The Canadian Investor - Reddit IPO, Accenture, Adobe, HEXO and more!

Episode Date: December 23, 2021

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: Reddit looking to IPO in 2022 Canadian CPI figures for November High flying tech stocks pullback Travel industry stocks down on omicron news Accenture earnings Average Canadian home prices reaching new all time highs Adobe earnings HEXO earnings   Tickers of stocks discussed: HEXO, ACN, ADBE, AC.TO, DAL, CCL, LYV, MAR, MTN, FUN   https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/See omnystudio.com/listener for privacy information.

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

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My name is Brayden Dennis. As always, joined by Simon Belanger. Simon, we are very close to Christmas here. So we just want to wish the listeners a happy holidays, prosperous new year as well. And we're in a pretty significant drawdown for most of the market, which I'm going to talk about in the future. So hopefully 2022 looks a little better than the end of 2021 here. How are you feeling, man?

Yeah, I'm feeling good. Definitely right. Seems like we're seeing a bit of a drawdown, especially for growth stocks. So hopefully people that own those type of companies just either adding to their positions or taking in stride, not panicking, and there's better times ahead. So you just have to remember to think about the long term. Yeah, especially if it is truly a great company. All right. Before we go on to the episode here, just quick coffee shout outs. I'm behind on some of them.

So I'm going to do some of them now and some of them in the future. We'll work through them all. User Mbox said, you guys are the best. Love your podcast, your review and input on everything. Keep up the great work. Thank you so much. Jules said, thank you for making me smarter. No problem, Jules. Well, we can try. Sask said, really enjoy the pod. I'm more of a tea guy myself, but enjoy a coffee on me.

Go Flames Go. Hey, Go Flames Go. Love it. Joe Miller bought us a coffee. Thanks, Joe. Ryan, best investing podcast out there. Appreciate your perspective and ideas from Nebraska, USA. Hey, you know what? We love to see that there's some US listenership as well on the Canadian Investor Podcast. And Simon, if we're doing a good enough job that US listeners are tuning in as well, I think that that's pretty solid. So we have a few more to go through and I'll get to them. But thanks. I cannot say thanks enough from both Simon and myself for supporting the show at thecanadianinvestorpodcast.com. All right, Simon, let's hit it off here with the first story of today. Yeah, definitely.

And like Brayden said, a big thank you to everyone who's listening, all our listeners, our supporters. I know we just mentioned a few, but we definitely appreciate it. So yeah, in terms of news, there's a lot of stuff going on in the markets even before the holiday period. So the first thing we wanted to talk about is Reddit announced that it's looking to go public in 2022. The company announced it has confidentially submitted paperwork with the SEC. So that's the Securities and Exchange Commission to go public and sell shares on a U.S. stock exchange next year. Reddit's last funding round was in August and it was at a 10 billion dollar valuation. Reddit gets its revenues primarily from ads and ad-free premium membership plans. This is one I'm curious about just to see what their financials

look like. Personally, I don't think I'd be interested in it as an investment, but just curious to take a look at what there is under the hood, to be honest. What's your thought about that one, Brayden? I'm hearing August wasn't that long ago and it's private valuation at $10 billion. It's not one that I've been following in the private markets much. And I'm surprised it's so little. I know like 10 billion is still a gigantic company, but Reddit is a wildly popular and successful website. So I'm interested to see what it'll debut at as a public company. It's an interesting website. It's a community of communities and people like that on the interwebs these days. And I think Reddit's got a lot of value. It's

really sticky for the people that use it. And people like to be part of something online and Reddit serves that purpose as being a community of communities. Yeah, yeah. I mean, I've used Reddit. I find it interesting. I'm not a regular user. But having said, I still find it funny that they're looking to go public in 2022, given that they were found in 2005. Even if the valuation goes up, I mentioned the 10 billion valuation round they had, even if it goes up to $15, $20 billion or even more when they IPO. I don't know how fast they're growing, but I guess we'll see that when they release their financials before doing their IPO.

It does feel like they're trying to capitalize on a very hot IPO market that we saw in 2021. And I did come across this report by EY showing that 2021 saw close to 2,400 IPOs globally, and that's compared to less than 1,500 last year. And let's keep in mind that last year there were very few IPOs for a couple months, at least a quarter in the year when the pandemic really hit. So most of that really started happening in the back half of 2020. The total proceeds for those IPO in 2021 was $453 billion. That's a 67 increase from last year. So it's kind of mind boggling. And 2020 was a very good year for IPOs as a whole. So the reason I wanted to mention that is just to highlight that I think Reddit is probably being pretty opportunistic here in its desire to go public soon.

I'm not sure if they would be going public if we had an average IPO year. But having said that, it'll be interesting to see where it goes and what's under the hood, their finances, what their balance sheets or revenue and their profits, if they are profitable, look like. It's been a wild year for IPOs and you realize how many more there was than last year. And then last year you're like, oh, 2020, there's probably a big slowdown in IPOs. And you just mentioned it, like there was a ton of IPOs last year. I mean, there was that big delay, But the second half of 2020 was IPO. Like there was tons. You mentioned there 1500 IPOs, 2400 IPOs this year. That's a ton, dude. Like that's the investment banks are getting their bread. Oh, definitely. Yeah. And that's globally. And I know Canada, they had the numbers by country. And maybe in another episode, we can dig a bit more into

that report. But definitely, it seems like pretty much worldwide, it was a pretty hot IPO market. All right, let's talk about what I was mentioning before, which was that high. So okay, there's this weird disparity in the market right now, which is it looks like we're basically just a few percentage points off all-time highs on the S&P 500, because there are about five businesses that are carrying all of the performance. Now, if you look across the rest of the market, lots of stuff is in huge drawdowns, and there is no better gauge or barometer for the types of high priced, expensive, potentially overvalued tech stocks than Cathie Wood's ARK ETF, which is down 25% this year as

of recording. While the SPY S&P 500 is up 25%, It is a perfect mirror of negative performance and positive performance. Cathy's ARK ETF is down 25% and the S&P 500 SPY index ETF is up 25%. So this is massive underperformance, down 25 versus up 25. This is a valuable lesson in momentum and stocks that were just flat out overpriced. There are some wonderful businesses in the stocks that they own in this ETF. It's this like arc innovation, that's what they call it. And I understand behind owning the businesses that are going to change the world. I can get behind that. I want to own the stocks that are going to change the world and be more important in the future. I get that. But the general theme, correct me if I'm wrong when I'm speaking out of turn,

but I know your portfolio pretty well. And the general theme of you and I's investing strategy for the most part is buy the best businesses, but try not to pay stupid prices. And this is the key. Paying stupid prices is actually not that hard. It's hard to find good prices. And it's, depending on how you view investing, hard to find even fair prices. investing, hard to find even fair prices. But I think it's fairly easy. And I'm curious on your take on this. It's fairly easy to try to not pay stupid prices. And now we've owned some stocks that are obviously trading at high prices. I think of Unity, for instance, trading at 40 times sales right now. I own this name. This is one that ARK ETF owns as well. It's a business that I believe so strongly in the future of the gaming engine that IK ETF owns as well. It's a business that I believe so strongly

in the future of the gaming engine that I just want to own it. Whether it's the right play at the price, I can't comment on that. But it trades at 40 times sales, which is mind-melting, face-ripping expensive. And when you own a basket of stocks like this, you are going to face wild drawdowns. The lesson here is that, sure, you can own some high-flying tech stocks, and Cathy's arc looked genius for a time there, but now it's getting absolutely smoked. They have liquidity issues. You just can't buy businesses that are going to change the world at any price. There is a price that is too high. If you bought Microsoft stock in 2000, you had to hold it for 16 years until October 2016 to make your money back. And that's what happens when you buy stocks and pay prices that make little to zero sense. Yeah, yeah. And I think that's where an approach for me

of dollar cost average, and we've mentioned during our portfolio episode that, you know, I've had a few businesses that have performed quite well, and it was just starter positions because I saw a good entry price, never ended up adding back to them. But that's a good way, in my opinion, to just start positions in companies that you really like. Even if the valuation might seem high, maybe it means that you have to wait a little bit to start that position. But even if you end up paying very high multiples, by breaking that down on the dollar cost average strategy, you really make sure that you don't pay the absolute top for a company that you really

like. So I think for me, that's just probably the main takeaway. We know it's very hard to time the markets. I think that's just an easy way to edge in terms of getting exposure to a company you really like that might be a high price, but also kind of massaging the price a little bit to your advantage. I think it's just an easy way to do it. And I was going to say, Kathy Woods, I find her really fascinating to listen to. I don't always agree with what she says. I do agree with her on some topics, but it just comes back to show that, you know, you might not agree with someone, everything that they say, but you can still pick some bits and pieces that you can find

very interesting. It can also open your mind on some of the things you may not have seen. I agree. I respect her work a ton. She has very high conviction in some of these companies that are going to change the world. I back that. I'm with that. I want to own some of them too. That being said, I think last year, that ETF got so much hype and a lot of new investors were coming in and seeing some of these stocks go up 10% a week and thinking that that's some sort of precedent of what you can expect in the stock market. And that's just a reality that is destined to blow up in your face because the best people, the best, most successful investors in the world have never been able to accomplish anything remotely like that. So, you know,

it just goes back to your chances are you're not smarter than Warren Buffett. You know, like, there's a pretty good chance you're not smarter than Warren Buffett, including me. God, I have half the IQ he has. Maybe one third of Charlie Munger's IQ. You know, here's an idea. You could actually put half your portfolio in the ARK ETF and half in Berkshire, and you have a perfect mix of like high valuation and value stocks right there.

They probably work on polar opposite factors, which is like hilarious. Yeah, exactly. But I know that was a fun discussion, but she is very interesting to listen to. So is Warren Buffett. So is Charlie Munger. And I think that's just, but it's just a reality.

Those high growth stocks are just being really smashed right now. And speaking of an industry that's getting pretty, pretty hit very badly, it's the travel industry in general. So with the news of the new variant coming out, use restrictions being imposed from governments around the world, it's been a rough month for travel and live entertainment stocks. So I pulled a bit of data here just in the past month. So I'm just gonna rifle a few names. Air Canada, it's down 18%.

Delta Airline, down 10%. Carnival Cruise Lines, down 15%. Live Nation, down 12%. Marriott International, down 4%. Vail Resorts, down 7%. And Cedar Fair, which owns Canada's Wonderland, is down 1.4%. Personally, I'm staying away from these businesses for now just because I don't know where travel restrictions are going this short and medium term. I've said that since the start of the pandemic, especially airlines. i would prefer being a bit late to the

party than being too early there's just so much unknowns and things that the airline companies simply don't control on top of things that they don't control already like gas costs for example a lot of people thought that the worst was behind us in terms of restriction just a month ago and i was probably one of them as well but now we're seeing like I said these restrictions go back in I'm not against these stocks per se but when there's so many unknowns you have to really be careful when you want to invest in a business I mean can make a case there's opportunities but there's a lot of risk as well so if they end up being winners and people end up making a lot of money on it, good for whoever invested in them. But for me, you know, I'll kind of wait and see.

And I certainly hope that we're able to travel back again soon because when I went to Syracuse a few weeks ago, it literally felt like I was going to an exotic destination. And if you've been to Syracuse, it's probably the furthest away from an exotic destination. Oh, that's too funny. Yeah, like, man, I get that because like I would kill it to just go to Buffalo for a Bills game. And like, if you've been to Buffalo, it ain't exotic. Maybe exotic in other kinds of ways. It's like a bigger Syracuse.

Upstate New York. It's not necessarily the most pretty place, but I love you, Buffalo. 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. All right. So let's move on to Accenture, ticker ACN. Now Accenture, dude, I don't even know where to start this company's killing it okay so earnings per share were two dollars and 78 cents a 20 increase while revenues are up 27 year over year this is a gigantic business new bookings are at record highs a 30 increase in both the u.s dollars and local currencies from the first quarter last year. They have record consulting bookings. The company declared a dividend, which is up 10% year over year, and they bought back 2.4 million shares. Dividend growth investors, this is one to pay attention to if you're not

already. I'm going to go through what the business looks like in a second here, but they did raise revenue guidance for full year up to 22%. This company is an absolute beast. It just did $15 billion in sales for their first quarter, and they are perfectly positioned for this decade. For those less familiar with Accenture, it is, well, check out the deep dive actually I did on this podcast. I released it October 30th, it's episode 113. The episode is called Hype ETFs and Accenture, which is hilarious because that's what this podcast has been about so far, Hype ETFs and Accenture. So give that a listen. Consulting is a good business and Accenture is the best in class consulting firm that is well positioned to continue to benefit from digital transformation and helping large enterprise adapt

to this new technology first world. And this is what they deliver what is called 360 degree value to clients as they digitally transform their operations. That was a quote from the CEO. Stratosphere does cover Accenture in detail and provides a deep dive into the business. We now have this green box at the top of every company that kind of states where we are and updated right to the latest earnings release. And here's an excerpt from my analyst, Adrian, who is, by the way, an absolute weapon. This is what he had written on Accenture for their latest. Accenture is continuing to expand their service offerings at a rapid pace with another $1.7 billion in capital employed on business acquisitions in Q1 of 2022. For the full year, Accenture expects to invest around $4 billion in their pipeline of acquisitions.

So I just wanted to mention that as well, because they are buying tons of consulting firms. And it is wild how many acquisitions they actually complete on an annual basis. And consulting is one of those ones where roll-ups make a lot of sense because you introduce cross-selling. There are lots of privately held consulting firms from, you know, family run that have been going for a long time. They have loyal customer bases in their geographical region. You roll them up and all of a sudden you get access into this global network of what is Accenture. And so I don't know how, have you looked into Accenture much beyond like what I've talked

about? It's a 250 billion in market cap company. No, not really. It's just I guess the consulting business has never, you know, attracted me. It's not sexy. It's not the sexiest business, but definitely I read about the results

before the show today and I was really impressed. It seems like they're just, yeah, executing really well. It's definitely piquing my interest. I mean, every time I look at them, it seems like they're just beating results and the company's just growing constantly. So I think there's a lot to like and definitely for people to consider, especially since you have a little dividend that comes with it and it seems to be increasing pretty quickly. They're returning

money to shareholder with those share buybacks. So a lot of things to like, and I think they have some pretty big tailwinds going forward too. It pumps out free cashflow because it's a service business, right? It's services, it's consulting. And what kind of services do you want to be as a consulting firm? You want to be the leader in enabling companies transitioning to technology first. You know, whether it's cloud computing, like shifting over to the cloud, whether it's training up your team to be positioned for the future,

it's just, it's innovate or die, right? Like it's totally innovate or die in this new economy. And Accenture is perfectly positioned to continue to benefit from that in the future. Yeah, definitely. Now moving on to some more news. Canadian CPI data came out for November of 2021. CPI figures showed that prices rose 4.7% year over year in November. That's according to official Government of Canada figures. The highest price increases were gas at 43.6%, furniture at 8.7%, food at 4.4%. Prices of goods as a whole rose 6.9% compared to October, which was 6.5%.

And price of services increased 2.9%. So it's really goods that we're seeing increasing here. Simon, before we move on with what you're talking about with CPI here is, can you define CPI for a hot second? Because I know more than half the podcast will know what CPI stands for, but we have to remember not everyone's always an economist. So can you just define CPI really quickly? Yeah, so CPI is short for the abbreviation is the Consumer Price Index. So CPI is probably the most widely used metric that governments will use in order to determine how quickly prices are increasing.

Usually the figures will look at a year over year increase. There are some adjusted figures where they'll remove the price of gas, for example, and food. But I like to look at the CPI's figures as a whole because gas increases or decreases are part of life. And I think personally, they should just be factored in. So when you hear CPI, it's just official data. But keep in mind, that doesn't mean that that's necessarily the prices increase that you're seeing on a day to day basis. These are just this is just government data. They just take a big bucket of good and services and they look at the increase compared to the previous month, but also the figures that you'll see the percentages are always year over year. The figures that you'll see, the percentages are always year over year. Okay. Yeah.

Thanks for defining that. One thing to kind of point out and one thing that a lot of people have just kind of chuckled at the CPI is it's basically cherry-picked stats. That's kind of how I've always viewed it anyways, is the government kind of cherry-picks what they feel like including and what they don't feel like including. kind of cherry picks what they feel like including and what they don't feel like including. And that's been the knock on CPI for what probably its entire existence is the fact that, you know, you look at the M2 money supply and you're like, okay, something doesn't add up here, right? And so anyways, yeah, I think that that is helpful to define. Yeah. And we can probably do a full episode on the shortfalls of CPIs and what it doesn't include. But yes, there's definitely some big limitations here. And that's why I encourage people to just look at the prices you're paying and the since now we're seeing central banks around the world signaling that they'll be increasing interest rates faster

than anticipated to curb inflation because of all these CPI figures that we're starting to see. We saw the Fed last week that they would be looking to increase rates three times next year, which is a big change of what they were seeing just even a few months ago. The Bank of England also announced a surprising interest rate increase of 15 basis points to 0.25%. I mean, it's nothing crazy, but it's just showing when the central banks were saying that interest rates would stay pretty low for at least a year or two. we're seeing that change in tone and now that they're no longer looking at inflation on a transitory basis. Anything else to add there? No, other than the fact that, yeah, they've mentioned, hey, there's going to be hikes

next year and most central banks have said that. And then you're like, oh, okay, they're rising. And then you realize you're like, okay, they're probably still going to be pretty low. I mean, I don't speculate on interest rates or speculate on really macro at all, but I don't see them being super high considering where we are today and the sensitivity around moving them up, given where the economy really is, you know, I can't really speculate beyond further than that. But when people are, you know, freaking out and the market freaks out about interest rate hikes, they're still so low, right? Yeah, yeah, exactly.

And I think it's important to, it's something that you should definitely consider if you have some debt, especially if it's not fixed debt. So fixed interest rate, if it's variable, then definitely keep that in mind if they're starting to increase interest rates. Some more news on the Canadian front, the average Canadian home prices hit a new all time high. Are you surprised, Brayden? I'm not. you all time high. Are you surprised, Brayden? I'm not. Look around here, man. And you're like, holy dude, my like childhood home went for 2.2 or something ridiculous. It was a big house, but I bet you might, I think my parents sold it for like 425 or something. And I was like, they made good money on it at that price. They were walking away

feeling good about that. And then you look at the prices of stuff around here lately, it's just bonkers. Exactly. And it's the same in Ottawa and it's the same on the Quebec side here. The average home prices hit a all-time high of $720,000 in November. It's the average, of course, so larger, more expensive markets will have an outside effect on this because prices increases across the board in every provinces, but the percentage do vary. So the prices have increased 20% year over year for all of Canada, Ontario, New Brunswick, BC, and Nova Scotia are leading the way with increases of more than 20%. New Brunswick, BC and Nova Scotia are leading the way with increases of more than 20% and Manitoba,

Alberta at the bottom with increases of 6% on average in those provinces. And it's some very interesting data, in my opinion, just to keep in mind. And I had an interesting discussion with a friend of mine who's a realtor in Gatineau. For those who are not aware, Gatineau is essentially just the Quebec side of Ottawa. It's separated by the Ottawa River, but I've lived on both sides. And yes, they have different provincial and municipal governments, but I still see it pretty much as one city. And I asked him if people were getting really stretched out financially to buy homes, and he said yes without hesitation. I said that people are going to the very top of their budget to be able to buy homes in the fear of missing out. So FOMO is a big factor here because in a lot of cases, they've missed out on homes because of bidding wars. But thankfully, he said that most of them are opting for fixed mortgage rates.

But it's still worrisome in my view because even if your rate is fixed for five years if you're going at the very top of what you've been approved for a mortgage it means that you don't have much wiggle room if something unexpected happens and i'm gonna go on a limb brayden and i'm gonna say that most people who go to the very top of what they're approved with a bank probably don't have the biggest emergency fund either i'm just to go on a wild limb and just say that that might be something that you would see quite a bit. And then if anything happens and unexpected, you lose a job, your income gets reduced. For example, you go on a long-term disability, which is typically 70% of your income, or you have major expenses that you

weren't planning on. So even if you have those fixed rate, you might be kind of forced to sell or it'd be in a very difficult situation. So I just wanted to use that to remind people that, you know, it's everyone, a lot of people want to home homes and that's fine, but, you know, keep in mind, have a budget and stick to it. If you start stretching yourself more and more, I mean, you might get your dream home, but you may have some pretty bad consequences down the line. I get so confused about this notion that many, especially here in Ontario, you saw the data here, you posted 24.13% one year change from November to last year, November in the average home price in Ontario, call it 25% increase in the average home. And there's this kind of

baked in culture around here. And I'm sure it persists in other markets. I'm just speaking to what I know. There's this baked in culture that real estate is this safe haven, always goes up no matter what. Get in before you miss out. If you don't get a home now, you're never going to get one. you're never going to get one. It's this perpetually never ending, it goes up every year at a very rapid pace. And while that has been mostly true, we are introducing a ton of leverage into the average Canadian's finances. And we have already been sitting at extreme debt-to-income ratios in this country compared to around the world because of this real estate market. And now we're going to push that even more

into historical price increases. even more into historical price increases. There's not really any economic stuff that keeps me up at night, but this concerns me that people are thinking that real estate is a safe haven. You can be leveraged to the nines and it's okay because it's real estate and this is how our parents got rich. You're seeing this notion, right? Oh, yeah. Yeah, yeah. And I mean, it's all nice and dandy until you basically are forced to sell and you had so little equity to begin with and now you're facing a significant loss. So, I mean, I'm hoping it works out the best for everyone who's bought a home, obviously. But I saw that as a warning sign when we bought our home because you should have seen for the amount of money we were approved for and the guy was telling me like

oh if you give us like what you got in the overtime bonus we could even increase that i'm like no i don't want you to increase it like it's already high enough as it is and we went to about like two-thirds of the max. And we could have been approved for more if we, you know, provided all these other things, just we did not feel comfortable. And I'm so happy that we have that margin of safety with our home right now, because we have tons of equity because we were on the safer side. There it is, Simon, in your forever wisdom, but people don't have this kind of caution with real estate. And I always think to myself, you know, people are concerned about owning stocks because they think they're risky. And the reason that I think a lot of this stems from is,

imagine, Simon, if your house got appraised every single morning imagine if your home every single morning got appraised in its value and like introduced this volatility into yeah no i think you're exactly right a hundred percent agree i think people see the tickers go up and down on a second to second basis and that's exactly what they think. Where the home, you can't get it appraised at your will, get appraised once every two years or you get a sense of what the market is and you kind of ballpark what your home would be worth. But yeah, I think you're bang on. I think that's a reason. That's why people have done so well on real estate is because they've thought about real estate like owners and then they think about stocks like traders.

And this is what kills stock investors, is they think like traders, not like investors. All right, let's move on. Adobe. Just before I comment on the results for Adobe. Adobe is really a strong, durable technology company. Trades at a somewhat reasonable price. technology company trades at a somewhat reasonable price, no one really talks about them. Maybe it's just the circles I hang out with. Adobe doesn't get really enough credit considering how well the stock has performed. I find that interesting. They don't get thrown into the sexy mega tech. And I wonder why sometimes sometimes anyways, a record revenue of 4.11 billion for the fourth quarter, which represents 20% year over year growth. So this company is still growing at, you know, 20 plus percent on almost every segment was in that 20 to 25% range. They added 2 billion in net annual recurring revenue, which is pretty massive.

That is a serious scale. They generated a record 7.23 billion in cash flows from operations. So very profitable. Digital media segment grew 25% and the experience segment grew 24%. In the creator economy, which I believe is a real thing and it's going to become bigger and bigger, Adobe set up really well to benefit with their creative cloud subscription. They have this product line that dominates in some of their main product offerings. The hesitancy that I see on the street from investors eyeing Adobe, and I can understand this because I use many of their competitors. There have been new web-based software as a service applications like Figma, or one that people might know, Canva. Figma is more for professional designers.

Even new video editing softwares are coming out and they're very powerful, but just on the web browser, this could disrupt their core creative cloud offering. So I see that kind of hesitancy and then they grow 25% on the creative cloud subscription. So something's not right on the stock. It's not like some cheap value stock. It's 15 times sales. I'm not going to cheap value stock, you know, like it's 15 times sales. I'm not going to be some like late bull market guy, like 15 times sales, Simon, you know, back up the Brinks truck. This thing is a cheap value stock, but it does have 90% gross margins, growing annual recurring revenue of over 20% per year. This is a pretty solid business. per year this is a pretty solid business adobe is low-key up 1800 in the past 10 years and yet they don't give it enough credit you know heck you and i don't when do we talk about adobe we

like pretty much never talk about adobe and this stock is up 1800 in the past 10 years yeah yeah i know exactly i mean i have it on my radar but i guess i never pulled the trigger it sits on every yo it sits on everyone's watch list it's a bit on a pull down to a little draw down right now right so uh i mean something to to keep in mind it's like you said it's big tech but compared to like apple it's still a tiny business at 250 billion so it's i got an equal market cap to a century actually so i guess my I guess my ask myself is like, buy both. What do I like more of Apple?

Well, well, I'm going to buy them. I'm going to take them, them both private signings because I have 500 billion hanging around. I'm going to sell three Toronto GTA homes and then I'll be able to take Adobe and aure private. Yeah. Seems like it lines up pretty well.

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and keep more of your money. Visit questrade.com for details. That is questrade.com. That is questtrade.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. Now the final news item or earnings result that we'll be looking at, it's XO who released their Q1 results and it was not a good quarter for XO. It was actually quite terrible. The company even issued a going concern warning

when they released their Q1 results. So for those of you who are not aware what a going concern warning is, it's when a company says that there could be a risk of them not meeting their financial obligations. And it's a big, big red flag. And maybe we can talk a bit about it on another episode of what to make when you see this. But it's the kind of thing that you'll see when a company is close to declaring bankruptcy. So it's something, if you ever see that in a company you're looking into, yeah, red flags should be going off all over the place. The going concern for them is around convertible notes, which the holder has the options to require monthly redemption settled in cash or equity in order to do so the company has to maintain a share price of a dollar fifty in us so on the nasdaq i

believe they're traded from the previous 20 trading days if this isn't met then xo has to get a waiver from the holder to settle the monthly redemption in equity. If the holder doesn't agree, then XO has to pay cash and has no choice to do so. So they're going to be in a really difficult situation because last I looked this weekend, it was it's actually lower than when I last looked. So it's zero point seventy nine. So seventy nine cents per share in USD. So they're pretty much half of what they're supposed to be to be able to have that option so it's not looking good for them their shares are down 36 in the past month and 80 in the past year and if we look at their shares since cannabis was

legalized in canada they are down 95 so So now looking at their financials, just to show how kind of dire I'm going to say it is for EXO, they had cash on hand as of October 31st, 2021 of $55.7 million. Their net revenues increased 70% to $50 million year over year. So that's the first, that's the only silver lining, I would say. Their net loss increased 28 times to $11 million year over year. So that's the first, that's the only silver lining, I would say. Their net loss increased 28 times to $117 million. And they were free cash flow negative to the tune of $79 million compared to $8 million last year for the quarter. So it's really not looking great for all these metrics. And I think EXO is just a cautionary tale for investor who are looking to get a stake in a very highly hyped sector.

And I said it when we had just started the podcast a few years ago, and you did as well, Brayden, that it was a wait-and-see approach, at least for me, in the cannabis market, because we didn't know how big the market was. And companies like XO's were doing were doing acquisition left right and center to get more production and paying ridiculous premiums for these acquisition and that add that to the like the hype from retail investor and you have a perfect storm of terrible returns and honestly it's been the story of most of these marijuana plays is basically increasing losses and share dilution. HMMJ, which is the ETF that has a lot of the marijuana stocks in it,

in October of 2018, that's when the legalization was, I believe. Yeah, you're right. The few months leading up to that, it was one of those classic bubbles where even the most casual conversations, people that you didn't even know were investors were telling you to buy weed stocks. Every single human I knew owned weed stocks And you were an idiot if you didn't own weed stocks because they just went up and up and up. And I'm looking at these things like Aurora Cannabis. I'm like, if you see me pay 215 times sales for a commoditized business that is about to legalize its doors in Canada. Canada has 35, what is it?

38 million people. Like this is not a gigantic total adjustable market. You know, like wake up. This is craziness. You know, it's Simon, we've been, we've been banging the drum on since the start of that, um, on these made no, no sense as investments and they've all bled down to, to new lows. And, you know, we've been, we've been right the whole time. This is not to dunk on, you know, the investors in, in this stuff, but it brings me to everything I've read about bubbles. And that was classic

behavior I saw from people saying, oh, just buy HMMJ or just buy Aurora or just buy Canopy Growth Corp. It's free money. You'll just make money hand over fist. These things imploded. And it's not to say that they're bad businesses, but it brings you up to the point before, which is there's a price that is way too high to pay for any business, especially ones that bleed cash, highly unprofitable, commoditized in nature, and their total addressable market at this current moment is Canada. How is this just going to be blowing up into some gigantic market when, you know, realistically, the cannabis market in just Canada is not that big? No, exactly. And I'm going to say that they're not great businesses, at least in their current form. They could very well become profitable eventually.

But that was the issue, right? The total addressable market was just estimates because we were coming off the black market. And I read recently, I think it was Ontario, the Ontario cannabis store that released data saying that just recently 50% of sales are now done legally in Ontario. They just surpassed that 50% threshold. So it's been three years since legalization, and we're just passing that 50%. And they, for the most part, no one really knew what the TAM was for this market. So people were just guessing and investing based on that. So it's just a cautionary tale, but just a reminder that yeah, when there's a lot of hype, probably better off,

at least, you know, if you really want to invest in something that's a lot of hype, probably better off at least, you know, if you really want to invest in something that's a lot of hype, just make sure your allocation is very small if you really want to invest. But if not, personally, I like to sit back, relax, enjoy the ride. And then, you know, maybe when things get a bit more normal, then I can start thinking about it as an investment. Not to mention when they do legalization, they let every single person grow their own weed. Exactly. They let you like, oh, now we're going to introduce tons of competition because every single Canadian can all of a sudden produce their own pot. They went from, oh, it's legal, it's bad, don't do this, to,

oh, by the way, Simon, you can have four plants in your backyard. Like four plants. And who are we kidding? If you wanted to smoke weed before, you could smoke weed before. Oh, yeah. Don't get it twisted. You all know it wasn't just going to all of a sudden be this gigantic market just because it was legal. Any other comments on anything here, Simon? No, I think it was a fun episode. I think this will be the last episode before the holidays for people when they listen to it. So, we're recording this on the 20th, but it'll be released on Thursday. So, I so i think yeah it'll be our last episode before

christmas so happy holidays to everyone thursday's the 23rd yeah that's it so it'll be our last one before christmas so uh you know happy holidays for everyone merry christmas to those who celebrate that and you know if you don't then i hope you enjoy the time off hopefully you get some time off during the holidays and to relax and we won't miss a beat. We did some extra episodes so that everyone can listen to our beautiful voices, Brayden, while they're off during the holidays. Speak for yourself. You have the accent. You just flow through these episodes. No, but I'd like to reiterate that for sure too. And it's going to be nice, Simon, that we have two weeks.

Well, not quite two weeks, but we have 10 days, considerable time off of recording the podcast because I don't know about you, but it is, it's tiring. People don't recognize how much effort goes into a consistent podcast twice a week. So we know that many of you do. So we respect and appreciate you guys. If you haven't checked out Stratosphere, go to stratosphereinvesting.com.

It is a wonderful place to do your own self-directed investing research. It is the company I spend all of my time building these tools for you. So I appreciate you go check that out. That is stratosphereinvesting.com. We'll see you in a few days. Enjoy your time off. If you have some around the holidays, spend it with your family. And we appreciate you guys on the podcast very, very much. Thank you so

much. Talk in a few days. 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.