The Canadian Investor - This “Boring” Canadian Stock is up 70x since IPO

Episode Date: February 9, 2023

It’s earnings season and we talk about some well known Canadian and US stocks including Amazon, Meta, Canada Goose, TFI International and Lightspeed Commerce! Tickers of stocks discussed: AP-UN.TO, AMZN, META, GOOSE.TO, ATVI, LSPD.TO, TFII.TO 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 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 to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Register for ShakepaySee 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. The Canadian Investor Podcast. Today is February 7th. Welcome into the show. My name is Brayden Dennis. As always, joined by the magisterial Simon Belanger. I got a DM saying, I recommend you call Simon magisterial. It's a different take on majestic.

I was like, that's not a real word. I have to check that up. And it says, having or showing great authority, a magisterial pronouncement. This word is officially far above my pay grade, but we're leveling up on the show here. Yeah, I mean, I would have guessed the same thing as you. I didn't think that was a word. I thought that was made up. So I'll know for next time I play Scrabble, I'll pull that one out. Yeah, yeah, magisterial. And then everyone's going to go to the Scrabble book, and you're going to just know it's a word. There you go. So thank you to the listeners

always providing us insightful ideas, the most important kind of insightful ideas. Today we're talking earnings and news. It was a fun group of companies to cover, not only because it is earnings season, but also some high quality Canadian names that we like some own and yeah let's get right into it. I think am I first on the docket? Yeah yeah speaking of before you get started maybe we'll have to do a couple more names for next Monday as well because there were so many good companies reporting we had to just choose a total of eight and I think we could have done 16 easily. Yeah, totally. I mean, there's just – it's earnings. And it's the best part, right? Because

it's Q4 and full year earnings and you just get so much more insight into the company and long-term and a lot of metrics that will only come out on 10Ks that you just don't get any kind of transparency or look through all year until full year results come out. And we're long-term investors here, so I like looking at the full year numbers too. All right, let's do that as well for TFI International, ticker TFII or TFII.TO on the TSX. Now, the Q4 results compared to Q4 of last year, it's basically flat across the board, some pretty hard comps, revenues down a few percentage points, but margins were great and operating income was up 1%. So up a percent here, down a percent there on metrics for Q4. But let's focus on the full year because you zoom out and you get some pretty

exciting numbers when you compare 2022 to 2021 off the back of tough comps. So it really shows you how well this company is actually executing. Total revenue was 8.81 billion for the year, an increase of 14%. Operating income was 1.14 billion, up 16% before fuel surcharges. And earnings per share was up 26%. And free cash flow was also up 26%. How's that for a boring trucking company? You're seeing ridiculous growth on the EPS, free cashflow, operating income, when you zoom out just five years. And oh boy, has the stock performed well during that time too, as it should. And Simone, they hiked the dividend 30%. a 30% hike on the dividend that they're going to pay out. Bro, my yield on cost on the TFI dividend is getting actually insane at this

point. I'm very glad I bought this stock years ago and just let it ride because it is still not expensive. I believe arguably still pretty cheap because trucking doesn't get bid up a lot. And when the consensus is that we're going into a recession or we're already in one, trucking certainly does not get bid up in that situation. But it just doesn't matter. When the fundamentals keep getting better and better and better, you don't even need multiple expansion. And this stock is up 70x since IPO. It's compounded at 17% for 20 years on the equity. It's unbelievable. Any comments here before I get into the segments and then we're going to play a fun game? No, I mean, I'm glad

you kind of specified it was a trucking company and deliveries right because people who are new to this show they might be like what the hell is this company uh but no it's performed really well yeah tfi international doesn't tell you a whole lot no exactly and if you're new to investing it's not necessarily a name that you'd be extremely familiar with but uh they've done a great job executing. And I mean, if they managed to do quite well, I mean, you know, obviously they want tough comps, but if they managed to do pretty well on tough comps, I would imagine going forward, it will at least be that. That would be my assumption. It won't get worse than this. That would be my assumption. won't get worse than this that would be my assumption even if we have what most people are thinking now like we'll enter a recession but probably more of a mild

recession that we'll enter yeah right because like obviously cyclical obviously very attached to the macro but you combat that with the capital allocation that they've done, the acquisitions that they've done, and they thrive on tough times. These roll-ups of distressed assets like trucking, like they buy trucking companies that are in distress. They're basically turnarounds. They work them into the network, improve operating efficiencies. A lot of these roll-ups thrive when the companies they can acquire are in tough times. That's basically the business model. So I like that piece of it because if you look long-term, when their business might be struggling, they can also acquire these companies on lower EBIT multiples. So that's nice. Package and courier

operating income up 23%. Less than truckload down 17%. But keep in mind, it was up 550% last year because they tucked in that UPS freight acquisition. So that's kind of a tough comp there. Truckload operating income up 59%. Logistics operating income flat. So a lot of the big segments up, double digits, and yeah. All right, let's play a game here before we do that, though. One quote here from Elaine Bedard. We enter 2023 in the best position in TFI International's history and are eager to create additional shareholder value in the year ahead let's play a game of two canadian icons called which bedard all right i'm going to say something

and you are going to tell me if it is elaine bedard or connor bedard you have to guess a quebec native simone oh that would be alan for sure yeah that would be Alain for sure. Yeah. That would be Alain Bedard. Played hockey at West Vancouver Academy Prep. I think that's Connor because I think he is. Everyone from BC is hoping that Vancouver and their entire fire, Vancouver Canucks and their entire fire management team will get lucky and pick the local boy. That is correct. Tank for Bedard in full effect. 5'10 in height.

I would say that's, I think it's Connor because I think he's not the biggest guy. Correct. Connor Bedard is 5'10 in height and asterisk, I have no idea how tall Alain Bedard is. Yeah, he could be 5'10. He could be 6'9, the giant and we have no idea. Made $12 million last year. I mean, I'll go with Alain. Yeah, I'll go with Alain. Alain is correct. Unless Conor has tons of endorsement deals, which I'm not aware of. Yeah. He'll make his money very shortly. You went four for four. Here's a layup.

Number five, has compounded TFI international stock at a rate of 17.3% for 20 years. I'll give you that one. That is Alain Bedard. Excellent execution. He's run this business since 1993. He's the largest single shareholder. the largest single shareholder. This and Couchetard are just like capital allocator goats on the Mount Rushmore of Canadian capital allocators. And this thing deserves all the credit that the market has given it as of the last 10 years. Yeah. Hey, go my home province.

I live in Ottawa now, but I was born in Quebec City, so it doesn't get more Quebec than that. There you go. 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. com for details. That is questtrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation, and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network.

You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host that is airbnb.ca forward slash host so now moving on another canadian company i definitely you look there was some really interesting names like we mentioned that reported um and you know we'll probably talk about a few when we were like i mentioned earlier next monday but this one i wanted to talk about it's a canadian name and there was so many good canadian names that i tried to do a bit more and i think you did as well right try to do a bit more canadian content as well yeah we did a couple

and then you know we still got meta and amazon in here as well and activision blizzard it's a good mix good mix yeah Good mix, yeah. It's heavyweight Canadian if you consider the total Canadian stock market worldwide. That's right, yes. We're punching above our weight in terms of monkey cap. That's it.

Canadian bias is alive and well on the Canadian Investor Podcast. So the company I own, I've talked about it before, Allied Property Read, they reported Q4 in full year. This one, I started a position late last year and I would have added more, but I wanted to just hear what they had to say when it came to Shopify and DeWell. Management actually didn't talk about it during their statement or their pre, whatever you called, right, their rehearse statement that they talk about.

But there was an analyst question about it and in short what they said was pretty much what dan was saying when we did the reed episode is that shopify has a lease and they are trying to sublet it right now shopify is currently paying the rent since they have a signed agreement to do so allied is unsure how long it will take them to sublease it but they said that they do not think shopify should have too much trouble because the market rate that they signed at in 2018 is actually looking pretty attractive right now at today's market obviously the onus is on shopify here they said that they would you know help whenever possible shopify in terms of facilitate things. But

at the end of the day, Shopify is currently paying rent. And they had another subsequent question. I listened to the whole call because I was just kind of interested. And I even tweeted something that I was biking on my bike trainer while I was listening to it. That was the most Simone tweet of all time. You're on the bike trainer listening to Allied Property Reits earnings call. That's pinnacle of your portfolio right now that the tenants are actually trying to sublease with, you know, counting into Shopify. And they said it was still very low. It was around three to four percent. So very reasonable. So obviously, they may be trying to sublease it, the current tenant. But at the end of the day, they still

are paying the rent, which is important. Obviously, that's what you want to know if you are an owner of Allied Property. Read here. Management also talked about their Urban Data Center, so their UDC, and that they are looking to sell these this year. The majority of the proceeds will be used to pay down the debt, which I actually like to hear. Their debt has gone up a little bit as they did some acquisitions during the pandemic at attractive prices. The debt is not overwhelming, still very reasonable, but a bit above their preferred target. And they said that they would not talk about this until there is a firm agreement in place for the sale of their UDC. They were quite firm on this, which I appreciate because if you're in talks with a potential buyer,

you don't want to be messing up the deal on a conference call. I think that makes a whole lot of sense. No issues on my end here. And now for the full year numbers, just took out some important numbers, I think, for REITs and especially this one. Least area was a 40 basis point to 90.8%, which is very good for an office rate in this current climate. Average rent per occupied square foot was slightly down, but up when excluding the UDC portfolio. Rent for renewing leases was up 5.6% for the year. So that's very interesting because a lot of people are bearish on office real estate. And that shows you that even as the lease are expiring, they're actually able to do some pretty nice increases here. The interest coverage ratio

was slightly down to three times, which is the amount compared to the, sorry, the adjusted EBITDA compared to interest expense. Average remaining lease is 5.5 years throughout the portfolio. The FFO, so funds from operation per unit was up 1.2% to $2.44. And adjusted funds from operation or AFFO per unit was a 4% to $2.17. The payout ratio for FFO was 71.8%, actually up 120 basis point. And the payout ratio for AFFO was down 80 basis point to 80.4%. So in line with what they traditionally paid. And the one thing, the one area or the one market they're in that is a bit slower is the Calgary market. It continues to be the slowest here, but that is a bit slower is the Calgary market. It continues to be the slowest here, but Allied is still doing better than the overall market in that area.

And keep in mind that the vast majority of their real estate is actually in Montreal and Toronto. So Calgary, it is one of their major market, but in proportion, it's actually quite small. And I thought it was a really good call and actually added to my position today after a couple of days of just digesting the information. And honestly, I was really satisfied. But again, if you do like this business, make sure you do your due diligence.

It's not financial advice. I did mine on this. And there are risks. It's not without risk. The big premise here is that I'm betting that more and more company will go for not necessarily a full return in person, but to at least a hybrid work arrangement, which will require some office space obviously not to mention how cheap uh compared to well exactly compared to historicals it has gotten you know like we talked about it was the most hated sector of all asset classes in the world was real estate investment trust yeah 2022. And the office was pretty much that.

Yeah. Of the subsectors, if you'd like, of real estate investment trust, the office was definitely hit one of the hardest and is still one of the most hated. So yeah, I mean, it's definitely a value play. My average dividend yield here is 6.5%, so it pays a juicy yield, but I think it's a solid business i mean maybe i'll be proven wrong but this is a long-term play for me it's so funny because this was always the darling of reits it was always the darling of reits in my eyes anyways and and and valuation wise especially like on price to affo and just the yield alone, you'd be hard-pressed to find it ever beyond 2.5% ever historically. Now, look at it now. It's beyond 6%. It's crazy how things

change. One thing I just wanted to double-click on here is if you just read the headline news, it says Shopify has pulled out of the well, right? And that's the headline, no context. You don't know a whole lot in here. You do the work. You're here on the pod telling people how it is. They are paying the rent for the contract that they signed. They've just pulled out in terms of moving their people in there, but they have not pulled out financially. They're bound to a contract. Yeah, and the management actually said,

I think it was the CEO who said that word for word, Shopify is paying the rent. Yeah. I mean, they have to, right? Yeah, they signed a lease. That's what it is i mean obviously like shopify is renting other space with um with allied so clearly you want to make sure to make it as easy for them to try and sublet it but you want to keep a good relationship and

you don't want to have that reputation yeah exactly but you know, contract's a contract. Yeah. No, well put. It is what it is, right? They made a misstep and now they're paying for it regardless. Let's talk about Amazon. Speaking of another e-commerce business, did you finally buy shares or no? I had some that I bought, you you know when they was trading pretty expensive okay yeah but um i added some so i actually sold a little bit of my shopify position because i thought the valuation got a little pricey again and i kind of view those in a simple obviously there's different parts to amazon i won't get into that with AWS, which we'll talk about. But obviously, to me, it's also very predominantly an e-commerce playoff. So that's why I actually trimmed a little bit

Shopify to add a bit more to Amazon because I think short term, there might be some pains, but the valuation is actually quite cheap right now for Amazon historically. And I think, you know, there's going to be some headwinds short term, but I think two, three, four, five years down the line, they'll be chugging along. Yeah, no, I'm with you, but I'm also about to be the bringer of pretty bad news. Oh, I know. I saw the numbers. Yeah. Yeah, you saw the numbers uh let's start with the bad and probably stick with the bad um well let's get the segments first okay so first party uh on the e-com side year over year was down two percent pretty interesting third party sellers which is

you know been such a big focus for them and been such a huge growth lever, was up 20%. So decent number on the top line there, added over $6 billion in sales. So not bad. Now, the subscription business, that's like the prime business, that was up 23%. They did see record prime subscriptions for the Lord of the Rings release. So at least some good news there. I thought the show sucked. But hey, that's just my opinion. Ads and others, again, continues to be a decently bright spot at 23%.

And this is related to the e-commerce business, this ads business. Yeah. at 23%. And this is related to the e-commerce business, this ads business. And so they break it out separately, but it really is the e-commerce business. Now, ads and Prime, I'd say, solid. Okay, right? The AWS has always been the bright spot that you can draw to in every Amazon quarter for how long have we talked to? It's like, oh, you know, no operating leverage on the retail side, but look at AWS. You know, this thing is going to chug along to $100 billion run rate, you know, within the next five years. We'll definitely see it this decade. And while that is true, there's a couple of concerns.

There's a couple of short to medium-term concerns. And then I'm going to talk about maybe some potentially long-term concerns as well with Amazon, but then round it out with a long-term view. So the AWS deceleration is the big concern from the quarter, I think. It's not going to persist at 60 plus percent forever. Of course not. But it was sustaining a 40% year over year growth rate, quarter after quarter. And is that an unrealistic expectation long term? Yes, also unrealistic. But I guess investors are a little shaken at the level of deceleration. Because if you look back from Q2 2020, you had 37% year over year, 39%, 39% again, 37%, and then the deceleration comes, 33%, 27%, and now dropped to 20% year over year, Q4 to Q4.

Now, that's a pretty fast deceleration. And it sounds ridiculous, you know, 20% increase on a segment that's doing over $20 billion a quarter is obviously still fantastic. But, you know, this game is all about expectations versus reality, right? And margins were also kind of disappointing on AWS. These are the last four quarters of AWS operating margins. It had ticked up all the way to about 35% AWS operating margins. Even if you just use that number and the consistent growth rate that it has persisted at, you're like, wow, this thing's going to churn out tons of cash. These are the last four quarters of operating margins for AWS. 35%, 29%, 26%, and now down to 24%. Consistently less profitable with more and more on the top line. That shouldn't happen, ideally. No one modeled out five years ago that margins would drop with

more top line. That's the whole point of operating leverage. And Amazon X AWS operating margins are negative across the board. You add up every other segment and you have negative operating margins. From Mostly Bored Ideas on Twitter, he says, Amazon added $281 billion in revenue in 2022 versus 2018. So in those years, they added $281 billion of sales, and yet none of the operating cost line shows any operating leverage. Cost sales is mostly shift from product to service sales. They managed to increase marketing cost from 5% of revenue in 2018 to 8% of revenue in 2022. Again, it's not what anyone had planned for this business here out in 2022. From the 8K, free cash flow decreased to an outflow of $11.6 billion for the last 12 months, an increase from $9.1 billion of outflow.

Let's talk long term in a second here. Do you have any thoughts or comments, any more uplifting counterpoints here? I mean, I sound very bearish, but- Yeah, the quote is kind of funny and it's a bit out of context. That's what I find a little funny because those years, they were not usual years for the most part, right? So, you know, it kind of leaves out the increased costs, inflation and, you know, Amazon investing heavily in the business during the pandemic. So clearly now we've seen they've laid off a substantial portion of their employees and I feel bad for anyone affected, but they are definitely looking at being more profitable right now. It's going to take time, but for me, I have a longer term.

Look, it's not been a great I would say even 2021 2022 hasn't been a great kind of couple of years for Amazon. But again, I think they're just right sizing the ship at this point. And it's more of a short term thing in terms of long terms, they have a lot of levers they can actually use. I think you have to, you know, if you're a short term, obviously, if you're thinking just one or two years, I don't think you should be owning Amazon here. Because they probably won't be turning it around that quickly. Maybe. I mean, would be great if they did, but I think it's more of a five years because there's just, in my opinion, I think especially the retail, you know, part of the Amazon business and the other part

that's really interesting is the ad sell segment. I actually am more bullish on the ad sales for Amazon than I am for Google because Google, there's a lot of disruption. At the end of the day, when you go to the Amazon app, I mean, good luck OpenAI to disrupting that because you're actually going to the app and those search results that are ad-supported that businesses actually pay for, I mean, I think that most people will gravitate towards those results too, right? So I think it's much more kind of disruption-proof than Google, like we talked, you know, whenever the Chad GPT actually came out. So that's kind of my thesis. It's more long-term. Obviously, I added to my position before this came out so that's kind of my thesis it's more long term obviously i added to my position

before um this came out so clearly i would have liked better results but again i'm not panicking on something that's a bit more short-term in nature yeah no it's not it's not thesis breaking really it's just i guess the main concern is is like from my view my view, draw a line on all of the numbers that I'm talking about when Jeff Bezos stepped down. And it's not great. And I get it. The timing was, we have to build capacity. We're going to spend stupid capex. That was always the plan because that's what makes it defensible,

and that's what you're talking about makes it defensible because how are you going to compete with them at that scale? They have 680 million square feet of warehousing. No one has a logistics network like they have. No one can spin up anything remotely close in terms of CapEx to compete. I'm with you. I'm with you with an asterisk. Yeah, where I actually will push back is I don't think Jeff Bezos has anything to do with that. I think a lot of the initiatives that we're seeing right now that they're right-sizing

were actually done under Jeff Bezos. So he stepped down in mid 2021 if i remember correctly as ceo and he still oversees the board so i'm not sure i i agree with that part there uh but aside from that i mean yeah i think i agree for the most part in terms of yeah they have to right size the ship and clearly that's not good and also makes sense why they did those layoffs right so we heard about these layoffs before this came out so i think it puts a little more context it's not just that they're coming out with their full year results right now and they're panicking they actually you know they really realized that a while back i think they started talking about that when was it like in May of 2022, where they were basically saying, like, we will probably be looking at leasing some of the warehouse space that we have. So it's been, you know, when you've been following Amazon, I don't think these results are that surprising because they've actually been talking about this for over eight

months now so that's kind of the approach i have um i don't think i blame jassy per se either but again he definitely you know i'll want to see him turn things around for sure yeah and that's just it right it's it's the people are waiting for him to kind of step up. And I think rightfully so. And I'm not saying, you know, an entire company like Amazon, no pun intended being an Amazon is just, you know, all falls onto to just one point man at the top. That's obviously not the case. But leadership for these companies is obviously important. And you're undergoing a transition from founder leader to executive leader. And so, there's just question marks. I'm presenting the question marks. Long term,

I think that there's still a lot of positives to think about. And if you can see through a lot of that, I think that it's a pretty decent value. For me, I'm waiting to see X AWS operating margins just at least be a positive number. And then I'd be pretty interested in owning it. But I don't need to rush into that turnaround. You know what I'm saying? No, exactly. Speaking of turning around CapEx. Yeah. Well, the last thing i'll mention is i'm sure jeff bazel still has a lot of influence on what happens to like i think you know that's that's my view as well as he's probably maybe even more involved than we think on the decision making maybe he doesn't have that ceo title but I have a feeling, especially with how much stock that he still has.

He has a pretty, let's just say, vested interest in them doing well. Yeah. He's got more money than God, though, so it doesn't really matter how much stock he has. I mean, if he wants to fund Blue Origin, he's going to need money. Yeah, that's true. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few

select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized,

hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Speaking of founder leaders and let's talk about the big blue of Facebook.

Yeah. Sorry, meta. Sorry. Correction, meta. Yeah. So this one was interesting. So clearly the markets love this because it was up 20% a day after reported earnings. It's a couple hundred billion in market cap in one day.

Yeah. No, one day. So I'll mostly be talking about the full year results. I listened to parts of the call as well, just because I wanted to just hear, you know, the Zuckerberg talk. Yeah, it's just, you know, just a captivating voice. A little bit sarcasm there. But so revenues were down 1%, 117 billion. Operating margins were smashed. They

went down from 40% to 25%. Although it wasn't as bad if you looked at Q4. I think it kind of stabilized a bit towards the last quarter of the year. I don't have the exact numbers, but I recall that vaguely. EPS was down 38% to $8.59. Monthly active people was up 4% to $3.74 billion as of December 31st. Advertising revenue was up in Q4, but still down year over year. They are seeing 20% more conversion for advertising than last year, mainly driven by AI. And that was a reoccurring theme is now they're actually, you know, trying to use AI more than, you know, the tracking that they would traditionally use with before Apple actually made those changes on Apple devices. Their main areas of investment, you know, I'm sure people know by this point it's ai and the metaverse they mentioned

that they actually have more than 200 apps on their vr devices that have done over 1 million in revenue still not needle moving but he wanted to clarify he definitely wanted to mention that during the call to show that i guess you, the investments in the metaverse are justified. Zuckerberg said 2023 would be the year of efficiency. And that's actually the words he used, including streamlining their middle management org structure and improving the speed of decision. Not moving forward with projects that might not move the needle for them. Go ahead. I'm going to call him Zuckerberg now too too because it's too good um the the zuck bird the stock literally moved all all of those moves was literally when he says 2023 is the year of efficiency that's like literally when it went rocket ship it's like

all he had to say i thought it was when he talked about the buyback too i think that a lot of people got excited and they've already been doing all the buybacks though while they increased it so they were repurchased just shy of 28 billion in 2022 and announced they would authorize another 40 billion in buybacks on top of the 10 billion authorization they all still had remaining so that got the markets really excited it's a bit confusing for me so i don't own meta um i thought it was a really good value play but i just can't can't do it i just cannot touch that business i just can't do it like it's i at one point it looked like very attractive and i guess if i close my eyes and block my nose i probably could have bought some

and I guess if I close my eyes and block my nose, I probably could have bought some. But they had slightly less than $41 billion in cash and marketable securities at the end of the quarter. So, you know, clearly they can't afford the buyback. But if you're investing so heavily in large projects like that, why do you have to buy back so much stock? That's why it's a bit of a head-scratcher for me because they produced $8 billion worth of free cash flow last year, but it's been trending down.

So I just don't know what the hurry was. You know, buy back another $10 billion or, you know, a bit less. It's just I feel like they're not giving themselves enough leeway. I guess it felt like Zuckerberg is trying to appease the markets. It really felt like a bit of a desperate move in terms of the buybacks. Clearly, it's still a very profitable business. I'm not trying to say that it's not. But yeah, I found that a bit of a head scratcher. And the last thing of note that I thought was the reels. Reels are extremely popular and growing very quickly. However, right now they're not profitable, but they expect them to be neutral revenue cost wise

by the end of this year or early next year. The business hit 2 billion daily active users for the first time. That is, you know, if we're using the 8 billion people on this planet now, I heard there's an 8 billion of us now as of recently. So, 25% of the population is signing in to a meta asset daily. That is tremendous scale. Like, it's really hard to believe, honestly. And it's not that hard to believe when i'm down here traveling like dude the world run this world runs on whatsapp where i am which is not really being monetized which is not really being monetized but you know you can't even throw that into the thesis anymore because that's been yeah, like a half decade, but they're not monetizing WhatsApp.

That's been in there for too long with no changes. But look, I mean, it's clearly got scale and optionality. And like you said, the business was clearly cheap, but yeah, you got to black out all your senses for a little bit to own it. Yeah, and to get back to the buyback thing, the last thing I'll add, I think I read that somewhere where their average buyback cost was, I think, in the 300s. So it's not like they've done a very good job. I know, right? Yeah, so it's not like they've done a really good job. So, yeah, that's where the head scratcher is.

Clearly, the market kind of likes it. And I'm going to try and see if I can pull some data for an upcoming episode. But remember, I think in the US, there's a 1% buyback tax right now that's being applied, right? So I was wondering- Did it already go into effect? Yeah, I think that was this year's because canada is going to be 2024 yeah um so i was just kind of curious to see if we can see a trend whether

it feels like companies are still not shy of buying back shares that's that's i guess it's just not enough yeah not it's not needle moving on decision making like one percent right no exactly so i'll try to see if i can pull the stats and we can talk about it on the podcast. But when I read the $40 billion, that kind of came to mind. I'm like, wow, I guess they don't care about that 1%. I guess it's irrelevant. Yep, small little tax hit. One more for you here and then we'll – I got one after that.

Yeah, I have two more. No, I mean like you're going to talk about Canada Goose yeah yeah that's right sorry i i ran out of time to put more for the pod so i'm like okay you're doing a back-to-back that's all right so this one is i've been pretty bullish on this one for the past couple years apparently i shouldn't have on this past quarter because uh you know they've executed like pretty well and have a strong brand with pricing power in the luxury fashion market so i think they've done overall a really good job in the past like i think three four years um a couple blips here and there this is definitely a bigger blip this past quarter but this quarter i mean it was not the greatest the

stock took a big hit when the earnings came out i I think it was down more than 20% on the day, but it did rebound the day after. And both days it was down, I think, when you, I think it came out like Thursday morning or Wednesday night, and then Thursday was massively down, but it was up pretty significantly Friday. So I think overall it's down low double digits. I think overall it's down low double digits. And keep in mind too that Q3 for Canada goose is the largest quarter in sales for every year. So that's what just came out, Q3 2023.

So poor results there. Really has an outsized impact on the full year. And they essentially do half of their sales for the full year in Q3 alone. Which makes sense. Obviously you're not going to wear a Canada goose in the middle of the summer in July when it's 35 outside. And revenues were down 1.6% to $577 million. And that's in contrast of a 24% increase last year for the same quarter. So kind of almost the other way around here. Direct-to-consumer was up 1.5% and wholesale was down 17%. But direct-to-consumer was 78% of revenues. So that's where it's really impressive with Canada Goose is they're really cutting out more and more that kind of, you know, extra step where customer is just coming straight to them, which obviously helps their margins.

Gross margins were up 160 basis point, but operating margin down 130 basis points. Net income down 11%, earning per shares down 8.6%, and free cash flow was down 43% for the first three quarter of the year to 43 million. Now, management did say that the slowdown in sales was because of two main things. First, worse than expected COVID-19 disruption in China. And clearly people might say, oh, but China reopened. Well, they reopened kind of pretty late in that Q3. So of course, and people's behavior may take some time to fully change. And they are seeing momentum slow in North America due to some bad macroeconomic backdrop. I guess people don't have, you know, as much money to spend on $1,500 coats.

Did you want to add something? No, I agree that that's going to be a little bit harder to justify. Yeah. Yeah, but typically the luxury markets tend to do pretty well, right? Yeah. Yeah. But typically the luxury markets tends to do pretty well, right? Even in downturns, because people that are really, you know, well off, they tend to, you know, be able to keep their lifestyle, unfortunately, for people that are maybe at the bottom of Q3, but not enough to be able to move the needle for the quarter. So they did revise also their guidance clearly because Q3 is so important for them by guiding 5% lower for the mid-range for fiscal year 2023. So they believe that the challenges they had were temporary, that it shouldn't be long-term. So I think all in all, I mean, you probably can give them a pass here.

You definitely want to see, you know, what happens in the coming quarters. And clearly you'll want to see what, unfortunately with them, you almost have to wait until next year at this time to really see what's happening with the business. Typically, I always think that luxury goods, and especially in the recession that we might see here, will

do quite well. Just, I mean, people who are buying like LVMH type stuff, or even I'll go far and say like the BRP, the recreational toys that people have for their lake houses and what have you. I don't think that they're in a very hard spot. And that's not any new hot takes or anything, but it's kind of like a recession for some and a recession for, and a not very effective recession for the high income earners.

And LVMH and those kinds of companies fit the bill i'm going anecdotal i don't have anything to back this up simone but i believe what the people i see and i know who wear canada goose coats do not have a lot of money i'm serious dude i it is the old it's the same people that live paycheck to paycheck with their financed bmw this is the same consumer and it's anecdotal i got nothing to back that up but that is what i believe and i think that those people are are the ones that are going to be more effective in in the what i'll call quote luxury goods market yeah compared to someone buying you know a fifteen thousand dollar watch yeah i mean i don't know i see i know a few people that have it uh that have some and i think for the most part they're really good

coats right so they've had it for years yeah um so i i don't know i see a lot of people at least in ottawa that will wear them but again i i don't know their you know their background whether they're just living paycheck to paycheck or or whatnot um i can see why it's like a symbol of prestige in china because clearly canada has a forget the goose just canada it's like oh well the prestige in China because clearly Canada has a you forget the goose just Canada it's like oh well the Canadians must know what's up when it comes to coats right like figure out what a good coat feels like yeah there's Canada and Russia and clearly you know Russia I mean they let's let's not talk about Russia but um you know what I mean right so um but no that's that's an interesting point I mean I still? So, but no, that's an interesting point.

I mean, I still like the brand, but again, it's really hard, right? Even if you give them a pass, half of the revenues are coming in this quarter. So you pretty much have to wait until next year to really get a good idea. It's really an interesting kind of almost cyclical, but a cyclical that comes back every year.

Yeah. It's weird. It is some mental gymnastics and I'm here for it. That's just my take. If you own a, one of these coats, you know, I'm not a hater.

Send us your bank statement. So I'm sure you love your coat and I'm sure you're, you're, you're doing great. That's just what I think. All right, let's talk about Activision Blizzard. This business is in such a weird place right now. It's so strange because you have this pending Microsoft acquisition. Before that, it had a ton of bad press and such bad controversy in the HR department. Microsoft comes in, swoops in, and now it just seems like the deal

is not progressing at all. And I'm not sure what the convos are going on behind the scenes with executives and regulators, or if those conversations are just at a complete standstill. No one really knows other than the insiders. So I'll loop back around to my thoughts on where it sits with the Microsoft transaction. I'm curious to hear what you think. I pulled this here. It's got some screenshots here from Stratosphere because we pull in the segments and KPIs. Active users on Activision, which is the Call of Duty flagship, was 111 million.

uh was 111 million now ink uh blizzard monthly active users was 45 million and king active users was 233 million which continues to be a bright spot that's the uh candy crush right that's the candy crush mobile acquisition that they did oof i don't know a couple years back. Mobile gaming just continues to be such a good segment of the gaming industry. I've never understood it, but when I travel, I notice a lot of people... I just see a lot of people playing video games on their

phone. More so when I was in Asia and when I'm here in Costa Rica, I see it a lot as well too. People just gaming on their phone, like more so when I was in Asia and when I'm in here in Costa Rica, I see it a lot as well too. People just gaming on their phone and it looks miserable. It ain't for me, but hey, it is what it is. On the top line for those segments, Activision had actually a really nice quarter year over year, 60% growth because Modern Warfare 2, man, call me a boomer. I played Modern Warfare 2. They just reboot it. It's the same game. They called it the same thing. I had to triple check that I wasn't reading a press release from 2008. But yes, it is Activision, Blizzard's Call of Duty Modern Warfare 2 again.

And apparently it's crushing it. They're having their best quarter ever with the release of that game. Blizzard revs were up big at some game release. And King revenues are always quite solid and grew at 6.3% year over year. So the business is doing solid, still has really good IP. Call of Duty is just forever staying power at this point, forever. Anytime, okay, how about these two? Anytime someone says Facebook is dead, that's when you know it's a good time to buy the stock. And every time you know Call of Duty, someone says Call of Duty is dead, that's a good time

to buy Activision Blizzard stock because those two things are just never true. Now, their latest update on the Microsoft transaction is basically no news from their press release here. Quote, as announced on January 18, 2022, when they said Microsoft was going to buy the stock, Microsoft plans to acquire Activision Blizzard for $95 per share in an all-cash transaction, which is mind-blowing in itself. The transaction has been approved by the directors and shareholders. The two parties are continuing to engage with regulators reviewing the transaction and are working towards closing it in fiscal year ending June 30th, 2022.

Because that's when Microsoft reports their fourth quarter okay i thought it would they i thought you were gonna say 2028 yeah they're gonna you got me there for a second yeah they're gonna close this in uh blade runner 2049 uh subject to obtaining required regulatory approvals and satisfaction of other customary closing conditions, blah, blah, blah, blah. Is this deal going to happen, dude? The current ARB is 26% upside on the stock. Yeah. I mean, I was lower than you that it would happen even at the beginning, but I still thought it was above 50%. I can't remember. I thought it was like around 60% I gave it that it would happen. I was like 80% back then. regulatory kind of hurdle that comes in play here. I don't know. I think when we last talked

about that, I think one of the issues that they were running into is apparently Microsoft said that I think when they did a purchase Europe some years ago, they bought the rights to a game or something like that. And they had agreed to not block other platforms and they ended up doing it anyways so I think you know I have a feeling the US is probably kind of looking at that at this point I mean I don't know if it hasn't happened yet or there's no signs of it like actually concretely happening I don't know I think maybe yeah like less than 25% chance I would say at this point I think it's more likely that it doesn't yeah yeah I think I'm I think I'm with you I think maybe, yeah, like less than 25% chance, I would say at this point. I think it's more likely that it doesn't. Yeah.

Yeah, I think I'm with you. I think I'm sub 50. I don't know if I'd go. I'm still higher than 25 for sure, but below 50. But, you know, there's a saying that goes in sales, okay? If you work in sales or if you're like me and you're trying to close sales deals for my software, time kills all deals. This is true for M&A as well. Time kills all deals.

If there is enough time between interest to close and the longer that gate keeps going, it kills all deals. Time kills every deal. And with M&A, it's no different. So the longer this goes on, the lower the chances it happens, keeps ticking up. But the business keeps reporting quarters. So its intrinsic value continues to change. It's intrinsic value continues to change. And so the stock is in just such a weird place right now. And I'm curious if it gets announced that it's not happening, where it re-rates to today. I don't know. Yeah, I don't know either.

I think you only buy this business at this point with, you know, do you like the business as a standalone? And if you do, then that's fine. And you know what, if it ends up being bought by Microsoft, and you like Microsoft as well, then that's a good thing. I think you have to almost be fine with either outcome. Totally. So last one here, finishing with a Canadian name. I know a lot of listeners, at least they used to own that. I don't know if they still do. But yeah, it's a name we would remember how many people would ask us to talk about Lightspeed constantly. So we've been keeping up with it. Obviously, it's been one of the poster child, I would say, of kind of pandemic run ups and then meltdowns in terms of stock price for sure.

and then meltdowns in terms of stock price for sure. One of those companies, I mean, the companies that were not profitable, that were growing revenues really quickly, are the ones that got hit the worst, that had the best run-up but also had the biggest drawdown. So Lightspeed is definitely part of that group. It was a pretty good quarter, so revenue was up 24% to $189 million. All numbers are in USD here because they report in USD and they're dual listed.

Subscription revenue was up 9% to $75 million. Transaction-based revenue was up 41% to $107 million, which is interesting because I remember a couple quarters ago, they were saying how their focus was to get subscription revenue. And clearly here, you know, one is growing faster the other. And I think they have better margin on subscription, if I remember correctly. But I don't know this business by heart, so I could be wrong there. Net loss of 814 or let's just say 815 million, which was in large part driven by a goodwill impairment of 749 million they said i was due for a review that they have to review uh you know every certain time that i think they're if i remember correctly if their market cap gets below a certain threshold compared to their assets

then they have to do a review so it wasn't specific to any acquisition, but you'd think that it was most likely due because of some of the acquisitions that they paid a high price, but it wasn't specific to one like a Teladoc, for example, and Livongo. Now, a few weeks ago, they reduced approximately 10% of their workforce to streamline their operation. 50% of those were management position, and this is a reoccurring theme. I don't know if, you know, Elon has something to do with this because it kind of all has been

happening ever since he did that with Twitter. I don't know if you've noticed that I've been like a lot of tech companies I'm seeing like slashing middle management positions to streamline things and reduce costs. Have you noticed that, Tiff? Oh, totally. Yeah. Totally. One domino just had to fall, especially in tech, right?

And no one wants to be the bad guy who does layoffs first. Unless you're Elon. Unless you're Elon and you don't give two shits, right? Well, he had to, right? He had to make the acquisition work. and you don't give two shits, right? Well, he had to, right? He had to make the acquisition work. And he doesn't give two shits. He had to and he doesn't give two shits. I mean, clearly, he made a...

The thing with the kitchen sink was so... Dude, dude, like, I'm laughing, but like, so insensitive. Like, just ridiculously insensitive. Oh my goodness me. I mean, I think I've talked about it before. I'm very like torn with Elon. Like sometimes I really love what he's doing and his vision, but sometimes it's just like, oh man, you're out of touch.

It's crazy. He's just a man child. Yeah. But that's why people like him. That's why people like him as well. Yeah, no, exactly. So speaking of profitability, they are still burning cash. They will focus now on key accounts, clients doing over $500,000 in gross transaction volume

and profitability and key projects with a focus on profitable growth, which is also something we're hearing more and more is profitable growth instead of growing at all costs. They mentioned how they are on track to achieve adjusted EBITDA by breakeven. It's still, I think it was relatively soon, but I don't recall. I didn't put in my notes. I mean, I take those adjusted metrics with a grain of salt. I'll just say that personally. I'm looking at free cash flow here. metrics with a grain of salt. I'll just say that personally. I'm looking at free cash flow here.

They still lost $28 million in free cash flow for the quarter and have lost $90 million for the first three quarters of the year. They had, going on memory, around $800 million in cash and cash equivalent. So they're fine from that perspective. And they also talked on the call that their share based compensation has declined as a percentage of revenue from 22% in Q1 to 18% in Q3. So pat yourselves on the back Lightspeed. Yeah, exactly. So I mean, look, I've been pretty critical of Lightspeed in the past, mostly because Dax, who is no longer the CEO, I think he's chairman of the board. Yeah, chairman. Yeah, chairman of the board. I just thought that, you know, we would do these interviews and it would just rub me the wrong way because he would like, you know, it was it's basically like it's blowing up in his face. That's a little bit what's happening right now, from my perspective, is he was just kind of focused

on, you know, becoming a mega cap company and losing tons of money. Obviously, that was not part of his focus. But it just felt like he needed to, you know, focus a bit more on, you know, what's at stake right now. And instead of like thinking 15, 20 years down the line, you know, and almost dreaming, if you'd like. So that was always, you know, he gave a good interview, but yeah, it just kind of rubbed me a little bit the wrong way because, you know, it's like, okay, like, you know, why don't you look at the business, obviously grow for the longterm, but there are issues that you should be thinking about instead of trying to be

the next, uh, you know, whatever Microsoft or, you know or name your big tech company. Two quick comments slash questions for you before we wrap this up. Did they mention – you listened to the call, right? Not all of it, parts of it. Yeah. Did they talk about the acquisitions because they made so many. They made those three big e-commerce acquisitions. They see the goodwill impairment.

So maybe that tells me all I need to know. I don't know if they did. So I listened to part of the call about like 10 minutes worth. And then I was like kind of curious because I saw in their earnings release, they were talking about that goodwill and doing a review based, I think, on the market cap versus the total assets. And I think what they said was that the market cap got lower than the total assets. So that's why they had to do a review. So it was based on that. So I actually controlled F the transcript to see if they talked about goodwill more because I'm like, hey, it has to be related to some kind of acquisition that they overpaid.

And they just mentioned the same thing on the call. So maybe they had some questions from the analysts. She spent a lot of money on those things. Oh, they did. Yeah. And I mean, look, we've talked and, you know, I'll probably, I don't know when Teladoc reports. I think it's in a couple of weeks. And clearly they had the Lee Vongo acquisition, which they clearly overpaid for.

And we've both been quite critical of that but lightspeed you know was buying companies when things were trading at extremely yeah at peaks exactly extremely high multiples so um you know i think they're i'll hand it to them overall i think it was a pretty a decent call i'll say that they are, it sounds like they're really trying to be profitable. Clearly, some of the cost cutting that they've done, I talked about the free cash flow and still losing $28 million. Well, you probably won't see those cost cutting measures take effect for another quarter or two. So keep that in mind. So I'll give them a bit of a pass there. I love the product. I do. I love the product. I think it's brilliant.

I think the point of sale is brilliant. The inventory management, the omni-channel product, brilliant. Absolutely amazing. But the financials or valuation have never lined up for me. And I am very glad that those didn't line up in my brain looking at the stock chart. That does it today for the episode. We really appreciate everyone tuning in. We are here Mondays and Thursdays.

Monday, we talk big picture, things we're thinking about, framework, books we're reading, analogies, science experiments, the whole nine yards. Thursdays, we talk about stuff like this, earnings, news, keeping you up to date, keeping you in the now. Because is it the know or the now? What do people say? In the know, I guess. Keeping you in the know. In the know. In the know now, we're keeping you there.

So we appreciate you tuning in. And it's just so much easier to just listen to this stuff than read 48 pages of transcripts. That's our jobs. We'll see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.