The Canadian Investor - Tax Changes, Bitcoin Halving, and Netflix's Metrics Shift

Episode Date: April 25, 2024

Join Dan and Simon as they dissect the recent changes to the capital gains inclusion tax revealed in the 2024 federal budget and the implications for Canadian investors and businesses. The duo explores the implications of the adjusted tax rate for investments, with a special focus on the impact for small business owners and self-employed professionals who hold substantial corporate assets.  They also delve into the latest Bitcoin halving, analyzing its potential effects on the Bitcoin network. The conversation then shifts to the decline of Goodfood following its pandemic peak and examines Netflix's decision to stop reporting certain subscriber metrics. Wrapping up the episode, Dan and Simon discuss American Express's latest earnings, highlighting how its business model differs from other payment processors like Visa and Mastercard. Q4 2023 Fed Household Debt Survey Stocks discussed in this episode: MA, FOOD.TO, AXP, V, NFLX Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We're back for our news and earnings episode that's released on Thursdays. Pretty excited for this one, pretty wide ranging in terms of the topics that we have. We're going to be talking about the budget,

but more specifically the capital gains, inclusion tax rate change, some other news and earnings. But before we get started, I actually haven't checked the sports news. So did the Oilers win last night? They did. They did. Okay. Dominating fashion. I know there's probably a lot of Oilers fans who listen to this podcast, but I don't think like I think LA think LA scored, like, one legitimate goal and the rest of them were off feet, like, off hands. It was crazy. It was pretty good.

I'm headed up to the game tomorrow. Oh, nice. Yeah, that's right. You must have, like, because you are a season ticket holder, right? We have a half set, so we get half the games. But, yeah. Okay, well, be careful. You don't want to get Philippe Danoad

because he was for Montreal a few years back. And if he goes into lockdown mode, he can really hamper the best players. He was a pain last year. He wasn't too hot last night. McDavid ended up getting five points. Oh, wow. Okay.

I'm going to have to check the highlights. But enough about hockey. I'm sure there's a few people who have some hockey teams that they're following right now. It's the playoffs. I think there's three in Canada, four. I think there's four teams, right? Yeah, four. So best of luck to everyone.

My team is not out. Hopefully, my team gets the first pick overall again this year, which is Montreal. So that's what I'm going to be watching soon. But now to get on to the real stuff, talking about the federal budget in terms of changes in the capital gains tax. So this is the inclusion rate. tax. So this is the inclusion rate. So what this means is that in the budget, the federal government announced that the capital gains inclusion rate would change from 50% to 66% for gains above $250,000. For those who are not aware exactly how capital gains work, obviously, I know, Dan, you're familiar with it. I am as well, because we're kind of in the nitty-gritty of these and we have both own small businesses but a capital gain is when you sell assets and

make a profit on the asset so for example if I bought one share of a company at $100 and sold it later for $200 then the capital gain is $100 the inclusion rate means what portion of that hundred dollar profit will be taxed so if it's 50% and $50 of that profit will be taxed at my marginal rate. If it's two-thirds, then $66 of that profit will be taxed at that same rate. So clearly, you're paying more taxes with a higher inclusion rate. The changes mean that the first $250K in capital gains has an inclusion rate of 50% while anything above it has an inclusion rate of 66% and the changes will be effective June 25, 2024.

Now there are some notable exceptions to this which are as follows and I know you'll want to add something after this so I'll give you the opportunity, Dan. Capital gains on primary residences will continue to be tax-free. The lifetime exception or exemption of $1 million when selling shares of a small business will increase to $1.25 and will continue to be indexed to inflation. The inclusion rate will be reduced to 33% for capital gains when selling all or part of a business up to a lifetime maximum of $2 million. In other words, the first $1.25 million is exempt and then the following $2 million is at the 33% inclusion rate. The changes apply to capital gains made within a corporation as well and on second residences. Anything you want to add there before I go on and talk about some of the potential impacts?

Yeah. So the number one thing, and I've just kind of learned this throughout, I mean, navigating the online world and speaking with a lot of people in terms of business sales, especially when it comes to the inclusion tax. The main caveat there is you have to sell the shares of a small business. So pretty much you have to sell the corporation. And from what I've kind of learned from a lot of people is a lot of companies will, and I would imagine this is just from a tax perspective, purchasing shares or purchasing assets. But from what I've heard, a lot of companies will aim to have APAs or asset purchase agreements where they don't want to buy your

company. They want to buy the assets, right? Which means the corporation would get the sale of that asset. You would have all that money. Your business would effectively be sold, but you would still own the corporation. And apparently that wouldn't qualify for the exemption. So I think a lot of people kind of have like, oh, you know, you get a million dollars in exemption, but it's a little bit more complex than that. You need somebody, you need a company to actually purchase the shares versus purchase your assets. So I don't exactly know why an APA is, you know, more popular than a share sale, but apparently it is, it's especially in my world, which is why I think if I ever were to sell, apparently I would be, you know, hard pressed to get a share sale versus an APA. So it's just a little bit of a different element to it

where this exemption is a little more complex than a lot of people have, you know, I've seen a lot of people talk about. But yeah, that was my main thing here. Yeah, so I noticed everyone, if you're interested in buying StockTrades.com, offer Dan, you know, to purchase the shares and not an asset purchase.

He'll give you a better price. No, I'm just kidding. But obviously, there's some potential impact. So if you're a small business owner and you have capital gains of less than $3.25 million, you're likely to be better off under these changes. But again, with the caveat that Dan just talked about, self-employed professionals such as physicians will likely be adversely impacted on this. And that's because it's common for them to be incorporated for their practice and to actually hold investment within that corporation and hold most of their wealth within that corporation. That's because they'll use it as a form of retirement vehicle, if you'd like. And I've talked to quite a few financial planners and even, you know, we had here, I'm blanking on his name, but I had someone on the podcast as a financial planner.

Do you remember who it was? Mark. Was it Mark? Yeah. Mark McGrath? Yeah, Mark McGrath. Yeah, I was having, didn't sleep much last night, so I was having a bit of a blank there. But Mark is well aware of this because he does work with a lot of physicians. So I think it's important for that to remember. And he's I encourage people to follow him on Twitter because he's made some decumulation strategies that you can use to minimize the tax impact. And I think it will also be a disincentive for entrepreneurs because, let's be honest,

especially when you compare the tax rate of capital gains in Canada versus our neighbors down south, it's good that there are exemptions, but at the same time, it's not that high when you factor in what you've put in in terms of unpaid time, their own capital, and having no guarantee that it will pay off. It's a substantial amount of risk that I think should probably be rewarded to encourage successful entrepreneurs. And with this measure, it really acts as a disincentive in my opinion. It's also likely to make foreign direct investment, also known as FDI in Canada, less attractive compared to other countries for larger corporation or investors. That's just because they'll probably look at other options outside of Canada that may be more attractive for them from a tax perspective to do some direct investment. Now, to counteract this, I believe so.

I mean, this is my opinion. They said that they would ask Stephen Poloz, the former Bank of Canada governor, to look at ways that pension plans could invest more in Canada. So this I find incredibly dangerous because large pension plans in Canada already invest disproportionately more in Canada than what Canada represents in terms of investable assets on a global basis.

It also comes after the letter that was sent by a large Canadian corporation to the government a few months ago. So I find that a little bit odd that they would still put this back in. a little bit odd that they would still put this back in. You had companies, and I was pretty critical, like companies that are not really well managed, oligopolies, sending that letter to the federal government. And I do hope that nothing comes of this because I know pension plans well, and the main priority for these pension plans should be to their members, beneficiaries, and pensioners, not to help prop up investment in Canada. There should be better measures to encourage investment in Canada, regardless if it comes from pension funds or elsewhere, from businesses, from, you know, countries, from investors

outside of Canada. I don't think it should be put on pension plans because at the end of the day, this risks just giving them not as good returns as if they had more flexibility to invest elsewhere. And at the end of the day, their role is to make sure that they're able to fulfill promises to their plan members, their pensioners, their beneficiaries. And that's their fiduciary duty not to, you know, have a mandate to invest in Canada. And I find that extremely alarming. I just don't understand why they keep pushing that part. And especially when you people might not realize, but these defined benefit plans, because they are defined benefit, typically people will put like 10 to 15% of their salary goes straight to the pension as contributions. So you're going to tell these members that, well, we might not get the best

returns because we got to invest more in Canada. I just think it's, I don't know, it does not sound right to me. And I guess the last thing, and you can chime in on that as well, is I think it's going to make contribution room for registered accounts like a TFSA, RSP, FHSC, so First Home Savings Account, RESP, the Registered Education Savings Plan, even more valuable. You really want to make sure that you do not lose that contribution room because a taxable account now will be subject to these capital gains inclusion rate, whether it's under 250K, which would be unchanged or above 250,000. So if you end up having a quite large investment account in a taxable account, you're going to be paying quite a bit of taxes if your capital gains become pretty substantial.

You're going to be paying quite a bit of taxes if your capital gains become pretty substantial. Yeah. I mean, in regards to the pension, like the pension's job should be to get the highest level of returns possible. And when you're incentivizing them to go more into Canadian businesses, I mean, it's not a guarantee in the future. The Canadian markets could perform quite well in the future, but historically they've lagged, you know, the US markets by quite a wide margin. I guess the one thing I'll say about the 250K, it's only anything above 250K that gets increased. So it's not like if you had

a capital gain of 260K, that 250 would still be at 50% while the 10,000 extra would be at the 66, yeah? Yeah, that's correct. It's like a progressive inclusion rate. I guess that's the way to put it, right? Yeah, exactly. It's kind of like just the tax situation. A lot of people think if they go that dollar into the next tax bracket that their entire income is taxed at that amount,

whereas it's like anything over and above. So that's kind of a good clarification. And just for the incentive for entrepreneurs is absolutely huge. Like even in 2019, I left a very good job with a pension, consistent hours. I had employment insurance, I had benefits, I had everything. And I pretty much left that job to run stock trades and took on assumed all risks. I mean, most of say, you know, if you run a corporation, you're mostly personally liable for all the debt the corporation has. So you take on that risk. I was even talking about, you know, if you run a company with say a lot of employees, I mean, there's a chance you

could face some sort of risk in that sense. Like if somebody gets hurt or something like there's so many added risks that entrepreneurs take on that I really think, I mean, I think they kind of missed the mark here, especially like, if you want to go after like higher income earners, make it like a million dollars or something like make it way more than than 250k like a lot of a lot of canadian entrepreneurs pretty much stockpile money inside of their businesses to pretty much utilize as a nest egg and i mean 250k is in that scheme of things is uh it's relatively little money when you're thinking of you know somebody who's saving up that money inside the corporation to maybe draw down on it when they're retired or things like that. So I'm not a huge fan of this as an

entrepreneur myself who effectively left a pretty cushy job and assumed pretty much all risks. So yeah. No, exactly. And a lot of entrepreneurs that start a business from scratch, like oftentimes they will not pay themselves anything for like a year, two years, even more. So even if the business becomes really successful, like five to 10 years down the line, I mean, they're literally eating Kraft dinner every, you know, every day or, you know, drawing on their savings you know i know brayden has said it on the podcast like he actually withdrew some of his rsps when he left his normal job to start finchat which was stratosphere back then so it just goes to show that a lot of people like they take on this risk with no guarantee that it will pay out and i think that's the important thing to remember is you want to create still an incentive for people to do that. If you can get like a proper reward for all your work, if you end up, you know, being successful, and that's a big if because a lot of companies end up, you know, people put thousands of dollars, hundreds of thousands and ends up going bankrupt after a few years, and it just doesn't amount to anything. So I just, yeah, unfortunately, I think they missed the mark here. But I think a lot of people that say they're in favor of this, if you ask them, they probably have never built a business and know how hard it is. I think I suspect that's most of them. But anyways, we'll see where it goes

not to get really political, but clearly it is something that impacts investing. And the one thing too is, and I know Dan Foch from the Canadian Real Estate Investor Podcast has talked about that quite a bit, but people have second residences or people who don't have much invested for retirement, but most of their retirement is based on, you know, maybe they have a couple of triplexes and they've made a decent amount of capital gains and maybe they want to sell one for retirement. Well, now they're going to be impacted pretty significantly by that. And I would not necessarily qualify someone who doesn't have a pension plan and retirement savings and has a couple of buildings as a wealthy Canadian.

But maybe my definition is different than, you know, than the people who put the budget in place. Yeah, that's pretty much my thoughts, too. I mean, they, you know, this could have been put in place at like, I mean, really just at a higher dollar amount. I think 250K is just so low. Yeah. Just, yeah. Make it a million bucks or make it 2 million bucks or something. I'm sure you'd still get quite a bit of capital from people, much more wealthier people selling assets. So I think it's just too low. Yeah. Yeah. I agree with 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. 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. Enough about that. Let's go on with some earnings. Do you want to go over good food earnings? And I'm going to go on a limb and say it was not that great.

But you tell me. It wasn't too bad. I mean, the company has gone through a lot of trouble. It was good because good food actually is like an outlier in terms of its reporting. There's not a lot of Canadian companies reporting right now, but they're kind of always like on their own. So they're a popular food box company here in Canada.

They were, they absolutely boomed during the pandemic, but I think they kind of realized that, you know, they couldn't have been like a pure food box place. So they kind of tried to invest in other businesses. I know they were into like food delivery and things like that which just hasn't worked well at all full disclosure i did used to own this one i bought in and out of it quite a few times during the pandemic but i eventually sold them at i think in the mid five dollar range i think they're trading at like 30 cents right now uh they just they just started to really struggle as i mentioned they just tried to cast probably too wide of a net to diversify diversify away from being a pure food box play

the company reported on the quarter the company reported net sales of 40 million uh five to five percent decline on a year-over-year basis on the earnings front the two analysts covering the company had expected a small loss per share, but they actually ended up posting a $0.02 per share profit. So although revenue declined on a year-over-year basis by that 5%, the company managed to reduce its cost of goods sold by about 9%. I'd imagine a slowdown in food inflation is certainly helping them. It kind of resulted in them reporting flat gross profits. Gross margins increased by 2.3% to sit at 43%. SG&A, which is just sales administrative

expenses, reduced by 11%. And the company did mention that it's slowing down its marketing efforts in an attempt to trim back costs. So when we look to the first six months of 2024 and compare them to 2023, revenue is down around 10% while cost of goods are down around 15. Gross margins are up 3.2% to sit at 41.2. And the company has reported a loss of one cent per share through the first six months compared to a loss of 15 cents. So it seems to be getting things a bit under control in that regard. And their number of active customers sat at around 117,000. From what I remember back in the pandemic, the company had, I'm pretty sure they had 330 or 340,000 active subscribers. So you're talking a massive, massive hit. the one thing that's a little bit i find

it a bit odd their definition of someone who is an active customer is someone who has placed an order in the last three months i mean to be honest this definition is way too broad because even i would be i would be considered an active subscriber and i pretty much just when they send me a discount for the boxes i pretty much just order them and send me a discount for the boxes, I pretty much just order them. And then when the discounts run out, I kind of just cancel, but I would be considered an active subscriber. So I think they're, uh, I think they're a little bit off in that regard. I don't know if you, do you order good food at all? I do the same. So we, whether it's Dem or HelloFresh, pick your, pick your food box.

I think we've done like three in the past, Chef's Table too. And we do kind of the same thing. We don't really order. And then they send us something in the mail, like, oh, come back. You know, your first, like your first three boxes are like a 50% discount. The next three are like 30%, the next three, like it's usually something like that, right? So we'll do it when we get a discount. If not, you know, we wait for the next offer. Yeah, exactly. And I mean, it's not, the one thing is, it's not just Goodfood who's seeing

this like HelloFresh, I'm looking at it right now. They are down 94% from 2021 highs. So it's not like this is exclusive to good food, the struggles. It's just these food box companies in general, they're carving out like a bit of a path to profitability, but it's pretty important to understand that this is eventually gonna come at the expense of growth. So like when your company,

when your profitability is coming at the expense of your marketing, staffing, distribution,, distribution, it's eventually going to hit your top line. Like you're spending less to market the product, you're cutting staff, you're reducing your, you know, distribution capability. So I mean, yeah, it's going to be profitable, but it's also probably not going to grow all that much. They fumbled no no doubt but it's also kind of an added element of the economy i mean this is no doubt a cost that's pretty easy to scale back for you know a lot of canadians especially if you're paying full prices for these boxes i think they're like 100 or 125 dollars for four meals so i mean it's still cheaper than a restaurant but it's it's not as

cheap as heading to the grocery store. I mean, I could see a turnaround and maybe an increase in ordering if some pricing pressures come to Canadians. But I would say at this point, it's a luxury item to have. And as I mentioned, I only order it when they give me just crazy deals. So sometimes you get like- Yeah, same for us. You can get four meals for 48 bucks, I think is the last deal we got and you can't do that in a grocery store like you can't buy no four meals for that price so i mean i highly highly doubt they're even profitable at this point and i think it's it's kind of a maybe a strategy they

kind of hope you stick around or forget to cancel you know you get billed for that full price one and they can maybe recoup some of those costs yeah they're probably yeah they're probably like breaking even or losing a bit of money in the hopes that you'll stay a bit longer i think the ones we got is usually like what i said right like the first week is like or the first three boxes 50 off the next three like 30 the next 320 we'll do it until i think up until 20 off and then we start yeah yeah it's uh i mean it's kind of a poor strategy i guess but i mean it's they're having some tough tough times right now i mean this is anecdotal based on just the people because i know a lot of people who do this they do the exact same thing as me which clearly shows that there's a problem there they say that the quality has gone down quite a bit too I mean the standard ordering like say meals that you can get for just their standard

price is like practically none they have to upsell you on a lot of the stuff just because of how expensive food has gotten I mean their box prices were pretty much the same price during the pandemic. And when we think about food inflation was what, 9% last year? So I mean... It's not the same price as it was during the pandemic, I can say that. Oh, really? It was cheaper? I can't even remember. No, no. I mean the food prices in general. Oh yeah, food prices. Yeah. Tough, tough quarter. I mean, I guess I think a good quarter compared to what was expected. But I mean, when you look at their active subscriber count, it kind of tells you everything they've lost, what, 66 to 70 percent of their active subscribers. So. Yeah. And I think

people are just tightening the belt, too. Right. It's an easy thing to reduce your costs. Right. If you just renewed your fixed rate mortgage and your payments went up 25, 30% and you used to go to the restaurant or order these boxes, you know, you used to go in a month by removing those things from your habits and just going and getting food at the grocery store. Yeah, I mean, when people are flush with cash, the convenience of having the meals dropped off at your front step is, you know, some people are going to just completely ignore the cost. But when times get tight, 125 bucks a week for meals to be delivered to your door is probably not something a lot of people are gonna spend money on. And it's not even like that's blatantly obvious just from their decline.

Yeah. 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. Well, I mean, we'll have to move on to our next topic here because I'm getting hungry, but with all this food talk, but let's just talk about something completely different, Bitcoin halving. So I'll explain a little bit what it is, because I know some, there are some people that are better versed in Bitcoin than others. So on Friday, April 19th, so last Friday, the Bitcoin halving happened. The halving is a built-in feature of Bitcoin, which gradually reduces the supply of newly

created Bitcoin in the market by half. That's because the available supply of Bitcoin is created through a process called mining. Mining is a term used to refer to computers that solve complex mathematical problems. Whoever solves the problem or whichever machine solves it first gets a reward in Bitcoin for doing so. Obviously, the more powerful your mining computer is, the better the chances are that you'll solve the problem first. So on Friday, the reward was reduced by half from 6.25 Bitcoin to 3.25 for each block reward. Now, the process happens every 210,000 blocks, which tends to be about four years, you know, a bit more than four or a bit less than four years compared to the last one. And prior to this halving, there had been already three halvings. So on November 28, 2012, the reward went from 50 Bitcoin to 25.

On July 9, 2016, the reward went from 25 to 12.5. And then on May 11, 2020, just at essentially the onset of the pandemic, the reward went from 12.5 to 6.5 Bitcoin. And as of this writing, the total amount of Bitcoin that had been created was 19.689 million, amount of Bitcoin that had been created was 19.689 million, which is just shy of 94% of all Bitcoin that will be created based on the protocol. That's because the total amount of Bitcoin that can be, that will be created is 21 million. Now, historically, Bitcoin has performed well following the halving. In the first six months following each halving bitcoin returns 799 40 and 80 respectively so obviously these are the returns six months after the previous three halving now whether it's a catalysis this time around or not we'll have to see there's a lot of different things at play

it's possible that we already seen these gains maybe that the halving was already priced in especially if you consider the spot bitcoin etf launch in january and how much money came into bitcoin since that time and it's been on quite of a run so i wanted to just mention this caveat because you know people may think oh i should buy it now because it's going to increase in six months there are no guarantees here but historically bitcoin has performed well after the halving yeah i mean i don't have too much comment on this because i don't really know all that much about i'm one of those people and i'm sure i'm not alone that just kind of owns bitcoin but doesn't really know all that much about yeah bitcoin et Yeah, Bitcoin ETF, yes.

I get most of my cryptocurrency news just from the crypto channel in our Discord. There's a lot more knowledgeable people in there than I. But yeah, I own Bitcoin, like core position at Bitcoin, but I'll be the first to admit I don't really know all that much about crypto. But yeah. Yeah, and I mean, on on that i think it's good because i had someone dm me and they were asking for like bitcoin books and resources and i won't mention

his name because i didn't ask for permission to say it so what i thought was really interesting and a really good approach is he said he's got burned before for investing in things or stocks he didn't like he kind of borrowed conviction on and now he wants to do his own research before he buys bitcoin because he doesn't own it yet and i think that's a really good approach is just learn about it don't you can't borrow my conviction you know i understand it pretty well i'm not an expert on it but i understand the basics and for me what resonates the most for me is the potential use case on a global kind of macro lens. Just because, I mean, it's an asset, that form of money, if you like, that can't really be controlled by anyone.

So I know a lot of people, not a reaction that I get as well, what's wrong with the Canadian dollar, US dollar, it's working fine. And I mean, it's worked okay, but we've seen when inflation picks up and we also see how the rules are constantly changed by the central banks. We don't know what they're going to do, how it's going to impact our lives. And Bitcoin is an alternative to that. That's not controlled by any government. It's decentralized. So to me, that's the lens I kind of see it on. I see it a bit more as insurance against our financial system. So that's the way I approach it. Limited versus unlimited, I guess, in terms of actual... Yeah, exactly. I mean, that's... Yeah, I'm definitely... I understand those basic concepts, but I would

say I'm definitely a bit on the borrowed conviction side. But again, it's like... That's okay. It's like a core position in my portfolio. I think it's like 5% now. I ended up selling off. It ran up quite a bit, and then i ended up selling some off but uh i'm not crazy into it like a lot of people i know but that's it's interesting i plan to hold it for i mean i have no plans to sell it forever yeah forever i'm just kidding well i guess technically i don't own it. What is it? iShares owns it. I just own a piece of the ETF. Larry owns it. Yeah. Larry owns it for a small fee.

Yeah, exactly. A very small fee. Yeah. And well, enough about Bitcoin. Do you want to tell us about Netflix earnings and reporting? Yeah. So Netflix, to me, it actually posted like a pretty solid quarter, but it ended up dumping, I think it was around 10%. I'll get into why I think so in a bit, but just in terms of headline numbers, they came in better than expected on pretty much all fronts. So earnings of $5.28

per share beat expectations of $4.54 and revenue pretty much came right in line. When we compare Q1 of 2024 to Q1 of 2023, revenue was up 15%, operating income grew by 54%. And their operating margin saw a pretty big increase going from 21 to 28%. They released their full year 2024 guidance. So they expect to grow revenue by 13 to 15% with operating margins of 25%. So this is kind of where I think maybe the market sold the stock off. So they stated because it is

long past its growth stage and it has a multitude of different membership levels and price points, depending on the country, noting the actual increase and decrease of its total members is not all that useful. So they said they're going to stop reporting those numbers as of depending on the country, noting the actual increase and decrease of its total members is not all that useful. So they said they're going to stop reporting those numbers as of the first quarter in 2025. So I find there is usually very little situations where a company removes a key performance indicator like this, that they just could easily keep reporting and the market reacts positively. Like usually there's always a negative reaction.

I mean, I would agree that just because of the wide variety of pricing options, especially with their like discounted, I think you can get it for seven bucks a month now, but you gotta listen to ads or you gotta watch the ads. There's so many different price points that I think like total subscriber counts are largely irrelevant.

Whereas, you know, top line growth, free cashflow growth, it's probably what's more important, but I just kind of find it weird. Like why take the information away? It's probably not that big of a deal for them to report this. So I don't really know why they're stopping it. And another thing they're stopping is their arm ARM arm which is their average revenue per member i kind of find this one a little bit weird even weirder that they're uh that they're discontinuing it so i believe the the average revenue the company generates from each subscriber is still a pretty important kpi i mean i was. I would agree. Like for something like this, I mean, you know, generating more revenue from your current subscribers is arguably just as good as adding new subscribers. So this one was even more confusing to me as to why they are discontinuing this.

And I mean, while we still have the data, they reported. You think it's because they don't want people to like reverse engineer it because you could figure out how many subscribers they have right it's possible yeah i guess with revenues yeah with revenues and average revenue per user you could just kind of reverse engineer it and maybe it sounds like they just don't want any focus on the amount of subscribers yeah clearly and i mean i I think it would be a little difficult to do that just because of the amount of different, like I was looking at their different price ranges and they're different in, you know, Australia, they're different in, you

know, Latin America, they're different everywhere. So I think it would still be pretty difficult to do this. But now that we, while we still have the data, they reported paid membership growth in practically every region. However, outside of its UCAN segment, which is Canada, US, Australia, and New Zealand, its average revenue per member is either up by low single digits or even on a slight decline. So I don't know, maybe this is why they're not going to report it. The average revenue per member increased by 3.9% in its UCAN segment, which was the highest growth by quite a bit. Their ads membership, which this is, as I had mentioned, it's a cheaper subscription, but you have to watch ads. It's actually seen some pretty

big growth. So it grew 65% sequentially compared to fourth quarter of 2023. And when we look to the previous two quarters of 2023 on a sequential basis, it grew by 70% over those two quarters as well. So, I mean, I think this might be an element of, you know, maybe people are becoming ad blind to the point where they really don't mind paying like i don't even know what a regular netflix subscription costs these days it's just on my credit card i think it's like 18 bucks too much i think it's yeah well we pay like 30 something because we told so we had the best subscription to begin with and then we're sharing our password with you know yeah my in-laws and my parents so instead of each of them getting an additional subscription on their own and getting the crappy subscription

because you can with the the most premium plan you can add i think two additional kind of accounts that can or two additional households that can use it for an extra 10 bucks per each so it's it's kind of cheaper than the the ad version and you get all the good quality no ads so for us we're just like okay we'll just we'll just do that but now we're kind of locked in because we can't really cancel because we canceled the subscription of the in-laws and my parents is it is it cheaper than the ad so i think the ads is only seven bucks a month i think it's gone up might be yeah but it might be yeah and you yeah i think it might be us plus you don't get as good quality i think it's only like 720p or maybe 1080p with the ads where you can get ultra HD and AGR and all that stuff with the most premium plans on top of having no ads. Okay. That's interesting. I don't know. We just,

I'm not going to lie. I haven't even checked what they, I've had a Netflix subscription for years, years. Oh yeah. I don't even know what they're charging me. I think in 2012. Yeah. I think i started yeah over 10 years when they used to send out the dvds uh after that yeah okay they they did not have a lot of content i'll say that no it was pretty bad in the initial stages especially here in canada i mean the only i guess the only difficulty and i don't really know too much about this would be if you know if the ad business isn't generating as much revenue as say a non-ad plan, and maybe a lot of people are say canceling their more expensive subscription

to downgrade because they don't really care about ads. I mean, to be honest, I would probably, unless the quality was poor, I'd probably subscribe to the seven US a month ads plan versus a 20 some dollar regular plan, it really wouldn't phase me that much. Well, if you're trying to save money, like that's an easy way to save five, 10 bucks a month, right? So. I mean, the ads business, it's a pretty good business to get into, but I know like, you know, ad rates are not that good. I think for a standard like person on a $7 a month plan, if you're watching a lot of... Even if you're watching a modest amount, I can't imagine they're making a ton off you in terms of

ad revenue, but it's growing at a pretty fast pace. I couldn't find any exact details on it, unless I missed something. I couldn't find any details inside it, but it seems like a pretty solid quarter, but the removal of the KPIs, it is a bit confusing to me, especially the ARM one, the average revenue per member. Yeah, I think you're right because I have it here for our joint TCI members. So this is the average revenue per membership. And exactly what you said, it's literally flatlining or declining for every single market except us and canada and new zealand and australia i guess that you can include apparently new zealand and australia oh really does it okay that's weird but anyways yeah so just those markets are doing well

but the rest it's essentially flat or declining. So, and the rest is basically the majority of the global population. So it's not that great for them from a growth perspective, especially if there's limiting, you know, growth potential in terms of pricing in those regions. I mean, it's nothing specific to Netflix. If I remember when I owned Pinterest, I would follow the average revenue per user for ads. And it was always the same thing, right? US and Canada is like way off the charts. And then the rest of the world is just way, way below. So it's interesting. It kind of reminds me when Apple stopped divulging the amount of iPhone shipments some some years ago it's kind of you know they're it sounds like they're trying to get people to focus on other stuff yeah it's just it's such an

easy kpi to track that they're eliminating especially when like three out of the four segments are flat or declining so it just kind of looks like i don't think they're necessarily doing anything suspicious but there's no doubt that it looks a little bit bad when they cut these back and i think that's why like maybe it uh maybe it took a bit of a beating post earnings like 10 or so but yeah it pretty solid quarter otherwise and what a rebound from netflix as well like oh yeah holy i mean i've been proven wrong i didn't think it was that great of a business years ago, a couple of years ago when we started the podcast and definitely been proving wrong. Yeah. Uh, happy to say when I'm wrong, I think, you know, me well enough by now

to know that, you know, I am pretty humble when it comes to that. Like I know I'll have some right calls. I know I'm going to have some wrong calls and happy to say when I was wrong and I was definitely a hundred percent wrong here. I just didn't really think the business model was all that great. I still don't think it's all that great, but clearly they have figured something have all the other platforms that are really struggling. So maybe I was half right. I'll just say that. It's not, it just, I find it a bit of a hard business model just because of the sheer cost of creating content and exactly. And being able to just keep the users paying on the platform, making sure that content is fresh, but also not spending too much that it's not profitable anymore. And clearly Netflix has found a way to kind of create a good balance between the

two. So props to them. Definitely, you know, I'm impressed with what they've done. Yeah. Yeah. They're up to 220% from May 2022 lows. So they've rebounded quite a bit. Well, congrats to all the Netflix shareholders that are listening to this. I mean, I guess I am. They're in the S&P 500, right? They are? Yeah.

They must be, right? Okay. So I guess I am a shareholder. Or maybe it's BlackRock. Yeah, it's Larry. That's the shareholder for me on my behalf yeah well now we'll move on to the last segment here um it's company that we've talked a little bit on the podcast from time to time american express so they had their q1 2024 earnings um i think it's a great company to look at because it's essentially a blend between a smaller Visa and MasterCard and a bank yeah so it's kind of it's a bit unique and I'll give a

little bit of an overview just so people get a better understanding how the business works compared to Visa or MasterCard for example now contrary to Visa and mastercard amex and i'll say amex just because it's easier issues its own cards meaning that american express is not only the payments network but also the bank whereas visa and mastercard only operate the network and don't issue their own card so it's much kind of the business model for visa mastercard is definitely like less asset heavy i would say, from they just operate the network and they get fees based on that. Amex also partners with banks that issue cards on the American Express network. And that's why you'll see Amex cards offered by some of the

big Canadian banks, but they also issue their own. So what this means is that Amex is a hybrid between a payments network and a bank. And just like banks, it has to set aside money for loan loss provisions, whereas Visa and MasterCard don't have to do that because they do not actually lend out money. Amex also has other services that are provided by banks like savings accounts or CDs. CDs are like CDICs in the US. Did you know that they had like savings account products and stuff like that? No. So I actually recently looked in, like I was looking to buy either Visa, MasterCard or American Express. And I ended up buying Visa, but I mean, a lot of people, when you look at these credit card companies, you're going to know,

like if you look at like valuations, like American Express is like, it's way, way cheaper. And I think this is actually like why it's essentially a financial institution, whereas, you know, Visa and MasterCard are just those, you know, payment processing, things like this. So that's kind of why I lean towards Visa. But on the surface, like, it looks like American Express is way, way cheaper, but it's just such a different company. Yeah, yeah. I think that's well put. I mean, at the end of the day, it is kind of a hybrid, right?

It's considered a bank, but, you know, you still get that that pretty extensive payments network obviously can't compete in terms of acceptance with a Visa or MasterCard. But it's a very interesting business. with a Visa or MasterCard, but it's a very interesting business. To be honest, for me, it's probably one of the only banks, aside potentially from our sponsor, EQ Bank in Canada, that I would consider owning, just because I like the fact that Amex is kind of a hybrid between the two, and just gives you that kind of extra differentiator. And a lot of people like their Amex cards because they give tons of perks too. Now to go back to the actual earnings,

so revenues, net of interest expenses were up 11% to 15.8 billion. Net income was up 34% to 2.4 billion, while EPS was up 39%. Deposits were up 4% to 134 billion. Again, it is a bank, so that's why they have deposits. Loan loss provisions increased 20% to $1.3 billion. And the loan loss provisions are actually a mix of actual write-offs and reserves for potential loans that will go bad. And that's pretty typical. So when we will be talking about Canadian banks, when you hear about loan

loss provisions, typically there will be an amount that's like almost like it's a given, it's going to be written off. And then there are extra funds that are allocated for loans that will potentially go bad. So they're essentially provisioning for that. So that's why they're provisions. And clearly here, I think the higher interest rates and stimulus are getting out of the system and it's wearing on their loan books because I pulled out some data from their investor presentation. I compared to the start of the pandemic just to have an idea. So American Express write offs and pure sheer dollars was 287 million in Q1 of 2022. And that is now $1.12 billion for Q1 2024. So these

are just the write-offs. And the card member loans net write-offs rate was 0.8% in Q1 of 2022, and 2.3% in Q1 of 2024. Now, I don't want to be alarming because these are kind of more, you know, getting back at kind of pre-pandemic levels at 2.3%. But I wanted, I picked those dates because it lines up with when interest rates started rising. So I think you were starting to see the savings related to all those stimulus checks because people in Canada may not realize it. But people in the U.S., like pretty much everyone got like a stimulus. Like I think they got two stimulus checks. Like didn't matter. Here you had to be like in some kind of hardship. And clearly there was like, you know, fraud that happened and all that stuff in Canada without going into that. But I think it was just to show that I think the combination of interest rates and stimulus money

kind of slowly trickling out of the system, I think, is a good indicator as to why or a good reason as to why these rates, these write-offs are actually starting to creep up. And it's just, again, I don't want to be alarming, but it is something that you should be keeping an eye on if you do own American Express or you're interested in owning the bank. I still think it's in really good financial situation. I don't think it's in any trouble or anything like that, but it's something to keep an eye on because clearly things are picking up. They're at the point of pre-pandemic.

But it is, you know, things are, there's starting to be a bit of cracks. The economy, we don't know where exactly it's going to go. And that would be a really good indicator. And maybe to add to that, I was reading a report for household debt and credit in the US. So the Federal Reserve Bank of New York comes out with this quarterly survey. And it's, I mean, there are some things to keep in mind that are not great. So the latest survey was Q4 2023. And it showed that credit card balances in the US are now at $1.13 trillion in outstanding debt. And that increased $50 billion in one quarter or 4.6%. So I again,

I don't want to alarm people here. I'm just trying to, you know, share the information. I mean, this it's as good as it gets, right? The New York Fed, like, I mean, if you, you know, as a source, I don't think it gets much better than that. And there are some clear sign that I think Americans, despite the economy doing so well, are using more and more debt and credit card debt is clearly not the type of debt you want to be using. So those are all things that I would keep in mind, like an eye on, especially if you own banks, whether it's in the US or Canada, because it can definitely impact the future profitability of those banks. Yeah.

I mean, credit card debt is pretty much your next step up is what a payday loan where it's like a 35%. Another credit card to pay the credit card. Yeah, exactly. Yeah. Yeah, exactly. Well, I mean, even when we went over the Canadian banks, this is just off the top of my head, but I'm pretty sure most of them were reporting like anywhere from like 15% to 18% increase

in credit card spending over the last while. And I mean, I think we went over Canadian Tire as well. And wasn't their write-off rate? It was much higher than 2.3 percent from what I remember it was in the threes I think yeah I think so I think it was around there obviously we're going on memory we don't have yeah I don't have but you're right yeah but yeah it's uh I mean there's no doubt credit card spending is is going up money's getting tighter but yeah it's it's interesting to keep an eye on it I mean mean, it's still a relatively low write-off rate.

I mean, especially, like I said, you compare it to a Canadian tire, which is seeing huge growth, I'm pretty sure, in card spend as well. And then, you know, their rates, their write-off rates are quite a bit higher. But yeah, it's going to be interesting to see how this goes in the future. Yeah. And one thing that's not talked too much about, I was reading another, I can't remember. I think it was the Philadelphia Fed, one of the other feds in the US, they had a paper on buy now, pay later. And basically they differentiated, they did a survey and they

compared people that were not financially stable and those who were financially stable. So they define that. I can't remember the exact definition. But the TLDR is that the non-financially stable were more likely to be repeating those buy now, pay later. Like to be a repeating customer. It would tend to do it for smaller everyday purchases, which means that clearly people are using that to probably make ends meet. Clearly, it's better than a payday loan. It's a better option than that. And then people that were financially stable would often just use it for larger purchases to

avoid paying interest on whether it's a credit card, whether it's taking out a loan. So it was interesting to see the two differences. And it's something they said they would keep an eye on, but it is something that they kind of flagged at a potential risk where I guess, you know, the financially vulnerable or whatever you want to call it, it is definitely a risk that people are using that more and more just to make, you know, everyday needs met. And that could, and that, that data doesn't really show off a lot of places. And that's the issue with the buy now pay later too. Yeah. Wasn't it, uh, you could buy a pizza. I'm pretty sure I seen like a, a buy now pay later for like dominoes like a $15 pizza you could split it into four payments and yeah yeah and yeah so it's I mean I think it defeats the purpose I think there needs to be

probably more regulation around those services because I think a lot of people are probably starting to get into these kind of cycles and even though they're installments without interest if you don't make those installments you can you have fees that start tacking on and so on so it's not like a perfect solution but I just figured I would mention that and before we go on and you know finish the episode because we've been talking for a little bit in terms of guidance Amex is guiding for 9% to 10%, 9% to 11% in terms of revenue growth, and 13% to 17% in terms of EPS. So despite all of this, clearly, you know, earnings per share are growing nicely. But again, I think it's important to keep an eye on those credit card delinquencies,

because clearly, I think they have other types of loans, but predominantly, it's a credit card loan business with, you know, the network attached to it, but it's something people should be looking at if they're interested in Amex. Yeah. Like the provisions are going to be much different than say a Canadian bank who's got, you know, a lot of mortgage exposure, things like that. So it's kind of a different, it's a different makeups, but important to keep an eye on for sure. Yeah. In terms of assets, clearly they put way more aside than like an equivalent Canadian bank. Just because, you know, I think it's the nature of things, right?

You're going to get more delinquencies or write-offs on a credit card debt than a mortgage, for example. So I think it's just, you know, keeping that in mind. But it does come cheaper than Visa and MasterCard. You get a different kind of business. But, you know but that's probably why Buffett owns it because he does like financials and banks. He's owned it for years. I'm pretty sure, I mean, unless he sold it recently, I know he's owned it for a very long time. Yeah. And that was actually primarily my decision to go away from this and to a company like Visa

because I do own, not a crazy exposure, but I do own, you know, not a crazy exposure, but I do own quite a bit of Canadian banks. So it was just easier for me to kind of get away from this and go more to, you know, a company like Visa who doesn't really deal on the loan end of things. Yeah. Or you could just buy BC and get a 9% dividend. Exactly. It sucks we didn't have enough time to go over Verizon, maybe next week. Next week. Yeah. I think it's, I ran a bit long, but you know, we do this from time to time. We run a bit long, we keep the earnings and that when we have a bit of a lull in terms of earnings or news, we'll catch up on it. But I'm sure we'll have the chance to do

Verizon soon enough and we can probably compare them to a few telecos in Canada. Yeah, because if you think the Canadian telecoms are struggling, the US telecoms are, they're in pretty tough shape over the last while. Well, looking forward to hear that. So I think we'll call it an episode here. Thanks everyone for listening.

If you haven't done it, I know we mention it every episode, but give us a five-star review on Apple Podcasts, everyone, for listening. If you haven't done it, I know we mention it every episode, but give us a five-star review on Apple Podcasts, Spotify, whichever platform you listen to us on. It really helps people discovering us. Or if you have friends, family that are looking for a fun podcast where we just have a little bit of banter, talk about some earnings news, and we try to make it as accessible as we can. So we really appreciate when people share that with others.

But on that note, yeah, thanks for listening and we'll see you next Thursday. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.