The Canadian Investor - Sports Gambling and Canadian Banks - Earnings Roundup

Episode Date: March 17, 2022

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: Amazon doing a 20 for 1 stock split WSP earnings Alberta now projecting a surplus for 2022 on the strength of oil prices US president Joe Biden signs an executive order on cryptocurrencies Constellation Software making more acquisitions Lululemon launching a footwear collection Crowdstrike earnings February 2022 US CPI numbers Royal Bank earnings TD Bank earnings Bank of Nova Scotia earnings Sports betting competition is pick up in Canada   We finished the episode by answering some non-investing questions from twitter.   Tickers of stocks discussed: TD.TO, RY.TO, BNS.TO, CSU.TO, LULU, WSP.TO, CRWD   Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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I am Brayden Dennis, as always, joined by Simon Belanger. So we got a fun slate of news to talk about today. The market's always given us something to talk about. And of course, some companies on that weird reporting schedule. We love you because you give us something to talk about all year long. How are you doing, buddy? I'm doing well. Yeah, it's going to be a fun one to talk. Lots of news, some earnings as well. Some earnings that we're a bit behind because of all the news that's happened on the global front. But I think it'll be a fun episode. And last, I'm going to talk about sports betting in Canada.

So stick around at the end. I'm going to talk a little bit about that. Last week, we had, of course, the all-important stock split, which for some reason, many people still think matters. However, Amazon finally did this 20 for 1 stock split. Yeah, Amazon did announce that last week. And like you just mentioned, it doesn't change anything about the business long term. I think for the most part, the market tends to react favorably to these announcements short term. But Amazon did announce that they were doing a 20 for one stock split last week. When the move was announced, like I mentioned, the market reacted

positively. However, it doesn't change anything with the fundamentals of the business. So the move will make the cost of buying shares of Amazon more affordable for retail investors, specifically if they don't have access to fractional shares with their brokers. In the US, it's more prevalent. In Canada, there are some that do offer it, but most brokers don't allow for that. And another reason I've heard that it will provide some flexibility to Amazon when it comes to stock based compensation for its employees and that makes sense when you think about it

because having a single share worth $3,000 provides a lot less flexibility than having a share worth around a150 a piece. So for that stock-based compensation to reward employees, that may not be making the highest salaries. Having more flexibility here definitely makes sense for Amazon. They also announced that they were authorizing up to $10 billion worth of share buybacks. Now let's keep that in mind, $10 billion worth for a company as massive as Amazon. That's really peanuts. It's much less than 1% of outstanding shares. But I think the main takeaway here is that Amazon is looking at returning capital to shareholders and they haven't bought back shares in quite some times. And I did mention

a recent episode. Typically, there's two ways that companies will be able to do that, either through buybacks or dividends. And clearly here, Amazon is choosing the buyback route. The buyback for Amazon is a buyback for ants, for one thing. Google also announced this 20 for one stock split. So the two of them both had their, you know, 3000 and change USD stock doing a 20 for one stock split. Now, what I always find funny is Google posted, or I was looking on it and Google top five trending searches of the day when the stock split was announced was what does Amazon's 20 for one stock split mean? Spoiler alert, absolutely nothing. However, clearly it's one of those things where like, if historically it makes retail investors bid up the stock and it goes up, then is that just how

it works in perpetuity? You know what I mean? It's just one of those weird forces in the market. If it seems to do something, then I don't know. But I guess there is lower friction for retail investors to buy the shares. So I mean, all the power to them. Yeah. I think there's an argument to say that there's some utility to that move, just for the reasons I've mentioned. But like you said, in terms of the actual business, it makes absolutely no difference. The market may react positively short term, but long term, it won't make much of a difference. term, it won't make much of a difference. I remember when I first opened my brokerage account, a buddy of mine, I knew nothing. This was years and years ago. I knew absolutely nothing.

And so this is a reminder to everyone out there. Everyone starts knowing nothing. So keep it up. Just keep grinding. His stock pitch, I forget what stock it was. I really forget. It might've been Netflix, which would have been a hell of a good buy back then. The stock pitch started with, the shares are going to split soon. And I was like, what does that mean? And a lot of people want to know what it means. And spoiler alert, it means absolutely nothing. WSP Global reported their fourth quarter, full year revenue of $10.2 billion, Simone, an increase of 17%,

nice 3.3% organic growth for the quarter, or it's closer to 9%. Really good for this mostly grow by acquisition consolidator of engineering firms. Earnings per share is $4 a share, up 62%. Free cash flow for the quarter was $370 million for the quarter of free cash flow, which was up 40% compared to fourth quarter of last year. They deployed $1.2 billion in acquisitions, really nice to see, and their backlogs at $10 billion, which was up 10% organically year over year. Man, this is a sweet spot of TSX companies. It's only listed in Canada.

It's not a huge market cap. Let me check. What's the market cap of WSP today? It is 19. That's more than I thought. 19 billion only listed on the TSX. It's like a mid cap, large cap type of vibe. Super under followed. Don't hear much about it. Global company doing now over $10 billion in revenue, growing high double digits. What's not to like? Super undervalued historically. I think the valuation has expanded quite nicely for shareholders recently, but still trading at a reasonable valuation, a reasonable multiple, and still getting growth. I like it here still. Yeah, there's not too much ad there. I think I know this company pretty much through you, so I'll take your word for it. Man, it's one of

those TSX roll-ups of fragmented businesses. Engineering firms are fragmented. I think there's still a lot to like here. It's now become one of the largest firms in the world. Yeah, it's like it's overtaken. It must have overtaken SNC-Lavalin. Yeah, for sure. Oh, yeah. In terms of market cap. Yeah.

There was whispers when WSPE was around $11-12 billion on the TSX in market cap. and market cap. And AECOM, the big California-based engineering firm, was about $9 billion USD on the New York Stock Exchange. So pretty much a merger of equals was supposed to happen. That was like the word on the street, which would have made this gigantic global engineering firm. And that never happened, to my surprise. I thought the merger was going to happen. So maybe it happens down the road, but I think WSP is growing faster than them. So we'll see what happens. Yeah. Now moving on, Alberta is now projecting a budget surplus of 2022. The reason why I wanted to talk about that, because it's only the second time since 2008, the province said that it is projecting a $500 million surplus in 2022.

It's also projecting a surplus of $900 million and $700 million for the next two years. And I thought it was interesting to mention this, because clearly this shows that things are going well for the Canadian oil patch, if prices continue being this high. And if the oil patch goes is doing well then obviously the Albertan government is collecting more taxes on their revenues which is clearly what is happening so I think it's a bit benefiting the west and I think with the embargo that we've seen from the western nations now on oil coming from Russia, I think there's most likely going to be a lot more demand for oil in Western Canada.

Alberta has been waiting for their time to shine. It's been a depressed local economy as the price of oil has not been favorable for the better part of over a decade now. And oh boy, they're having their time to shine right now. I think that these companies are smarter now though, and are going to be a little bit more well-capitalized in the future is what I'll say. They're not going to get too high on the high price of oil. I think that they're going to have better balance sheets in the future. And that is overall a good thing for the Alberta economy. Hey, you know what? If you're in Calgary right now, things are looking good again. So congratulations. Yeah. And the ones that did not do capital allocation well in the last oil boom that happened. I think it was 2008, 2009, right, that it kind of stopped. I mean, the ones that didn't do capital allocation well,

for the most part, are not there anymore. The good companies that are still there, that were there at the time, are still thriving. Yes, of course, their share price might not be reflective of that because it will be very dependent on the price of oil. But the good companies are still there. So you still, I'm thinking, obviously, Suncor mentioned it a lot, Canadian Natural Resources as well. Those are two of the ones that I think are solid plays for those looking to enter that sector. Now, moving on to the news last week that US President Joe Biden signed an executive order on cryptocurrencies. So overall, this was well seen by the crypto industry. The order focuses

on consumer protection, financial stability, illicit uses or money laundering, leadership in the global financial sector sector financial inclusion and responsible innovation one of the goals of the order is to get various federal agencies to actually work together which has not been the case so for those of you who've been following the crypto landscape especially in the u.s may have noticed that there tends to be these different agencies that were working in silos and now this order is essentially asking them to work together. So it sounds also like the US government is realizing cryptocurrencies are here to stay and wants to achieve a balance between reducing the potential use of cryptocurrencies for illicit means, ensuring that it does not pose a systematic

risk to the financial system while encouraging innovation of this new technology in the US. So it's also putting a lot of emphasis on investor protection, which is not surprising because a lot of Democrats have been really pushing that rhetoric when it comes to cryptocurrencies, really pushing that rhetoric when it comes to cryptocurrencies, saying that investors and consumers could be severely or negatively impacted, especially when it comes to the volatility. So I'm sure that this is because cryptocurrencies are extremely volatile, like I just mentioned, but also because there has been tons of ICO scams out there, especially in the past two, three years. And the last thing that made headlines here for this executive order is that the U.S.

agencies will be asked to evaluate how the U.S. could issue a central bank digital currency or CBDC. This is one of the most fascinating things to keep an eye on, especially since there are already private stable coins like USDC and USDT that are currently being used. As a Canadian, I think it's fair to start asking our governments where they stand on the issue and more clarity going forward. Whether you own cryptocurrencies or not, at this point, I think it's fair to say that it's not going away. Having a government that embraces this space would go a long way with promoting innovation to space in Canada. I know there's some guidance from the CRA when it comes to tax for tax purposes specifically on cryptocurrencies.

But there's not that much more when it comes to Canadian regulations and what way the Canadian government wants to go here. The last thing I'll mention is the Bank of Canada has actually already announced that it is studying the potential use of a CBDC in Canada. For me, you know, just looking at this is, it was more of a when, not if, things like this are going to come out. when, not if, things like this are going to come out. When are large governments going to come out and start actually regulating it? Because I mean, it's going to happen, right? And there's going to be more. This is just the beginning in terms of what the governments are going to do. Some of them might see it as a threat to a lot of what they do.

However, they also see a lot of threat in terms of illicit uses of cryptocurrency. I mean, let's not kid ourselves. So I think that they're trying to get ahead of that. It still seems very confusing to me. I'm no expert. You know way more than me. Does this clear up a lot of questions or does this introduce more questions? This is essentially just the U.S. government saying that they're telling the various U.S. agencies. I'm thinking here about the Office of the Controller of the Currency, for example, the SEC.

There's a few other agencies. They're just essentially telling them, look, this is the direction we want to take. Now work together and figure this out. That's really what they're saying right now. There's nothing more that's coming out of this, at least my understanding. It's really setting the stage to what regulation could potentially be coming down the line. Just because they were not, surprise, surprise, government agencies not talking to each other. A lot of red tape. They're essentially directing them now, suck it up and work together. Yeah.

Got it. Okay. Yeah, because there's lots of different organizations that need to play ball here together. Yeah, exactly. And a lot of people were just looking at the tone and the direction given by this executive order. looking at the tone and the direction given by this executive order. And that's why it's seen widely as a positive thing, because overall, there was a lot of positive things in this executive orders. There were some negative things that they're asking them to look after. But overall, a lot of people thought it's looking good from just the way they're viewing cryptocurrencies as a space.

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, let's get into some more company news. My beloved Constellation Software, ticker CSU on the TSX, announced that it has bought a carve-out of Allscript's healthcare solutions, which is publicly listed as MDRX. So they're a large business. However, Constellation Software is having a carve-out purchase, acquiring the net assets of their physician practice business segment for hospitals and large practices. Whatever that means, it's a $700 million in cash purchase.

This is gigantic because the $700 million purchase price is way bigger than anything they have ever done. This is a constellation 2.0. I've been hinting at it and it's playing out right in front of our eyes so this document management business for this hospital's tech play aka all scripts csu literally just took that carve out and the business is, they're literally paying less than one times sales to buy it, which is wonderful for a high margin software business. It is like organically declining a little bit in terms of sales, but they're okay to take on some of these deals. The reason that I find this so important is when Mark Leonard, the founder and CEO of Constellation Software, when he says he's going to do something, he does it. He says they're going to step up organic growth.

They do it. They achieve really nice 2021 of a positive organic growth. He says they're going to experiment with learnings from Topicus, which is their fastest organic growth operating business that they spun out. They set up a $200 million VC fund led by the guys who run Topicus. Mark says they're going to do even more M&A at an accelerated pace. What do they do? They deploy record amount of capital in 2021, deploying three times what they previously did. He says they're going to start looking at bigger deals in the next era of their company and they complete this $700 million carve-out.

The next day after they do this carve-out, they bought a niche vertical market software business with literally five employees. The contrast is hilarious. This is their bread and butter buying these tiny companies, right? But it just shows that they're willing to have versatility in these acquisitions and proves that they're willing to keep pushing and reward shareholders and look for that next lever of growth. While they continue to buy small companies, they're able to do these big deals as well. Yeah. Are they still paying that tiny dividend?

Dude, I'm just waiting for Mark to come out and slash it. He's been hinting at that. So here we'll probably be talking about slashing it at some point. He stopped the special div. He's been hinting at a couple of times on his president letter. And I think on a couple of calls that one of his operating group CEOs keeps being in his ear like, dude, cut the dividend. Dude, cut the dividend. He said to Mark's face, apparently, is what Mark said. He said that this guy has been calling him flat out irresponsible for paying the dividend. Wouldn't it make more sense to actually cut the regular dividend, but be open to a special

dividend every now and then that's what i would think yeah because the special dividend doesn't tie you to anything if you have the funds and the capital to do it without impacting the business then you do it you might not do it for five years that's fine people don't expect it because it's a special dividend to me that would make a lot more. I think that that's a probably good way to go about it. Now, they've already said, okay, screw the special dividend. We'll keep the regular dividend. But you're right. I think it's probably the other way around maybe is the right way to go.

Because when you have such Hall of Fame level return on invested capital numbers. Literally put Mark up in the hall of fame first ballot of M&A. And when you have such a good track record, just cut the freaking dividend. I think the two companies that I've talked about so far, cut them. WSP, they've been paying the same dividends since 2013. It's a grow by acquisition play. Mark's not raising the regular dividend of Constellation. It is a better thing for shareholders if you are able to do M&A at this ridiculously good pace with really good returns. I wouldn't be surprised at all if they cut it because the shareholder base ain't buying it for the dividend. I can tell you with complete confidence

of that. Yeah, yeah, definitely. Now moving on to the news that Lululemon is launching a footwear collection. Before I get to that, you remember remember when we did the news about Nike launching a lawsuit about patent infringement against Lululemon for technology they developed in the 1980s? I think it was over their mirror acquisition. I recall, yes. I did mention that it was starting to feel like Nike was really taking notice about Lululemon becoming a significant competitor for them. And I think the news of Lululemon launching the footwear collection, which will be on March 22, 2022, they're starting off with women's footwear, which I think is actually very smart for Lululemon. which I think is actually very smart for Lululemon because traditionally they've actually started as a women clothing line or athleisure, and then eventually they're expanding into the men's market. But that to me is a perfect indicator here because there's above 50% of the athletic footwear that's actually owned by Nike or some of their subsidiaries.

And that's really massive. And of course, if Lululemon is starting to have their own line, it's going to probably eat into the market share of Nike if they do this right. I don't think they'll become, obviously, I don't think they will become as big as Nike is in that market. But even if they eat a 5% of their market share or something like that, it's something that Nike, I'm sure, will take notice. And Lululemon has had partnerships in the past with footwear companies. They ended that a few years ago. So I'm sure they have used that expertise to create their own brand. And the men's line will be launching in 2023. So I really like the way they're doing it.

Women's first and then men's after that. They've always come out and found product market fit for women's clothing first. And so I have no, it doesn't surprise me at all. Neither, both line items here don't surprise me at all. And the second one being that they're launching footwear. It's time. I mean, it's time to continue to offer more and more products to their obsessed customers. Like literally product obsessed customers are ready, product-obsessed customers are

ready for whatever they throw at them. So launch new things. And this is what they're doing. What are the margins on footwear? Do you think? I don't know at all. Are they better than clothes? Probably not, right? For Lululemon, I'm sure they'll be high. Well, they'll be high. They'll be they'll be high they'll be high but i just i don't know it's something i don't know i'm not sure the exact margins that's a good question something i can research a bit more but i'll definitely have some product research to give our audience i'm sure a couple months down the line because my wife has already said that she'll buy a pair as soon as they're available.

Just for research purposes, of course. Just exactly for research purposes. But it'll be interesting. I think it's definitely something to keep an eye on. And it's going to be if they do this well and the market receives this well. And the market I'm saying like not the stock market, but the actual, you know, women's athleisure or women athletic footwear market it could be a really good growth lever for lululemon for years to come along with the men's clothing lines as well as their international expansion nike's just shaking in their boots right now eh well i'm shaking

they're just shaking in their nike, for lack of a better pun here. Yeah. I mean, Lululemon has done as executed very well in the past. I mean, we all know there were some issues with some of their athleisure being transparent, translucent for a while. I think there's also some questions around the mirror acquisition, whether it's good or bad. We'll have to see down the line. But overall, I mean, they have done things quite well,

and they've had a pretty good track record. So my money's on Lululemon here. Obviously, I could be wrong, but they have a good track record overall. Let's talk about CrowdStrike, the leader in cybersecurity SaaS. They reported their fourth quarter, full revenue of 1.4 billion for the year and increase of 66%. They had 441 million of free cashflow, which was up 51% year over year. Over 16,000 subscription customers as of January 31st, which was up 65%. Now, that AR run rate is 1.73 billion, which is up 65%. This is the number that SaaS companies care about a lot. In addition to some of the most important SaaS metrics, which are 98% gross retention, so they're keeping on 98% of customers year over year, so very low churn, and 124% net

retention. So if you include upgrades year over year and churn, you find out net retention. and churn, you find out net retention. This is that holy grail of SaaS business metrics because you're increasing customer spend from your existing customers. You see top line revenue growth at incremental margins that are superior to any business model probably ever. And so that's the beauty of SaaS. And they have that 120% net retention mark that they want to always surpass. And they came in above that at 124%. Yeah, no, it sounds like it was a good quarter for CrowdStrike. And I mean, like pretty much every other growth stock, their stock is down quite a bit in this past six months.

So anyone interested in that business, I think it's worth keeping an eye on. The thing that is coming up more and more lately, of course, is the fact that all high multiple SaaS is getting destroyed. So that across the board is what you just mentioned. As well as there have been some really good formidable competitors like SentinelOne is now public. That's a good formidable competitor to this kind of like AI-driven insights on cyber attacks. They have these really nice network effects.

And so there are some really good formidable competitors. They do have that first mover advantage in terms of AI and network effects with CrowdStrike. I just don't see in a world where if you were to take a cybersecurity ETF, that you don't do really well. Even if valuation multiples right now, even after this 30% drawdown, even if they are stretched, I mean, on a long view, how is cybersecurity not going to be an incredibly important industry in the future? That's something I would bet with complete conviction on, is that a basket of these, you'll probably do pretty well long-term. CrowdStrike is a really, really well run company. Their tech is incredible. The question continues to remain is, at what price? And I

think that finally, the tide has come in, at least a little bit. Yeah, yeah. Now the age old question, valuation, which is, it's the hardest thing to figure it out, right? it's the hardest thing to figure it out right it's the the hardest thing investing whether valuation makes sense or not when you take into growth i guess there is whatever the the valuation is i think you can oftentimes make an argument for both a bear and a bullish case for those companies that are growing really fast at high valuations? It's the most subjective art form in the business of investing money. The thing that comes down to is if you invest in great companies, like high quality, durable, can grow for a long time. If you have a longer horizon, some valuation mistakes kind of come out in a wash. It doesn't mean that it doesn't matter. It just means that if you have a long horizon and

you're buying great, great companies, your mistakes will matter less and less in terms of valuation. And that's why I'm so confident long-term to just own great businesses. I'm not going to sleep poorly at night if I overpaid on $1 cost average. You know what I mean? Yeah. No, well put. Now moving on to U.S. CPI figures that continue to hit highs not seen since the 1980s. So the data came out U.S. CPI, so inflation, the official inflation metric for those of you who are not fully aware of what CPI is, rose to 7.9% year over year in February. That's following an increase of 7.5% in January, 7% in December, 6.8% in November. So it's definitely not slowing down. That's for sure. The interesting thing too about this data is it included a couple of days of the Russia-Ukraine conflict. Probably does not

mean much, obviously just a couple of days of the whole month, but I think March will be extremely interesting to keep an eye on to see what impacts the Russian-Ukrainian conflict is starting to have on inflation in the U.S., but also Canada. Food and energy were the two main culprits here in terms of rising costs. Food rose 7.9% and energy 25.6%. Used cars actually rose a whopping 41% year over year. And I knew used car prices were up quite a bit, but 41%, I don't know. It's pretty crazy when you think about it. Yeah, it's pretty wild. And I wonder the impact actually of higher gas prices,

if that's going to put a damper on those used car prices. Because let's be honest, most used cars are gasoline cars. Sometimes they may not be as efficient as newer cars, if we're thinking here about cars that were produced 5, 6, 7, 8, 9, 10 years ago. So I do wonder if those rising gas prices will have an impact on the price of used cars. Do you think it will down the line? I think it could, but at this point, it's just so supply constrained that I don't think even any other outside force matters because there's just no supply of new. And so you use just like skyrocket, as you said, 41% on the data. So that's the number that like legit, I would think just going through the process in December myself is like the used car is just ridiculous,

man. Like you, like dude, dealers were calling me to pay like way, way over what I think my car's worth like dealers. Yeah. And here's the thing. If a dealer is calling you, that means that there's more margin in it for them. They can sell it for even more oh man it's it's crazy but to answer your question i mean sure maybe people see see the price at the pumps and they think you know screw it i'm taking the subway perhaps yeah yeah and just to add to that so new vehicle prices rose 12.4 percent so i mean prices are pretty much increasing across the board here. Obviously, there are some aspects that are impacting people more on their daily lives. Of course, you know, food prices will impact everyone.

And I know also housing was up pretty significantly in the U.S. So it'll be interesting to keep an eye on. And usually the Canadian data comes out a week or two after the US data. So we'll see if the same trend continues in Canada as well. Elon Musk, the richest man in the world. If you go on his Twitter, don't look now. If you go on his Twitter, this man has just two modes. All right.

He has posting aggressive memes. And right now, some some pretty insensitive memes, or talking about the engineering of sending rocket ships to Mars and super serious. There's no middle ground for this man. On a somewhat serious note, he did tweet yesterday that Tesla and SpaceX are seeing significant recent inflation pressure in raw materials and logistics. So just kind of reiterating the fact, and then he's like kind of tweeting out and pulling out like, of course, memes, because that's what he does. And what does he think about inflation? And he thinks it's way higher than whatever the feds are reporting. That's

kind of what you and I think as well. Anyways, it's way higher than whatever the feds are reporting that's kind of what you and i think as well anyways it's just interesting that what what simulation do we live in that the richest man and ceo of tesla is tweeting highly insensitive memes and direct cost pressures about his public company like it's just so bizarre isn't it about his public company. Like it's just so bizarre, isn't it? Elon Musk is bizarre. If there's one thing he is. If anyone could get sued from tweets,

that it would be him. Like the amount of people, like, especially always remember the whole Dogecoin thing. Yeah. Like the amount of people responding to them saying that they invested in well invested in air quotes i'll use that in dogecoin in gambled but you know just because elon musk said that it was worth doing it's pretty sad sometimes you just see the amount of reply

replies and just some sad stories tied to that so i just, I think he's the meme king or whatever you want to call him on Twitter. But I think sometimes he forgets that a lot of people listen to what he has to say. And his tweets can impact people in a really negative way. Yeah. I mean, he always, his famous quote is like, who controls the memes control the universe. Yeah, he keeps it entertaining. I'll give him that. 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 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 Airbnbbnb.ca forward slash host. That is airbnb.ca forward slash host. Now moving on to some earnings. So Canadian banks are finishing 2021. Well, finished 2021 with a very strong year. So Canadian banks have pulled back a bit since their recent highs, but they continue to post strong results. And I'll be going over some results from Q1 here for a few of the larger Canadian banks. But they will be very fascinating to keep an eye on this year. The main reason for that is they should benefit from rising interest rates. We've already seen the Bank of Canada raise the rates by 25 basis points this year,

and they are signaling that there will be several more hikes to come as well. And that should help them because it should widen their net interest margins over time, at least in theory, it should widen that and typically it has in rising rates environment. So it should be a tailwind for Canadian banks. So don't be surprised if you see record profits again this year and potentially next year for Canadian banks. Like I said, the people who have been buying the boring stuff in Canada have done exceptionally well. The Canadian banks are on a tear.

I mean, are they still at all time highs let me see no they're down a bit yeah that's what i mentioned down about like 10 i would say from all-time highs yeah i was gonna say i was listening to your segment but i was i was perusing elon musk twitter if you really must know okay you're forgiven yeah i'm forgiven i mean it's like it's like watching a car crash on his uh on his page man oh he's tweeting in russian i think right now right oh is he oh goodness yeah okay oh there you go so now i'll move on to just like i said some quick earnings from the from royal bank after that td and then bank of nova scotia i'm not gonna do the banks, but I think you'll get a pretty good idea of how they're doing just based on those threes. So Royal Bank Q1 2022 net income was up 6% to 4.1 billion.

EPS was up 7% to 284 a share. Return on equity, a very important metric when it comes to banks, was down 130 basis points, but up 40 basis points when compared to Q4 of last year. And obviously, unless I'm specifying this, I'm looking at year-over-year increases. The profits broken down by segments was actually pretty interesting. So personal and commercial banking was up 10% to just shy of $2 billion. This is their largest segment. It represents close to 50% of their profits. Wealth management was up 24% to $795 million. Capital markets net income decreased

3% to $1.03 billion. Insurance as well as their investor and treasury services were both slightly down from a year ago. These are by far their two smallest segments. CET1 ratio remained high to 13.5%, although it was down 20 basis points compared to last year. And then RBC is up more than 25% over the past year, which has actually outpaced the S&P TSX and the S&P 500. On top of that, it pays a nice juicy dividend of 3.5%, probably even more so for some of our listeners that I'm sure are owning this stock here because they've owned it for years. So their yield on cost is most likely way higher than that. But good for you if you own RBC

because it was a very good quarter. And like I said earlier, it was a really good quarter and like i said earlier was a really good 2021 year as well we should figure out who has the highest yield on cost on royal bank in canada we need to like go out and find who this person is because there is someone out there who has a disgusting yield on cost on Royal Bank. Like, absolutely ridiculous. Bought it in the 70s, blacked out for 50 years. Oh, still holding shares.

These people exist everywhere. And congratulations, honestly. For Royal Bank, I mean, that commercial personal banking and that wealth management business oh man the wealth management business still growing really well you know the regular banking segment still growing you know high single digits i think you said 10 just prince cash just absolutely prince cash not much to dislike here, really. No, no, exactly.

Now, moving on to the next one, TD Bank. Again, Q1 2022. They reported net income of $3.7 billion, which was up 14% year over year. EPS of $2.02, which was also up 14%. CET1 ratio was up 162 basis point to 15.2%. Return on equity up 100 basis point to 15.3%. Canadian retail earnings were up 11% to 2.3 billion, which still represents the bulk of TD's business, even with them having a strong U.S. presence U.S. retail earnings on their hand were up 30 percent to a billion dollar USD and just like Royal Bank TD has done very well this year it's up more than 20 percent which again has outpays both the S&P TSX and the S&P 500 TD's

dividend currently yields 3.70 percent and when I say the past year, I am saying like the past 365 days, not this year, like the first couple of months. So just in case people are wondering and their dividend yields 3.70% right now. The thesis for TD Bank for a while, at least from my eyes, has been that US retail play. So it's really nice to see that play out. You saw earnings were up 30%, doing a billion in net income for that segment. I mean, that's good, right? That's the thesis, in my mind, playing out. So congrats to TD shareholders. Yeah, yeah, definitely a good quarter for TD. Now moving on to Bank of Nova Scotia, Q1 2022. Again, it's similar numbers here.

So net income was also up 14% to $2.74 billion. EPS was up 15% to $2.14 per share. Return on equity up 160 basis point to 15.8%. CET1 ratio was 12%, which was down 30 basis points and their ct1 ratio for canadian banks at least these three banks that are very high especially compared to some of their u.s counterparts it just means that the banks are over overall well capitalized that's just kind of an easy way way for people to wrap their heads around it without going into the whole way that this ratio is calculated because it can get pretty complex.

Now, Canadian bank earnings for BNS was up 31% to $1.2 billion. International banking earnings were up 40% to $545 million. Again, there's some currency fluctuations here. And we've mentioned it before Bank of Nova Scotia has a very big presence in Central and South America. So that's where most of the international banking earning comes from. Their global wealth management was down 1% to 412 million. And global bank and markets segment increased 3% to $561 million. For international banking, a lot of these Canadian players have a real opportunity to establish a huge footprint in underbanked places. And so I think that it's smart that they're doing that. For one, I do think that it's smart. My other thought here is strong return on equity across the board.

That's like the most important metric for banks. And the CT1 capital ratio, what is it? 15% for TD. That's insane. Those ballooned over COVID when the feds would not let them buy back stock or increase their dividend. So those all hit all time highs, sitting on extremely well capitalized balance sheets. And so I think over time, you know, their banks and shareholders will eventually be getting a good amount of that. Yeah, you actually it's interesting you said that because they were also mentioning the reason why, for example, RBC, their CT1 ratio remained high, but was slightly down is for the exact reason that you mentioned, because they were either buying back shares or increasing their dividends. Yeah, like that capital, like once it gets over a certain threshold on that ratio,

like it basically just all goes to shareholders via buybacks or dividends. So I mean, when that's high, I mean, it's probably a pretty good thing, right? Like it correlates really well with the share performance, I bet. Okay. Last one on the slate here is sports betting and sports betting in this country to be

particular. Now, if you've been watching sports lately, you've been sitting down, you're watching a game, you've noticed that there are lots of ad dollars coming in. Actually, not even just when you're watching a sport, just across the board, ad dollars for sports betting is very noticeable. And now the players are signing contracts, which is very new. Austin Matthews landed a three-year deal with Bet99, becoming the first active player to sign with a betting company. I saw that Connor McDavid, McJesus, just signed some big deal as well with BetMGM, if I recall the name correctly. And as a backstory, in August of 2021,

for those who are not familiar with the story here, Canadian lawmakers amended the nation's criminal code to allow for single game betting via C218. It was already happening before, but now it's actually legal. I think this is a smart move because it helps bring on some of that activity that was already happening from before. This offshore sports book was already happening, so it's good to bring it here domestically. I think of it a lot like cannabis legalization, right? It was already widely used, somewhat decriminalized depending on where you are, even if it wasn't technically legal. If you wanted to smoke some weed, you could. If you wanted to bet on the game, you could. It makes complete sense to legalize it, regulate it, create jobs, bring in some GDP growth, and you guessed it, tax it. So it makes sense all around and similar sentiment here with

sports betting. I mean, if you wanted to get on games, it was, trust me, and when I say it didn't stop any of my buddies from getting in on betting on the games. So just to give you an idea of some books that are coming to Canada, or at least have plans to come to Canada, the score, which got, you know, the score. Do you remember when the score was,

I don't know, for me, it was like channel 36. You can watch highlights there. It was like a TSN competitor. Do you remember watching the score? Yeah. Yeah.

I mean, I remember watching it at my friend's place because i didn't have it on my my cable subscription you didn't get it okay yeah it was uh it was a competitor to uh like tsn or whatever in terms of highlights like sports center and so they they have a big app a lot a lot of apps so they were able to kind of utilize that and get in front of the betting market because they have so many active users on people on their app for looking at what the scores are in the games. And so Penn National Gaming acquired them in 2021 for a huge premium

to their public stock because the score was a public listing before that. PointsBet, some Australian company, BetMGM, who I just mentioned i think wayne gretzky it says here wayne gretzky mcdavid a part of it fan duel fan duel and draft kings of course being the giant dfs businesses that's daily fantasy sports caesars you know everyone knows caesars and bet rivers i'm not familiar with bet rivers but these are apparently big books that are all looking to, are already in Canada or looking to do it legally here in Canada now as well. So I expect it to become an even bigger business than it already is. And sports betting is here to stay.

Yeah, yeah, it's here to stay. I think it goes back to when I did the earnings with DraftKings. I'll be interesting to see whether it actually becomes really profitable or it's still land grabbing company spending. Their customer acquisition cost is extremely high right now. And it'll be interesting to see whether they can retain those customers and reduce those acquisition costs over time and become more profitable. I think a lot of the market is actually becoming pretty impatient with some of these companies, including DraftKings. We saw their stock price tank after their last earnings because their costs were increasing, especially marketing and customer acquisition, and was impacting their

potential profitability. And investors were having trouble seeing that holy path to profitability. Yeah, the alleged path. Yeah, exactly. So I think that'll be the most interesting to keep an eye on. It's a growing market because it's transitioning from, let's say, a gray area to a an eye on. You know, it's a growing market because it's transitioning from, let's say, a gray area to a fully legal market. But again, it doesn't mean that it will be a great business right off the bat. And I think it's just a good reminder for people, potentially, if you want to just learn some lessons from the cannabis legalization, that might be a good place to draw some lessons from but uh yeah that's that's

kind of my take on here it's something i'll keep an eye on but something i'm not interested in investing anytime soon draft kings is down 75 since september oh that's a tough pill to swallow i knew it was bad but i continued after we did that earnings show for sure. Yeah, because it was like in the 20s. Yeah, it's down almost 80% from the actual high, but September 10th, it peaked there as well, 75% down. This just goes with the show. I mean, it can be a growing company. It can be in a growing secular trend.

I mean, it can be a growing company. It can be in a growing secular trend. But if you pay stupid prices for it, I think this thing was trading at like 60, 70 billion in market cap. Like it had no competition or something. I mean, maybe it's cheap here, though. Who knows? I think a lot of stuff that has gotten beat up is cheap here now, though. Yeah.

And for me, that was also always my first thing when thinking about gambling plays like this is just, I know some people that like to bet on sports. Obviously I've played poker in the past. Like I'm familiar with people's behavior in general when it comes to that. And what I've noticed is the loyalty is not there for everyone. Some people will be very loyal to some sites, but some people will just follow whichever one gives them the best bang for their buck. Yeah, and is having a good promotion. Exactly, yeah, that's it. Yeah, like the user acquisition is an interesting strategy.

What they'll do, I'll give you an example. Don't quote me on the exact line over under on it, but what it was was. I'll give you an example. Don't quote me on like the exact line over under on it, but what it was, was DraftKings was doing something. It's like, you can bet on Debo Samuel, who's a wide receiver for the 49ers, like when they're in the, they're in that championship game. And it was like for him to hit over under 20 yards and they feed force feed him the ball on the ground for like 10 to 15 carries a game, let alone like eight passes. His real over under on the line should be like 85 yards, not 20, but they're promoting this. Like here comes smash the over on Debo to hit 20 yards.

They know they're going to lose money on that promotion. He's going to get his 100 yards, 140 yards scrimmage yards because he's an absolute beast. That's their cost of acquisition. People are like, oh, this is the easiest bet I'll ever make. I should download DraftKings, I'll ever make. I should download DraftKings, bet on this. You know how that comes out in their financial statements is SG&A cost of marketing because they know that they're going to lose money on that line. And that is by design, right? It's an expensive way to acquire users though. Holy crap. Oh yeah. Yeah. And it's nothing new. It'll continue probably for the foreseeable future. I think it'll probably continue until we start seeing some consolidation in the space. That's my prediction here. I don't know when it will happen.

Might be five years, 10 years down the line. But it just feels like it'll be a bit like the online poker space. You'll see consolidation in this space. You'll see two or three big players that will have most of the market share. Yep. Consolidation is probably coming around, but in the meantime, it's a good market. If you bought DraftKings at the high, I'm sorry. I apologize for roasting this performance. That does it for today's episode. Today was March 14th, for today's episode. Today was March 14th, 2022. Please go ahead and share the show with a friend. Seriously, you have no idea how much it helps us grow the show. Get into more people's ears. I was going to say hands, but get into more people's ears. More people need to be listening to the show

because we're here to tell it how it is and spread news and the way we think about investing. This is a big growing market, Simon. The DIY investors, 234 million brokerage accounts open in the US right now. Yeah, I didn't need to know that. I just needed to watch the Super Bowl ads to know. Just the Super Bowl ads, you'll know. Invest in the podcast and share it with a friend. How about that? Thanks so much for listening. And stratosphereinvesting.com, it is the business I built for you. And I really mean that because it gives you analytics to do your own self-directed research, 10-year financial statements, historical visualizations, walk you through very high

quality research. And it's completely free to use and comes with a 14-day free trial on the premium membership. That is stratosphereinvesting.com. If you cannot remember that URL, type in getstockmarket, G-E-T, getstockmarket.com. And we'll see you over there. Thanks so much for listening. 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.