don't even know like what the reaction that's done basically flat since like the spring it's just kind of in a lull, which is not bad considering everything else in high multiple SaaS has been literally taking to the woodshed. These more high durable long-term staying power names have not been decimated

like the new high flyers that have made a name for themselves only recently. And you're seeing that not only stock price, but also in their numbers. Yeah, exactly. Because if you look at some of the other names in sas right we know some in canada too they've just been smashed like 80 90 is not unusual and not that they have terrible businesses but it's probably not as good as people thought it would be or at the hype of the you know low interest rates and people looking for growth at any cost. Yeah. Exactly. Let's use an example like Atlassian. And this is anecdotal evidence here,

but Atlassian, you're familiar, I think they're Australian. It's Trello and Jira. The ticker is team. So Atlassian is now down, let's see, Atlassian stock's now down 72.4% from the peak. And this is a software company that's in like work enterprise management, team management software, like task management software with Jira and Trello, very popular products growing extremely fast and unbelievable top line growth, good management team, just sleek little products. And I thought this would be a sticky business generally, right? You'd think, bro, we switch from an Atlassian property to a competitor property like three weeks ago with Stratosphere, like with my company, we did a migration. And this was led by our development team because they thought that there was a better product out there that better integrated with GitHub and their tech stack. So I'm like, sure, whatever you guys

want to do, go for it. Bro, it took us like an hour to migrate everything. Like that is not sticky enough. Like that did not cause us nearly enough pain to not churn and so the staying power and switching costs of some of these tech names i overblew them the market clearly overblew them and yeah it literally took us one hour seem like that's way too easy yeah definitely now we'll move on to a last name here which i guess is pretty kind of apropos with the news right so pin duo duo which is a chinese online platform just released its result i say where it's kind of been in the news is more you know the protests that are happening in china right now with the covid lockdowns for those not aware pin duouo does business primarily in China in the agriculture space.

So it's an e-commerce platform that connects small farmers with consumers. They've expanded their product offering over time, but that's still their primary business. Take these results with a grain of salt, as always, since it's a Chinese company. I thought it was social shopping. Have I been completely wrong? Yeah, I mean, I wasn't sure. I thought it was just kind of general e-commerce. And i kind of looked and there no they seem to be yeah they kind of do it i guess on a bit more kind of social basis but it's really connecting like small farmers with

consumers that's their their main thing okay so it looks like they have a couple different verticals they do i've always known it as like the social shopping thing but i also have no idea yeah you know well yeah like i said i was looking for names and this one i figure it'd be interesting just because of what's been happening in china it is listed as pdd as an adr in the u.s now total revenues were up 65 in yuan their total revenues converted to USD were just shy of $5 billion in the quarter. Their main category for their revenues is online marketing services. That was up 58%. It represents about 80% of their revenues. Transaction services revenues were up 102%.

That's the remaining 20% of their revenues, although they have a very tiny, tiny portion. That's merchandise sale, which is up 31%, but it's literally peanuts compared to the other two. Like if you calculate it, I believe it's less than 1%. Operating profits was up 388% compared to last year. Of course, looking at their yuan profits here here net income was up 277 percent if you convert that to usd it's 1.5 billion usd so really interesting at face value but again you know when it comes to chinese companies you have to take the results with a grain of salt you know assuming they are all accurate this has been a really interesting play, a strong growth.

And I was looking at just the stock and how it's been doing, and it's still trading at a pretty rich valuation, in my opinion, for a Chinese company. But I guess people are willing to pay for that for growth. I mean, it's not trading at 20x sales or anything like that. I think it's trading more around, you know, probably 5x, but still relatively expensive. But I mean, I guess there could be some worse plays in China right now. I just looked. It trades at just under six times sales and 30 times earnings. I'm shocked at these numbers. Like these sound really good.

And I guess because they're still in lockdown and this is an e-commerce platform. When you're still in lockdown, you saw the numbers. They're putting up numbers. E-commerce is putting up numbers in lockdown. So if they're still going, they're still riding those tailwinds. I don't understand what is going on over there like i see some videos of just the protests and and the facilities they're putting up to keep people really quarantined dude what what like what is happening it's terrible i feel very bad for the people who live there it's cruel is what it is

yeah i know it's pretty crazy that we're still seeing that, what, like almost three years after the pandemic started. And I know not to get in the whole vaccine thing, but they came out, I think, last night while we were sleeping and saying that, you know, they were imploring local leaders to not put up too intensive restrictions and encouraging people to get vaccinated, especially the elderly. But apparently their vaccines have not been as effective as the ones that are available in North America and Europe because China has been pushing for their own vaccine as well. So it's kind of funny. There's these protests. It's going to take a while, in my opinion, for the Chinese government to make an

about phase because Xi Jinping has made it basically, you know, his mission for COVID zero at this point. So it's gonna it's basically him admitting he was wrong and dictators don't usually like to do that. No, no, they certainly don't. Well, that does it for the episode, guys. Man, I'm gonna go eat some more delicious food. And this is wonderful. I'll start calling it a town like the locals do. I'll start calling it a town.

Dude, it's so funny when I saw the traffic thing because it's just so chill. I'm like, what do you mean? There's not 40 people honking at me as I cross the street. Like, this is great. I love it. I'm moving here. It's also going to be like nearly 30 degrees today. So let's go, man.

Let's go. Just letting you know. Do you like my background right now? Like this hotel is unbelievable, but it looks like I'm trapped in the 20s right now. Yeah. Yeah. The decor.

Oh, Leroy's making an appearance yeah leo leo agrees that it looks old yeah we'll probably keep it this one's well placed end of the episode no problem yeah just trash at the end here anyways thanks so much for listening to the show here we really appreciate you we did launch our new platform on stratosphere.io last night. And so it is available today. It is that elusive November 29th date today that we've been talking about. So go ahead and check it out. I do think it is now officially the best free fundamental research platform on the internet. Before, I would say that, but there was so many things that I thought, oh, this could be so much better. And now it feels so much better.

So as a stratosphere.io, it's free to use 10 years of financial statements. If you want to get up to 35 years now, we have a paid plan for that. Also, every single global stock is now on the platform. So it's not just North America anymore. We have international listings with 40,000 plus securities on here. So you won't be limited just to North American names as well. Thank you so much for listening. We'll see you in a few days. Take care.

Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Take care. Bye-bye.