3 Stocks at Risk from Trump’s New Aluminum & Steel Tariffs

[00:00:01] 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 Braden Dennis and Simon Belanger The Canadian Investor Podcast. Welcome to the show. My name is Braden Dennis, as always joined by the remarkable Mr. Simon Belanger. Dude, can I start with a stock idea?

[00:00:28] Yeah, go for it. I had a quick look of what you want to talk about and it's in, I never thought you'd talk about this stuff. I don't think I ever would, no. But you know, I reserve the right to change my mind. No, but today should be a good episode. I'm going to talk about this and then you're going to talk about more news on tariffs.

[00:00:50] I'm going to talk about autonomous vehicles and the future of Uber, RoboTaxi and all that stuff. And then you're going to talk about a Canadian company on how to not do share buybacks 101. I think this is actually a pretty fun segment too. I'm going to be dunking on a Canadian company, unfortunately, but I think the stock you chose is pretty good though. It's the opposite of a pandemic darling, I would say.

[00:01:17] Correct. Yes. So not advice. Nothing in this show is advice. Always do your own research. I do not own shares in this stock. Yada, yada, yada. Don't bore my conviction. It's a bad way to invest. Okay. Ticker RCL. Royal Caribbean Cruises. 70 billion in market cap company. By the way, are you a cruise guy? Have you been on a cruise vacation before?

[00:01:41] I haven't, but I would like to try at some point, probably like a Disney cruise. So my daughter, I think it's very much geared towards kids, but also the parents having a good time while the kids are there from what I've heard. So maybe one of those Disney cruises or something like that.

[00:01:58] You'd be right in the demographic. Absolutely. With the young kids. Now, I have zero idea what they're like. I went on one when I was like a really young kid. I don't really remember. I know that they're giant buffets on the ocean. That's what they are. They're giant buffets. You stuff your face with food while floating on the ocean with a water slide. Honestly, sounds kind of unreal.

[00:02:25] So I'm in Fort Lauderdale right now, as you know, and this is where a lot of the ships leap from. It's like cruise capital. And I'm like to Ashley, I'm like, should we go on a three day cruise or something? Like, should we figure out if this, if this is for us? Like, are we the, are we those people?

[00:02:43] So I'm a big YouTube guy. So I check out videos on YouTube, like which boat should we go on? I kind of want to just see videos of what they look like too. Should we go on Royal Caribbean, Celebrity, which are higher end, the carnival, that's the low cost option. I want to see some reviews, but then also what they look like. I'm like, ah, carnival that now that looks kind of on the low end and Disney cruise, you know, just given where I am, don't have kids.

[00:03:11] I'd rather swim than go on a Disney cruise today with me and my fiance. If you want a good reason to not have kids, go on the Disney cruise without kids. Fair. I mean, teach their own, you know, everyone's got their thing for us. Plus that kind of leaves Royal Caribbean and Celebrity, the two options. Okay. And all the YouTube videos, I'm basically like, oh, we are loyal. We're loyal to Royal. I'm like, what the hell is this? Like loyal to Royal.

[00:03:40] I'm watching more videos. I'm watching more videos. And there's like this entire like cruise cult of like, they review every single boat. They've been on all of them. Oh, wow. Okay. Yeah. And all these videos are really aimed at the other cruise goers. Like these, I could not find any videos that like for me that were like, hey, here's the basics. They were really like about the cruise goers, the very like loyal fan bases.

[00:04:10] And I'm like, what is this loyalty program? They're all talking about how they rack up these loyalty programs. And oh no, it's Royal Caribbean or bus type of thing. And I'm like, okay, this is kind of interesting. There's something to this like loyalty program. This is interesting. Where do I go? I go pull up Finch at. I'm like, I just want to see Royal Caribbean stock. This is the kind of just person I am. Here I am, Simone, thinking celebrities, their most fierce competitor. I realized Royal Caribbean owns them.

[00:04:40] Okay. Okay. That's their sister brand. I'm looking around like post pandemic. These two brands have really gobbled up a lot of market share. Like Disney's Disney, the parks and the cruises, you know, the people are going to go on Disney are going to go on Disney, but they've really gobbled up market share on the margin. So I pull up their financials. I see the huge market share grains. This is a growth business, Simone.

[00:05:09] Passenger ticket revenue and onboard revenue has been, you know, kind of up into the right. You have 2020 and 2021 where the business just collapses, you know, basically goes to zero. It looks like they were still generating revenue, but they only had a few ships going. The business lost a ton, a ton of money in those two years. Like it was really catastrophic.

[00:05:39] Even 2022 was not back up to the even 2017 levels. But since then the business is back and more and sure it's probably catching up on some, you know, some pent up demand. That is the risk though, is that Simone, they basically went from 8 billion in debt to 20 billion in debt on the balance sheet during those years.

[00:06:06] It trades at 18 times next year's earnings. They are getting the balance sheet in order. It's the total debt load's gone down from 2022. And it's producing a fair bit of cash again. You know, they're losing basically 6 billion in cash in 2020, another 4 billion in 21, another 2.2 in 2022. But since then, you know, they're generating a few billion in cash every year. And I think I expect this to continue to go up because that kind of onboard revenue makes

[00:06:36] up a lot of the money. So I don't typically like these times, these types of investments, but I wanted to turn over the stone when I saw this loyal to royal cult online. Like there's something, there is something here. Yeah. Yeah. I mean, I know, I know a lot of people that love cruises and I do wonder those that were stuck on the boats.

[00:07:03] Remember when the pandemic hit, there were like literally boats that were quarantined. I feel like if you were part of that group, you're probably have PTSD going back on a cruise. But obviously that was a small portion of people. But yeah, it's surprising how well they've done. But I'm not surprised. We've seen pent up demand happen for a whole slew of different services, especially experiences where people can do them during the pandemic.

[00:07:30] So I'm not surprised to see that they've rebounded that well. And in the last two years, we've seen that happen time and time again, although we're seeing it slow down a little bit when you start looking. I'm thinking about Airbnb. I haven't looked at them in the last couple of months, but I know they were seeing slowing demand as well. A little bit seeing that people are pulling back a little bit on spend, which makes sense.

[00:07:56] I'm surprised that it seems at least with the data you're showing and you're talking about, they're not seeing that. It seems to be continuing for them. I guess I just didn't expect to see, and that's why I love a platform like this, where you can just kind of pull up the two business segments quickly. I was not expecting to see this be such a growth business and such a steady growth business over time.

[00:08:21] I think that that base cohort of customers that really like to do these types of holidays around the world just keep coming back for more. And I think that they've made really interesting investments in their own private islands. Have you noticed? I don't know if you know anything about this. No, I didn't know. No. Tell me about it. So out in like the Bahamas, Royal, Disney even, they've basically taken old islands and

[00:08:51] renoed them into a stop that you partake in on some of these typical routes that leave South Florida, for example, which is very kind of the most common cruise routes that for North Americans at least. And they've built their own islands that you go to for the day. Yeah. And it's like a fun, Royal Caribbean calls it like the perfect day. It's like what the island, Coco Cay or the perfect day, whatever, some jingle they got going there.

[00:09:20] But it's basically like utopia for a kid showing up to a beach island, essentially. It's like the way to picture it. But there's food for the adults. There's drinks. There's the drink package you got to pay for. But that has been reaping rewards, that investment that they've built out in these islands that they've put out and basically restored from nothing. They're reaping the benefit from those investments as well, too.

[00:09:49] So anyways, just a name for the watch list. I'm not rushing to buy the idea, but I like turning over these stones. I like bringing them to the pod. And yeah. Yeah. Yeah. I was looking at just to see if you would have bottom ticked it during the pandemic. I mean, you've really done well. I'm not sure. Probably similar to the S&P 500, maybe a bit ahead if you bought it during the big crash in March of 2020.

[00:10:19] Because I'm just doing the five year here and the total returns five year, which is just before the pandemic started. It's about 101%. So quite good for five years. You could have done worse in terms of investment. It's probably 120, 130 if you're looking at March 2020. A bottom tick of March 20 is more than a 10 bagger for Royal Caribbean. Oh, wow. Okay. Never mind. Yeah. Yeah. So it's, I mean, again, this is me cherry picking.

[00:10:48] It's trading at $22 in March of 2020. But I mean, if you're compared to the S&P, you can bottom tick that day too. Yeah. It has more than 10 bagged. Yeah. I guess I was underestimating the drop that happened. So yeah, I'm just choosing here. Yeah. March 23, 2020 and 647% in terms of total return. So it's not bad. Not bad at all. Could have done a lot worse.

[00:11:17] Well, you can see the prices at $22 in March, right? And it's $256 today, right? So that's more than 10 bagged just on the share price. Mm-hmm. No, that's right. I don't know. Finchat's giving me $642, but I guess the total change. Okay. Yeah. 813. So I wasn't looking at the right thing, but yeah, it's been quite the investment. All that to say. Stupid Finchat product. Damn. No, I was looking at different areas. So that's my bad. It's a user error.

[00:11:47] User error. Yeah. So that's it for Royal Caribbean. Okay. You're going to talk about more tariffs. The buzzword of 2025. More tariffs. Yeah. I mean, I think we're going to have to talk about tariffs every other week. It seems like it. And like Trump said, it's his favorite word in the American dictionary. I think that was one of his quotes at some point.

[00:12:12] Well, on Monday, he announced that there'd be tariffs of 25% on aluminum and steel exports going to the US. The tariffs will be applied universally and with no exception or exemptions. In other words, it will apply to all countries, including Canada. And Canada is not singled out specifically here. But the reality is that indirectly it is because Canada is the largest exporter for both steel and aluminum.

[00:12:41] And by a mile like it's Canada is definitely the largest exporter to the US for both even more so for aluminum than steel. But even steel is pretty significant. So if Canada exports 7 billion worth of steel every year to the US, and obviously depending where you're getting the data. So you may have seen six, seven around that range. There's different areas to get that data, whether it's coming from the US or internationally.

[00:13:11] But regardless, Canada is well in front of second and third place when it comes to exports of steel, which is Mexico and Brazil at around 3 billion each. And it's even more pronounced, like I said, for aluminum. Canada is by far the number one exporter to the US with around 10 billion in exports. That's 10 times higher than the next country. So that's why you're seeing a lot of people concerned with these.

[00:13:37] And for both metals, the US represents around 90% of exports for Canadian products. And I think it's important for people to remember. Remember last week when I talked about tariffs and said, look, if you're building a bike, this has an aluminum frame, and you're just bringing in the aluminum for the frame, that will be tariff. So in this case, it would be tariff 25%. However, it doesn't mean the rest of the bike will be tariff if the rest of the bike

[00:14:07] is all made in the US. So I think we have to keep that in mind where it's hard to say to what extent there is going to be a negative impact for these industries. But I think it's hard to say that there will be some kind of negative impact. But I think it's a bit too early to say that it's going to be necessarily a massive impact. And of course, you have Ontario and Quebec. That would be the two most impacted provinces. Ontario more for the steel production.

[00:14:34] And Quebec because of the cheap hydroelectricity. It would be more for the aluminum production. And the tariffs are supposed to go in effect. I thought I'd put that down my notes. But early March, I think it was March 3 or 4th, if I remember correctly. So there is still some times for these producer a couple weeks, two, three weeks for them to try to react to that. At the end of the day, I think it's going to be most likely the US consumer that will be

[00:15:03] on the hook for increased prices. And there's probably going to be some impact to Canada. We'll have to see. And what I wanted to do is just look at three companies that may see some impact. A lot of them that have been cited. So Alcoa would be the first one. I pulled some charts here. And it's hard to say again to what extent just because the companies don't always break down their business lines. And I'm sure you know that with KPIs, right?

[00:15:32] So sometimes you'd want them to break it down a certain way. And they don't always do. But Alcoa here, to get a good idea, the United States, the US revenue is a bit more, a bit less than half of their total revenues. And they're looking at $5 billion coming from US and around $10.5 billion for their total revenue. So a bit less than half. And aluminum production is about 60% of their revenues.

[00:15:59] So if you're doing some quick math, assuming that it's probably the same ratio for the US. So you're looking about at around $3 billion in sales that could potentially be impacted. Again, it won't go to zero. I think that's safe to say. There's probably part of that production that is directly already happening in the US. So we don't know exactly what portion is going out and being exported to the US.

[00:16:24] But Alcoa is probably one of the companies that will be the most impacted by this. And of course, Quebec, there's some major plants, major aluminum foundries or smelters. I don't know what they're called. But there's some major ones in Quebec. So Alcoa is the first one that it'll be interesting to have a look. And for all the three companies I'll be mentioning here, there's two more.

[00:16:50] Make sure that if you own them or you're looking to start a position, don't make any quick rash reactions, anything like that. I think my recommendation for any of these is wait until they come out with their next earnings call and listen to what the leadership team and management has to say regarding those tariffs. Maybe they'll have a special update before then.

[00:17:16] And if they do, make sure you listen to it carefully and then you make a judgment. Because again, you see those headlines. Mainstream media is really good at posting stuff that sells, making people panic, a lot of fear mongering. We've seen that ever since Trump has been elected. And I think on this podcast, we've been saying pretty consistently, let's just wait and see. Let's not make any conclusion. Donald Trump, for lack of better words, says a lot of shit out loud.

[00:17:45] And you have to kind of take it with a grain of salt at times and in my view, not make any adverse reaction. Anything you want to say before I move on to the two other companies? I just want to double click on the example you had with the bicycle, which has raw material for the frame, for example. And then other parts that may come in and assembled in the US.

[00:18:11] The effects downstream for the US consumer, of course, this is inflationary, but it's diluted the further you go down from raw material to processing, to actually making something, to assembly, which has dilution from other products, which may not have tariffs, to end customer. Yeah, exactly.

[00:18:36] It's like, as you go up closer to raw material businesses, these are the ones that have their unit economics impacted the most by far. So it affects everything downstream. But if you're wondering, why do I see that magnified so much in price action or in news or reaction from the markets about certain companies? It's just like, how close to the sun are they in terms of this impacting their unit economics?

[00:19:05] So that'd be the only thing I'd click on. Yeah, and I think I forgot to mention. So the ticker for Alcoa is AA and it's listed in the US. So just for people wanting that may not have been familiar with the company, I always like to say the ticker is there. And that's a great point because it's clear that the US is trying to encourage the aluminum to be made in the US, the steel to be made in the US.

[00:19:29] Because one interesting is it tariffs aluminum and it tariffs steel, but it does not tariff iron ore, for example, for steel. So what they're trying to do is they're trying to encourage companies to bring it to the US, not tariff the base material or the minerals, and then actually making in the US. So I think it's important, just a little nuance if people have not caught on to that, that I wanted to mention. Now the...

[00:19:58] It's like, yeah, like we should have all our processing, refining, smelting be done here, right? Like, I mean, yeah, because if you go on the raw material and they own that material and they don't own that material, then it just makes absolutely no sense to tariff it. Exactly. And keep in mind, too, other ways that it can dilute, like we mentioned last week, a weaker Canadian dollar, if we're talking about Canada, will soften the impact of that 25% tariff on aluminum.

[00:20:29] Quebec sells a lot of cheap electricity to Alcoa. And at the end of the day, it's Hydro-Quebec, it's government-controlled. They have a lot of cheap electricity. Maybe they try to reduce those rates to make it more attractive and more profitable for them to actually produce that and keep jobs in Quebec. Whether the US would not in turn react to that, that's another question.

[00:20:54] But there's a whole lot of different ways that these could potentially be mitigated as well. And the next one here is Algoma Steel. So if you're from northern Ontario, from Sault Ste. Marie, and I say it in French, I know in anglophone, we'll say Sault Ste. Marie or whatever, but I say in French. They have their primary smelter over there. I think it's the only one that they have. I'm assuming it's massive for Sault Ste. Marie's economy.

[00:21:22] And they don't provide really a breakdown of sales in terms of geography. But again, I think it's safe to say that a big portion of that is going to the US. So that is another company. Again, publicly traded. I tried to look at publicly traded companies. The ticker is ASTL for those who are interested at looking at the company. That's another one that could be impacted. There are other ones. Just to be clear, a lot of them are private.

[00:21:48] And the last one that is not really likely to get impacted is Rio Tinto. And Rio Tinto, I think a lot of people will know that they produce a lot of aluminum. But it's interesting looking, and Finchat has a lot of great information on that in terms of the KPIs and the segment. And what I'm showing for joint TCI is a couple of different things.

[00:22:12] So you have the aluminum revenue that is $12 billion roughly a year. You have USA revenue that is $7.5 billion. And then you have their total revenues that are $54 billion. So clearly here, they're not as dependent on aluminum. They produce a lot of iron ore as well. So that is something that they produce. And two-thirds of their sales actually go to China.

[00:22:38] So they're a company that is actually probably quite okay with this. They are very dependent on China. But that's another one because there's probably only part of their U.S. sales that would be tariffed. Mainly because I was talking about earlier iron ore, for example. And that's a big part of what they produce. Would not be tariffed to the U.S.

[00:23:01] It would only be more kind of finished, not in air code, but more complete product like actual steel and aluminum. So that is another one I wanted to talk about because a lot of people know the name. It's a big player. But global aluminum sales were only 23% of their sales. 60% of the revenues are iron ore. And 60% of the revenues goes to China. So it's hard to say what impact it would have.

[00:23:28] But clearly they would not have as big of an impact as an Alcoa, for example. Makes sense. And I believe for Rio, there's a fair bit of their operations in South America, Latin America, Chile, Argentina, Brazil, Australia. So it might never even go through the U.S. if that much of the revenues – a good chunk of the revenue is actually going to China.

[00:23:56] So I know they have fairly large mines in Australia, for example. Yeah. So that would make sense from there. It's definitely – yeah, it's one that there may be an overreaction. I'm not sure in the coming months because people falsely think they'll be very impacted by tariffs. So something to keep in mind, like I said, there's a lot of moving parts. I mean, maybe in two weeks we'll know that those tariffs are paused because who knows why.

[00:24:23] Trump decided to pause them for A, B, C, different reason. Maybe he's getting industry pressure from various industry groups in the U.S. or business groups. Who knows? But that's the status of what we're seeing right now is that they will be going into effect in early March. One thing to keep in mind, it took me a long time as investor to learn this kind of unfortunately the long, painful way, which is sitting on companies that do absolutely nothing for a long time thinking,

[00:24:52] why doesn't the market care about what I think it should care about? Which is basically an idea which has a lot of merit, which is which of these high quality companies are being thrown out with the bathwater and are getting a discount. But then at the same time, if the market is so silly to throw them out,

[00:25:14] it's also so silly to not quickly then correct and give it a higher multiple than it had before. Or it's like, oh, the market doesn't like steel. So even though Rio is not going to get affected, steel is just going to trade it to press multiples for a while, even if the fundamentals are intact. So it took me a long time to realize that those short term opportunities

[00:25:39] don't unfortunately always lead to the market re-rating itself in the next six to 12 months. Unfortunately, I wish if only it was so rational, you know, but the same way it reacts irrationally in the long term, sometimes it can for multiple years. Yeah. I mean, if the market was rational, I don't think Apple would be trading at the valuation it is right now. So that's the one I always come back to. Shots fired. Yeah. And I love Apple products. You know, I do. But yeah.

[00:26:10] Let's talk about Uber and the future of autonomous vehicles. So first things first, Uber, man, full year results, 162 billion in gross bookings. Unbelievable scale moving through the platform. Nearly $7 billion of free cash flow, CMO. This is a profitable, profitable company. Who would have thought not me, though, for sure. Who would have thought not me either? I am a shareholder once I realized I was wrong.

[00:26:38] I corrected that mistake and I'm glad I did correct that mistake because, well, I don't know if it was a mistake, but there was fundamentally different unit economics happening here. They were in a war with Lyft, which they won. And so there was many factors at play, but this is a profitable, profitable business since Dara has taken over. So a quote from Dara, the CEO on the earnings call, which is, quote,

[00:27:06] our very early experience in Phoenix suggests Uber's network is able to drive significantly higher utilization versus any other first party network could because of our scale. So he's talking about their partnership with Waymo. For those who do not know, Waymo is an Uber company. Sorry, sorry. It is a Google owned company. Waymo is. And it is autonomous robo taxis.

[00:27:36] Put it in the app. Say where you want to go. A car picks you up without anyone driving. The autonomous vehicle drops you off at your location. Off you go. They're operating in San Francisco, Phoenix, and LA. So he's talking about this partnership. The other pattern, quote, we see is customers love the product. The opt-in rate for customers the second time that they're offered an autonomous vehicle is significantly higher than the opt-in rate the first time. So it's a great product.

[00:28:06] And you see that in terms of pricing. So he's hinting as well, like people are paying extra money on the Uber app to pay for a Waymo to come pick them up rather than a human driver to come pick them up. So they're actually charging significantly more. I mean, they're nice cars too. Like it's a partnership they have with Jaguar. What is it? I don't know. You know more about this than I do. Waymo cars.

[00:28:37] What are they? Let me use the Google machine. Yeah. Is it Jaguar? Am I making that up? It's the Jaguar I-Pace. Yeah. It's that SUV. Oh yeah. Yeah. Yeah. It's, uh, there you go. Yeah. They're pretty nice. So they're like luxury vehicles and it's got the big, you know, Google car thing on the top that has all the sensors. It's got sensors everywhere. Yeah. You're showing it on the screen here. They're a little, little video.

[00:29:07] Yeah. It also, if you don't want to talk to the driver, then you're guaranteed you don't have to talk to the driver. Soon it's going to be like chat GPT that like starts talking to you. Yeah. Yeah. So, so that's, that's, that's the Waymo partnership. So I have a few thoughts here in no particular order because I'm not sure if this is bullish or bearish for Uber because you know, you could just hype, you could just circumvent them, right? It's obviously regardless it's bullish for Waymo.

[00:29:35] They're leading this by far. So I'll start there. I got five thoughts. Number one, Waymo, which is owned by Google is incredible. They're completing over 150,000 paid rides per week and growing extremely fast in their three cities, San Francisco, Phoenix, and LA. They're now deploying to other warm climates, Austin, Miami, you know, those types of things. I think Austin and Uber are rolling that partnership out right now as we speak.

[00:30:03] Pick you up, drop you off, no humans, higher safety rating, better product, I think across the board than, you know, someone picking you up. Number two, Waymo and Uber are partnering up together for that Austin, Texas rollout, which means of course, like just like they have for Phoenix. If you're on the Uber app, that is an option the same way that there's a call for a Uber black versus a regular one versus a XL, right?

[00:30:34] And it costs more. Number three, question is if it's Waymo or if it's Tesla RoboTaxi, whenever that comes out, whoever has the technology at scale. It's no longer a question, Simone, is if the technology will reach scale because it is reaching scale. I mean, especially in these warm climates where they have this ability to run this AV, EV infrastructure across the board.

[00:31:03] They've mapped out the cities. They've proven, they've gotten the regulator to say yes. They've proven safety rating as they kind of go geography by geography. It's proven out. So the question is, is Uber going to be needed as the distribution partner or do they skip over them right directly? You go to the Tesla app. You go to the Waymo app. I think most people are just going right to the Waymo app in San Francisco and LA in their like kind of home region versus going towards Uber.

[00:31:33] So that's bearish for Uber. I think you can kind of circumvent them. Number four, human drivers are going to be around for a really, really long time still. Like you got to go each geography, regulators, this. And it parlays into my fifth thought. Internal combustion engine cars are going to be around for a really long time as well. And autonomous vehicles and electric vehicles are synonymous. This won't be coming to inclement weather for a while.

[00:31:59] Like for this really to ramp up, you basically need to have autonomous vehicle ice or autonomous vehicle hybrid. Yeah. Yeah. Yeah. Because I mean, you hear stories constantly of people saying that they don't have much as much battery life with their EVs in colder climates in Canada. Obviously, Toronto is probably on the warmer side, I would say.

[00:32:23] But if you're starting to look at even Ottawa, Montreal, Edmonton, Winnipeg, all those cities. Yeah. It doesn't make, in my view. Go drive your Tesla in January in Winnipeg. Yeah. And then you still. Your battery life's like 40%. Exactly. And you still don't have the infrastructure. That's been one of my biggest pet peeves against EVs is the infrastructure is still not there. And even for us, my wife and I talked about it. Our next car will probably be a plug-in hybrid. Because then.

[00:32:53] Love plug-in hybrids. Yeah. They're fantastic. It gives you the best of both worlds. You can use the EV when you're more doing kind of stuff in town, not going very far. The combustion engine doesn't kick in. And then if you're doing longer trips, you don't have to go and rent a combustion engine car. Like I've, I know a lot of people that have had to rent cars because they have Teslas because they're afraid that if they drive it, they, they basically have battery anxiety or they

[00:33:22] tried it once and had a crappy experience. And they're like, never again, I'm just going to rent a car, which makes no sense at all to me. If you're going to have a brand new car or pay for a car, you should be able to use it on trips without fearing that it runs out of power. I'll push back on that a little bit though, because I used to be in this world and I was at the auto show and we were showing off the kind of like the new charging infrastructure

[00:33:47] that Ontario was putting in and all the different, like the network map, even Tesla's network map for charging is fantastic. It's super impressive. People would be like, they come, like majority of the people, don't get me wrong. People go on trips. They go on road trips. Yeah. Don't get me wrong. People come to me like, ah, but it's just, I can't do it because if I want to drive to Montreal, it's just going to be too much of a problem. And I would just say, when's the last time you drove to Montreal?

[00:34:17] Yeah. It depends. For sure. It depends on the frequency. Yeah. It's more, it's more, it's more, it's more, it's more, it's more, you look at me like, ah, like our, I guess like my honeymoon, like 45 years ago. It's like, exactly. This is not, this is not normal. Like you could, you could rent the car for those situations. Yeah. That's a fair point. I mean, obviously it depends on the use of you.

[00:34:40] Every three years you go do a longer than let's say 150 kilometer, 200 kilometer trip every two, three years, then it's not as much of a concern. But if. By the way, that's nothing. You can, you can do three times that. No, no, but I'm saying like, I'm just saying longer trip. I just trying to encapsule like all the, you know, plus. It's like 150 kilometers, but. No, I think what there are five. You haven't even made it to Barry yet. Yeah.

[00:35:07] There's what, five, 600 kilometers now in terms of range for the most part. But even then, I think one of the issues I've heard people is they'll get to a charging station and there's supposed to be five working chargers or 10 there. And half of them are not working or currently out of order, which is a lot less common for gas stations, right? Once in a while, you'll have a gas pump that's not working. But most of the time they're always functioning.

[00:35:33] So I think for me, it's still the infrastructure needs to be improved. And in the meantime, I'm going to next car plug in hybrid. To me, it's just the best. Plug in hybrid's great. Best of both worlds. Plug in hybrid. I think mobility. I have two thoughts. One, plug in hybrids are amazing. Two, people should ride more electric pedal assisted bikes. So it's like the most efficient way to move a human ever. They're amazing. Of course. I can't do it.

[00:36:03] You run into the weather issue. Out of principle. Yeah, you're a bike stop. Dude, you've ripped one before? No, my parents have one, but I haven't. They each have one. I mean, they really like it. And when I'm older, there are these like mountain bikes that are electric mountain bikes. Yeah, they got the fat wheels. Yeah, but no actual like heavy duty mountain bikes, like real mountain bikes that are levy and those things like they cost as much as a car almost.

[00:36:32] Not quite. My dad got one. Yeah. It's pretty expensive. But I know a few people that have them on like the mountain bike variety and they actually like them. The biggest downside is they're heavier. So when you're mountain biking, that extra weight when you go downhill, it just reduces the mobility or how agile you can be with a bike. That is one of the biggest downsides. Yeah.

[00:37:01] But climbing up, it's great. Oh, yeah. Going uphill. It's amazing. I kind of want one, but it's okay. So all that to say, we are in alignment. Internal combustion engines and hybrid, plug-in hybrid, whatever format you want are going to be around for a long, long time. And autonomous vehicles and electric vehicles have been kind of attached at the hip.

[00:37:29] For this to really get legs beyond some of those kind of really coastal warm climates, you're going to need it to not just be AV and EV attached at the hip. You're going to need AV and ice and AV and hybrid attached at the hip too. So all this to say, I have a lot of thoughts around this industry is going to change a lot.

[00:37:55] And I think Uber is going to be an amazing, amazing business. But the distribution moat that they have could be at risk if something like Waymo or Tesla RoboTaxi has direct access to the consumer and doesn't need to rely on a partnership with Uber to be the main distribution moat.

[00:38:19] Because if Uber can have the distribution moat, think of how an amazing business that is. All of a sudden, you don't have to have human driver cash out costs. Like your take rate can be way, way better. So Uber is going to be an incredible business for a long time here. The future of its distribution moat, I think, is up in the air.

[00:38:47] If it goes the way that is favorable to Uber, then it is going to be an unbelievable business. It's already an amazing business. And it's going to make shareholders very, very wealthy. So if you think Uber fits into this next chapter, I think the stock is very, very cheap here. I think it trades at like 19 times next year's free cash. I'm a shareholder right now. It's a fantastic business, very profitable.

[00:39:13] I guess one other thing that could happen is they just partner or there is a merger with one of those leading AV companies. I know a lot of them are owned by big tech, but maybe they end up spinning those off or creating some kind of structure where it merges some way with Uber. So that would be another potential outcome. Probably not anytime soon, but in the next five, 10 years.

[00:39:38] Imagine if Google's Waymo and Uber were owned by the same entity. Yeah, there's no way regulators would allow that. They'd have to ask like Google to spin it off to be able to do that. That's for sure. But just could you imagine like there would just be no barriers to this stock ripping at that point? Because the thesis is clear for Uber right today.

[00:40:07] It's like, oh, you have a monopoly on 25% take rate on the cab business globally. Like that's pretty freaking good. Yeah. I mean, regulators would be the only barrier. And I'll give an example before we give. And you probably won't believe this, but so obviously I live in Ottawa and I believe to this day last year at the beginning of the year was still like that. I still think it's like that now. But Gatineau, which is on the Quebec side, still does not allow Uber pickups.

[00:40:36] So you can be dropped off from Ottawa if you're going to the casino, for example, on the Quebec side. But you have to get a taxi to come back to Ottawa. So it's just an example as you can really get regulator. This one is on the municipal level because I know in Montreal you can get an Uber. So it's really on the municipal level.

[00:40:56] But you can see certain regulators trying to step in to protect an industry or protect Uber drivers because they don't want those jobs to go away type of deal. So yeah, it makes sense. I mean, even a lot of airports will have that. Like they have to have special permissioning for pickups at airports. And some of the airports would be like they don't want to like shoot the cab driver business in the foot by allowing Uber.

[00:41:22] So they just say, no, it's got to be from these licensed cab companies to do pickups and drop offs at the airport. You can't get an Uber from there. I've been to many airports and I like that in the last few years. So you're right. It is a bunch of geographical issues. But no, I mean, if the AV technology was owned by the distribution company like Uber, oh man, that would be wild. Yeah. All right, let's move on to the last topic of the day. Last topic.

[00:41:49] So a Canadian company, like you alluded, I'll say the name of the company leading the way at showing how not to do buybacks. And the company I'm talking about here is Lightspeed. So LSPD.to. Company that I've been very critical of. I'll be very honest over the last few years. Been very critical, especially of Dax De Silva, the CEO. He's been on and off. So he was CEO and then left and then came back. I think it was still on the board if I remember correctly.

[00:42:17] But one of the reasons I've been critical is he's made some really stupid statements. I'm very blunt. I know shots fired here, but more specifically, and I will add the link in the show note. There's a video that's still on YouTube from BNN Bloomberg. So towards the end, it was loaded in May of 2021. So kind of close to the market peak when Euphoria was getting towards the top where he said towards the end of the video. And you can watch the video.

[00:42:47] They would like to become a mega cap company. Well, fast forward to today. The stock is now down 78% since that video has been posted. And that isn't even the peak either. So since the peak, it's down close to 90%. It had a market cap of 13.7 billion at the time of the video being posted and now has a cap of 2.9 billion.

[00:43:12] Now, to be fair, from 2021 to last year, revenues have more than quadruple for light speed. So clearly they have grown very quickly. The problem is they are not making money. So they are losing money. They were free cash flow positive for the first time on a quarterly basis for 1.8 million. And that was the last quarter. But they still had a net loss of 26 million.

[00:43:36] They were still 58 million free cash flow negative for the last 12 months and have lost 124 million in the last 12 months as well. Since 2021, total shares outstanding have grown 19%. I will give them that. They issued a lot of shares around the market peak. So that definitely gave them a little bit more of a runway. They've reduced stock-based compensation. But it was still 55 million in the last 12 months.

[00:44:04] And that's still a big issue for light speed. Their cash on hand went from 94 million in March of 2022 to 61 million in their most recent quarter. So they are, it's not a crazy like rate, but it's still a company that's burning a lot of cash. And that's what I'm showing here. Their cash on hand. So cash and cash equivalent. So peaked around 1 billion. And it's been dwindling ever since.

[00:44:31] Because when you're free cash flow negative, I mean, cash is going to be going out the door. And it's not going to be increasing because you're still burning some cash. When you look here, and I'm sharing another tab here for joint TCI. So you have in blue stock-based compensation. Like I said, it's still a pretty significant problem if you ask me. I know it's typical for tech businesses. But again, not something I'd like to see.

[00:44:57] And then you also have the total shares outstanding that are up 19% since that time. So you see where I'm probably getting at. I'm sure you know where I'm getting at here. Is that they just announced that they authorize up to 400 million worth of share buybacks. So really, like, I'm just asking the question. Is this really the best use of capital right now for Lightspeed? Authorizing 400 million worth of share buybacks.

[00:45:26] And if I were the shareholders, I'd hope that they actually do not go ahead. Yeah, you'd hope it's just posturing. Just posturing. And one of the tweets that I got from Dax De Silva. So he announced the results. I tweeted that. He's not very active on Twitter. So probably just posts this in terms of getting some awareness for the financial results. So you have here saying they've authorized up to 400 million.

[00:45:53] It's probably a reaction because they mentioned, and I'm quoting here, is tweet. As you recall, we initiated a comprehensive strategic review of our business and operation. The goal to define our best path forward so we can maximize shareholder value and help Lightspeed realize its full potential.

[00:46:11] We received strong engagement from multiple participants over several months, but ultimately concluded that continuing to execute on our transformation plan as a public company puts us on the best path forward. So I will translate that for you. So what it means is that there was no interest in private equity because if there was any interest, we've seen tons of Canadian companies go private.

[00:46:37] So clearly they were not interested in the business. And I think they're just... I mean, someone was probably interested at some price that Dax was not going to buy on. But again, that to me is just saying that there might have been interest, but it was not very good. It was not a good offer. There's no legs. No, exactly. And he's been trying to hand at that for a while.

[00:47:05] And now the issue is I think they're doing a knee-jerk reaction is the stock got propped up a little bit recently because I think investors were hoping that it would be taken private and get a nice premium on the share price. And I think they're panicking and they're trying to show that they're shareholder friendly by announcing this buyback authorization. That's my interpretation of all of that. Maybe I'm wrong, but I don't have a lot of faith in this management team if it wasn't obvious already.

[00:47:35] How things have changed so much. I mean, they're like a pandemic growth stock darling. The stock ripped. It's down 90% since then. It's on a 90% drawdown. 89.7% since then. Dude, they were doing a bunch of weird acquisitions at the time too. I just look at the income statement just at the top and it's like, look at the growth rate, you know, very consistent.

[00:48:06] 25% you know, they're chugging along in the 30s doubled in 2022 with all those acquisitions. You probably, you know, organically is probably in like 40, 50% range, which is fantastic for a software company. Really nice kind of end-to-end product, vertical software for retail, nice omni-channel, a nice business. Now reaching a billion of run rate scale on the top line.

[00:48:34] It's like, how are you? How are you not profitable? Yeah. It's just like, these companies built in that era, you just need to like drain the swamp. Like, the companies in that era, it's just like, they need like a department of company efficiency in there. It's just like, how are you not making shareholders boatloads of money on this growth trajectory? You know what I mean? It's just like such financial mismanagement.

[00:49:04] Yeah. Yeah. Yeah. And share buybacks are just not the answer. Like, I understand you may want to transform the business, but wouldn't you want to hold on to that cash while you're transforming the business? Like, that's what baffles my mind. That is, to me, a company should not be doing buybacks when they're losing money. That's just as simple. Like, you need the cash. Like, why are you spending it on it? What if things get worse and you start burning more cash?

[00:49:30] Are you going to have to now go turn around, issue more shares, get in some debt? When you had the cash to begin with and you decided to do the bonehead move and actually buy back stock. But I think I... So, I posted a graph in the doc there for you to look at. So, the red line is total shares outstanding. You're showing some version of this. Yeah. Which is, you know, the share count is basically flat at 153 million shares.

[00:49:56] And they actually, in the June quarter of last year, spent $40 million on a buyback. That's it. That blue line is share repurchase. Yeah. So, you saw that the share count went down slightly. And next quarter, because of dilution, it's back up to that 153 number. So, it's just like... They're trying to offset dilution. Yeah. Yeah. It's just 40... What's 40 million here? What's 40 million there? And in the grand scheme of things, it's not a significant amount of money. It's just like...

[00:50:26] All these things just add up to very shareholder unfriendly company. And it really is just as a shame, as I mentioned. Yeah. That I have to be critical of this entrepreneur who's built this amazing billion dollar runway business. But it's just been runs... Like, you're public. So, that means you have to run it for shareholders, employees, and customers. It's not just employees and customers anymore.

[00:50:53] It's employees, customers, and shareholders on that three-legged stool. And it's just unfortunate that some of these companies in that era have been run with no accountability of the three-legged stool. And then you just run it. And then you end up in a really shitty situation for the rest of the legs of the stool. Where, you know, there's business risk because you're so, so unprofitable for your customers. That leads to business risk.

[00:51:19] And the employees who are getting their stock options are way, way underwater. So, you haven't created value for them either. It's just... It's unfortunate. It really is. Because this should be such a success story for all three stakeholders. Yeah. And we're, what? Like, four years out now since the peak? Since, let's say, 2022? That was a pretty rough year for a lot of these businesses. So, let's say three years out. At some point, I mean, sure. Take a year or two.

[00:51:48] But I feel like it should have been figured out by now. That's... They're trending to less losses. I will give them that. But again, what if something happens that puts a wrench into their plan? And you just... That cushion you had, now you're probably not going to have it anymore. Or just a smaller one. So, it's just... That's where I have a lot of issue. But I think we've talked enough about Lightspeed. Anything else you want to add before we wrap this up?

[00:52:16] No, maybe just to comment on this to a broader point that I've seen around companies that were funded both privately in the venture world, as well as kind of those go public, grow at any cost companies, where you just had to show mega 50% year over year, 15% quarter over quarter sequential,

[00:52:42] or you fall from grace, those few years at the beginning of the 2020s. The ones that have really course corrected are reaping the benefits. And the ones that have dragged their heels to course correct have just been continued to get smoked. And I think that that's probably a sobering thought for a lot of these founding CEOs who are running those companies,

[00:53:11] because they were force-fed a interest-free, zero interest rate phenomenon, capital down your throat, from private markets and then into the public markets, where they were unfortunately learning the wrong lessons. And it's unfortunate because these people are brilliant. They're like, they're the best entrepreneurs in the world. They're the best entrepreneurs in the entire world,

[00:53:40] and they deserve all their flowers, and they're incredible at product, incredible at go-to-market, incredible at marketing and enterprise sales. You got to check all of those rings to have the Thanos infinity stone to make these billion-dollar businesses. But it was just the timing of them. They learned the wrong lesson at the wrong time. Yeah, they got the growth aspect correct. They just did not get the efficiency aspect correct. And they got high on cheap capital. I think it's easy. High on cheap capital. That's what it is.

[00:54:10] You didn't have to get anything else right. You just had to grow. Yeah, exactly. But now it's not as easy to grow when you don't have that cheap capital, and you're trying to be profitable at the same time. I think they're realizing that, yeah, that's a complete different animal than just trying to grow at all costs. And the best ones are able to make the shift. And the ones that are not as good, that only were successful in that mode, I think they will slowly fade away.

[00:54:40] It may not be quickly, but at the end of the day, you have to be able to run a profitable business. And when the environment changes, you need to adapt. And clearly some of them have not been able to adapt. It's like I'm on my fundraising tour right now, which has been actually really great. And investors always say the same thing to me. They're like, you've done all of this, and you've only raised a million and a half to date? And I'm like, yes, like, why would I need 15,

[00:55:10] 20 for this, right? Like, Well, you were also raising, when you started raising, it was a more difficult environment. Like, I think you started raising around the time that the tides were kind of turning, right? Your very initial round. So, I think you didn't also, I think it was probably a good thing for you, where you, you had to make it work this way. You just couldn't. I didn't get drunk on that cheap capital. And then when you figure it out under that environment, I mean, you can pretty much only get better at that point on.

[00:55:40] Yeah. You create a cohort of companies that didn't have that luxury almost for their benefit, right? For their long-term benefit, maybe at the risk of maybe reaching hyper growth in the first few years. But it's hard to say, you know, only the paranoid survive at this point. Thanks for listening to the podcast, folks. We really appreciate you. We are here Mondays and Thursdays. And Simone on Mondays, Dan and Simone on Thursdays,

[00:56:09] the real estate podcast is also available on Tuesdays and Fridays. That's the Canadian real estate investor podcast. So if you are a homeowner, landlord, or flirting with the idea of buying your first home or buying your first investment property, there's no two better guys to go to. That is the Canadian real estate investor podcast on your podcast player. You can support us by going and going onto the podcast players and pressing follows, as well as going to our Patreon at jointtci.com and,

[00:56:40] or getting 15% off FinChat with code TCI. We'll see you in a few days. Take care. Bye-bye. The Canadian investor podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions. You You