The Canadian Investor - This Company Thinks Canada is Already in a Recession

Episode Date: April 27, 2023

In this episode, we discuss the recent earnings of Metro, McDonalds, Netflix, Canadian National Rail, ASML and TSMC. Simon also talks about the Markets in Crypto Assets (MiCA) legislation that was passed by the European government last week and what it means for Canada. Symbols of stocks discussed: ASML, CNR.TO, MRU.TO, MCD, TSM, NFLX Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital 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. See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Bélanger. The Canadian Investor Podcast. The date is April 25th, 2023. My name is Brayden Dennis, as always joined by the magnificent Simon Bélanger. Welcome back. It is earnings season and we are right in the thick of it. Day one of what feels like a ridiculous amount of companies reporting at the close, which we'll unfortunately just miss, but that's okay.

So make sure you're tuning in weekly to these Thursday episodes. We'll have mega caps reporting and lots of companies we always typically get to. mega caps reporting and lots of companies we always typically get to. And in the meantime, if you're looking for updates on those companies, make sure you're following us on Twitter at Brato Capital for me and at Fiat Iceberg for Simone. So we'll be tweeting about them as well. Got a good mix of North American names. Did you, before we get into it, did you happen to see the leafs do things do something that they

never accomplish a comeback in the playoffs last night i saw it this morning because uh with a young daughter uh now she's in the habit of doing her nights but she wakes up at 5 15 in the morning okay so you're tired yeah if you reach out to me past like 9 30 there's there's a good chance i'll be sleeping i notice i i notice you're on do not disturb quite early these days right when i'm starting my second shift of work for the night uh simone's already on do not disturb yeah i was surprised though when i looked i was curious cause you know, I'm a Habs fan, but I want to, I want the Leafs to do well. Like I don't really have any,

uh, no animosity unless they're playing the Habs. And, um, I was looking at the score when I went to bed. I'm like, Oh, no shot.

I think it was like four to one or something. Yeah. And then like, you know, I, I opened the app, take the J score when I wake up and then I'm like, Oh,

I'll see how the game finished for the Leafs. And then they won the game. I'm like, what the hell just happened? I hope they can close it out, but they usually do. Jays could go on a bit of a heater. They got a bit of an easier schedule. All right, enough of the sports. This is a finance podcast.

This is the Canadian Vestor. Simone, kick us off with our first name of the day. Yeah. So the first name is a Canadian name, one that has been in the news quite a bit. Not just them. It's Metro. They released their second quarter 2023 numbers, obviously, with all the inquiries that have happened with grocers in Canada between Metro, Loblaws, and Empire. I think they pretty much have the market cornered.

So it's been in the news because clearly people are targeting them because of the higher food prices and being such a concentrated market. Obviously, Metro has been in the forefront there. So, sales increased 6.6% to $4.55 billion. Food, same-store sales were up 5.8%. They do come up with a food basket inflation, which was up 9% for the quarter. That's actually in line with CPI's figures that we've seen in terms of food inflation, which have been around 9-10% on a year over year for several months now. But the thing that tells me here is that there's a discrepancy between the basket and the same store sales regarding food is that either people are looking for cheaper options or within Metro and some of their properties, or they're going somewhere else for better value. So that's what tells me in terms of discrepancy between the two here. Pharmacy, same store sales were up 7.3%. Net earnings were up 10.4% to 219 million.

Earnings per share was up 13.4%. And free cash flow was actually like pretty much flat, not to the dollar, but a couple million shy of being flat for the quarter compared to last year. So I think all in all, obviously, it's a grocer and pharmacy. You won't have crazy growth, but pretty good quarter for Metro, even despite some of the bad press that they've been getting. I think they've all had their fair share of bad press lately. I feel like Loblaws has caught the brunt of most headlines. Yeah, I don't think he's helped himself with those President's Choice commercials. Mr. Weston?

Weston, yeah, he's kind of like- Mr. Weston? Weston, or yeah, exactly. And just kind of being the phase, but also the CEO, moving from the board to the CEO role. I think it's just an easy target, I think, for politicians and people as a whole compared to the other two big grocers. So there's, I don't know,

have you ever, I'll have to link it to you after. Have you ever read the Paul Graham essay called The Fierce Nerds? No, I haven't. Okay. Fierce Nerds is an essay written by Paul Graham, the guy who started Y Combinator, the most famous Silicon Valley startup incubator. And so he's very well known in startup and tech land.

And he's written this essay way, way back called Fierce Nerds, which is basically describing this characteristic of a really smart tech forward nerd, but a fierce competitor. And so some of the huge tech billionaires encompass the fierce nerd, right? Think of the Mark Zuckerberg, think of the Jeff Bezos, ruthlessly competitive, but also a nerd in their own right. And Galen Weston is the fierce nerd of grocery stores, man. Yeah. Yeah, no. And I mean, I guess Bill Gates, too, kind of comes to mind. Yeah, yeah.

Yeah, and no, I mean, he does seem to be that way, unfortunately. I think of all three grocers, Loblaws has been taking, I don't know, my perception is they've been taking the most flack out of the three. But yeah, no, that's a good point. Fierce nerds. I like't know. My perception is they've been taking the most flack out of the three. But yeah, no, that's a good point. Fierce nerds. I like that guy. I mean, I think he's a fierce nerd. And you don't want to mess with fierce nerds in business, man. All right, let's talk about McDonald's.

We're starting this off with food. We got Metro. Now we got McDonald's. By the way, you roll up to McDonald's right now. Let's say you're hungry. I don't know when the last time you ate was. Let's say you're starving. You roll up to the window.

What are you going with right away? What's your first instinct? McNuggets. You're going for the nugs. I've always been a McNuggets. How about you? Dude, I love... I can destroy a good 20-piece nuggets, but no, man.

I'm going the most... I can't kick the college student guy out of my system by ordering four value pick menu items and just making myself feel terrible after, you know, like three junior chickens, some fries, maybe a McDouble. I mean, it's hard not to feel terrible after going to McDonald's in general. I mean, the only time I don't is when I go and get their coffee, which I've always found pretty good. Pretty good. Yeah. Yeah. It's a pretty good coffee.

Don't they say it's the old McDonald's Canada's, the old Tim Hortons beans? Isn't that the PR play that they had? Yeah. Yeah. Pretty smart on their move. I do agree. I think their coffee is quite good. A little McCafe.

All right. So they just reported this morning their first quarter on the year. And I'm going to do constant currency numbers. It's pretty short and sweet here. Revenues were up 8%. The big impressive line item here is comp sales up 13%, 12.6% to be exact. And that was from pricing power on the menu. Now, if you look here, it's quoted comp sales results benefited from strategic menu price increases. That's a pseudonym for, yeah, we have pricing power and we're not afraid to use it. And they all said positive comp guest count growth. So I'm going to get into that as well. But most of this is just flexing pricing power and passing on inflation. So they're real good at that. We got to look at the... What's the Big Mac Index? It's a core CPI measure, the Big Mac Index. Operating income was up 9%. They said here in the top six markets,

digital sales now represent 40% of system-wide sales. So people using the app to do the order, which kind of seems like a lot, like 40%. I'm going to need an audit on that number. That seems impossibly high, but they are pushing it quite aggressively. So that's quite impressive. So that is 7.5 billion, which is a 30% year-over-year growth on what they're calling digital sales. I don't know if that includes the kiosk. Does that include the the digital kiosk you know when you go up there i feel like that would be a little disingenuous i'm not sure it says 50 million active users on the app so yeah i would think it's separate yeah it's gotta be separate yeah yeah it has to be separate because i've used a kiosk before but i've never used the app so

so you're not contributing to this 40 you're you're the 60 i'm old school yeah you can call me a boomer if you want i like to give my order to a human being or maybe a robot eventually but so yeah something or someone yeah exactly in front of me uh you know what old school school and respectable. All right. So talk about some impressive comps here, especially in the US and the international segments. Very impressive from a traffic perspective and the pricing power that I just touched on. The traffic is interesting here because this is a business that just loves performing in tough economic environments. It's cheap. It's convenient. It's a feed the whole family for less than the grocery store these days. Even though you track that Big Mac index,

and it goes up with inflation, they're passing that on to customers. But it's like a dollar store. It's like you and I, when we talk about DollarM or we talk about some of the US dollar stores, it actually doesn't matter nom fast food mcdonald's types here is is it actually doesn't matter if the price nominally has to keep increasing with inflation their value proposition can remain remain strong here and and that's happening and you're seeing it with tougher environment uh tougher economic environments that the traffic is increasing quarter over quarter. Yeah, and I think we have to. And that's one thing I've changed in terms of you is you have to think about it more in relative terms. So, yes, the prices might be going up, but relative to their competitors, they are not.

And they're actually staying very competitive. they're not, and they're actually staying very competitive. And I think at the end of the day, if everything's more expensive, but this one is still the cheapest option, people still gravitate around that. That's right. 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. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out

to work with the podcast, I honestly was not prepared for what I was about to see, because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't

checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. All right, we got CN Rail here. We do have CN Rail. Yeah, so they came out with uh their latest quarterly release revenues increased 16 to 4.3 billion so pretty uh pretty impressive revenue increase here wasn't actually because of much higher volume in general there were some areas where it was higher so it was mainly due to higher fuel surcharges, higher volumes of grain export, freight rate increases, and a weaker

Canadian dollar because they do get a lot of their revenue. They were poor in Canadian dollars, but then they would get a lot of their revenue in US dollars, for example, so that conversion can be a benefit to them. Operating income increased 35% to $1.66 billion. Earnings per share increased 38% to $1.82. Free cash flow increased 4% to $593 million. And almost all their operating performance measure improved year over year. However, volume was down, like I mentioned, 6% in April. This was not obviously in the same period as the quarter, but it gives you an indicator that, yeah, overall volume is a bit lower. And that's something they had guided for when they finished their full years for 2022,

is they were forecasting a period of recessionary environment this year. And they are still saying that in their view, based on what they're seeing for volume, we're probably right now in the middle of a mild recession. So I guess, I mean, if you're going to believe anyone that we're in a recession, Canadian National Rail is probably a good indicator because they see real time what's happening and they can actually compare that with previous years. And they also announced a new North American container shipping service Monday called Falcon Premium.

The service is an agreement between Union Pacific, which has an extensive network in the U.S., Canadian National Rail, and GMXT, which is a Mexican and also a minor, but they're a Mexican railroad operator as well. Now, the goal here of this agreement is to compete with CP and their newly expanded network with the Kansas City Southern acquisition that was just approved by regulators and to better compete with trucking companies by offering a full North American network because if you have these

fragmented rail lines, it's not necessarily the most attractive thing if you're a company looking to ship from Mexico to the US or Mexico to Canada, depending where you're looking to ship. So with this new agreement, it should allow them to steal some business away from some North American trucking companies. They have their finger on the pulse. And I think that we're going to, our next episode coming out on Monday is about bellwether names. And we definitely touch on CN Rail because they disclose gross ton miles that they're moving every single quarter. And

that's a metric that you type in CN Rail on Stratosphere and you get gross ton miles, revenue ton miles, freight revenue per revenue ton miles. So when you break it down on a per unit basis, it's a great way to track the broader economy as well as the business itself. great way to track the broader economy as well as the the business itself this uh we'll see how you know how this shapes up over the next with when would the uh kc southern acquisition when would those be would that be q1 for for cp or is that yeah i think it should be yeah they were still right they it wasn't a trust, right? So they were kind of operating it, but it was operating separately as part of the trust until it was fully approved. So I don't know when they'll be reporting their results all in once with theirs. But it should be pretty quickly because I think pretty much like everything's already in place, right, for the transition.

That's my understanding. But, yeah, we'll see, I think, probably in the next couple of quarters. I don't know for sure when, but we should be able to see that. And the last thing I'll mention for CNR is, honestly, you have to give prop to their new CEO that started in early 2022, Tracy Robinson. So she took over from, I think it was Jean-Jacques Courier, who really, I mean, was not the best. I'll just say that. And the decision and it caused the money to actually go

after Kansas City Southern when it was pretty obvious that it would never get approved by a regulator. I think that was the last drop in terms of him leaving as a CEO. And so far, she's pretty much focused on making their railway more efficient and returning money to shareholder. And I think this announcement is also just a right move for them, to be honest. On the last trailing 10 years, total return dividend included you've had you've made a 13.8 compound annual growth rate on the stock price uh total return since uh ipo 15.3 percent it's pretty good yeah i mean it's a boring company right mean, it's a boring company, right? Yeah. Yeah, it's a company where you can just buy it and forget it type of company. You'll sleep well at night. I mean, if Canadian National Rail or CP start doing poorly, we've got bigger problems.

I'll just say that. I wonder if there's going to be even more demand for these Lindy infrastructure stocks over the next 10 years because investors are learning really fast this year that tech is going to change at a pace that is going to make the internet era look like slow, look like a slow rate of change of, you know, the internet stock winners, how it changed the world, the connectivity. I do believe the next 10 years is going to make that look like a snail's pace. You know, like the rate of advancement in artificial intelligence, and if we do achieve AGI in the next 10 years, is going to change every single software company on the planet today. There's just no way around it. Every single knowledge worker.

And these Lindy infrastructure companies, it's like, yeah, maybe we'll have new technology to improve and make this more efficient, but you can't replace the fact that we have to move things physically via these Lindy infrastructure assets like CN Rail, I wouldn't be surprised if there's just more like kind of flight to Lindy infra stocks over the next five, 10 years. I would not be shocked by that. I wouldn't be shocked, but people, you know, people are always love the allure of making a quick buck. And I mean, you called it for your bold prediction. I think I'm almost going to give it to you now in terms of the AI. I think I claimed that W by like February 5th. Yeah. But I mean, people can't, investors in general, like not every investor, but I think people generally invest.

I mean, a lot of people just can't refrain themselves from investing in the new shiny object and whatever it is, right? And kind of forgetting some of the lessons that they may have learned in the last five years or so. So maybe we will, but I think there's always the human nature of making a quick buck or getting this hundred bagger, right? Whereas plays like this, they'll be boring, they'll perform well, they'll probably beat the market, but you won't have that 100 bagger, that's for sure. You're telling me this can't become a $100 trillion company? We'll have to get some serious inflation. Yeah. Hey, nothing's impossible, I guess.

It's impossible. Maybe on a long enough time horizon, it might be the only company we discuss on this entire podcast that's still around. Maybe them and McDonald's. All right, let's look at Netflix. This was last, I think last Tuesday or last Tuesday they reported. So we didn't get to it, but we're going to get to it now. And it's one that we like to always cover because it touches on a couple of important pieces. All right. So this quarter they added 1.8 net paid subscribers. So net of churn, they added net new 1.8 million paid subscribers, which is now at 232.5 million paid subscribers. So over 230 million paid subs. It's promising that they're adding subs because you had that net churn in March 22 and June 22 quarters. And that was the Russian factor on one of those quarters, but still, still net-net. It was the first real bits of adversity that the company was facing.

And this is a prime example of why I tell people, if you own any business, if you own any stock, if it's Netflix or CN Rail, think of just a few performance indicators that really are really important for the business to keep track of. Because paid net subscriber ads is probably the most important metric for Netflix. And they had the top line revenue increase like high single digits. But the first time ever, they had a paid net loss of subscribers. And it wiped out like 100 billion in market cap that day. It was a 36% drop on a mega cap stock. And so that's really important to take note of, right? These businesses

move on metrics that you might not see on an income statement. So keep track of just a few, one, two, three names. This is a less than 1% quarter over quarter, year over year growth on paid subs. Top line was up 3.7% year over year. So this is not the growth name it once was, which is not news here in the first quarter or second quarter of 2023. But the company has known that and this is why there's such a big push from the ad supported tier and the crackdown on sharing accounts. Have you got that old sharing accounts message on your Netflix there? Oh, I i mean now we're paying for both our parents yeah i mean they're paying as the tables have turned huh yeah pretty much i mean we they used

to use our plan and we just said look um it's still cheaper for them because we have like the best plans so it's still cheaper for them to pay 10 bucks a month and not getting that supported. So just 10 bucks on top. So we, we did it. Unfortunately, we didn't really have a choice,

which apparently Canada was the Guinea pig for that. Yeah, I think they were, they talked about that on the transcript. It said Canada and Spain, I think. Yeah, I know they didn't roll it out to the US.

That I know, yeah. Interesting. Well, here's a quote. We're pleased with the current performance and trajectory of our per-member advertising economics. In the US, for instance, our ads plan is already a total average revenue per member subscription plus ads greater than the standard plan. So this month, we'll upgrade the feature set of our ads to include the 1080p version as well, starting with Canada and Spain. We believe these enhancements will make our offering even more attractive to a broader set of customers and further strengthen engagement for existing and new subscriber to the ads plan.

So the first quarter here of data on the ads business looks promising. The unit economics are better than I would have expected. I still think we need a little bit more time. And their reports that they have disclosed, it's like all the data they really brought out. I haven't listened to the call yet. I haven't looked at the transcript, but I did a quick control F on ad supported. And there wasn't that... I would have thought it would have been every analyst question and maybe I'm missing something. I'll have to loop back. But I want to see more still on this.

I'm missing something. I'll have to loop back. But I want to see more still on this. They did raise guidance and they expect to generate $3.5 billion of free cash flow in the year. So the business is churning out a decent amount of cash. Last weekend, I went to this Netflix event in Toronto. I thought it was pretty maybe it's two weeks ago now i thought it was pretty well done overall it was like stranger things and oh yeah i felt like such a chump like such a fraud because i have no idea what the show really i watched one of their most popular shows if not the most popular well that's why they're doing this event right yeah uh no i think i watched like a couple episodes of the first season but uh you know we're now what season four or five something at least yeah i think it was season four if i remember correctly yeah the latest yeah okay well i was i was a fraud there for sure. We got free tickets because my girlfriend gets sent some free stuff here.

So that was cool. It was fun. But it got me thinking how well done it was, how well thought out it was, and how much money they spent putting this thing together. What is the long-term additional monetization efforts from Netflix to utilize the full value of the IP of some of these mega winners like Stranger Things and Squid Games and all the other ones? I haven't drawn a blank on some of the really popular ones, but those for sure come to mind. drawn a blank on some of the really popular ones, but those for sure come to mind. What is the long-term Disney-esque play for them on the experiential side and more? What's the Disney playbook for Netflix on monetizing this IP? Because you got to think that that's got to be part of the long-term value extraction of all the money they spend on content production. Yeah. I mean mean i think the ips weren't mentioning i think there is limits to monetizing a certain

franchise and i think disney's starting to to see that because um i know for star wars fans like i've watched some of the shows they have but i i love star wars. But some of the shows, the spinoffs, I watch and watch a few episodes and just didn't get into it. And I think that's what I've noticed with Disney is that, you know, some of their IP, I think they're starting to stretch them a bit thin. Yeah, like how many Avengers can I watch, you know? Exactly. Yeah, that's a good, like, um,

I just, yeah, I think there's, I don't know, more and more with them pumping out so much content and this would apply to Netflix too. If they do some spinoffs here. I mean,

I think there's a, you know, there's a limit to that IP. I think that's, I don't know what it is, but I think you're starting to see it a little bit with Disney. I think there certainly is a limit, but there is a definite playbook that you can look to in terms of,

there's a limit, but they sure like to bump up against it and extract it for everything it's got. You know, like, you know, we're going to be here five years from now and still talk, you know, still releasing the new Avengers, the new, you know, we're going to be here five years from now and still talk, you know, still releasing the new Avengers, the new, you know, there's, you're going to keep milking it because why not? People will keep watching it and it's a valuable asset. So I don't know what that looks like, but I guess time will tell. Yeah, no, exactly. 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. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world. Well, folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally

diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Now we'll move on to the fun world of semiconductors. A couple names here. I'll start off with ASML. So they released Q1 2023. I'll mostly compare their results to Q4 of 2022 and not Q1 of 2022, mainly because the results would look awesome if I just used the over a year.

But because they had some supply chain issues and they were working to increase their capacity as a whole, I thought it would make more sense to compare it to Q4 2022 because that gives a bit better baseline in my opinion. And they were doing most of that as well. So just to keep that in mind. So net sales were up 90% if we're comparing versus Q1 of 2022. So just that shows you how crazy the increase was. But sales increased 5% to $6.7 billion when comparing to Q4 of 2022 on a sequential basis. on a sequential basis. They sold 96 new lithography system that includes both Deep Ultraviolet, DUV and Extreme Ultraviolet. It's one more than last year during the same quarter.

Net income was up 7.6% to $1.9 billion. And the number, sorry, I misspoke there, the 96 is one more compared to Q4. Earnings per share was up 7.8% to $4.96. And if we're using again, year over year would be up 186%. They currently have a backlog of over 38.9 billion, and they cannot keep up with demand based on their current capacity of production. They also repurchased 400 million euro worth of shares during the quarter. Management also said that sales came in higher than expected for Q1. When they provided their guidance at the end of last year, they were saying that demand would be slower to start the year

and then pick up during the second half of 2023. And it looks like it's starting to line up to do that. So they also said they continue to see mixed signals in terms of some of their customers when it comes to demand. But like I said, I mentioned, they still have significant backlog. So I think what they were saying is more towards the semiconductor industry as a whole, where their clients or customer who are chip producers, I think they're just, you know, it's a bit of a cyclical industry. So they are seeing some mixed signals in that retrospect in that aspect. Yeah, I'm just looking here net bookings was definitely down quite a bit from the highs of last summer. But again, that was expected. You have this extreme demand for overbuilding after no one being able to get their hands on. And look, companies like TSMC, what I'm going

to talk about next, they just can't afford to not be ahead of the curve on reserving ASML's ultraviolet lithography machines. It's just too expensive to mess that up. ultraviolet lithography machines. It's just too expensive to mess that up. And so you pull the Jeff Bezos over build capacity and build a moat. Why wouldn't you? It's the right thing to do. Yeah. I mean, it's their playbook, right? They did that during the Great Depression, where companies were scaling back on spending and TSMC actually decided to go counter that. And I think it was Morris Chan that was a CEO at the time. And they decided to go against that and invest heavily in their production because they figured that if they were able to kind of go through the Great Depression, that they would come out on top of it, you know,

years down the line, and they end up doing it. But they were, you know, at the time of that spending, not everyone thought it was a good idea for them to do so. But it kind of shows that they have a longer view. And usually the best businesses are the ones that are actually are looking, you know, two, three, four, five, 10 years down the line. Because yes, you might have some lesser than stellar results short term, but they'll more than make up for it longer term. Yeah. And if you pull out a two-year stack, it's pretty good. Net bookings at 3.7, I guess, what is that? 3.7 billion in net bookings. That was up as high as almost nine in September of last year. But you look at it on a two-year stack and that quarter

years ago was a third of what it is today. So it's hard to... Sometimes it's hard to zoom out like that, but it's important. And it's important for the reasons why I'm going to talk about here with TSMC, because these businesses are very similar in a lot of ways that this is a cyclical business, but I'm going to talk about that actually in a second here. Because top line increased 3.6%, earnings per share up 2.1%. So nothing earth shattering here. And it's really not great. Like you mentioned, when you look at the sequential results, EPS and revenue down double digits respectively. But you know what is these good companies, and I do think these two businesses, ASML and TSMC, are exceptional businesses, is right at the top of the earnings release is what I just said.

It was sequentially earnings per share was down 30%. No hiding it. It wasn't on page two. It wasn't here, let me cherry pick some KPI that looks good, throw it up at the top of the release. You attract the shareholders you deserve. And the ones that are thinking long-term are eventually attracted to exceptional businesses. You get exceptional shareholders. And I truly believe that the management

attracts the shareholders they deserve over a long time period. Of course, quarter to quarter, that may not be true, but over the long run. And what I think is going to happen here is, yes, this has been historically cyclical business, the semi-industry. But I actually think that we're going to start seeing more step changes where you have periods of solid steady state demand and periods of where it jumps up a layer and that becomes the new steady state demand. Because I think we kind of overshot it in 2020 and 2021, but our steady state is still way higher on a three-year stack for kind of demand for semis, demand for lithography and demand for foundry capacity. So I do believe, that's at least my

prediction here is that cyclical looks different for semis from here on out. If you can kind of visualize what I'm talking about. Do you agree with that take? Yeah, I mean, I think it definitely will be less cyclical than it has been the last, you know, 10, 15, 20 years, just because, you know, there's chips in almost everything, right? I think even my, there's probably chips in my desk because it's a rising desk. Yeah, exactly. But there's probably chips in my desk because it's a rising desk. Yeah, exactly.

But there's chips in everything. I think you will still see some cyclicality, but definitely less, a lot more, you know, less pronounced than it was. I think that's probably the best way I think to frame it. I think it'll be going forward is there's going to be cyclicality but it's going to be a lot less noticeable that it was in the past because demand's going to stay relatively strong regardless where we are in the economic cycle right notwithstanding like a great depression type of event where you know everything will look cyclical but uh you know notwithstanding that i

think it'll be less pronounced. I think the long-term trend looks more like a step function than a sine wave. Yeah. A sine wave is true cyclicality, the peaks and troughs, whereas I see the troughs being just no growth for a certain amount of time. But you look at ASML and TSMC, and they're not making the simple analog chips. They're making the most advanced digital chips, right?

And so that's what's going to have a lot of demand moving forward. You see a nice operating margin, still juicy 45.5%. Definitely some softening demand for the 7 nanometer chips. But again, zoom out on the stack. The 7 nanometer and the 5 nanometer chips seeing strong secular growth. If you look at the different segments, smartphones was down the most. The only positive one was automotive on a positive quarter of a quarter demand for these chips. But look at this. Okay. So I just pulled some data from Stratosphere on the segments. The smartphone segment has compounded, this is the last 10 years, has compounded at 12%. The internet of things has compounded at 30%.

30%. The high performance computing one has compounded at 29%. Automotive, 22%. The only one that's down is digital consumer electronics. Then they have this other, which is high single digits. The important

ones have performed, man. Oh, yeah. That's really solid. Yeah, the consumer electronic electronic to keep in mind um for a lot of people that was that was a big demand because of covid right so if every when everything was shut down everyone and their sister and brother had to buy a laptop if they didn't have one and if they had one and it wasn't powerful enough they needed one to do their work do school whatever it is So that was definitely pulled forward.

And some other instances too, but there's other things. You know, we talked a lot about AI. I mean, the more there's AI usage, I mean, the more there's going to be a demand for higher end computing power. That's just inevitable. Dude, have you seen that the OpenAI came out and said the amount of NVIDIA chips that they need, the high-performance GPUs, like if you do the math, it's like they need like 40,000 of them or something or like 4,000 of them. And they're going right now for tens of thousands of dollars each. That's crazy. of dollars each like that's crazy yeah just from open ai you can put on a backlog of like billions of dollars in sales for nvidia they're going to be such an obvious winner here but the market

has already got ahead of that yeah and tsmc and asml will be indirect winners because of that because ASML provides the machines to the EUVs used for that to TSMC and TSMC makes the chips for NVIDIA. I'd much rather own those businesses than the designers. And I know that the designers have their own kind of trade secrets and moats and NVIDIA has been so far ahead of everyone with AI. They kind of like

built the technology for this uh they're such a key player in the advancements on this but who else is going to be designing these chips and what microsoft came out and said that they're coming out with their new designs right yeah yeah and i think amds also want to keep an eye on because they've kind of gone ahead of Intel when it comes to CPU, but they also bought years ago, which I believe was is also one to look at if people are looking at chip designers, because, um, I mean, I would bet on them over Intel. Intel is just,

yeah, it's, it's almost Hail Mary time for Intel. You're hoping that they turn things around and I do hope for them that it does, but I would not bet on them personally. Yeah. Good point. All right let's uh go to the last one of the day i actually don't know what this is so that's okay yeah no i think this

it's a little political but again i don't get into partisanship or anything like that i think it's actually quite relevant for people who are interested in knowing more about it. So it's called the Markets and Crypto Assets, MICA, M-I-C-A. So that's a new legislation that EU Parliament voted in favor of MICA last week with the effective date of the law coming into force in 2024. There's not an exact date, it's 12 to 18 months after it's been passed. So probably mid-late 2024 if I had to ballpark it. And the regulation looks at providing clarity for companies and investors operating in the cryptocurrency space. There are three big parts to the regulation. Asset reference tokens, electronic money transfers, and crypto assets not being covered by existing European law.

A lot of these that I mentioned are things like stable coins. So legislation towards that. And the legislation will also regulate the issuance and trading of crypto assets, as well as the management of the underlying assets. So custodians, for example, it's the most comprehensive crypto framework in the world and the first of its kind. The document is a whopping 571 pages and has been the works for two years now. It doesn't touch on everything.

So they do say that it's very possible they'll have to modify it over time. The feedback that I've seen is that the crypto community seems to be seeing this pretty positively just because it creates some clear rules for any companies wanting to operate in this space in Europe. The United Kingdom, which, of course, is no longer parts of EU, is also working on similar legislation. And whether you like crypto or not, personally, I think it's important to have these kind of legislation come into place. We just have to look down south in the US where politicians from, you know, Democrats and Republicans, they can't seem to get their act together and pass this kind of legislation. So what's happening is the SEC, led by Gary Gensler, is interpreting existing laws that are not really fitting for crypto in how they see fit and doing enforcement actions using that. So companies there are kind of forced to either, you know, have a settlement with the SEC or bring them to court or just leaving the US altogether. And this is what we've started to see is just firms are deciding to move elsewhere where there's more clarity because it's a big, big risk. And from a Canadian perspective, I do hope that our politicians, regardless if whichever

side of the aisle people are, I hope they can work together and come up with a similar framework that will provide some consumer protection, but also some clear rules for the industry going forward. Because I think we have to be able to take advantage of the U.S. is actually not getting its act together here and really provide a framework for innovation in this space because there is still innovation happening and um there's i don't think there's anything wrong with just clear rules for the space which has been lacking for most countries because obviously europe is the first to to have this kind of legislation i have no i have nothing to add that's okay I encourage people to read up on it if they're interested. My big point here is I do hope Canada can, our politicians can actually work together and come up with something that fits, you know, that protects Canadians, sets some clear rules, and that can help this industry thrive and, you know, the Canadian economy in as, the Canadian economy as safe as possible. Thanks so much for listening to today's show.

We are here Mondays and Thursdays, and it's earnings season, as you can tell. The closing bell is about an hour and a half today. And, oh boy. The markets are not loving it. an hour and a half today. And oh boy. The markets are not loving it. My team is going to be busy updating data today. This is one of those days where it's just like, you know, hunker down for a little while. It's going to be, it's going to be a busy, busy day. And the data that we put out.

So I just wanted to say as well. so we're launching this the day this comes out, an updated version of FinChat. I'll send you a link after this, Simone. Version 1.2, it brings in analyst estimates, it brings in stock prices, it brings in revenue segment visualizations, more data, insider transactions, better prompts, less halluc hallucinations which is a big one less hallucinations is an important one and uh so that'll be out at finchat.io there's uh it's almost almost 25 000 people using it yeah yeah no that's awesome and the other thing i wanted to add here is we are experimenting with video right now. Yeah, so we're still we're using a new software. So still getting used to it. But I think it allows us to share charts and so on while we're recording. YouTube, but also for our Patreon subscribers to essentially add the whole episode if people want to watch us instead of listening to us or a combination of both and just kind of seeing what's happening in my dungeon or Braden's very open new apartment. That's right. See our faces for podcasting on the... Yeah. So, the tentative plan, See our faces for podcasting on the, yeah.

So the tentative plan, and this may change, the tentative plan is to put clips on YouTube of certain segments and then put the whole episodes on Patreon for join TCI.com subscribers. Is that a correct summary? Okay. And that may change, but yeah. So then people on the Patreons, the $9 a month, join TZI.com. You could see the entire episode. Maybe we'll upload them to YouTube as like unlisted so they get the link.

I don't know how that's going to work. Yeah. We'll have to figure it out. There's still some, you know, work in progress. Infrastructure to determine. Yeah. We're using the software for the first time. Hopefully it's recorded properly but

it's coming so we're we're experimenting with it right as we speak and hopefully you guys are enjoying my audio today i have the new new audio setup that simone hooked me up with and i like how this mic is just sitting exactly where it needs to be. This feels good. So yeah, go ahead, check that out. It's join TCI.com. I suspect within the next couple of weeks, you'll see something up there as well as our portfolio updates that we do every single month. 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.