The Canadian Investor - The streaming wars and canadian housing

Episode Date: June 7, 2021

In this episode of the Canadian Investor Podcast, we talk about: The recent news and the emergence of a bidding war between Pembina & Brookfield Infrastructure for Inter Pipeline The new Canadian mortgage stress test and how it might impact the housing market The Common stock checklist by Philip Fisher The video streaming wars and more specifically the recent consolidation in the space Tickers of stocks discussed: IPL.TO, BIPC.TO, BIP-UN.TO, NFLX, AMZN, DIS, AAPL, GOOG, IQ, T, DISCA Getstockmarket.com Canadian Investor Pod Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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My name is Brayden Dennis. I'm joined by Simon Belanger. As always, we got a jam-packed episode. We're talking Canadian news, Canadian housing. Simon's going to talk about the video streaming business, which is starting to get, see some consolidation and interesting things happening there. And then I'm going to go over what are called the 15 points from Philip Fisher and his book,

common stocks and uncommon profits. So let's get right into it. Simon, tell us what's happening with inner pipeline. I brookfield is uh doing their thing you know bruce flatt does his thing and this is very bruce flatt yeah brookfield doing brookfield things uh some more drama in the canadian business space um so it looks like we have a bidding war for interpipeline ticker ipl.to Back in April, I think we mentioned that on one of the episodes, Brookfield made an offer of $16.50 a share, stock or cash. So you can consider that a cash deal because shareholders will have the option to purchase Interpipeline for a total of $7.1 billion. The board of director rejected the offer. Brookfield was not

very pleased with that especially since they already own 9.75% stake in Inner Pipeline. So this week we heard news that Pembina Pipeline made an offer of 19.25 a share in an all stock deal. Brookfield was actually not very impressed with that thinking that their previous offer was better because it was an all-cash deal. Nonetheless, they came back with another offer a few days later again this week. The new offer from Brookfield is actually slightly higher than the Pembina offer, still an all-cash or stock or cash option. It's $19.75 a share. It's anticipated that they will accept this new deal from Brookfield, especially given that it's a much better offer if you just look at it from a cash or stock perspective. I don't think it'll be as complex as the Canadian National Rail CP and

Kansas City Southern, but it'll be interesting if there's any developments on that. Personally, I think everyone knows I own Brookfield Infrastructure Partners. They're the ones that are making this offer. I'm not a fan of their kind of oil-type business. At the same time, I do understand they're an infrastructure company. It's an important part of our current infrastructure. So I'm just trusting Brookfield that they're doing the right decision here. They're getting good value for those assets. And we'll see if the deal goes through. But I haven't read anything saying that there

should be any major regulatory hurdles for the deal to get approved. And I believe I saw that they would go directly to shareholders for that yeah the slogan of this podcast should be covering brookfield doing brookfield things and this is just no different and of the landscape of infrastructure co's pipeline business brookfield infrastructure partners obviously own some of the best assets on the planet but Interpipeline owns some really high quality assets and that's actually been a great business and one that I've looked at a lot even though I don't look in that space and it's been cheap for a while and Bruce clearly thinks that it's cheap as well and so now they're paying a premium but if they still see value in it then they're going to try to

make this deal happen so yeah i see they've they've upped their deal to almost 20 bucks a share 1975 is the is the number i don't see how they don't get it i mean brookfield already owns a like fairly large stake yeah and it really looks just based on whatever again that they're really taking this into their own hands and going. They weren't impressed with the board of directors, so they're going directly to shareholders. It looks like an attractive deal. Again, if you look at the interpipeline stock price, just going back about a year and a half, two years, they're still getting a pretty significant discount compared to what they're paying. And I'm thinking that's probably what Brookfield is seeing there.

And they're most likely going to see some efficiencies like they usually do to really make that a really profitable business. Again, I have no reason to believe, to doubt Brookfield when it comes to acquisition. So I'll always give them the benefit of the doubt until proven otherwise yeah they're hunting for good quality assets are on sale i'm just looking at inner pipeline stock here it dropped 65 basically in the sell-off of early last year which is pretty nuts to think about so when that deal was announced it was trading for about 12 and.50 a share.

It jumped up a little bit above the proposed price, all the way up to $17, and trades for over $20 as of recording today on June 3rd. So it still trades for below the January 2020 price. Not by much, but I bet you they wish they bought it at $7.76 in March, but hindsight's 2020. Yeah, the one thing that's interesting is the current price is slightly higher than the Brookfield offer, so I don't know. I was supposed to question why that is. Usually the arbitrage would be a little bit less. Yeah, a little bit less. I don't know. Maybe the market is thinking that there might be a little bit less. Yeah, a little bit less. I don't know.

Maybe the market is thinking that there might be a bit more of a bidding war here involved. So they're putting a slight premium on it. We'll see what happens. I mean, if there's an update, we'll definitely bring it up further. Because, you know, we like drama like anyone else and nothing better than Canadian business drama. Yeah, you know, Canadians are so nice, except in this acquisition seem to be so aggressive lately. You know, it closed at exactly 20.25,

which is funny because that's exactly 50 cents more than the current share price. So it's like, oh, Brookfield raised Pembina by 50 cents. Now, if they raise it again, it'll be another 50 cents on the dot so the market is funny sometimes and this is this is no different all right let's talk housing uh what happened with the stress test that went in fairly recently yeah uh monday this week or monday was june 1st sorry tuesday i'm trying to getting the days all confused. I think it's just a lockdown getting to me. But I digress. The federal government raised is minimum stress deaths. The new stress deaths will be the higher of the two.

So either five point twenty five percent interest rate for the mortgage or two points above the board's current mortgage rate. the borrower's current mortgage rate. So this should be the hopes is that it will slow down a little bit the market make it slightly harder to get loans to be able to buy houses. It's really a difficult space to navigate for the federal government because on the one hand they're really seeing the housing market getting more and more expensive making it more and more difficult for Gen Z's, millennials to get a house. It's a more and more big portion of their revenue if they want to get a house, get their first home started. But on the other hand, upping that stress test, make sure that if interest rates do go up, they'll be able to support those mortgage payments and they won't be above their head in terms of the obligations that they have. I've said it before, when people get loans, the banks don't really look at your current lifestyle. They're only going to look at

your current income, your debts, and they'll do their due diligence, but they won't look at if you can continue living your current life, whether you like to going out for restaurants to eat, traveling. Obviously, I'm talking more COVID, pre-COVID here. They won't look at that. They'll just make sure that you can make your mortgage payments. And that's really the importance of doing your due diligence, but making sure you incorporate all of the housing costs when you do those calculations

and the lifestyle that you want to keep living. If you're fine being house poor and just eating crab dinner every day, then sure. Dirt and ramen, baby. Dirt and ramen. I like crab dinner, but same thing. If you're fine with doing that, then okay, sure, but you won't have much margin for error. So keep that in mind. We did post maybe a month ago. I did a little spreadsheet, nothing fancy.

People can plug in numbers just to get a rough idea of all the various costs of housing and compare that to renting. The price to rent ratio in Canada is through the roof. It's like over 130%, which is much higher than the u.s by the way much much higher than the u.s which is already seeing a hot housing market but when americans go oh wow the housing market's crazy and there was this viral thread that the ceo of of uh redfin posted

the other day which has lots of unique insights, but they think their housing market is hot. Look north of the border and you've got just mental going on. I mean, up at my cottage, the cottage right around the corner from me was listed last year in a high demand time of COVID for 700 K. It just got sold last Tuesday for 1.8 million. Don't get me wrong. Slightly over asking. Yeah. I think it was listed for 1.67. It sold for 1.8.

Wow. And that is, it was basically at 11 month turnaround. Maybe a full year. It's just, it would be, turnaround, maybe a full year. It would be a full year now. Well, they did that for capital gains, of course. But you know what's crazy is it's a nice place. Don't get me wrong.

It has like 500 feet of shorefront. You probably just knock the cottage down and build a new one. The property is great, but to see that kind of return in one year, what's going on, man? The prices have just gone crazy. We're thinking about what does that wealth transfer look like in the next 10, 20 years? The feds know that this wealth transfer and all the housing market wealth stored for the older generation is very important. And so it's kind of like a damned if

you do damned if you don't scenario with the feds right now. I don't actually have any good solutions at all. But it's very an interesting problem that we have. Yeah, yeah. I mean, it'll be interesting to see how it develops. I mean, I feel for people that are looking for a house, I would just one tip I can give to anyone looking for a house. Don't get too emotionally invested in one specific house. Be patient. I know it can be frustrating, but if you get emotionally

invested, that's when you can make a very big mistake. And I was reading this alarming article. I can't remember exactly where, but it was about how home inspections before you actually close a deal or buy or make an offer. So typically in the past, I mean, at least my experience and my dad was a home inspector, so I know that space pretty well. You would go see a house and then you would ask for an inspection or make a conditional offer based on the inspection report. Now, apparently 75% of all homes, there's actually no inspections or an inspection after the offer has been made with no way out in terms of if you find anything wrong with the house. So to me, that's really alarming itself.

I don't know if it's because there's a bubble brewing for the housing market. I don't want to necessarily alarm people. There are some red flags going on because you're spending hundreds of thousands of dollars for buying a house and you don't even want to do a home inspection because you know that the other person is offering the same thing or more and without any conditions. Yeah, that's right. It's a weird market. I don't have anything further to add than 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. All right, let's talk about the book, Common Stocks and Uncommon Profits, written by Philip Fisher back in the 50s. And there's been some new additions to the book, of course, like all these investing classics. There's been some awesome prefaces and intros actually done by his son, who's a very successful

investor to this day. And so in his book, there's what's called the 15 points. And the 15 points, it's actually not even a huge part of the book, but it's something that a lot of people really get drawn to. People like lists. It helps their brain think about stuff. They like checklists. It's nice for the human brain to think in these kinds of ways. So I'm going to talk about

them. And a lot of them are management type style, so they're hard to really assess. Some of them are pretty advanced. Some of them aren't. But I'm going to go through them and then give my quick little two cents on that and how I interpret it. It's not necessarily how Phil meant to write it, but it's how I interpret it and how I use it in this day and age because the book was written in 58. So let's just be cautious of that. All right. Point number one, does the company, so this is a checklist by the way. Point number one, does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years? not step number checklist number one in our process too is is the business gonna have more revenue in the future like it seems like number one and a sensible checklist but this is a pretty good idea yeah yeah that's uh that's a really good point i mean the fax business or the fax

machine business is probably not a great business right now because they're they're going away exactly i mean i want to invest in companies that are gonna be better tomorrow than today is probably not a great business right now because they're going away. Exactly. I want to invest in companies that are going to be better tomorrow than today. And so he talks about also like, is the market potential really big? Like that total addressable market. He's curious about that. And this is something I think about with back of the envelope market cap type valuation as well. The good old T yeah yeah exactly all right

number two does the management have a determination to continue to develop products that will further increase sales so again look he's he's curious about sales um and there's the growth potential currently attractive with their product lines uh and this one I read in when I read the book, this one was a lot about optionality. And optionality in a business just means, yeah, okay, Google has this core search business. But think of all the optionality that they have by owning a gateway to the internet. You know, they have Gmail, they have this Google Suite. Now they have YouTube, they have all these other bets. And they have so much optionality. And this is what's important. And this is what Phil is talking about, from my opinion, is that do they have other potential to increase in size

and continue to develop new products? Number three, how effective is the company's research and development efforts in relation to its size? To develop new products, a company's research and development, R&D, must be both efficient and effective. I think of this as how Jeff Bezos writes his letters for Amazon is innovate or die. He says that the company's slogan is it's always day one, meaning that there's always going to be people gunning for their position. They have to think of every single day like the first day at Amazon. And so it's that innovate or die type

thing. Yeah. And I would say I think what really stands out here for me is efficient and effective because it's all nice and dandy if you're investing gobs and gobs of money into R&D. But if you're not investing that money well, you're investing gobs and gobs of money into r&d but if you're not investing that money well it's you're basically just burning money away yep yeah well put number four does the company have an above average sales organization so he's talking about a competitive environment uh very few products are so compelling that they'll sell themselves without extra advertising dollars. And this is really important when you're talking about scalability, growth smart, in terms of how you can scale and have operating leverage.

So I look at this as a net promoter score. Do the customers love the product so much that they become part of the sales organization without collecting a paycheck? You know, like I think of Peloton. People who have Pelotons let you know in the first five minutes of meeting them. You know what I mean? It's like who they are. And if you have a Peloton i'm not i'm not talking trash i think they're awesome but you know what i mean right like they are net promoters everyone who has a telethon is a net promoter so they building a moat maybe i don't know one that comes to mind is apple apple is very strong here because people once they have an iphone get try, try to get them out of that ecosystem. It's going to be very difficult.

And their marketing too is just, I mean, it's excellent. It's the best. Yeah, exactly. It's the best. It is the best. I've been thinking with this one about Spotify's latest marketing campaign where folks are sharing their favorite artists

and listening metrics. They have that year-end wrapped thing that everyone posts on their Instagram. And you know, they just, they have all this free marketing. They make it so easy for you to share this viral type content. And people like sharing their music by nature. So it just kind of works well. And users literally become a marketing machine for Spotify at no incremental cost. So I think that's one of the more interesting things that Phil's looking at. Number five, does the company have a worthwhile profit margin? Berkshire Hathaway's vice chairman, Charlie Munger, is fond of saying that if something is not worth doing, it's not worth doing well.

That's the most charmingly quote I've ever, like, I could, I could read that in his voice. So take a look at gross margins, take a look at EBIT margins. Does the business have some worthwhile unit economics. A business has basically two options. They can sell a ton of volume at low margin or less volume at high margins. And if they can't do either of those well, it's probably not a great business. A good example of ton of volume at low margins would be grocers, like grocery stores.

Yeah, Costco. Yeah, Costco and- Walmart. Yeah, all of those grocers that will tend to be- Automotive manufacturers as well. Yeah, yeah, exactly. And so they don't necessarily have a moat, but they do get it. Well, I guess they do because of the volume, right?

Well, yeah, and it's also like McKesson Corp or Cardinal Health. They're distributors of pharma and they have like the worst margins of any S&P 500 company like ever. But who can compete with them when your margins are so low? You know, like you're not attracting any competition. There's no one, there's no Stanford entrepreneur in the making who is excited to disrupt cardinal health. Those margins are terrible. So is that a moat? I don't know. Number six, what is the company doing to maintain or improve profit margins? So this goes back to the last one. So many businesses are talking about expanding margins being one of the most important metrics in the company. You're hearing Mark

Zuckerberg talking about it on the call for Facebook a lot lately, which I hadn't heard before. Maybe I wasn't listening to old enough conference calls. But if you increase prices year over year, you're limiting your expenses, especially on the gross margin side, those are going to expand. And this is the concept of operating leverage. Software businesses kind of wrote the concept of operating leverage. Software businesses are kind of wrote the book on operating leverage and it can be a powerful lever for them to pull. Number seven, does the company have outstanding labor? right? But is the company getting the best talent? The big mega cap tech companies,

maybe in the best, they might be the best at this in history. The strategies work so well, it's pay them well, treat them well, get them to recruit their best talent as well. Like there's incentive structures written into their contracts that if they can convince their other software engineers to come work at these companies, they'll get like five grand. I've heard upwards of 10 grand if you're at one of these big tech companies and you get a software engineer to join and they get hired. Yeah, there are referral bonuses or hiring bonuses. There's huge referral bonuses. Yeah.

Yeah. And one way you can easily find out if a business is doing well with retaining talent, we've talked about it before. You know what I'm going to say. Glassdoor. Glassdoor. Glassdoor is a great, great tool. It's really easy. You can pay a subscription to have more access, but you can still get a glance at what employees think about the CEO, the business, even the benefits that they offer that will give you a pretty, yeah, exactly reviews, it'll give you at least a decent snapshot.

If you have a company that rates really low, that could be a red flag right there. Yeah, as long as there's enough ratings. I mean, if there's like four ratings, and there's two disgruntled employees. Yeah, that's probably not a good, it's probably not a good sample size. Yeah. All right. Does the company have standing executives? Again,

harder to analyze. It's fairly qualitative, but listen to an earnings call. Look up the CEO's Wikipedia page. Look up the person who started the company. Try to find out about the culture. Number nine, does the company have depth to its management?

So this segment is a bit vague, right? It's talking about a deep pool of management and different cultures clashing together. And I think of this as a decentralized management structure being ideal, where management is open to give responsibility to lower folks in the organization and empower the company and create a culture of, you know, you don't have to be in the C-suite to make decisions. That's a more decentralized management structure. It works extremely well and it aligns incentives correctly and employees are happier and more productive. And typically those will be some of the best CEO transitions. We've seen a few recently, some pretty major ones like Bob Iger with Bob Chapek at Disney. Obviously Amazon with Jeff Bezos and I always forget his name. Do you remember? major one like bob eiger and with bob shapek at disney uh obviously amazon with jeff bezos and i

always forget his name you remember the guy that's gonna take oh andy jassy yeah andy jassy i mean we we don't know how aws guy exactly we don't know how he's gonna do just yet but if i were to bet i think he's gonna be just cooking jobs too of cook and jobs too, right? Yeah, cook and jobs. So there's some good examples out there for that. It might be a bit harder to tell, but there's been some good ones. Number 10, how good are the company's cost and accounting controls? So look at some statements. Look at the financials of a company on an app like stratosphere you can see 10-year statements there are the operating profits jumpy is the accounting hard

to understand are these like weird one-time charges all over the place that are just confusing confusing accounting bothers me and really turns me off. Like it's a huge red flag for me because unless I know exactly what's happening in the business, it's like, you know, what are they doing here? Why are they doing all this funky accounting? And it's just,

I just don't like it. I really just don't like it. Yeah. And people can understand some of the things that may be a bit funky with the footnotes. Those are really important because oftentimes you'll see something then the financial statement you'll wonder what is this as long as not like a million of them exactly as long as not there's not too many of them it's easy to understand and also those one-time charges should be one-time charges if they're reoccurring every

year they're not one-time charges seems to, it's a one-time charge. It seems to happen every quarter. And we're laughing, but I've seen companies like that. 100%. All right, number 11. Are there aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how understanding the company may be in relation to its competition. So this is something I talk about all the time. Think of one metric for each company you own,

and just track it. It'll give you some insight if they're gaining losing market share, keep it really simple. This will be something that the company will publish in every single quarter that you'll be able to easily track with a simple Google search on their investor relations. So for instance, Visa, I want to know if their total transaction volume is going up or down. For Netflix, I want to know total net new subs. For Facebook, monthly active users over time. Keep it really simple. The list goes on and on for these types of companies, but keep it really simple and you will understand the business. You

don't need to track, you know, 50 odd metrics. Just understand over time if the thesis is still correct. And that's how I'm reading that point from Phil. Number 12, does the company have a short range or long range outlook in regard to profits? Fisher argues that you should have a long range view and that you should favor companies that take a long range view on profits. He's talking mostly about growth companies here, right? So as a long-term oriented investor, I want my capital with companies that are thinking about the long-term. And how I read this, whether I'm right or wrong, is he doesn't want to see companies, especially in their growth phase, over-earning.

If they're over-earning in the short term and not thinking about profitability in the long term and the eventual growth, maybe perhaps disgruntling current customers and future customers by over-earning in the short term. And they want to be thinking about how they can expand that long term. And they want to be thinking about how they can expand that long term. So there's many ways to think about this, but they he wants companies that the management team is thinking about the long term with the business because if you're in a long term investor, you want companies that you're holding that are also thinking about the long term. And I was going to add to that as an investor, you can also flip that over for yourself, where you can look at a certain company that may be trading at the discount because the market is looking too short term. And you're looking long term, you're looking 510 1520 years out, the market is looking a year or two. You know, there may be some bumps going forward in the short term, but long term, it'll be a really profitable investment for you.

So that to me, you can actually turn a boat ways. I think it's the number one reason if someone was to tell me, why do you think you can beat the market long term? Because if I said I don't think I could, I would probably just buy ETFs and go to sleep for the next 50 years. But the reason I think I can, and the reason I have, is my single greatest edge is I'm thinking in five years, 10 years, 20 years, and the market's thinking in 12 months, 16 months tops.

Think about that. That is your greatest edge, is when you are playing a game that is thinking more long term than the market do you need to even do you need to know anything else i think that's that's it right there that's your edge second one is probably invest you're you're the only one that's investing for yourself. You don't have, you're not a fund manager. You don't have rules to follow. You don't have to rebalance.

You don't have to do all those things. I would say that's probably number two. Again, I always come back to the sleep test if it's too big of a portion, but if it ends up being 50% of your portfolio and you're fine with that, just be aware of the risks involved, but you're not obligated to rebalance.

And that's another big edge. That's a huge edge. You're not subject to these bullshit short-term performance targets. You know, like what my portfolio does in one month is really not relevant, but if you're a fund manager, it might be number 13 in the foreseeable future, will the growth of the company require sufficient equity financing

so that the larger number of shares than outstanding will largely cancel the existing stockholder's benefit from its anticipated growth? The non-jargon version of that is, in the foreseeable future, is the company going to have to issue more shares and dilute shareholders? Share dilution can be very annoying

if you own growth stocks that can't find profitability year after year. An age of tech companies that are right out of the gate in Silicon Valley funded so well, since their day one of being founded by venture capital, the businesses never care about profitability. And then they're stuck in this, air quotes, path to profitability. I hate that. It seems to be worse every time I check a company like Uber on their path to profitability. And perhaps Uber turns out to be a great investment. Yeah.

It has so much optionality. Maybe it does. Yeah, exactly. And I think the most important thing I take from that is just be careful dilution. Exactly. That's what he's talking about. He's talking about dilution. That's what he's talking about. He's talking about dilution. That's it. There's companies out there that are producing gobs of cash that are actually buying back shares. Apple deleting the share count with all their cash is a little bit more ideal than issuing shares. Yeah, we're seeing a company that's strategic in issuance of share when their stock has had a crazy run.

And now they're just looking into the future and saying, look, our stock is sky high. We can do a second offering. AMC is doing that right now. Yeah, that's another. AMC, the management is smart. They're issuing tons of equity. Yeah. But for the most part, it's a smart thing to do because the higher the share price is, the less shares you have to issue to get the same financing. So I always, to me, I've said it before.

And when we were talking about marijuana stocks, those were really alarming because they were issuing new shares when the stock was all time low because you could tell they were desperate. Right. Yeah, you're right. There's two sides to every story. the stock was all time low because you can tell you could tell they were desperate right yeah you're right there's there's two sides to every story and when you issue shares at a at a nice price you're gonna have some like convexity i'm getting into some jargon but you're gonna have some like benefits long term from doing that if if if it's done correctly so

these rules i mean there's nuances to everything like investing everything we say on this podcast i could i could find 10 reasons that that makes no sense everything is nuanced and rule of thumbs are very silly just overall but they can be helpful as well that's why investing is so fun. I know. If it wasn't so nuanced, there wouldn't be this podcast. Number 14, does management talk freely to investors about its affairs when things are not going well, when trouble and disappointments occur? This is extremely obvious in a quarterly report or an earnings call. Is management just saying, yeah, everything's great all the time? Or are they being honest and giving investors insight into the business and troubles of what's going on? I think of Facebook with this. It's really,

really funny. They deliver 45% rev growth. The business is executing extremely well. Daily active users are killing it. And then they give this horrendous guidance every time. And they blow the guidance off the door and the stock sells off right after earnings because they give this bleak guidance. They're always telling you of all the reasons you should be concerned. Now, I guess that's okay. That's better than just pure optimism. But you'll tell right away if the business is actually executing well, but giving investors a look into some of the things that they're dealing with day to day. Because every business has trouble, disappointments, and look for the owners that are transparent about them.

Number 15. Last one. Does the company have a management of unquestionable integrity? Here's a quote. If there's a serious question of the lack of a strong management sense of trusteeship or shareholders, The investor should never seriously consider participating in such an enterprise. How much of a 1958 investing book kind of quote was that? So think of the Enron type scandals. I think of Volkswagens lying about emissions in their diesel vehicles. They created a device literally to trick emissions tests. I owned one of them. I owned one of these cars. The TDIs. It was my first car ever to trick emission tests and create a literally fabricated number to the device. That's just

criminal behavior. I was an environmental engineering student studying climate change, and I own a car that is literally the worst for the road, and I'm being lied to. Good on Gaz, though. Yeah, well, yeah, I was getting 1,000 clicks. You only have so much capital, so look for integrity. Are there any? That's all 15.

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keep more of your money. Visit questrade.com for details. That is questrade.com. That is questtrade.com. Now we'll move on to the fun world of video streaming. The reason we wanted to talk about that is there's been some recent news about some big mergers and acquisitions. Before we get into that, I want to give a little bit of context. So just some of the current top media or video streaming companies. Netflix, obviously, I think probably everyone listening to this show has a Netflix subscription or is using someone else's Netflix subscription. Yeah, exactly.

I know my parents are, so we'll see. But Netflix, as a side note, they've tested now imposing some different subscriptions for people in different households. They haven't started yet. I don't know if they will, but just a little footnote here. At the end of 2020, so, well, recently, their most recent numbers with Netflix, so they had 200 million plus worldwide subscribers. At the end of 2020, to get an idea of what they were spending on content.

And I'll have a bit more later for some comparison. But in their annual financial report, they had $19.2 billion in content obligations over the next five years. And that amount in 2019 was $19.5 billion. So it's really it's typically also what it'll be on a yearly basis. To give everyone an idea Netflix right now they spend about on a yearly basis so that was content application over the next five years but on a yearly basis for Netflix it's $17 billion. Disney they anticipate by 2024 it'll be 14 to 16 billion and I'll get back to the next one that I have data for Disney plus on their hand that's excluding Hulu and ESPN plus they have 100 plus million subscribers Hulu is owned by Netflix and so is

ESPN plus prime Video for Prime Members. By Disney, you mean, right? Yeah, Disney. Oh, yeah, sorry. You said Netflix. Oh, did I say Netflix? Yeah, yeah, it's all good. It's owned by Disney.

Yeah, Disney Plus, exactly, or Disney, they own Hulu and ESPN+. Prime Video, which is for Prime Members, has 200-plus million subscribers. They're all Prime Members. Apple TV Plus has 40 200 plus million subscribers. They're all Prime members. Apple TV Plus has 40 plus million subscribers. This one will actually be very interesting at keeping track of because I have Apple TV Plus, and I got it simply because it came free with my phone for a year. So it'll be interesting if people like me actually keep those subscriptions going.

Is it set to auto-renew renew that is the number one question it is removed so i'll be i'll have to make the decision whether i want to continue or not hbo max or equivalent i say equivalent because in canada it's through crave tv if you want to subscribe to that. So there's 40 million plus subscribers. It's still widely available through cable. A lot of people I know still have cable and HBO. Discovery Plus has 15 million subscribers direct-to-consumer and again still widely available through cable. The one that's really interesting is YouTube Premium has roughly 30 million subscribers and that's just YouTube Premium. So when you pay to not get those ads, it does not include all the probably hundreds

of millions of people who use YouTube, probably billions I would say. I haven't seen the stats for that. And then there are some other regional or smaller players like I mentioned before, Hulu, which is owned by Disney, IQIYI, which is a Baidu division in China. I think it's a mix of kind of Netflix and YouTube together. ESPN Plus, of course, in the US, also owned by Disney. So now some of the big news that we had in this space and really shows how there seems to be consolidation happening but also that content seems to be king and the massive investments that companies will be doing in content so Warner Media and Discovery merger so that happened a couple weeks ago so AT&T will unwind its 85 billion acquisition of Time Warner that was done three years ago the new business which will be separate from AT&T combining both Time Warner that was done three years ago. The new business, which will be separate

from AT&T, combining both Time Warner and Discovery, which could be worth well above $100 billion. I've even seen people saying $150 billion, but they will be assuming some debt as well. AT&T shareholders will receive 71% of the stock of the new company and Discovery shareholders will receive the remaining 29%. AT&T no longer doing a vertical integration, which was their original plan. So they threw that out the window. I think they realized that it was not the best option to go. And they're really trying to focus more of their investments and money their expenditures to 5G and expanding their network which probably makes a lot of sense the discovery president and CEO David Zaslav I'm probably mispronouncing that will lead the the new company

he seems to be very passionate about it. He's saying that they're hoping to eventually get to 400 million subscribers worldwide, which would be double the amount of Netflix pretty much right now. That's pretty bold. I don't think he gave it. He didn't give a time frame. But again, you know, we'll see if it happens or not. I mean, I can appreciate his ambition. HBO Max will also be launching a cheaper and ad-supported version, and it really sounds like they'll probably have a product elsewhere. So I don't know if they're going to be still using Craven Canada, for example, or have their own service.

Some of the titles that they will have, or some of the properties that people may be familiar with cnn warner brothers studios tbs tnt hbo max tlc discovery hgtv the food network discovery plus so they have a lot of content and i think they're going to become probably a top five player in that space in the next couple of years. It'll be really interesting how it develops. And for their annual spending on content, it's estimated to be around $20 billion, which is in line with pretty close, actually higher than Netflix right now and much higher than Disney. But keep in mind that Disney, they have a lot of their content with past movies, past shows, right? So I think that's why they're spending as much lower right now.

But now they're investing more and more. And like I said before, it's going to be $14 to $16 billion by 2024. Which is sizable. Yeah, yeah, definitely sizable. And the other one that's really making a bang in this space is Amazon. So Amazon decided to buy MGM Studios for $8.45 billion. It's the second largest deal in Amazon. It was not much, eh? Oh, yeah. And apparently they paid a big premium. It was being shopped around amongst Apple, amongst other people or other companies were interested.

So they made a significantly higher offer. And I'll go into more detail. I don't know red flags, but probably what prevented a higher bid for that media property. To give people some context, it's the second largest acquisition after the acquisition of Whole Foods in 2017. Whole Foods was $13.7 billion. This one $8.45. Ring, which is a door kind of thing where people ring and you kind of see a camera, kind of smart camera when you're at your door. That was $1.2 billion. And they had a few more in the 1 billion range including which i think is a pretty good one twitch in 2014 for only 970 million that was a hell of a deal

yeah so you're seeing amazon obviously making a big splash in this industry the goal is to bolster amazon Studios with existing content or IP intellectual property and new properties for future content creation. They spent $11 billion in video and music content in 2020 versus $7.8 billion in 2019. So they're definitely pouring a lot of resources in here. Obviously, it's Amazon, so that's probably $10 for you and I. obviously it's amazon so that's probably you know ten dollars for you and i the strategy is really to attract more prime members who then in turn buy more items on amazon so that's really the vision of jeff bezos and why they want to be investing in this service um i have an amazon

prime do you have it brayden i do have prime. Yeah. And I mean, I use Prime Video a decent amount. Like it's probably in my top top three. I have about four or five subscriptions. And there's a few shows on there that we watch and they've done some decent original content, too. The kind of the sticking point in all of this and when i mentioned earlier the reason why there weren't higher offers um is because one of the or the crown jewel i would say of mgm studios is obviously james bond so with this acquisition amazon will be owning 50 of the property while barbara broccoli and her brother michael. Wilson, own the other 50% and creative control. So I think, yeah, and I've read some articles where they were a bit reluctant with the whole Amazon acquisition.

They're a bit afraid that they won't have as much control over it. We'll see what develops. But that was probably the biggest crown jewel. But I think this is also what prevented other offers because they don't have full control on that on that property some of the other properties that they have with MGM Studios Shark Tank I'm sure people will be familiar with that especially if you listen to us on a regular basis it's like Dragon's Den it's really it's really fun to watch and if you have a decent understanding

of valuation, it can be quite entertaining and frustrating and frustrating and sometimes just wondering what the hell people were thinking to go there with no idea of the business numbers. Real Housewives is another show and there's a few others that are pretty prominent, but it gives them additional content and like i said it'll be interesting how the whole space develops because you have some pretty big players that are starting to emerge um and just what discussion we'll have let's say five ten years from now to see who the uh the top dog is i didn't know you knew so much on on the streaming war it's good to see i did some research

all i care yeah you did some research all i care about is who puts out this uh lord of the ring series and i know amazon's gonna have that under is it gonna be under prime they're spending 450 million dollars on the series yeah yeah i'm i mean i'll probably watch that one solo because my fiance is not a big lord of the latra fan no no but um should be fun yeah i'm excited to see that one uh and it's it's a real fun industry but it's premiering this year is that true i don't know i don't know i'm not sure but anyways if does, that would be that would be an unexpected little gift. And I thought video streaming was fun to talk about because everyone has. Yeah, everyone has it.

It's OK. So I'm looking at the list here. You did you did like the by subscribers. Which ones do you have exposure to? So Prime, obviously, I do have Disney right now, but I may be canceling that and just resubscribing when I like something. I have Netflix, Apple TV+, and the last one, we do have Crave TV.

So we have quite a few. Damn, you got like all of them. Atta boy. It's a pandemic. It's a pandemic. It's a pandemic. Gotta do something. Very interesting. Okay, so pandemic. Got to do something.

Very interesting. Okay, so you have subscriptions to pretty much all of them, except for like the US strictly based ones. Which ones do you have exposure to with your capital? Just actually two. Prime Video. I'm a shareholder of Amazon and apple tv yeah you got apple and amazon okay yeah how about you you have any if you're counting youtube that's it yeah yeah that's right

i mean youtube is probably might be the fastest growing of all of them yeah and the best business model i mean for the most part they pay almost next to nothing for content, right? Yeah, all the content's made by their creators, and then they just get a cut. It's a great business model, I think. I remember reading something where YouTube would be worth something like $300 billion, if not more, on its own. On its own, yeah. Yeah, if it was spun off. Yeah, the numbers YouTube was putting out, not only just from their top line,

but also the growth YouTube was putting out, not only just from their top line, but also the growth was spectacular. This goes back to what we were talking about with Phil Fisher. I hope they don't try to over-earn on YouTube because they're getting pushy with the ads. I use Adblock, don't arrest me. And I don't get those ads. And when I use a computer that on YouTube and I watch it or watch it on my phone, which doesn't have ad block, I'm like, damn, in a five minute video,

they made me watch four ads. Yeah. That seems like, it seems like they're trying to over earn a little bit. I'm a bit concerned with that. Or pushing people to the premium subscription maybe. I mean, I don't have ad block and i don't have premium so i i know what you're talking about so you're getting ads you're

getting those penny stock trader bros hitting you with ads bro forex traders all or you know crypto leopard whatever it is oh god i can't yeah i have toBlock because I can't stand those clowns. Well, that's interesting. The sector is still very early days. I mean, think about it. It wasn't even until 2008 that Blockbuster went upside down, or maybe even after, maybe 2011. the exact the exact date but and there's still a big runway right i didn't get the numbers of how many cable subscribers there still are say canada and us but i know it's still pretty significant or they're going down don't get me wrong but there's still um some runway over there so it'll be interesting uh what comes out of that but uh now enough about streaming so how you feeling brayden not Not to our last Leaps Canadian update. So yeah. Wait, have we not,

we haven't recorded an episode since the loss. No, we haven't. Shit, man. So any riots where you live or everything's good? I think we're all just used to the disappointment. So no, I did say, if you follow us on Twitter

at CDN underscore investing, go follow us on Twitter, get updates for the podcast. I did say that if the Montreal Canadiens win the Stanley Cup, I will record a full episode in a Montreal Canadiens jersey. I'll be held to it. I'm okay with it i'll be happy if canadian team wins let alone anyone uh so you know what i'm okay i'm going i'm rooting for the habs now you know what i i'm rooting for the habs really would have liked to see the leafs not suck so much in the first round of the playoffs i tweeted uh death taxes and the toronto maple leafs losing in the first round of the playoffs i tweeted uh death taxes and the toronto maple leafs losing the first round of a playoffs so you know what good for the habs beat the the jets last night

too so yeah hey the way to do it is you crawl to the finish line in the regular season yeah just barely and then you just uh you know you uh you have a few bad games and they've they've been really playing well though since that number five game. And yesterday, aside from obviously what happened at the end of the game, and we hope Jake Evans is good. But aside from that, I mean, they had a really good game. So we'll see. I'm hopeful.

I put a bit of money on the series. A few more shackles. Yeah, a few more shackles. So we'll see. I put my money where my series. A few more shackles. Yeah, a few more shackles. So we'll see. I put my money where my mouth is. We'll see. Well, I really hope that I have to record this podcast with a Montreal Canadiens jersey on it, which sounds ridiculous, but I hope it happens at this point now because that means the Canadian team wins.

All right. Thanks so much for listening, guys. This has been the Canadian Investor Podcast. Go give us five stars. Go write us a little review on your podcast player. If you're on Spotify, you're not pressing that follow button on the top right. What are you doing? Just go press the little follow button on the top right. And same with if you're on Apple Podcasts, press that subscribe or whatever the heck the button's called. Thank you so much.

Go to getstockmarket.com. You can go to my business. It's called Stratosphere. Stratosphere is the place for long-term investors. You can do your own research as a stock screener. You can find 10-year financial statements. We put out reports on every single company we like and we talk about, like Google, like Amazon,

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