The Canadian Investor - Udemy, Costco, Lululemon, GME, SentinelOne and more!

Episode Date: December 16, 2021

In this release of the Canadian Investor Podcast, we cover the following earnings releases and news: Is Tim Horton’s getting its swagger back with Tim Biebs? US CPI figures for November Costco earnings Laurentian Bank earnings Vail resorts earnings Lululemon earnings Udemy earnings Dollarama earnings SentinelOne earnings GameStop earnings   Tickers of stocks discussed: GME, S, DOL.TO, UDMY, LULU, MTN, LB.TO, COST, QSR.TO   https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/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. Live from the great white north, 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. It is December 13th, 2021. My name is Brayden Dennis and always joined by Simon Belanger. Simon, let's kick it right off. We have an earning show today. We're going

to go through some US inflation numbers and what we think about what's happening in Canada as well. Talk about Costco. We got all kinds of fun stuff. We're getting into the ski season, so we're going to talk about Vail as well. They have a funky reporting period. Simon, let's start off with a very Canadian topic, which is, is Tim Hortons getting their swagger back? I don't know. It feels to me like them restocking this Tim Biebs mooch, whatever you want to call it. The demand for this stuff is real hot. Is their marketing team finally catching some fire here again? I don't know, but it seems like everyone's really into these new Tim Biebs. I haven't tried

them yet, but I don't have a big sweet tooth, but I don't know. It's picked my curiosity. So I definitely will look at trying it during the holidays if I can find some. Well, they're just Timbits. So I mean, they taste good. Timbits taste really good. So they've had some really genius marketing campaigns over the years. While they've also made some missteps, just off the top of my head, making the roll up the rim contest completely digital and online has made that pretty irrelevant. You can't actually roll up the rim and get that instant satisfaction of playing the game after you drink your coffee. But this Justin Bieber partnership is killing it.

And maybe it's hype, maybe it's just short term, but it feels like they're doing the right things. And they're making some acquisitions and RBI, QSR, it's one of those rock solid businesses, but it's good to see Tim Hortons have some actual relevancy when it comes to their marketing campaigns these days. So it's always good to see it as a Canadian brand. Yeah, yeah, definitely. And it'll be interesting if it really makes a difference for the Tim Hortons brand in the upcoming quarters, because it's been struggling. It's been mostly, I think, Popeyes that's been really doing well for restaurant brands international recently. Yeah, that's right. That's where they get all their same store sales growth

is the Popeyes brand. All right, let's talk about some macro stuff. It's really difficult not to hear about the macro landscape. It seems to be in the forefront of even casual conversations these days. What were the latest numbers coming out from the print? Yeah, definitely. So it's really on everyone's mind. I think everyone's talking about it, whether they're interested in the economy or not. and a lot of people are feeling it as well last week we saw us cpi figures increased to 6.8 percent year over year and we also saw the bank of canada today they got a new mandate first for the inflation figures in the u.s so increased 6.8 percent year over year but it was also a sequential increase of 0.8% which is very high and the increase year over year is after a 6.2% increase in October. It's the highest increase that we've seen since

the 1980s so before I was actually born. The Canadian figures are not out yet like I said but for context Canada had a 4.8% increase in October. So I don't know what it will look like for Canada, but I would think it'll probably be in the 5% range if we use the U.S. as a baseline here. That will be coming out in the upcoming weeks. Canada is always a bit delayed versus the U.S. for that data. I've touched it on it before. Central banks right now are starting to acknowledge that inflation is no longer transitory. U.S. Fed Chair Jerome Powell said last week he even admitted it to the congressional hearing that he was attending, that his view had changed on the subject and it was no longer seen as transitory.

Personally, I've said it before. Central banks are really in a tough spot right now because they're between a rock and a hard place. If they increase rates too quickly, you might cause a recession because then obviously businesses will have less money to invest. Capital is less easy to come by. People may not be able to spend as much because now they have higher interest on their rates. However, if you leave rates too low, then you risk letting inflation run loose. News came out today, like I mentioned earlier, that the Bank of Canada received its new mandate from the federal government, which is set every five years.

The new mandate still focuses on keeping inflation at a moderate level, which is usually around 2%. They have a bracket that they have in terms of target however there was some wording added so that the Bank of Canada also considers sustained employment in the overall economy while inflation still remains its primary target so we're seeing something a bit more similar to the Fed here in the States which has a bit of a dual mandate it's not quite that in Canada, but they're being

asked to keep an eye on that as well. My goal here is just to talk about these new items. It's not to sound the alarm, but I don't think you can ignore this either. It doesn't change my investment thesis for my holding, but it has changed my views on holding cash definitely in the past year or so. One of the things that I've changed is the amount of cash that I keep on hand aside from my emergency fund. So I used to always have about 5% to 10% in cash ready to deploy if there was either a market correction or a business that I really liked that I thought was trading as a discount so I could pounce on it. Now I don't see my cash reserve going much more than 5% for the foreseeable future because

I just don't want to be holding that much cash in a savings account that's giving me 1.25% on my money and essentially being devalued over time. The Fed is in a damned if you do, damned if you don't scenario right now. And transitory was never really in question. For guys like you and I, we always kind of said it with a smug look on our face, right? And like I mentioned before, these are conversations that are... Let me put it this way. Inflation is very obvious for consumers right now when it's at the level that it's at. It's high enough that you do not have to be listening to a podcast like this or be interested in the economy to recognize that it is actually affecting pretty much everything that you're buying. And I was just at the car dealership earlier today because I had to

get a safety done on the vehicle. And I went to go tap my card and it was just like a couple bucks over the limit. And I was talking to the lady, I was like, oh, whoops, I forgot. I can't tap with my visa on this number. And then I was like, yeah, I think it used to be a hundred bucks and it's more than that. And then she said to me, I don't think you can tap for anything less than a hundred bucks these days. That's probably why they had to increase it. And I just kind of giggled to myself. I'm like, I'm going to talk about that on the podcast today, because it's true. I mean, when are you tapping your credit card for less than a hundred bucks these days? Everything just feels more expensive. And it's not just anecdotally that I feel that way. It's that everyone is actually noticing that real prices are increasing quite dramatically

in a short time period. So it is something to monitor. We don't spend too much time on macro because we are very like bottom-up investors where we focus on the companies we hold and the things that we can control. But just not paying attention to it or not being in the know seems a little lazy given how important it might be. Yeah, that's exactly. And I think people are noticing because everyday items that they buy, they're noticing that they're more expensive. And I think that's where it gets really tricky for central banks. And you know what? I would not like to be in their shoes. So they'll have to make the tough decisions. And it's that balancing

act between making sure the economy is going well, but also making sure it's not going too well, I guess, and then inflation goes up. That's right. All right, let's move on to that bottoms up approach we're talking about, which is earnings reports from companies that we find interesting and we care about. A perfect one to start with right out of the gate. Here is Costco ticker cost. Costco reported their 2022 first quarter results. Net sales were up 16.7% to 49.42 billion. That's a couple of dollars. Earnings per share increased 13.7%, the diluted earnings per share number. That is very consistent double digit compounding that we have learned to know and love with Costco. And I just wanted to pull out some of their comparable sales for the first quarter,

because I think that these are probably some of the most important numbers to look at. And so I like how they do it here because the number of weeks was different. They did an adjustment and they also do an adjustment on these numbers for gasoline prices and foreign exchange. It's really a good thing they do to compare apples to apples. So on that adjusted number and on a time basis and for gasoline and stuff, the US same store sales were 9.9% up. Canada was 8.3% up. And e-commerce was 13.3%. For the entire company, they said that it was up 9.8%.

That is an awesome number to see because not only are they growing the number of warehouses, but they're also growing the amount that each one is doing. They're so obsessed and so good at optimizing the stores. And that's truly what makes Costco such a good business. They now have 828 warehouses, which is an increase of 11 from last quarter, which is a lot for them. So 11 new warehouses in the quarter is really solid. They just a few days ago, Simon, opened their second Chinese location. When I say warehouse, location, store, it's all the same thing.

So don't get confused there. But they opened up their second Chinese warehouse. The scenes were absolutely chaos. People were lined up the night before to get in the doors. I heard something like 3 a.m. from the previous night. That's how crazy the hype is. To get an idea of how hot the demand for Costco is in China, their Shanghai location hit 200,000 members in the matter of months, hit 200,000 members in the matter of months, while the average location is around 70,000 members at full saturation. So there's something happening, right? There's something to that. There's a real story to this Chinese growth for Costco. Now, the valuation is a little rich here.

I've been vocal about that, but it might be a really good dollar cost average target over time if the multiple compresses in the short term. You can just keep adding to it. Of course, there's no investment advice to your own due diligence. This is a first class company, Simon, and they're just getting started in China. This is why the stock is trading for historically rich valuation. But when you get a truly great operator like Costco, they're not going to trade for peer averages. They're going to trade above the category average and they should. Whether it's justified where they're trading today, I don't know. But that's why I'd probably just dollar cost average it. It's a stock that I should own. I probably should own, but I don't.

That's okay. Yeah, yeah. And they have that membership model, which is always great because it's a high retention rate and people get very sticky. I mean, I've had my Costco membership. I've said it before for years. And there's definitely a lot of room to grow in China because I think we have like five or six Costcos in the Ottawa region. And Ottawa is not that many.

Yeah. Yeah. They just keep opening them because they're full every single time to go. The one time I find that it's good to go is around 6, 7 PM on a weekday around dinner time. It tends to be not too busy, but yeah, there's one on the Quebec side and I think there's four or five now on the Ontario side. So, and I would not be surprised if they open one or two more because they're always busy. The reason I like the name so much is not only are they such good operators, best in class type of thing, but it's really easy for me as a shareholder. Yes, I understand the business very well, but it's very easy as a shareholder, for me anyways, to understand what the playbook is. It's keep doing what they're doing, which is open new locations at a very consistent pace, which they have done over the last 10 years and just continue to optimize. They post their optimization of the footprint and sales numbers every single month. This is not something that they just say, oh, okay, yeah, we just arbitrarily set up the

warehouses like this. It is scientifically looked at under a microscope for every location on how to be the best that they possibly can and provide the best value for their members. And so it's just an absolute case study into what being a perfectionist in the small stuff can do in the long term. You can be so focused on doing one thing right over and over and over, and the results over a long period of time are just exceptional. Yeah. Yeah. Well put. 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 quest trade.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, 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. Now we'll move on to something completely different. We'll talk about a bank that I don't think we've talked about before on the podcast,

Laurentian Bank, Banque Laurentienne. Q4 and their full year result, it is a smaller regional bank in Canada, mostly in Quebec. I think they may have a few branches in Ontario, but mostly in Quebec. So Laurentian Bank has not performed that well over the past years. And I'll touch a little bit on that towards the end here. So their revenues were up 3% to $1 billion. They had net income drop to 50% to $57.1 million. That's compared to $114 million last year. Their diluted earnings per share was $1.03 compared to $2.37 last year. So again, a drop of more than 50% here.

They paid a total of $1.16 dividend per share for the whole year compared to $2.14 last year. There is a new leadership team in place, which includes new CEO Rania Llewellyn. I'm probably butchering that name, but that's okay. They announced their new strategic plan to drive long-term profitable growth. Some of the things that they said they would focus on are ESG. Of course, everyone focuses on ESG. Shocker. Shocker, that one, isn't it? Exactly. The word of the year, basically. Culture of the organization, commercial banking, capital markets, personal banking. So those are the five things they would mention they would focus on. They did set some short-term and medium-term targets. These are all adjusted targets.

So adjusted EPS growth over the medium term, 7% to 10%. Adjusted ROE above 10%. Adjusted efficiency ratio around 65%, a bit less than that. And adjusted operating leverage, positive. So essentially, what Laurentian Bank is trying to do is get a bit closer to the larger banks in terms of how their business operates. Laurentian Bank has had a rough time in the past five years. I had a quick look and if you held Laurentian Bank instead of TD or Royal Bank for example you'd be trailing those returns by more than 50%. If leadership can execute here on the

strategy then this could be a value place. And it really trades cheaply compared to the big bank. If you look at book value or even P ratios, everything's trading much cheaper for good reason, obviously. Like for example, their ROE is half of what the big banks are on average. So yeah, it could be a value play, something to look into for those who are more value investors, but definitely do your due diligence here. And there's a long way to go for them to be anywhere near close in terms of operator compared to the major Canadian banks. return on equity of greater than 8.5%. It's like, ugh. Banks is only as good as their ROE. And that's just category worst. You know what I mean? I mean, on the right side, there's a lot of room for improvement.

That's right. Yes. That's right, Simon. It's like, you didn't do bad. There's just so much room for improvement. And as an investor, the reality here is I need to see a lot more improvement before this thing comes anywhere near my watch list. Sure, it may be cheap, but just like the exact counterpoint of what we're talking about with Costco, which is it trades where it is because the business is just subpar and has been a worse performer than the other ones. So it's interesting that we have some of these smaller banks out there. I think that there are better opportunities for money when it comes to smaller banks personally. Yeah, Canadian Western Bank is another one in terms of those regional banks. I know people are more used to the big banks, but there are some smaller banks in Canada as well. I haven't looked at Canadian Western Bank recently, but something to keep in mind for those who may not want to invest in the large banks,

there are some smaller plays in Canada too. There is. When I look at a small bank, it's just like a company like EQ Bank seems to be skating where the puck is going. And shout out to them. They are a sponsor of this podcast now. But I mean, really, like actually as a person, their products are really solid and they have been a phenomenal performer. I've owned the stock for several years now. So yeah.

All right. Let's shift gears a little bit again. Vail Resorts, ticker Mountain, MTN. Now, they reported their first quarter, the net loss for the quarter was $139 million. You might be thinking, oh, no. This is not a useful metric as the way their business works, they essentially lose money in Q4 and Q1 and then make money in Q2 and Q3. So this report covers August, September, and October. Now, it's an interesting quarter to look at because this is the period where looking at their financial performance is fairly useless.

However, it might be their most important quarter of their business is because this is when they sell their season passes for the upcoming season. So now the resorts are opening up. I know a bunch of them are already open. They've been open for a couple of weeks now. And this business, it's under a very big shift that is worth paying attention to. They have shifted to a primarily membership style business with season passes. Their idea, and they've been very vocal about this on the call when I've listened, is let's make the pass such a no-brainer that it makes very little sense not to get the pass. Even if you're going just to one of these resorts a few times per year, it makes sense to get the pass. This is SaaS, skiing as a service. This is the SaaS. Pass product sales through to December 5th

for this ski season increased 47% in units and 21% in dollars compared to last year. They have said on their presentation that I was looking at earlier today, they provided some stats on this, which is in their fiscal 08, 2008, 74% of revenue was from single day lift tickets and 26% of it was from season passes. So call it like 75, 25, three quarters of their revenues coming from single day lift tickets. In fiscal 19, it was almost 50-50. Their lift tickets were 53% and the passes was 47%. This is a big dramatic shift. Their goal is to have a complete flip from fiscal 08, which is 75% of their revenue mix is actually coming from season passes, not lift tickets, and 25% coming

from single day lift tickets. So when I pointed out their 47% increase in units, so like passes, and 21 percent in dollars, this discrepancy is because they actually had a price decrease for the season pass, which is aligning with their goal of changing the business to a lower friction subscription model with the revenue mix being so much more focused on passes rather than lift tickets. They're guiding between $779 and $835 million in EBITDA for the fiscal 22. This would be a pretty good year for them. They did also mention that they just entered an agreement to acquire three resorts in the Pittsburgh area for approximately $125 million. For those who are not familiar with Vail Resorts, they have 37 destination mountain ski resorts, including a place which has a very special part

in my heart, which is the beautiful Whistler Black Home in British Columbia. So look, this business is undergoing a very meaningful transformation. And I think that it's the right transformation. But again, this is one of those businesses that is heavily impacted by softness in travel lately. And Whistler, for instance, was shut down early last year after the British Columbia government told them they had to shut down early. So just another word of caution that it is a travel business, right? They rely on that. So they're still getting it done with local traffic, which I do find encouraging, but align your expectations around that it could be very dependent on what happens with restrictions moving forward.

Yeah, yeah. Well put. You know this play better than I do, but we've talked a bit about it before. So it's definitely probably more of a travel play for me that I would consider versus like an airline or something like that, because you can still get some local revenue, even if travel is a bit down. But yeah, they'll be very dependent on that. Like any other type of travel play, there's no way around it. And they're also dependent on weather too, right? Like it's one of those businesses that, yeah, it's so seasonal, but then they also have some variants in the performance of those seasons. So that always gives me caution as an investor. That being said, this is kind of the leader in the category and it's a well-run business undergoing a pretty meaningful transformation. So we'll see what happens.

Yeah. Yeah, exactly. Moving on, we'll be talking about Lululemon, their Q3 2021 release. Before I get started, it was a very good report from Lululemon. There was a little bit of a something that was an eye opener, but nothing major. Their net revenue increased 30% to 1.5 billion. Net revenue increased 28% in North America and increased 40% internationally. The total comparable sales increased 27%. Comparable stores sold increased 32% and direct-to-consumer revenue increased 23% to $586 million. Direct-to-consumer net revenue represented 40.4% of total net revenue compared to 42.8% for the third quarter of last year. But let's keep in mind that we were still dealing, well, we still are, but dealing with a lot more restrictions last year compared to now. So I find it quite impressive

that they were able to keep that percentage up so high. Gross margins increase 110 basis points to 57.2%, which every time I see their gross margins, I don't know about you, Brandon, but it just blows my mind for a clothing retailer. It blows my mind. But then as a customer myself, I walk into the stores and know how much these things cost. And I'm not at all surprised by the gross margin. Oh, I know. And when I went to the States during Black Friday, pretty much all the stores had sales except Lululemon. And you know what? This store was still packed. So that's how strong of a brand they have. These extremely durable or like sought after brands like Lululemon, it would go against their brand to have sales. As ridiculous as this sounds, Lululemon customers don't want them to have sales.

And it sounds so counterintuitive, but it's true. Yeah, exactly. You can still find some discounted stuff if you look at their we've made too much. And oftentimes, there'll be certain sizes. But yeah, it's very hard to find stuff on sale from Lululemon. Like other than the clearance rack, you're paying full price no matter what. Yeah, exactly. And their diluted earnings per share increased 31% to $1.44. The company repurchased $236 million worth of shares during the quarter they opened 18 net new company operated stores during the third quarter ending the quarter with 552 stores

management sent on the call that u.s thanksgiving was their highest e-commerce day in ever in terms of volume which is pretty amazing management said their inventory levels are in line with what they expected for the quarter they did say that demand is so strong for their product that it has most likely affected their total sales in terms of the supply chain issues but they said there was an impact but overall they did mention that they managed it quite well and they don't see any significant impacts from it because they have some good inventory levels. They did lower their guidance and this was the point that wasn't great on the conference call, but they lowered their guidance on Mirror, which they purchased last year if I remember correctly. But it only represents 3% of their revenue. 3% of their revenue. They said that they've been impacted like everyone else in the space as people return to working out in person and the connected fitness or remote fitness is not as high a

commodity. And we saw that with Peloton, right? Peloton had to slash their guidance. Mirror still had 40% increase in its base of user, and they still see that it has a growth lever for the future but i really like that management said that they won't chase growth at any cost because they don't need to chase growth at any cost in this segment but they still remain bullish they just said that they will essentially not be throwing money at all costs if they see that it's not working i mean overall very good quarter for Lululemon. They actually increased their full year guidance as a whole for their sales despite lowering the guidance on Mirror.

So, I mean, I feel like I'm repeating myself for Lululemon, but they just keep executing and firing on all cylinders. It's really the same story every quarter for them. It's the same story. It's death, taxes, and Lululemon crushing, just dominating all the time. Their stock is down with a broader market decline. It's down 15% from the high. I'm looking on a period here, what, November? Yeah, November 16th to now, which is mid-December. But again, this company just continues to just crush it on

every segment. And it blows my mind how much of their revenue mix comes from direct-to-consumer e-commerce for a clothing company. Now, I know that consumers have been adopters of clothing online, but it still shocks me because clothing is one of those things where you want to try on, you want to know. However, with that product, if you know your size, you know it's going to fit well, and it's just they've got that down to a science. So like I said, death taxes and Lululemon crushing it. All right, let's move on to Udemy or Udemy. I still haven't figured out. So full disclosure, I've used, I always say Udemy, but then I was watching a YouTube video earlier and someone guy was calling it Udemy.

So now I'm really confused. I got to listen to a conference call to find out for sure. But this company went public in late October. So this business is brand new to the public markets. It has a market cap today of 2.81 billion. So it is small and it's had a bit of a rough go timing wise for a technology IPO with shares down 25% since their first day of trading. Now they reported revenue up 9% year over year, which I suspect is, that's not like that exciting. And I suspect the fact is that it's very difficult comps. They had a 2020 with pulled forward growth. Everyone had time at home to learn new skills. People were changing their careers. A lot of people had like this serious midlife career

crisis where they're like, is this really what I want to do? Should I retool for some other industry? The exciting segment for this company is their enterprise customers. This revenue is up 84% and now has a 207 million annual recurring revenue run rate. So that is pretty significant given the size of the company and that's just one segment. So that's a lot bigger than I was expecting. It's becoming more and more of their bread and butter rather than just a marketplace. So those who are unfamiliar with Udemy, it's a marketplace for online courses. I've bought a handful of web development courses

on there over the past two years. Like any marketplace, some of the courses are great. Some of them are average, harder to follow, but the rating system is really good. And that's important for any marketplace product is you need to have a really robust rating system. And that creates a network effect as well. It's just so important for every marketplace business. So that's what I do like to see. You can get courses on there, like 40 hours of video content for like 10 bucks. It's just a really good value proposition. Even in a world where a lot of this stuff, you could find it on YouTube, it's not going to be structured quite like that. So there is value in the product. This is an interesting business, Simon, because people are looking to retool their skill sets,

especially in tech. People are realizing, geez, some of these big tech companies are hiring web developers or software engineers that are self-taught. You don't need to have a degree if you're good. And the people who are hiring, they can find out right in the interview. Some of them are technical interviews. People can find out right away if you're a good developer. It doesn't matter if you have a software engineering degree. It just really doesn't matter. So this is a part of the biz to watch, especially with their enterprise customers getting large. People are looking for continuous learning from their companies. So this enterprise subscription model is something to watch and probably the most exciting part of the business. Yeah, I don't have much to add there. I don't know the name well

enough. So I'll move on to our next name, Dollarama. But do you have any comments on what you're seeing with people changing careers and this kind of general secular trend? Do you have any comment there? Yeah, I mean, I think we're seeing that it's probably more anecdotal. I know a few people that would have done that during the pandemic. I've heard some podcasts from the New York Times where they did a special episode on that people that looked at changing careers or had like previous skill sets. But a company like Udemy, I think it's interesting. I just think there's probably without knowing it well, my first impression would be that there's going to be not much of a barrier to entry to potential competitors here. And you have competitions from YouTube.

You have people that will develop courses just on their own. So it's true. Yeah, that's kind of where I would approach it. Obviously, the pandemic has opened the eyes to a lot of people. Yeah, that's kind of my thoughts on the overall business and changing of careers. But definitely, I think there's more people that are doing that now that pre pandemic. Yeah, yeah, for sure. And you pointed out an interesting thing, which is like, what is their competitive advantage? And I don't know what it is. There's so many competitors, especially in the training and especially B2B large subscriptions. I'm talking about the exciting part of their business. So there are lots of holes in the investment thesis here. I just wanted to talk about an interesting IPO.

And you know what I found really funny there, Simon, is you said Udemy and I said Udemy. This solidifies that no one knows. It's mysterious. No one knows the name of this business. Someone tweet at me, at Brato Capital, how I should be saying it. 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.

sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. All right, let's move on to a retailer we know and love. Yeah, Dollarama. Dollarama came out with their Q3 2022 earnings. Yes, they have a weird schedule.

Sales increased by 5.5% to $1.12 billion. Comparable store sales increased 0.8%. margins increased 40 basis points to 44.4%. EBITDA increased 11.2% to 347 million. Their diluted EPS increased 17.3% to 61 cents per share. They added 16 new stores during the quarter, bringing their total to 1,397. They also repurchased294 million worth of shares during the quarter. We've talked about Dollarama before here, so it's going to be kind of steady as she goes. If we see more restrictions in the next year or two, it's unlikely that they'll be severely affected by that. If anything, it could probably be a positive thing on their end. I don't think you'll see crazy growth from Dollarama. Yes, they'll keep opening some new stores. But again, they're limited to the Canadian market here unless they want to start expanding

outside of Canada, where you have some pretty major players in the dollar store or low cost store space, because I say dollar store, but now you can buy stuff that's five bucks each. So I don't know. I think to me, the question here will be, where do you see the growth going forward? Clearly, they're returning money to shareholder, they're paying a dividend and they're reperching shares, but it's probably something you can own and sleep pretty well at night, but it definitely won't blow you out of the water in terms of growth. won't blow you out of the water in terms of growth. The story on this business is the gross margin expansion. If only Dollarama had scale outside of Canada, I would be such a happy shareholder. The gross margin expansion, to give you some numbers here, in 2012, the gross margin on Dollarama was 37.5%. It's 44 now. What is the number you just said?

44.4 for the latest quarter? Yeah, that's it. And so, yeah, it hovered around 37. In 2014, it was 37.1%. And just a few years later, 2019, it was north of 44%. And so you're just seeing really, really consistent pricing power from a dollar store company, which is very interesting, right? Because you're seeing in the States, the dollar store models, they've been so hesitant to raise prices. But then you have this monopoly in Canada called Dollarama, who's been flexing pricing power while still giving a lot of value to their customers. And you're seeing their margins just expand. 44.4% gross margins for a retailer is phenomenal. And so if only Dollarama had scale

outside of Canada, oh, you bet I would own it. But that is such a problem in the thesis. And I try to stay away from really great companies that are only operating in Canada. It is like a checklist for me that I have to see some scale outside of it. But other than that, and if you do own Dollarama, you can expect some pretty consistent growth and really solid financials. Yeah. The one thing I would probably advise people to keep an eye on for Dollarama is those gross margins. Because when you're thinking dollar store, I'm not sure to which point they'll be able to exercise their pricing power if we see inflation and their costs start really ticking up pretty quickly. So I know they've really improved,

like you said, over the past, what, seven or eight years. But it is something that I would keep a close eye on. Maybe they'll be able to power through, not have any issues. But I feel like their clientele may be quite sensitive to significant price increases. So they'll have to find savings somewhere else in terms of keeping those margins intact or not lowering them too much. I think you bring up a good point, which is that their customers might be fairly price sensitive. But I guess my counterpoint to that is everyone who knows and has been shopping at Dollarama knows that the items are multiple dollars, like many dollars. And it's more so just like when you see it, it doesn't matter what the dollar amount is.

You just know that it's cheaper than anywhere else. Like when you pick up something that you're kind of brand agnostic or just doesn't really matter, you're getting a like for like product, a Dollarama compared to somewhere else, you know that it's cheap. You know you're getting a good deal on it. So I guess I would provide some pushback and say, I think that they do have consistent pricing power into the future, even in a fairly inflationary environment, I think anyways, but I guess time will tell.

Yeah. Yeah, definitely. You want to go on to the next name we have on the list? SentinelOne. SentinelOne is a cybersecurity software as a service play, and they reported third quarter fiscal 22. We're in the part of the year where it's just like some strange reporting periods, but that's just the nature of it. SentinelOne, in my opinion, is the most formidable competitor to my knowledge to CrowdStrike, ticker CRWD. It's one we cover in Stratosphere and we know quite well. CrowdStrike is the category leader, but SentinelOne is gaining tons of traction. And they do have a really few interesting value propositions. SentinelOne and CrowdStrike, for those listening at home, they use AI and big data sets to eliminate cybersecurity threats. They also have

some unique network competitive advantages where the more customers they have on their product, the better the cybersecurity threats actually are. And so it's just a really fascinating, very fast growing business. I was curious what's different about these two names. And I did see some interesting info from Gardner and seeing some who have implemented their solution on Sentinel-1, and they have all came back to a recurring theme, which is simplicity and really low friction for implementing it. And so this is pretty impressive given the complexity of cybersecurity. I could see this being a competitive advantage for most corporations to be able to implement their solution quickly and effectively since the actual percent of the workforce that has experience in cybersecurity

is pretty low if I had to make some sort of educated guess on that. Now, I am copying and pasting the press release right here because for every SaaS business, they have it right line by line in the exact order that I want to know how this company is doing, like dollar-based net retention. I need to know that and some SaaS companies don't make it obvious. So total revenue was 56 million, which was up 128%. Talk about growth. ARR, which is annualized recurring revenue ARR. For those who are not familiar with the term, people in software, they say MRR, which is monthly recurring revenue and ARR, which is annual recurring revenue. Their ARR was up 131% to 237 million. Total customer count grew 75%. They now have over 6,000 customers.

And customers with annual recurring revenue, they're spending more than $100,000 on the platform grew 140%. That's an interesting statistic and one that I want to keep tracking. Dollar-based net revenue retention reached a new high of 130%. Really nice to see. That means that their current customer base, net of churn, net of downgrades are spending more money on the platform every year. Gross margin was 64% compared to 58%. So that's continuing to tick up. I'd like to see that eventually get up 70%, 75% for this company. I think that that's fairly reasonable given they are a new story and gained so much traction right out of the gate. And so it's definitely one to keep looking at. Of course, with CrowdStrike and cybersecurity and software as a service, cloud,

high network effect businesses. It trades at premium prices, but it probably should given this growth rate. Yeah. Premium price is definitely an understatement here. They're making what? They have a run rate, let's be generous, say like 250 for the year. They're trading, the market cap is like 13 billion. Yeah, it's definitely, I mean, it's not cheap. There's a lot of things to like, that's for sure. My counterpoint to that is look at the growth rate. I mean, the opportunity is ginormous and it's come down a lot in price recently. Still does not make it cheap. That's my... Oh, no, no. Simon, I'm not here to say the stock is cheap. You know that I know it's crazy expensive,

but it's not going to trade for $5 billion in market cap. I think $13 billion in market cap is a reasonable price to pay for something that's growing this fast and has such an opportunity set ahead of it. I don't know it enough to say for sure if it's a very formidable competitor to CrowdStrike long term, but everything that I'm seeing is that it definitely could be. Yeah, no, no, I get it. My only thing is when you're seeing these high growth rates on such a small base, that's always a bit worrying for me just because it's much easier to have that high increase on a small base. And it's a very competitive sector. That's my other thing here.

That's why I personally would be very reluctant. I don't know that space quite well, but I know enough about it to know that it's extremely competitive. And it's something I would probably wait personally for them to be a bit more established before I consider starting a position. And that's a completely, completely fair take. It's one that I'm doing more work on. And you know what?

There is that value investor in me and then clearly in you that just goes, I don't care how great the business is. I'm not paying that sales multiple. And that's totally legit, right? It's like, the motto of this is buy great companies, hold them as long as you can, try not to pay stupid prices. And sometimes there are stupid prices out there and just might not make sense. And I wholeheartedly agree with that. Yeah. What's crazy is that it's down what, like 40%?

I think like 35%. Yeah. Yeah. So just to think of the premiums. But anyways. And that's the risk you run when you buy crazy priced stuff. Yeah, exactly. It's down 38% and it still looks expensive. That's it. Now we'll move on to a business that's definitely not growing as quickly. GameStop released their Q3 2021 figures. So their net sales increased 29% to $1.3 billion. Let's round it up. For the nine months of this year so far, sales have increased 27% to $3.76 billion.

Sales that were related to new and expanded brand relationships such as Samsung, LG, Razer, Vizio, and others contributed to the company's growth in the quarter. The inventory was $1.14 billion at close of the quarter compared to $861 million at the close of the prior year's third quarter. So it's reflecting that the company is actually trying to get in some more inventory to make sure that they can meet customer demand, especially for the busy period that's coming up. They ended the period with cash and cash equivalents of $1.4 billion. This was mostly achieved by the issuance of new shares this year for a proceed of $1.67 billion. They were free cash flow negative for the first nine months of the year to the tune of $365

million. That's compared to $73 million last year. I just wanted to talk about GameStop because it's made DA headlines so much this year. But it's not a business I invested in. But I'll still be interested to see how they do for Q4, which will include the holiday period. Definitely that's something that investors will want to see. Those who are actually investing in the business, not the people that are after meme stocks. And on that note, GameStop was actually down 14% today for no apparent reason other than investors taking, and I say investors in air quotes, taking money off the table when it came to meme stock because AMC is also down quite a bit today.

Any sizable move in the stock like this one, you know, has probably, probably, even around an earnings release, which is so sad, probably no real attachment to the business fundamentals because it has no attachment to the business fundamentals. Because it has no attachment to the business fundamentals. None of the meme stocks do. GameStop and AMC are the poster boys of the meme stocks. So don't look too much into it when you see big moves in this stock. It is just lots of volume moving and completely sentiment driven. So don't look too much into it. Now, what I do think has positive tailwinds for GameStop is that I'm anecdotally starting to see some success in the console cycle, which has taken so long because it was so disrupted, like Microsoft and Sony not actually

being able to ship these things. I'm seeing people actually get their hands on the new consoles. And what I'm also noticing, they're ramping up their marketing spend because it's available again. All of a sudden, I'm seeing commercials for PlayStation and Xbox that I wasn't seeing before because they weren't going to incinerate money before on marketing when no one can actually buy them. So that is positive for GameStop is that a lot of people do buy the actual console in store versus maybe they download the games online, but they actually go buy the console in store or via e-commerce. So this is positive for GameStop because that is a physical product. So whether they can fulfill

that e-commerce or in-store, that's something to look for as they actually fulfill the inventory for the new console cycle. Thanks so much for listening to the podcast, guys. This is our earnings release of the show. We do investing strategy conceptually, and we got lots of fun shows to close out the end of the year. Bold predictions, recapping on the year of what is an interesting and somewhat strange year in the stock market and what we're looking forward to in 2022. The businesses we're excited about. Simon, I think we have a plan here to go through our entire portfolios by listing as well, which I know will get a lot of uptake from you guys. So thanks so much for listening. If you haven't subscribed on Apple Podcasts, hit that button and then the like for like button on Spotify is follow at the top of the podcast. So go ahead and do that. Leave five

star reviews if the show helped you in any significant way. Really appreciate it. If you haven't checked out Stratosphere, go to stratosphereinvesting.com. It is the absolute goat for doing your stock market research. We will see you in a few days, guys. 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.