The Canadian Investor - Seven Stocks Facing Trouble - Earnings Roundup

Episode Date: June 9, 2022

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: Lululemon earnings Crowdstrike earnings Canopy Growth earnings BRP earnings CloudMD earnings Chewy earnings Public cloud valuations have plummeted Apple getting into the buy now and pay letter business   Tickers of stocks discussed: LULU, CRWD, WEED.TO, DOO.TO, DOC.V, CHWY, AAPL   Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital   Check out our portfolio by going to Jointci.com 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. Check out the Yes We are Open Podcast from sponsor MonerisSee omnystudio.com/listener for privacy information.

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My name is Brayden Dennis, as always joined by Simon Belanger. We got a great episode of earnings and news roundup from the financial markets for you today. We're going to talk about some Canadian co's, some tech plays, some US names and everything in between. How are you doing, brother? It's going well, just a rainy day outside. So it makes it pretty good conditions to do a good recording. I don't feel too bad for not spending time outside you. I haven't seen the sun in like four days in Toronto. I don't know what's going on here, but I have only seen rain recently. So hopefully by the weekend, we come around to some sunshine,

need to get back on the golf course. All right. For those who have not joined, join tci.com. That is join tci.comcom it is the patreon to support the podcast as well to get our monthly portfolio updates from our own real money portfolios that we're managing for ourselves so and you get a podcast shout out so let's do some of those frank oh wait I like this one. This guy's name is Just Some Guy. Just Some Guy. Thank you, Just Some Guy. Philippe, Jan, Sonny, Don, Stav, Mako, Fong, HB. I don't know if that's a name. Benjamin, Ryan, and Tim Wilson.

Thank you guys so much. I thought that was almost Tom Wilson for a second. And I thought of hockey, which brings me to there's officially still going to not be a Canadian team that wins the Stanley Cup as of this morning. Yeah. Yeah. I mean, it makes me appreciate the run that Montreal did last year even better. And now their Stanley Cup is coming up in like a month for the draft. So, should be good. Yeah, there you go. All right. You got first one on the slate here.

Takeaway, would this be Q1 for them? I believe it was. Yeah, sorry. I forgot to write it on here. But regardless, it's their latest quarterly earnings, Lululemon. They had a pretty good report overall, obviously could have been better in some places. And we can discuss that towards the end here. Revenue- It is Q1, by the way. It is Q1? Perfect. Okay. I i usually write it i just forgot to do well you never know it the companies that are this late like usually they're on a weird schedule yeah yeah exactly i think their fiscal year ends like one month into the year that's probably right if i remember correctly that's so their revenue increased 32 to 1.6 billion direct to consumer revenue increased 32% to 1.6 billion. Direct-to-consumer revenue increased 32%.

Direct-to-consumer revenue now represents 45% of revenue, which is very solid. Gross margins decreased 320 basis points to 53.9%. This is obviously not great, but they had guided for a drop of around 300 basis point for this quarter. So it is in line with that. And for additional context, it also is the same margin that they had in 2019. So pre-pandemic, they repurchased 232 million worth of shares and their net income increased 31 percent to $190 million. They commented on their guidance, so they expect revenues to be in the range of $1.75 billion and $1.775 billion for Q2. For the full year, it expects revenues to be between $7.61 and $7.71 billion. So overall, like I said, I think a pretty good quarter for Lululemon given a lot of

headwinds that are being experienced for a lot of their peers. A few things to note as well here that they mentioned inventory levels are higher than their historical norms, which is in part due to their strategy to mitigate supply chain constraint. They're not alarmed by that. They're very confident with their inventory levels. Although Lululemon has navigated supply chain issues better than a lot of their competitors, it still remains a challenge for them. And China impacted results with lockdowns

in major cities like Shanghai, which affected their Chinese operation. And last note here that still concerns China, their growth plans of opening 40 new international stores is on track with most of them being new stores planned for China. And I didn't break down revenues by region, but for those of you who are not very familiar with Lululemon, most of their sales come from North America. So that's why the international expansion is definitely very important for them to grow their sales. If you can't tell, you can probably hear it in my voice. Not feeling so hot, but we're powering through here. Okay, so 32% on the top line there to 1.6 billion. Dude,

I can't believe the DTC numbers that these companies have actually accomplished. It makes no sense to my brain given how much brick and mortar their presence actually is, that that much volume is moving online. Obviously, that's great for margins. It's great for their business. It speaks a lot to the product. I'm doing laundry as we speak. And that's why you know I'm not wearing any Lululemon because it is by far all of the first things in my wardrobe to get worn. So, I'm on the stragglers right now. But the laundry is full of it right now. Yeah. The one thing I'd be interested and I don't think they break it down that way is direct to consumer based on category, especially like men and women.

The reason why I'd be interested in seeing that is I've noticed going to their stores, at least in my area, the men's section tends to be very limited. Yet when you go online, there's a lot more choice. So that's why I tend to just default to buying my stuff from lululemon online just because i find their selection is way better yeah it makes sense i mean they're gonna hold pretty much everything on that online portal and it's a bit bit easier than a retail store a bit more space online yeah yeah you can fulfill that a little easier. All right. Let's move on to CrowdStrike, ticker C-R-W-D. CrowdStrike, I guess I'll do it. I was going to get into their numbers. Let me switch this around. I'll do the spark notes on what CrowdStrike is. So CrowdStrike is a cybersecurity platform. Their platform is basically called the Falcon. And the platform

uses machine learning to detect and neutralize cybersecurity threats. And how they do this is the data aggregated from all their customers on the platform actually helps detect threats of the entire network in real time for their customers. So there's this amazing inherent network effect that as the product gets better and smarter, as they get larger, like more customers they serve, the product gets better. That's such a nice flywheel. You know, I love those types of businesses. And they have this thing called the threat graph.

And that's where all the Falcons data storage lives. where all the Falcon's data storage lives. And they have this wider customer base that as endpoint threats become more prevalent and more obvious on the platform, because there's so much data being fed into the platform at all times. This is truly one of those next level artificial intelligence types of applications where there's this literally machine learning and getting smarter against cybersecurity over time. So really cool company, really complicated. If what I just said makes very little sense, that's because you just heard it from someone who has no background in cybersecurity. So annual recurring revs were 1.9 billion, which was up 61%. So that is that ARR number. So that's the run rate. So that is recurring revenues from here. And so these are subscription solutions. So that is just quite the scale they have reached. Free cash flow of 157 million, up 34% for the quarter. Total subscription customers, almost CrowdStrike, if you type in CRWD on stratosphereinvesting.com,

you'll see we track these metrics like historical annual recurring revenue. And look at that. Can you vouch for me? Look at that chart. That is as nice as it gets. Yeah, it's like parabolic. So that's usually what you want to see. And steadily parabolic, I would say.

Yeah, not kind of parabolic, then crashing. It keeps on going. Up and to the right. So annual recurring revenue has gone from $141 million in Q1 of 2019. It's not that long ago to almost 2 billion today. So you've seen just this exponential explosion in growth and very consistent growth, as we were just hinting at. So as for guidance, they raised revenue and profit guidance for the full fiscal year. And it's been getting, I've noticed just looking around, they've been getting a bunch of upgrades

across most investment banks as well. There was this large study done by one of the investment banks, I can't remember which one, about how they did this survey with large enterprises about spending and what they would cut in a tougher economy. And cybersecurity was like a real bright spot in how spending was actually increasing across the board almost, and is going to continue to be an increasing priority and not any project that these companies want to shelve, if anything ramp up. So it's pretty wild. They've added 1,620 net new subscription customers in the quarter. That's companies, right? These are large companies.

in the quarter. That's companies, right? These are large companies. So tons of enterprise contracts to be done in a single quarter. I'm just thinking as someone who's working in software, trying to grow a business right now, imagine adding a thousand enterprises in a quarter, let alone 1,620. This company was founded in 2011. It's amazing to think that what these guys have accomplished in basically 10 years. It's pretty insane. Yeah, yeah. I mean, it's doing well. I mean, the valuation has come down a bit to its peaks, but it's performed actually decently well to other growth stocks. And rightfully so, they seem to be keeping that growth up pretty well. And it's not a company that you can probably make a case that it got like necessarily huge tailwinds from the pandemic.

Without knowing the space too well, I would think that demand for their service would have kept increasing regardless if we have gone through a pandemic or not, because cybersecurity was a concern three years ago, two years ago, a year ago, today, going forward. So it's an interesting one. I don't know it well enough. I don't know if I'd be able to understand it quite that well to ever start an investment, but it's an interesting name. Yeah, I'm just here on Stratosphere again, just looking at some metrics here. So yeah, the multiple was 46 times sales in 2021. And today, it is 22 times sales. So yeah, the multiple was 46 times sales in 2021. And today it is 22 times sales. So it's again, it's not a value stock. I mean, these things are trading at over 20 times sales.

But if you look at the compression, as much as it has compressed, that's actually not so bad compared to the absolute destruction. And hint, I have a segment about this coming up soon in this episode, if you keep listening, about just really how extreme the multiple compression has been in these softwares or service names. The reason CrowdStrike's holding on is because it's so resilient for those reasons that I mentioned. And for those reasons that those investment banks are saying, hey, look, people can't cut cybersecurity spend in 2022. They're ramping it up, if anything. And so CrowdStrike is obviously going to continue to benefit from that. It's a very high quality name. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have

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

Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building.

And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead,

blossom social in the app store and I'll see you there. Yeah. Now moving on to a lesser high quality name, Canobie Growth. I released full year earnings. And I know it's been a while since we've talked about marijuana stocks or cannabis stocks, but I always find it interesting just to get a pulse of what the industry is looking like. And obviously, Canopy is one of the bigger players in that space. You know, it's not a great earnings release when the sales is the fifth out of six bullet points in their news release. And especially when the sixth bullet point is about restructuring costs. So you know it's not going to be great. Again, just to let you guys know that it's not going to be great numbers here.

So revenues were down 5% to $582 million. So revenues were down 5% to $582 million. Net loss was $320 million versus $1.67 billion last year. So they did improve that, but a lot of their loss last year was due to impairments. They had $370 million for asset impairment and restructuring cost alone this year. That was down from $534 million last year. That is so much. know yeah but remember how these companies not just canopy aurora was doing the same i think exo was doing the same they were just going on a spending spree and buying these companies before the legalization

and paying these ridiculous prices and now obviously the market is not ending capex ending capex hits and facilities and stuff yeah it was crazy yeah now they're shutting down left right and center some production right so it's not looking great here and this is just one company but aurora xo they're all in a very similar situation. They had a negative gross margin versus a positive one last year, so clearly that's not great. Their cost of goods sold exceeded their sales by more than $100 million. Their share count increased by more than 6% this year, and they burned $580 million worth of cash for the whole year, which was a slight improvement over last year.

worth of cash for the whole year, which was a slight improvement over last year. During the earnings call, CEO David Klein mentioned that they are building a solid foundation in establishing Canopy as a premium brand. He also mentioned that they are building a competitive USTHC ecosystem. Yeah, I mean, I think there's a lot of wishful thinking here. It sounds like they are trying to turn things around, but this is one I think it's best to of wishful thinking here. It sounds like they are trying to turn things around, but this is one I think it's best to watch on the sidelines. If I were interested in investing in the cannabis space, which I'm not right now, this would be one I'd rather wait a bit too long to invest in than too early.

In other words, prove me that things are actually turning around and that you can be profitable because if they can't be profitable in the short to medium term here looking at their balance sheet they'll need more cash to be infused in the business and that's going to come via one or two things either via debt and obviously we're seeing higher interest and clearly they won't get a premium rate for interest rates with the situation they're in or the other way is share dilution which we've seen a plenty with a company like XO. So for those of you thinking there might be some bargains here just be careful and the last

thing I wanted to mention is their balance sheet is also not looking great. Their combined cash and short-term investment went down 40% to $1.37 billion in a span of a year. Let me put that another way, it went down $927 million in one year. So I think it's still a wait and see from my perspective and anyone wanting to start a position, I would definitely recommend that they take their time here. And the stock is down 60% over the last six months, 83% over the last year. And I wouldn't be surprised if this still has some way to go down still. I remember like it was yesterday. What was that? I guess October 2018. I remember like it was yesterday up until that October of 2018, because that's when legalization happened. That summer, every single one of my buddies told me that I'm an idiot for

not owning Canopy Growth Corp because, oh boy, it just kept chugging up you know it went from like a few bucks to 50 bucks to didn't it go what did it ever hit i think around there yeah yeah uh we stuck and the ticker is weed right so you know it's you know it's gonna be a hot one they had a good ticker i'll give them that yeah it's a good ticker okay so. So, from 2016 summer or whatever, that summer before legalization, it went up 2000% from $2 to almost $70 Canadian. Wow. Again, so you can see why people think they're real smart when something's trading literally 250 times sales. And it's not like they were pre-product, like they were actually making weed. They were making it. It's just they, that's just how ridiculous the multiple got. And so, these things happen time

and time again. It'll happen again. You just got to be careful out there. Yeah. And I do hope they turn it around because obviously a lot of jobs depend on that, whether people like the industry or not. And if there's some people that have investments in Canopy, I mean, I do hope it turns around. It's just from my perspective, it's still a long way to be investable. Yeah. And the product is so commoditized, which I think we've talked about many times, which is a big issue for cannabis, I think, structurally as an investor. Now, yeah, don't get me wrong. I'm rooting for these guys. I'm rooting for them and all their competitors, because if this can be a big business for Canada in terms of exports, like the marijuana business

can be, then that's wonderful. That's great. It's just going to be challenging, I think. All right. Let's talk about another Canadian name that makes stuff. Doing better. It wasn't a great quarter. Disclosure, I own shares. So I'll be honest with you guys. So I would say it was a tough quarter for BRP, Bombardier Recreational Products, but it wasn't a bad quarter. It was just basically, they're facing challenges in structural supply chains, basically. But they didn't lose revenue or anything. I'll get into that. So BRP, ticker DOO, which is awesome because it's like see-do, skid-do. So they use that. And in the US, it's DOO. There's another O. Okay. So, sales were completely flat year over year for the quarter.

Getting more capacity is just so tough right now. And again, these are complex machines and there's a lot of parts that go into them. But it's not like they were down. The sales were literally almost identical. Sales were up a whopping, drum roll please, 0.4%. So, they were completely flat. It still qualifies us up though. Hey, quarter was up. Demand remains super hot. Their backlog's gigantic and they're guiding to really get back on track this year and start fulfilling a lot of that growth. And they've done really well recently. I mean, their numbers have been exceptional over the past year or so. They are guiding for 24% to 29% top line growth for this fiscal year. And so that was their first quarter. And they believe that they can achieve that 12 to 15 times, even a growth and continued

strength of their year round products division. They're guiding for sales up 30% to 35%. It was a pretty good spot for this quarter as well. Now, here's something interesting to think about that I was thinking about when reading their press release and their guidance. They have this division of parts, accessories, apparel, and OEM engines. So the parts is pretty self-explanatory, right? It's service order parts. If you need a part for your jet ski, for your skidoo, for your boat, you're going to be ordering it from them.

Now, there's also these OEM engines because I'm just thinking right now, if you have a supercharged seat, you've got to rebuild the engine about every 150 hours, costs like four grand or whatever. So that would go in there as well. But most of this is going to be parts and accessories. Now, there's some recurring nature to this. And if you look at it and you graph these revs over time, it has been consistently ticking up like you would expect from a recurring line item. It did 1.1 billion in sales last year, and they're guiding for that to tick up 17% to 22% this year. These are sneaky little recurring in nature elements to these types of businesses that you can throw on some thick margins on. I used to work in auto manufacturing, and the best business for them was actually fender benders.

Their bread and butter, obviously, is when Chrysler says, okay, we want 10,000 bumpers. But when the auto body shops say we need 50 new bumpers from a car you made five years ago, that is fat margin type service order parts. And so I was just thinking about this line item as well as something that's really going to help profitability over time. The long-term thesis here for BRP remains, they're the name in town in terms of the brand for recreational products. And yeah, I think it's a good name moving forward. Yeah. I mean, it sounds like it is. I'm not surprised that they are definitely experiencing some constraints. Obviously, it's been the name

of the game for most businesses at this point. But yeah, I'm not surprised either for the accessories because that tends to be very lucrative, like you just said, for a lot of different business, even though it's not their main part of their business to say. Yeah. Yeah, no pun intended. Main parts. Yeah, it's okay. And my apologies if you hear a siren. I think there's a fire nearby. So I was hearing the fire truck, but I think it should be done by now. Between the thunderstorm and the fire truck, we'll have a good show here. Exactly.

Now our next name, it's a name we talked about, I think it was last summer, if I remember correctly. It's called the CloudMD. Yep. Yeah. So they released their Q1 2022 earnings. For those who are new to the show and didn't listen to that episode, CloudMD is a Canadian telemedicine play. It's listed on the TSX Venture under ticker DOC, D-O-C.

So revenues increased 372% to $41.4 million. Their gross margins improved by 250 basis point to 32.5%. Their net loss increased 9% to $5.7 million. This didn't happen in the quarter, but happened last year. They actually issued a lot of shares, which heavily diluted shareholders. So we've talked about share bearers compensation recently, but that wasn't the case. They issued some shares here was not tied to a stock based compensation. Their share count increased 58% in one year. Oh my God. Yeah, it's pretty high. I mean, they had some acquisitions in there so i'm assuming that it was in part due to acquisitions but their cash on hand has stayed nearly identical

year over year despite the share issuance so they are burning quite a bit of cash they were free cash flow negative for nine million in the quarter alone. So that's quite a bit considering they're just running on $41 million and change in terms of revenue. It is a smaller telemedicine play. The revenue increase is nice, but it has not helped profitability. And what we've seen in the past six months is the stocks or the companies that have been hit the most in terms of valuations are the growth stocks, but especially the growth stocks that are not profitable. And this is one of those. The stock is down 55% over the past year. So it's actually not too bad compared to other companies in the

space like a Teladoc, for example. But again, given they're such a small player, they are burning a lot of cash. It's becoming even more difficult right now for a lot of companies with the macro environment to get financing. They still have some cash on hand, but if I remember correctly, with their balance sheet, they may have about a year, a year and a half worth of cash at the current burn rate if they're doing 9 million of cash burn every quarter. Wow. This is a penny stock now. Yeah, it is.

Yeah. I think it was always kind of a penny stock. Yeah. I guess so. Yeah, they IPO'd at $0.70. This is one that gave me the similar vibe as – what's the clinic roll-up? Oh, Well Health. Well Health. Yeah. the similar vibe as... What's the clinic roll-up?

Oh, Well Health. Well Health. Yeah. Yeah. These two are just like Canadian investors really looking for some high growth SaaS, telemedicine, COVID-y type play when the fundamentals really didn't align with any of that. And so this one, I mean, I don't know the business at all. I'm not going to comment on that because for all I know, it could be a pretty cool company. I just don't know. At this point, it is probably a good thing they raised all that money when their share price was up 300% after IPO. And now it's back to well below, like well below IPO price.

So this is not where I'd want to be if I owned a business. Yeah, and I don't know the company super well. And maybe they have a really strong plan in place for a path to profitability in the next year or so. And that's entirely possible, but they don't have a lot of margin for error. And like I said, in the current environment, typically you just have two main options for financing. As a whole, obviously there's different ways to structure it. I won't go into detail, but typically you get debt or you issue more stock. So those are really the two main ways to get financing. And if your stock is extremely low, you have to dilute more to get financing that way.

And if interest rates is high, you can get some debt financing usually, but you'll have to pay a much higher interest rate, which could obviously impact your business adversely. So just something to keep in mind, especially for these companies to go into hospitals and really break ground must be an absolute nightmare. The sales cycle must be so long that it is hardly worth it. You know what I mean? Like, I must just be like pulling teeth repeatedly in terms of a sales cycle because every hospital is different. A lot of them are connected to GovSpending. So, you know who you're dealing with. It just must be terrible. Yeah. And the bigger players, like if you see a Teladoc and I can't remember the other one, there's one in Canada that, sorry, the name escapes me. I think it's Care.to Dialogue Health.

Yeah, yeah. Which is a fairly big player in Canada. So the bigger players tend to go after insurers. So they'll get exclusive deals with insurers. That's been the playbook for Teladoc for most of their existence is getting those large insurers to have deals in place with them where the insurers pay them recurring revenue. And then they also have some pay-per-use visits. And that's been the playbook. In terms of the smaller player, it must be a lot harder for them to get business that way. So I'm assuming they must have other ways of trying to get business.

But like you said, it might just become much harder for them because if I'm a large insurer, I'll probably have a bias towards the ones that are larger and more established. Totally, 100%. 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. Calling all DIY, do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go

on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo-style education lessons that are completely free.

You can search up Blossom Social in the App Store and join the community today. I'm on there. I encourage you, go on there and follow me. Search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead,

blossom social in the app store and I'll see you there. I hinted before at public cloud valuations and I've hinted on them a couple of times over the past few months because it has been absolute destruction. And we mentioned how CrowdStrike, the cybersecurity ones have actually done decently or like these big data ones. If you look at like Zscaler, Snowflake, Datadog, Cloudflare, These ones still have really high multiples, like 20x plus on the sales side. But overall, it has been complete destruction. So there was a gigantic list of companies that were trading above 50 times revenue and above 25 times 2022 revs. And there are basically none, like they've all been washed out. And you can see this graph here that this investment

research company put together. They have like pretty much all been washed out into these lower buckets of below 15 times revs or below five times revs buckets. And it's actually insane how much of them has been washed out. Now, some of them are really good companies. Some of them are excellent companies. You have the structure of really high margins, recurring revenue, sticky customers, B2B software, operating leverage out the Wahoo, all the things that you would want in a business, but they just got so expensive. They got so expensive last year and it made very little sense. Now, financial markets are a funny thing. They move from basically extreme fear to extreme greed and vice versa. We have moved the direction from

extreme greed to extreme fear on many of these names. And basically, the market can't bottom. And I'm never going to be one that tries to bottom the market or tries to tell you when stocks are going to be better. Timing the market is just not a game I play. I like to buy great businesses and hold them for a really long time. But the SaaS public cloud stocks basket as a whole, if you just take a group of maybe 50 or 60 of them, it really can't bottom until investors have lost complete sentiment in them after just multiple dead cat bounces. If you think about what happened in the late 90s and then when it washed out in the dot-com bubble, there were so many new bottoms. As soon as you thought, okay, it can't get any worse,

the market will test the conviction of investors repeatedly until you've reached this maximum pain type position. And then eventually from there, the market comes back and the market comes back to fundamentals. So it left its feet in terms of fundamentals, probably from March 2020 to about November of 2021 on most software. And now I believe these companies growing revenue almost double year over year. I'm talking about the CrowdStrikes, the HubSpots, maybe Atlassians, CloudFlare, Shopify, Unity, these types of names, MongoDB. These ones come to my mind. They're getting to a point now where given their margin profile and given their growth rates, you can actually finally, as a value investor, potentially underwrite some really good IRRs. You can get there. I don't think you could get

there last year. And I think that maybe you can get there. So this is just another segment for me to just say, look in the pile that people hate. And it was the pile that everyone loved not so long ago, like really recently, which is crazy to think about. Yeah, make sure you do your research though for the companies that you pick because there are some names in there and there are some names I can think of that they are definitely not trading at the valuation they used to, but for good reason. There's some businesses that are totally struggling so definitely you know make sure you pick the right one you want to make sure you actually

pick quality over just seeing a company and the one that just keeps getting to mine is a peloton because it's just so easy but that one has been played that's not a sass stock i mean they do have their subscription for people. They've been pushing for more towards that and making the bikes more affordable. So, you can make it. It's not a B2B SaaS company. No, no, no. That's right. And that's what these are.

That's true. Yeah, that's right. That's a B2C fitness subscription, right? Yeah. Which don't get me wrong. That one got really stupid. Yeah, exactly. That's right. No, no, you're totally right on that. But just kind of in the same growth stocks type of bucket and still kind of a SaaS play, but not with B2B, like you said.

That just comes to mind. But I think there are some in here, it's probably towards the ones that are below 5x revenue that there are some where they're struggling a bit. Oh, totally. Yeah. Don't hear what I'm not saying. Some of them will definitely be in trouble, especially when they need more financing. And that dries up pretty quick. I guess what I'm saying here is like, I guess I should preface a subscription business and a SaaS business are not the same thing. A SaaS business implies that you're running an actual cloud business and running software as a service in the cloud. Whether it's like IaaS, PaaS, SaaS, like there's multiple versions of it versus like a subscription to, I can't think, you know, like... Like Microsoft Office, you could do that on your personal basis. It's not... Well, that's actually cloud-based now too. And so, would be considered SaaS.

I mean, like comparing it to HelloFresh. Okay. Okay. I see what you're talking about. You know what I mean? Yeah. They're both subscription businesses. And I think the market got really silly just being like, oh, recurring revenue, throw it in the SaaS multiple. So, question for you. Even though the margin profile is completely effing different. What would you qualify Netflix then?

That's a good one. Yeah. Well, it's entertainment. Yeah, it's not really a software as a service but uh yeah i consider sas as like i mean you can have b2c sas that's basically what my company is or like b2 pro consumer sas that's probably what my company stratosphere is but yeah i i don't know i don't know some businesses the lines kind of blur a little bit but i totally know what you mean obviously there's like subscription which is a bit different there's definitely though like an intuit some people could use it as

that most people use it as a business but i guess some people could use it for taxes on a recurring basis i mean that's totally sass into it like quickbooks is totally sass especially because they've they've pivoted to sass now it's all web-based in the cloud. They've completely pivoted all their products to that. And Netflix, again, like Netflix hosts their stuff on AWS. That's right. It's a huge business for AWS. So it's in the cloud.

It's just B2C consumer, right? So yeah. Okay. That was a fun discussion. Moving on to the last one here for me and then i have a quick segment at the end here chewy release their q1 2022 earnings net sales of 2.43 billion they improved by 13.7 percent year over year their auto ship customer sales increased to 72.2 percent of sell this is actually really nice because that should be

recurring in nature because people are on that auto ship model. Their net sales per active customer increased 15%. I don't know if that's due to increased prices or just customers just plainly buying more products from them. Gross margin of 27.5% decline, 10 basis point year over year, but we're up 210 basis points sequentially, which is pretty good because I'm not sure if their business, I don't think their business is really impacted on a year over year basis, probably more impacted than sequentially. Net income of 18.5 million.

Their active customer base grew 4.2% year over year to $20.6 million. Considering the big boom that they had at the start of the pandemic, I think this is actually a really solid number. If you look at their revenue, their sales in 2021 versus 2019, it's increased more than 150%. In 2021 versus 2019, it's increased more than 150%. So for them to actually be having these numbers two years removed after the start of the pandemic, I think it's pretty impressive on the part of Chewy. I don't know if I would invest in them.

I'd have to dig it more deeply just to understand the business a bit more. And this was just a quick earnings overview because when I did the research, they only had their earnings release. And I was able to look at the transcript for the call, but they still didn't have their financials for the quarter, which happens when we do it. Sometimes they'll release their press release, but the actual filing with the SEC, for example, won't be out until a few days later. Jeez, this one's been washed out pretty good too, eh? Holy smokes. Yeah. Oh, yeah. Yeah. Wow. And I know it sparked your interest quite a bit. You didn't ever buy shares, did you?

No, no. No, it just felt too high at the time. My two biggest things for them at the valuation got really stretched on the one hand, clearly one of these kind of pandemic plays. And on the other hand is that I didn't know how sticky they would stay with customers if new options like this would just become available, if people would be easy to switch or not. And so far it seems like they're retaining customers pretty well. Yeah. No, I mean, it's interesting what they've done, right? I mean, it's one that I'm like, what's the real value proposition? Like, why do I need to go to specifically a pet place? But one thing that I've learned in business is

never underestimate people's love for their pets. Oh, yeah. Number one. And you and I are both in that camp. I don't think we're necessarily in the camp of the people who spend egregious amounts of money on their pets, but never underestimate people's willingness to spend egregious amount of money on their pets. But I think, yeah, like what they've done in this like recurring revs type auto ship, this is genius. This was such a good idea. And people don't want to buy their dog food every time. It's one of those things where you know you're going to need to buy X amount, X place that I'm going to spend more money on for dog food and somewhere else that can fulfill it? Do people really care?

And then I guess maybe I go back to my first segment, which is don't underestimate people's willingness to spend money on their pets. Yeah. Yeah. I mean, the one thing that Chewy has going for them is that I'm not sure if PetSmart owns the majority of the shares, but they do own a substantial amount. So I'm sure they can leverage their stores with that. So that's definitely an edge that they would have versus a new player in the sector.

Oh, that's actually interesting. Did PetSmart just start acquiring shares over time? They acquired them in 2017. Oh, so pre-IPO. Pre-IPO and then they IPo'd it so i think they still hold the majority of shares i could be wrong about that but uh they're definitely still behind it yeah wow yeah i mean this thing got it's been it looks like many charts from stuff that ipo'd at about that time yeah yeah it looks like mountain. These charts all look like mountains.

Yeah, exactly. I mean, it's definitely, I think it was a smart move by PetSmart to purchase them, that's for sure. Yeah, I think they paid 3.35 billion. Oh, okay. So they're still, yeah,

they still made some nice money on that. Cool, very cool. All right, let's round out today's show with some news from Apple and the world of buy now, pay later. Buy now, pay later or BNPL. Just a quick comment here before I get this segment. You remember how hot this got last year? Oh, yeah. one that I was pretty confused about the hype. I didn't get it. I didn't get it at all, especially because all that volume just flows through Visa and MasterCard anyways. I didn't get it. Okay. So things have definitely gone from bad to worse with buy now, pay later stocks. A firm being the prime example, it is down 85% since November of last year.

Apple just announced their new, by now, pay later service called Apple Pay Later. I didn't get too creative with that one. From a quick read into how it's going to work when they launch it, there's going to be a service to do pay in four, which is pay in four payments, two weeks apart each for buying things online. I suppose in person as well with your Apple Pay on your device. It would be four payments, eight weeks apart. Pay in four payments, but they're all two weeks apart. So you're going to have in that $1,000 case, you're going to have $250 payments four times, right? Very easy math, no interest. Or there is a longer term payment plan where there is an interest rate. And this is where my mind spins a little bit. So they partnered up with Golden Sacks to do the lending on that, right? And so for me, I was thinking about buy now, pay later,

especially for e-commerce. Like reduce the friction of like getting people to buy now and pay later, which is basically like, okay, this thing costs $250, but you only have to pay one fourth of it now. And by the way, it doesn't cost you more to do this option. It's like, of course I'm gonna do that. And then you complete the sale and it's good for your e-commerce business.

You're just like reducing friction for people from going to maybe to buying. And so that's always good for your business. Now we're introducing credit. Okay. Now we're introducing credit for something. This is where I get my head just like, I get almost frustrated with this because we already have a credit card debt crisis on this planet and folks who don't recognize they get screwed over. And now this on your Apple device, what can go wrong, Simone? What can go wrong?

And so just bring it back to the stocks. There has been an absolute destruction in value of buy now, pay later stocks. Square or now known as Block. Remember when we were reporting on them buying Afterpay for $29 billion? Oh, I remember. Yeah, yeah, yeah. Holy smokes, that's been washed out. That's another service in the space. So now it's kind of left like the other giant firm as the one that's left as a public co.

So those people who owned Afterpay, oh boy, they cashed out at the right time. So valuations have been decimated since that time, like a lot of stuff that was a little overvalued and going quick and overvalued. And now this announcement that Apple is doing Apple Pay later. Now, clearly, clearly, I mean, Apple doesn't go into something without a strong reason to do it. Clearly, there is an appetite for buy now, pay later for consumers. We'll see how this all shakes out. But like anything, and this is why these stocks are getting hammered again, is Apple has a clear advantage over competition when they

enter a new opportunity. It's just so obvious when they enter a new opportunity, how clear their advantage is from day one of product launch that it goes in the hands of so many people just right away. Like, oh, all of a sudden I can do buy now, pay later on Apple Pay, even if I wasn't even going to be a potential customer because it's just on my device now. So I think rightfully so these things are getting crushed. But it leads me to think that the acquisition of Afterpay was just a complete disaster now that I think about how much they overpaid and just six months later. Yeah, no, it's not surprising. And then also not surprising that Goldman Sachs is the underwriter

because they are also for the Apple credit card. Remember when that came out? that Goldman Sachs is the underwriter because they are also for the Apple credit card. Remember when that came out? So Goldman Sachs, they seem to have a good relationship with Apple. Makes a whole lot of sense for Apple for doing this. I've never been a fan. I've never used these type of service myself. Usually I'll just buy something with my credit card and pay it off before the bill comes due. So I make sure that I have enough to pay it.

But for people that don't have the same means, I guess it could make sense because it avoids you paying that interest a bit longer. If you do those four installments, usually if not for a credit card within 30 days, right, you'll have the interest kicking in. So I guess it makes sense for them to do it. They're not taking pretty much any of the risk. It's all Goldman Sachs. So it seems to be a smart move from Apple to help boost their sales a little bit with people that may not be able to afford it. Oh boy, how poor does that sound? No pun intended. I mean, it's kind of what it is, right?

It is. It is. It's like, I just don't know how these fintech companies feel good about what they do. I don't think I'd wake up very excited to work on that. I guess they don't care. Yeah. I mean, I guess that's what the industry is doing, right? There is that option available to people kind of everywhere. And I guess from an Apple perspective, they'd rather people go through them than going to a square or going to a paypal that would offer this kind of service or a third party right yeah i just think like fundamentally about this like if something costs a hundred dollars and you need to finance it and it's not food what are you doing or essential right like it's uh yeah if you need yeah i'm just saying food to work and you need a blanket to buy a part yeah yeah

exactly yeah no it's definitely a good thing where you should be asking yourself do i really need this i think that's uh that's probably the best question to ask yeah if it's not like an absolute essential i mean hey some people are in tough situations i'm not here to dunk on that at all I think that's probably the best question to ask. Yeah, if it's not like an absolute essential. I mean, hey, some people are in tough situations. I'm not here to dunk on that at all. I would never do that. It's more so just like that's not what the use case is for many of these buy now, pay later things are.

It's like we're buying stuff, buying junk. That's how I see it online anyways. Yeah, chances are if you're buying something from apple you probably don't need it for survive yeah there's a pretty good chance it does not give you calories or oxygen or shelter pretty good chance i think they're coming out with a car right apple they've been hinting at that i feel like they've been hinting at that for a while they had their big event right was it yesterday or earlier this week? I guess yesterday was earlier this week. I think it was yesterday that they came out with their new launches,

the new MacBook Air with the new M2 chip and stuff like that. Yeah, I don't think I saw anything about a car just yet. But again, wouldn't be surprised. Maybe they'll partner with Elon or something and make a Tesla Apple. Oh, there you go. It would all come full circle. Thanks for listening, folks. Really appreciate y'all tuning in. This is the Canadian Investor Podcast. If you're new here, we release episodes on Mondays and Thursdays. And once a week is about strategy, our thoughts. The other episodes about news and rounds up like this.

Usually I don't sound like I just smoked three packs of darts, but that's what we got. That's the one you got of me today. So that's just how it's going to go. If you haven't checked out stratosphereinvesting.com, Stratosphere is the best all-in-one platform for doing your research. If you want to type in a ticker, like I was talking about CrowdStrike earlier, type in CRWD into the terminal. And in seconds, you get all of the financial data, 10 years of financial data, as well as the metrics that matter, like ARR. You can't even find that on a Bloomberg terminal.

Do you realize how big that is? You can't even find that on a Bloomberg terminal. Do you realize how big that is? You can't even find that on a Bloomberg terminal. So we're grinding out these metrics and you can type in any North American ticker and do all of your research there. One thing that I noticed that people are really enjoying from it is that you get news specific to your watch list. So if you want to follow the companies you own or you're watching or both. You put them in there and then every morning it automatically populates like earnings reports, just random news, some press release, new product launches, stuff like that. That does require a paid plan. If you want to get 15% off, you can use code TCI for the podcast listeners.

Thanks so much. And Simone, we got a good summer of content coming. I feel like this podcast is going to keep growing. And to help us do that, just share with a friend. Growing a podcast is basically impossible other than we put out good content you like and you share with your friends. So if you do that, we really appreciate you. Yeah, yeah.

And probably the last thing I would add is obviously, Brandon's going to be taking a little bit of vacation going to Europe, and I'll be becoming a dad within the next couple of months. So if there are certain topics that are kind of timeless, that we can record in advance and still give you a new episode, something you'd like to hear, whether it's, you know, certain metrics or certain companies that we can talk in advance, let us know. Can't guarantee we'll do it, but we're always looking for these kind of ideas that are not necessarily time sensitive. Yeah. And you can do that by going to thecanadianinvestorpodcast.com. You can actually leave voice recording or just use the contact form and give us some topics that, yeah, that what Simone said, like it doesn't have to be news for today or tomorrow because yeah, we'll be, we'll be busy lads this summer. Thanks 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.

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.