Tax Changes, Bitcoin Halving, and Netflix's Metrics Shift

[00:00:00] Welcome back to the Canadian Investor podcast. I'm here with Dan Kent. We're back for our

[00:00:19] news and earnings episode that's released on Thursdays. Pretty excited for this one,

[00:00:25] pretty wide ranging in terms of the topics that we have. We're going to be talking about

[00:00:29] the budget, but more specifically the capital gains, inclusion tax rate change, some other

[00:00:34] news and earnings. But before we get started, I actually haven't checked the sports news. So

[00:00:40] did the Oilers win last night? They did. They did? Okay. Dominating fashion. I know there's

[00:00:47] probably a lot of Oilers fans who listen to this podcast, but I don't think like I think LA

[00:00:53] scored like one legitimate goal and the rest of them were off feet, like off hands. It was crazy.

[00:01:00] It was pretty good. I'm headed up to the game tomorrow. Oh nice. Yeah, that's right. You must

[00:01:06] have like because you are a season ticket holder, right? We have a half set. So we get half the

[00:01:12] games. But yeah. Okay. Well be careful. You don't want to get Philip Danode because he was

[00:01:18] for Montreal a few years back. And if he goes into like lockdown mode, he can really ampere

[00:01:24] the best players. He was a pain last year. Yeah. He wasn't too hot last night. McDavid ended up

[00:01:30] getting five points. So oh wow. Okay. Yeah. I'm going to have to check the highlights,

[00:01:35] but enough about hockey. I'm sure there's a few people have like some hockey teams that

[00:01:40] they're following right now. It's a playoffs. I think what there's like three in Canada,

[00:01:44] four. I think there's four teams, right? Yeah, four. So best of luck to everyone. My team is not

[00:01:50] out. Hopefully my team gets the first pick overall again this year, which is Montreal. So

[00:01:56] that's what I'm going to be watching soon. But now to get on to the real stuff talking about

[00:02:02] the federal budget in terms of changes in the capital gain stack. So this is the inclusion

[00:02:09] rate. So what this means is that in the budget, the federal government announced that the

[00:02:14] capital gains inclusion rate would change from 50% to 66% for gains above 250,000. For those who are

[00:02:23] not aware exactly how capital gains work, obviously I know Dan you're familiar with it. I am as well

[00:02:29] because we're kind of in the nitty gritty of these and we have both own small businesses,

[00:02:33] but a capital gain is when you sell assets and make a profit on the asset. So for example,

[00:02:39] if I bought one share of a company at $100 and sold it later for $200, then the capital gain is $100.

[00:02:47] The inclusion rate means what portion of that $100 profit will be taxed. So if it's 50% then

[00:02:53] $50 of that profit will be taxed at my marginal rate. If it's two thirds then $66 of that

[00:03:01] profit will be taxed at that same rate. So clearly, you know, you're paying more taxes with a higher

[00:03:06] inclusion rate. The changes mean that the first 250k in capital gains has an inclusion rate of

[00:03:13] 50% while anything above it has an inclusion rate of 66%. And the changes will be effective

[00:03:21] June 25 2024. Now there are some notable exceptions to this which are as follows and I

[00:03:28] know you'll want to add something after this. I'll give you the opportunity Dan.

[00:03:32] Capital gains on primary residences will continue to be tax free. The lifetime exception or exemption

[00:03:40] of $1 million when selling shares of a small business will increase to $1.25 and will continue

[00:03:47] to be indexed to inflation. The inclusion rate will be reduced to 33% for capital gains

[00:03:53] when selling all or part of a business up to a lifetime maximum of $2 million. In other words,

[00:03:59] the first $1.25 million is exempt and then the following $2 million is at the 33% inclusion

[00:04:06] rate. The changes apply to capital gains made within a corporation as well and on second

[00:04:12] residences. Anything you want to add there before I go on and talk about some of the

[00:04:17] potential impacts? Yeah so the number one thing and I've just kind of learned this

[00:04:21] throughout navigating the online world and speaking with a lot of people in terms of business

[00:04:27] sales especially when it comes to the inclusion tax. The main caveat there is you have to sell

[00:04:34] the shares of a small business so pretty much you have to sell the corporation

[00:04:39] and from what I've kind of learned from a lot of people is a lot of companies will

[00:04:44] and I would imagine this is just from a tax perspective purchasing shares or purchasing

[00:04:50] assets but from what I've heard a lot of companies will aim to have APAs or asset purchase agreements

[00:04:58] where they don't want to buy your company, they want to buy the assets which means

[00:05:05] the corporation would get the sale of that asset you would have all that money your business

[00:05:09] would effectively be sold but you would still own the corporation and apparently that wouldn't

[00:05:14] qualify for the exemption. So I think a lot of people kind of have like oh you know you get a

[00:05:20] million dollars in exemption but it's a little bit more complex than that you need somebody

[00:05:26] you need a company to actually purchase the shares versus purchase your assets so

[00:05:32] I don't exactly know why an APA is you know more popular than a share sale

[00:05:38] but apparently it is especially in my world which is why I think if I ever were to sell

[00:05:45] apparently I would be you know hard pressed to get a share sale versus an APA so it's just a little bit

[00:05:51] of a different element to it where this exemption is a little more complex than a lot of people have

[00:05:57] you know I've seen a lot of people talk about but yeah that was my main main thing here.

[00:06:02] Yeah so I noticed everyone if you're interested in buying StocksRates.t

[00:06:06] Offered Dan you know to purchase the shares and not an asset to purchase.

[00:06:13] He'll give you a better price now I'm just kidding but obviously here is some of the there's some

[00:06:19] potential impacts so if you're a small business owner and you have capital gains of less than

[00:06:23] 3.25 million you're likely to be better off under these changes but again with the caveat that

[00:06:29] Dan just talked about self-tinpoid professionals such as physicians will likely be adversely

[00:06:34] impacted on this and that's because it's common for them to be incorporated for their practice

[00:06:40] and to actually hold investment within that corporation and hold most of their wealth

[00:06:44] within that corporation. That's because they'll use it as a form of retirement vehicle if you'd

[00:06:50] like and I've talked to quite a few financial planners and even you know we had here I'm

[00:06:58] blanking on his name but I had someone on the podcast as a financial planner do you remember

[00:07:04] who it was? Mark McGrath? Yeah Mark McGrath yeah I was having didn't sleep much last night so I was

[00:07:11] having a bit of a blank there but Mark is well aware of this because he does work with a lot

[00:07:15] of physicians so I think it's important for that to remember and he's uh I encourage people to

[00:07:20] follow him on Twitter because he's made some really good thread regarding that and obviously

[00:07:24] good tax planners will be in demand as there will clearly be some decumulation strategies

[00:07:30] that you can use to minimize a tax impact and I think it will also be a disincentive for entrepreneurs

[00:07:37] because let's be honest especially when you compare the tax rate of capital gains in Canada versus our

[00:07:42] neighbors down south it's good that there are exemptions but at the same time it's not that high

[00:07:49] when you factor in what you've put it in terms of unpaid time their own capital and having

[00:07:54] no guarantee that it will pay off it's a substantial amount of risk that I think should

[00:07:59] probably be rewarded to encourage successful entrepreneurs and with this measure it really

[00:08:05] acts as a disin disincentive in my opinion. It's also likely to make foreign direct investment

[00:08:11] also known as FDI in Canada less attractive compared to other countries for larger corporation or

[00:08:18] investors that's just because they'll probably look at other options outside of Canada that

[00:08:25] may be more attractive for them from a tax perspective to do some direct investment.

[00:08:30] Now to counteract this I believe so I mean this is my opinion they said that they would ask Stephen

[00:08:39] Poloz the former Bank of Canada governor to look at ways that pension plans couldn't invest

[00:08:44] more in Canada so this I find incredibly dangerous because large pension plans in Canada already

[00:08:51] invest disproportionately more in Canada than what Canada represents in terms of investable assets on

[00:08:58] a global basis. It's also comes after the letter that was sent by large Canadian corporation to

[00:09:05] the government a few months ago so I find that a little bit odd that they would still put this

[00:09:10] back in. You had companies and I was pretty critical like companies that are not really well

[00:09:16] managed oligopolies sending that letter to the federal government and I do hope that nothing

[00:09:22] comes of this because I know pension plans well and the main priority for these pension plans

[00:09:26] should be to their members beneficiaries and pensioners not to help prop up investment in

[00:09:33] Canada. There should be better measures to encourage investment in Canada regardless if

[00:09:39] it comes from pension funds or elsewhere from businesses from you know countries from

[00:09:45] investors outside of Canada. I don't think it should be put on pension plans because at the

[00:09:52] end of the day this risks just giving them not as good returns as if they had more flexibility

[00:09:58] to invest elsewhere and at the end of the day their role is to make sure that they're able

[00:10:03] to fulfill promises so their plan members their pensioners their beneficiaries and that's

[00:10:09] fiduciary duty not to you know have a mandate to invest in Canada and I find that extremely

[00:10:17] alarming. I just don't understand why they keep pushing that part and especially when you

[00:10:23] people might not realize but these defined benefit plans because they are a defined benefit

[00:10:28] typically people will put like 10 to 15 percent of their salary goes straight to the pension

[00:10:35] as contributions so you're going to tell these members that well we might not get the best returns

[00:10:41] because we got to invest more in Canada I just think it's I don't know it does not sound right to me

[00:10:48] and I guess the last thing and you can chime in on that as well is I think it's going to make

[00:10:53] contribution room for registered accounts like a TFSA, RSP, FHS, SA, so first home savings

[00:10:59] account, our ESP the registered education savings plan even more valuable you really want to make

[00:11:06] sure that you do not lose that contribution room because a taxable account now will be subject

[00:11:13] to these capital gains inclusion rate whether it's under 250k which would be unchanged or above

[00:11:19] 250,000 so if you end up having a quite large investment account in a taxable account you're

[00:11:25] going to be you're going to be paying quite a bit of taxes if your capital gains become pretty

[00:11:31] substantial yeah I mean in regards to the pension you like the pension's job should be to get the

[00:11:37] highest level of returns possible and when you're incentivizing them to go more into Canadian

[00:11:42] businesses I mean it's not a guarantee in the future the Canadian markets could perform quite

[00:11:46] well in the future but historically they've lagged you know the US markets by quite a

[00:11:52] wide margin I guess the one thing I'll say about the 250k it's only anything above 250k that gets

[00:12:01] increase so it's not like if you use you know you had a capital gain of 260k that 250 would still be

[00:12:08] at 50% while the while the 10,000 extra would be at the 66 yeah yeah that's correct it's like

[00:12:15] a progressive inclusion rate I guess that's the way to put it right it's actually yeah exactly

[00:12:20] it's kind of like the just the tax situation a lot of people think you know if they go that

[00:12:24] dollar into the next tax bracket that their entire income is taxed at that amount whereas it's like

[00:12:29] anything over and above so that's kind of a good good clarification and just for the incentive for

[00:12:36] entrepreneurs is absolutely huge like even in 2019 I left a very good job with a pension

[00:12:44] consistent hours I had employment insurance I had benefits I had everything and I pretty much left

[00:12:50] that job to run stock trades and took on assumed all risks I mean most of say you know if you run a

[00:12:57] corporation you're mostly personally liable for all the debt the corporation has so you take

[00:13:02] on that risk I was even talking about you know if you run a company would say a lot of employees

[00:13:08] I mean there's a chance you could face some sort of risk in in that sense like if somebody gets

[00:13:13] hurt or something like there's so many added risks that entrepreneurs take on that I really think

[00:13:20] I mean I think they kind of miss the mark here especially like if you want to go after like

[00:13:25] higher income earners make it like a million dollars or something like make it way more than

[00:13:30] than 250k like a lot of a lot of Canadian entrepreneurs pretty much stockpiled

[00:13:36] money inside of their businesses to pretty much utilize as a nest egg and I mean 250k is

[00:13:43] in that scheme of things is it's relatively little money when you're thinking of you know

[00:13:49] somebody who's saving up that money inside the corporation or maybe draw down on it when they're

[00:13:53] retired or things like that so I'm not a huge fan of this as a as an entrepreneur myself who

[00:13:59] effectively yeah left a pretty cushy job and took assumed pretty much all risks so yeah

[00:14:07] no exactly and a lot of entrepreneurs that start a business from scratch like oftentimes they will

[00:14:13] not pay themselves anything yeah for like a year or two years even more so even if the business

[00:14:18] becomes really successful like five to ten years down the line I mean they're literally eating

[00:14:23] craft dinner every yeah you know every day or you know drawing on their savings you know I know

[00:14:30] Braden has said it on the podcast like he actually withdrew some of his rsp's when he left

[00:14:35] his normal job to start finchat which was stratosphere back then so it just goes to show that a lot of

[00:14:41] people like they take on this risk with no guarantee that it will pay out and I think that's

[00:14:48] the important thing to remember is you want to create still an incentive for people to do that

[00:14:53] if you can't get like a proper reward for all your work if you end up you know being successful

[00:15:00] and that's a big if because a lot of companies end up you know people put thousands of dollars

[00:15:06] hundreds of thousands and ends up going bankrupt after a few years and it just doesn't amount to

[00:15:12] anything so I just yeah I unfortunately think they miss the mark here but I think a lot of

[00:15:18] people that say they're in favor of this if you ask them they probably have never built a business

[00:15:25] and know how hard it is I think I suspect that's most of them but anyways we'll see where it goes

[00:15:31] not to get really political but clearly it is something that impacts investing and the one thing

[00:15:36] too is and I know Dan Foch from the Canadian real estate investor podcast I talked about that

[00:15:42] quite a bit but people have second residences or people who don't have much invested for retirement

[00:15:49] but most of their retirement is based on you know maybe they have a couple of triplexes

[00:15:55] and they've made a decent amount of capital gains and maybe they want to sell one for retirement

[00:16:00] while now they're going to be impacted pretty significantly by that and I would not necessarily

[00:16:06] qualify someone who doesn't have the pension plan and retirement savings and it has a couple of

[00:16:11] buildings as a wealthy Canadian but maybe my definition is different than you know then the

[00:16:18] people who put the budget in place yeah that's pretty much my thoughts too I mean they you know

[00:16:24] this could have been put in place at like I mean really just at a higher dollar amount I think

[00:16:29] 250k is just so low yeah just yeah make it a million bucks or make it two million bucks or

[00:16:35] something I'm sure you'd still get quite a bit of capital from uh you know people you know

[00:16:40] much more wealthier people selling selling assets so I think it's just too low yeah yeah I agree

[00:16:47] with that enough about that let's go on with some earnings do you want to go over uh good food earnings

[00:16:55] and I'm gonna go on a limb and say it was not that great but uh you you tell me it wasn't too bad I mean

[00:17:01] the company has gone through a lot of trouble they kind of it was good because good food actually

[00:17:06] is like an outlier in terms of its reporting there's not a lot of Canadian companies reporting

[00:17:11] right now but they're kind of always like on their own so they're a popular food box company

[00:17:17] they were they absolutely boomed during the pandemic but I think they kind of realized that you know

[00:17:23] they couldn't have been like a pure food box place so they kind of tried to invest in other

[00:17:29] businesses I know they were into like food delivery and things like that which just

[00:17:33] hasn't worked well at all full disclosure I did use to own this one I bought in and out of it

[00:17:39] quite a few times during the pandemic but I eventually sold them at I think at the

[00:17:42] mid $5 range I think they're trading at like 30 cents right now they just they just started to

[00:17:49] really struggle as I mentioned they just tried to cast probably too wide of a net to diversify

[00:17:56] diversify away from being a pure food box play the company reported on the quarter the company

[00:18:02] reported net sales of 40 million uh five to five percent decline on a year over your basis on

[00:18:07] the earnings front the two analysts covering the company had expected a small loss per share

[00:18:12] but they actually ended up posting a two cent per share profit so although revenue declined on a year

[00:18:18] over your basis by that five percent the company managed to reduce its cost of goods sold by about

[00:18:23] nine percent I'd imagine a slowdown in food inflation is certainly helping them the it

[00:18:29] kind of resulted in reporting flat gross profits gross margins increased by 2.3 percent to sit

[00:18:35] 43 percent SG&A which is just sales administrative expenses reduced by 11 percent and the company did

[00:18:43] mention that it's slowing down its marketing efforts in an attempt to trim back costs so when we

[00:18:48] look to the first six months of 2024 and compare them to 2023 revenue is down around 10 percent

[00:18:54] while cost of goods are down around 15 gross margins are up 3.2 percent to sit at 41.2 and

[00:19:02] the company has reported a loss of one cent per share through the first six months compared to a loss

[00:19:07] of 15 cents so it seems to be getting things a bit under control in that regard and their

[00:19:14] number of active customers sat at around 117 000 from what I remember back in the pandemic the

[00:19:21] company had I'm pretty sure they had 330 or 340 000 active subscribers so you're talking

[00:19:27] a massive massive hit the one thing that's a little bit I find it a bit odd their definition

[00:19:34] of someone who is an active customer as someone who has placed an order in the last three months

[00:19:39] I mean to be honest this definition is way too broad because even I would be I would be considered

[00:19:45] an active subscriber and I pretty much just when they send me a discount for the boxes I

[00:19:50] pretty much just order them and then when the discounts run out I kind of just cancel but

[00:19:55] I would be considered an active subscriber so I think they're I think they're a little bit off

[00:20:02] in that regard I don't know if you do you order good food at all I do the same yeah we whether it's

[00:20:08] damn or hello fresh pick your pick your food box I think we've done like three in the past chef's

[00:20:14] table two and we do kind of the same thing we don't really order and then they send us

[00:20:20] something in the mail like oh come back you know your first like your first three boxes are like 50

[00:20:27] percent discount the next three are like 30 percent the next three like it's usually something like that

[00:20:33] right so we'll do it when we get a discount if not uh you know we wait for the the next offer

[00:20:39] yeah exactly and I mean it's not the one thing is it's not just good food who's seeing this

[00:20:45] like hello fresh I'm looking at it right now they are down 94 percent from 2021 highs so

[00:20:52] it's not like this is exclusive to good food the struggles it's just these food box companies

[00:20:58] in general they're carving out like a bit of a path to profitability but it's pretty important

[00:21:03] to understand that this is eventually going to come at the expense of growth so like when

[00:21:07] your company when your profitability is coming at the expense of your marketing staffing you

[00:21:12] know distribution it's eventually going to hit your top line like you're spending less

[00:21:17] to market the product you're cutting staff you're reducing your you know distribution

[00:21:21] capability so I mean yeah it's going to be profitable but it's also probably not going

[00:21:26] to grow all that much they fumbled no doubt but it's also kind of an added element of

[00:21:31] the economy I mean this is no doubt a cost that's pretty easy to scale back for you know

[00:21:38] a lot of Canadians especially if you're paying full prices for these boxes I think they're like

[00:21:42] 100 or 125 dollars for four meals so I mean it's still cheaper than a restaurant but it's

[00:21:48] it's not as cheap as heading to the grocery store I mean I could see a turnaround and maybe

[00:21:52] an increase in ordering if some pricing pressures come to Canadians but I would say at this point

[00:21:57] it's like it's a luxury item to have and like as I mentioned I only order it when they give

[00:22:03] me just crazy deals so sometimes you get most same for us yeah four like you can get four meals for

[00:22:08] 48 bucks I think is the last deal we got and you can't do that in a grocery store like you can't buy

[00:22:14] no four meals for that price so I mean I highly highly doubt they're even profitable at this point

[00:22:20] and I think it's it's kind of a maybe a strategy they kind of hope you stick around or forget

[00:22:25] to cancel you know you could build for that price one and they can maybe recoup some of

[00:22:30] those costs yeah they're probably yeah they're probably like breaking even or losing a bit of

[00:22:36] money in the hopes that you'll stay a bit longer yeah I think the ones we got is usually like

[00:22:40] what I said right like the first week is like or the first three boxes 50 off the next three

[00:22:47] like 30 next three 20 we'll do it until I think up until 20 off and then we stop yeah yeah it's

[00:22:56] I mean it's kind of a poor strategy I guess but I mean it's they're having some tough tough times

[00:23:04] right now I mean this is anecdotal based on just the people because I know a lot of people who

[00:23:09] do this they do the exact same thing as me which clearly shows that there's a problem there

[00:23:13] they say that the quality has gone down quite a bit too I mean the standard ordering like

[00:23:20] say meals that you can get for just their standard price is like practically none

[00:23:25] they have to upsell you on a lot of the stuff just because of how expensive food has gotten I mean

[00:23:30] their box prices were pretty much the same price during the pandemic and when we think about food

[00:23:35] inflation is was what 9% last year so I mean it's not the same price as it was during the

[00:23:41] pandemic I can say oh really it was cheaper I can't even remember no no I mean the food

[00:23:45] prices yeah yeah tough tough quarter I mean I guess I think a good quarter compared to what was expected

[00:23:54] but I mean when you look at their active subscriber count it kind of tells you everything they've lost

[00:23:58] what 66 to 70% of their active subscribers so yeah and I think people are just tightening the

[00:24:05] belt too right it's an easy thing to reduce your costs right if you just renewed your fixed

[00:24:11] rate mortgage and your payments went up 25 30% and you used to go to the restaurant or order these

[00:24:19] boxes you know you used to go to restaurant every single weeks or multiple times a week or

[00:24:24] you order these boxes all the time I mean that's right away that's probably like two 300 bucks you

[00:24:30] can easily save in a month by removing those things from your your habits and just going and

[00:24:35] getting food at the grocery store yeah I mean when people are flush with cash the convenience

[00:24:40] of having the meals dropped off at your front step is you know some people are gonna just completely

[00:24:45] ignore the costs but when when times get tight 125 bucks a week for meals to be delivered to your

[00:24:52] door is probably not something a lot of people are going to spend money on and it's not even

[00:24:55] like that's blatantly obvious just from their decline yeah well I mean we'll have to move on

[00:25:03] to our next topic here because I'm getting hungry but with all this food talk but let's

[00:25:10] just talk about something completely different bitcoin having so I'll explain a little bit how

[00:25:14] what it is because I know some there are some people that are better at verse in bitcoin than

[00:25:18] others so on Friday April 19th so last Friday the bitcoin having happened the having is a built-in

[00:25:25] feature of bitcoin which gradually reduces the supply of newly created bitcoin in the market by half

[00:25:31] that's because the available supply of bitcoin is created through a process called mining mining

[00:25:37] is a term you use to refer to computers that solve complex mathematical problems whoever solves the

[00:25:43] problem or whichever machine solves it first gets a reward in bitcoin for doing so obviously the

[00:25:49] most powerful the more powerful your mining computer is the better the chances are that you'll

[00:25:56] solve the problem first so on Friday the reward was reduced by half from 6.25 bitcoin to 3.25

[00:26:03] for each block reward now the process happens every 210,000 blocks which tends to be about four

[00:26:11] years you know a bit a bit more than four or a bit less than four years compared to the last one

[00:26:17] and prior to this having there had been already three having so on November 28 2012 the reward

[00:26:24] went from 50 bitcoin to 25 on july 9 2016 the reward went from 25 to 12.5 and then on may 11 2020

[00:26:35] just at essentially the onset of the pandemic the reward from went from 12.5 to 6.5 bitcoin

[00:26:43] and as of this writing the total amount of bitcoin that had been created was 19.689 million

[00:26:49] which is just shy of 94 percent of all bitcoin that will be created based on the protocol

[00:26:55] that's because the total amount of bitcoin that can be that will be created is 21 million now

[00:27:02] historically bitcoin has performed while following the having in the first six months following

[00:27:07] each having bitcoin returns 799 40% and 80% respectively so obviously these are the returns

[00:27:16] six months after the previous three having now whether it's a catalysis this time around or not

[00:27:22] we'll have to see there's a lot of different things at play it's possible that we are already

[00:27:28] seeing these gains maybe the the having was already priced in especially if you consider

[00:27:33] the spot bitcoin ETF launch in january and how much money came into bitcoin since that time

[00:27:40] and it's been on quite overruns i wanted to just mention this caveat because you know people may

[00:27:46] think oh i should buy it now because it's going to increase in six months there are no guarantees

[00:27:51] here but historically bitcoin has performed well after the having yeah i mean i don't have too much

[00:27:58] comments on this because i don't really know all that much about crew i'm one of those people

[00:28:02] and i'm sure i'm not alone that just kind of owns bitcoin but doesn't really know all that

[00:28:06] much like yeah bitcoin ETF yes i get most of my cryptocurrency news just from the crypto channel

[00:28:14] in our discord i there's a lot more knowledgeable people in there than i but yeah i own bitcoin

[00:28:21] like core position at bitcoin but i'll be the first to admit i don't really know all that

[00:28:25] much about crypto but yeah yeah and i mean on that i think it's good because i had someone DM

[00:28:31] me and they were asking for like bitcoin books and resources and i won't mention his name because i

[00:28:38] didn't ask for permission to say it so what i thought was really interesting and a really good

[00:28:43] approach is he said he's got burned before for investing in things or stocks he didn't like

[00:28:49] he kind of borrowed conviction on and now he wants to do his own research before he buys bitcoin

[00:28:55] because he doesn't own it yet and i think that's a really good approach is just learn about it

[00:29:00] don't you can't borrow my conviction you know i understand it pretty well i'm not an expert on

[00:29:06] it but i understand the basics and for me what resonates the most for me is the potential

[00:29:12] use case on a global kind of macro lens just because i mean it's a it's an asset that form

[00:29:23] of money if you'd like that can't really be controlled by anyone so i know a lot of people

[00:29:29] not a reaction that i get as well what's wrong with the canadian dollar us dollar it's working fine

[00:29:34] and i mean it's worked okay but we've seen when inflation picks up and we also see how you know

[00:29:43] the rules are constantly changed by the central banks we don't know what they're gonna do how

[00:29:48] it's gonna impact our lives and bitcoin is an alternative to that that's not controlled by any

[00:29:53] government it's decentralized so to me that's that's the lens i kind of see it on i see it a bit

[00:29:59] more as insurance against our our financial system so that's the way i approach it limited versus

[00:30:07] unlimited i guess in terms of yeah exactly i mean that's yes i'm definitely uh i understand those

[00:30:15] basic concepts but i would say i'm definitely a bit on the on the borrowed conviction side but again

[00:30:21] it's like that's okay it's like a core position in my portfolio it's i think it's like five percent now

[00:30:27] i ended up selling off it ran up quite a bit and then i ended up selling some off but uh

[00:30:32] i'm not crazy into it like a lot of people i know but that's it's interesting i plan to hold it for

[00:30:39] i mean i have no plans to sell it forever yeah forever just well i guess technically i don't own

[00:30:45] it was i share zones it i just own yeah i sure larry larry owns it yeah larry owns it for a small fee

[00:30:54] yeah exactly a very small fee yeah yeah and uh well enough about bitcoin do you want to tell us

[00:31:01] about netflix earnings and reporting yeah so netflix to me it actually posted like a pretty solid

[00:31:08] quarter but it ended up dumping i think it was around 10 percent i'll get into why i think so in

[00:31:13] a bit but just in terms of headline numbers they came in better than expected on pretty much all fronts

[00:31:18] so earnings of five dollars 28 per share beat expectations of four dollars 54 cents and revenue

[00:31:26] pretty much came right in line when we compare q1 of 2024 to q1 of 2023 revenue was up 15

[00:31:34] percent operating income grew by 54 percent and their operating margins saw a pretty big increase

[00:31:39] going from 21 to 28 percent they released their full year 2024 guidance so they expect to grow

[00:31:47] revenue by 13 to 15 with operating margins of 25 percent so this is kind of where i think maybe the

[00:31:55] market sold the stock off so they stated because because it is long past its growth stage and it

[00:32:02] has a multitude of different membership levels and price points depending on the country noting

[00:32:07] the actual increase and decrease of its total members is not all that useful so they said they're

[00:32:11] going to stop reporting those numbers as of the first quarter in 2025 so i find there is usually

[00:32:20] very little situations where a company removes a key performance indicator like this that they

[00:32:25] just could easily keep reporting and the market reacts positively like usually there's always a

[00:32:31] negative reaction i mean i would agree that just because of the wide variety of pricing

[00:32:36] options especially with their like discounted uh i think you can get it for seven bucks a

[00:32:40] month now but you got to listen to ads or you got to watch the ads there there's so many different

[00:32:45] price points that i think like total subscriber counts are largely irrelevant whereas you know

[00:32:50] top line growth free cashflow growth it's probably what's more important but i just kind of find

[00:32:55] it weird like why take the information away i it's probably not that big of a deal for them

[00:33:00] to report this so i don't really know why they're stopping it and another thing they're stopping is

[00:33:06] their arm arm which is their average revenue per member i kind of find this one a little bit

[00:33:14] weird even weirder that they're uh that they're discontinuing it so i believe the the average

[00:33:20] revenue the company generates from each subscriber is still a pretty important kpi i mean i was

[00:33:25] surprised i was pretty surprised like for something like this i mean you know generating more revenue

[00:33:31] from your current subscribers is arguably just as good as adding new subscribers so this one was

[00:33:38] even more confusing to me as to why they are discontinuing this and i mean while we still

[00:33:44] have the data uh they reported you think it's because they don't want people to like reverse

[00:33:50] engineer it because you could figure out how many subscribers they have right it's possible yeah i guess

[00:33:56] with revenues yeah with revenues and average revenue per user you could just kind of reverse

[00:34:02] engineer it and maybe it sounds like they just don't want any focus on the amount of subscribers

[00:34:08] yeah clearly and i mean i i think it would be a little difficult to do that just because of

[00:34:14] the amount of different like i was looking at their different price ranges and they're different in

[00:34:18] you know australia they're different in you know latin america they're different everywhere so i think

[00:34:22] it would still be pretty difficult to do this but now that we while we still have the data uh they

[00:34:28] reported paid membership growth in practically every region however outside of its ucan segment which

[00:34:34] is canada us australia and new zealand its average revenue per member is either up by low

[00:34:40] single digits or even on a slight decline so i don't know maybe this is why they're not

[00:34:45] going to report it the average revenue per member increased by 3.9 percent in its in its ucan segment

[00:34:52] which was the highest growth by quite a bit their ads membership which this is as i had mentioned

[00:34:58] it's it's a cheaper subscription but you have to you have to watch ads it's actually seeing

[00:35:04] some pretty big growth so it grew uh 65 sequentially compared to fourth quarter of 2023

[00:35:11] and when we look to the previous two quarters of 2023 on a sequential basis it grew by 70%

[00:35:17] over those two quarters as well so i mean i i think this might be an element of

[00:35:24] you know maybe people are becoming ad-blind to the point where they really don't mind paying

[00:35:30] like i don't even know what a regular netflix subscription costs these days it's just on

[00:35:34] my credit card i think it's like 18 bucks we pay too much i think it's yeah well we pay like 30 something

[00:35:40] because we told so we had the best subscription to begin with and then we're sharing our password

[00:35:47] with oh yeah my in-laws and my parents so instead of each of them getting an additional

[00:35:54] subscription on their own and getting the crappy subscription because you can with the

[00:36:01] the most premium plan you can add i think two additional kind of accounts that can or two

[00:36:08] additional households that can use it for an extra 10 bucks per each so it's it's kind of cheaper than

[00:36:15] the ad version and you get all the good quality no ads so for us we're just like okay we'll just

[00:36:22] we'll just do that but now we're kind of locked in because we can't really cancel because

[00:36:26] we canceled the the subscription of the in-laws and my parents is it is it cheaper than the ad so

[00:36:33] i think the ads is only seven bucks a month i think it's gone up though yeah but it might be you

[00:36:40] yeah i think it might be us plus you don't get as good quality i think it's only like

[00:36:45] 720p or maybe 1080p with the ads where you can get ultra hd and agr and all that stuff with the

[00:36:53] the most premium plans on top of having no ads okay that's interesting i don't know we just

[00:36:59] i'm not gonna lie i haven't even checked what they i've had a netflix subscription for years years

[00:37:05] oh yeah i don't even know what they're trying to do i think in 2012 yeah i think i started yeah over

[00:37:10] 10 years when they used to send out the dvds uh after that yeah okay they did not have a lot of

[00:37:16] content i'll say that no it was pretty bad in the initial stages especially here in canada

[00:37:21] i mean the only i guess the only difficulty and i don't really know too much about this would be if

[00:37:27] you know if the ad's business isn't generating as much revenue as say a non ad plan and maybe a

[00:37:34] lot of people are say canceling their more expensive subscription to downgrade because they

[00:37:38] don't really care about ads i mean to be honest i would probably unless the quality was poor i'd

[00:37:44] probably subscribe to the seven us a month ads plan versus a 20-some dollar regular plan it

[00:37:50] really wouldn't phase me that much but if you're trying to save money like that's an easy way to

[00:37:56] save five ten bucks a month right yeah i mean the ad's business it's a pretty good business to get

[00:38:02] into but i know like you know ad rates are not that good i think for a standard like person on a

[00:38:08] seven dollar a month plan if you're watching a lot of you know even if you're watching like a modest

[00:38:12] amount i can't imagine they're making a ton off you in terms of ad revenue but it's growing

[00:38:18] at a pretty fast pace i couldn't find any exact details on it unless i missed something i couldn't

[00:38:23] find any details inside it but it seems like a pretty solid quarter but i think i the removal of the

[00:38:29] of the kpis is a bit it's a bit confusing to me especially the the arm one the average

[00:38:34] regent average revenue per member yeah i think you're right because i have it here for a joint

[00:38:40] tci members so this is the average revenue per membership and exactly what you said it's

[00:38:46] literally flatlining or declining for every single market except us and canada and i think new

[00:38:54] zealand and australia i guess that you can include apparently new zealand and australia oh really does

[00:39:00] it okay that's weird but anyways yeah so just those markets are doing well but the rest it's

[00:39:06] essentially flat or declining so and the rest is basically the majority of the global

[00:39:13] population so it's not that great for them from a growth perspective especially if there's limiting

[00:39:20] you know growth potential in terms of pricing in those regions i mean it's nothing specific to

[00:39:26] netflix if i remember when i owned pinterest i would follow the average revenue per user for ads and

[00:39:33] it was always the same thing right us and canada is like way off the charts and then the rest of

[00:39:38] the world is just way way below so it's interesting it kind of reminds me when apple stopped divulging

[00:39:46] the amount of iphone shipments some years ago it's kind of you know there it sounds like

[00:39:52] they're trying to get people to focus on other stuff yeah it's just it's such an easy kpi to

[00:39:58] track that they're eliminating especially when like three out of the four segments are flat

[00:40:03] or declining so it just kind of looks like i don't think they're necessarily doing anything

[00:40:07] suspicious but there's no doubt that it looks a little bit bad when they cut these back and i think

[00:40:13] that's why like maybe it uh maybe it took a bit of a beating post earnings like 10 or so but yeah

[00:40:20] it pretty solid quarter otherwise and what a rebound from netflix as well like oh yeah holy

[00:40:27] i mean i've been proven wrong i didn't think it was that great of a business years ago a couple

[00:40:31] years ago when we started the podcast and definitely been proving wrong yeah happy to say when i'm

[00:40:37] wrong i think you know me well enough by now to know that you know i am pretty humble when it comes

[00:40:42] to that like i know i'll have some right calls i know i'm gonna have some wrong calls and happy

[00:40:47] to say when i was wrong and i was definitely 100 wrong here i just didn't really think the business

[00:40:52] model was all that great i still don't think it's all that great but clearly they have figured

[00:40:58] something out whereas other streaming platforms are struggling and i think that's what we're

[00:41:03] starting to see is netflix is kind of the one off and then you have all the other platforms that are

[00:41:09] really struggling uh so maybe i was half right i'll just say that it's not it just i find it a bit a

[00:41:16] hard business model just because uh this year cost of creating content and yeah exactly and being

[00:41:22] able to just keep the users paying on the platform making sure that content is fresh but also not

[00:41:28] spending too much that it's not profitable anymore and clearly netflix has found a way to

[00:41:33] kind of create a good balance between the two so props to them definitely um you know i'm impressed

[00:41:39] with what they've done yeah yeah they're uh up 220 from may 2022 lows so they've rebounded

[00:41:49] quite a bit well congrats on uh to all the yeah flex shareholder that are listening to this i mean

[00:41:56] i guess i am the they're in the s&p 500 right yeah they must be yeah right okay so i guess i am a share

[00:42:03] owner shareholder well there maybe yeah maybe it's like maybe it's black rock that's uh yeah it's larry

[00:42:10] that's the shareholder for me on my behalf yeah now we'll move on to the last segment here um

[00:42:17] it's company that we've talked a little bit on the podcast from time to time american express

[00:42:22] so they had their q1 2024 earnings um i think it's a great company to look at because it's

[00:42:28] essentially a plan between a smaller visa and mastercard in a bank yeah so it's kind of uh

[00:42:36] it's a bit unique and i'll give a little bit of an overview just so people get a better

[00:42:40] understanding how the business works compared to a visa or mastercard for example now contrary

[00:42:47] to visa and mastercard amix and i'll i'll say amix just because it's easier issues its own cards

[00:42:52] meaning that american express is not only the payments network but also the bank whereas visa

[00:42:58] and mastercard only operate the network and don't issue their own card so it's much kind of the

[00:43:04] business model for visa mastercard is definitely like uh less asset heavy i would say from the they

[00:43:10] just operate the network and they get fees based on that amix also partners with banks that issue

[00:43:16] cards on the american express network and that's why you'll see amix cards offered by some of the

[00:43:22] big canadian banks but they also issue their own so what this means is that amix is a hybrid between

[00:43:28] a payments network in a bank and just like banks it has to set aside money for loan loss

[00:43:34] provisions whereas visa and mastercard don't have to to do that because they do not actually

[00:43:40] lend out money amix also has other services that are provided by banks like savings accounts

[00:43:47] or cds cds are like cd ic's in the us did you know that they had like savings account products

[00:43:53] and stuff like that so i i actually recently looked in like i was looking to buy either visa

[00:44:01] mastercard or american express and i ended up buying visa but i mean a lot of people when you

[00:44:05] look at these credit card companies you're gonna know like if you look at like valuations like

[00:44:10] american express is like it's way way cheaper and i think this is actually like why it's it

[00:44:16] essentially a financial institution whereas you know visa and mastercard are just those uh

[00:44:22] you know payment processing things like this so that's kind of why i lean towards visa but on

[00:44:26] the surface like it looks like american express is way way cheaper but it's just such a different

[00:44:31] company yeah yeah i think that's well put i mean at the end of the day it is kind of a hybrid right

[00:44:36] it's considered a bank but you know you still get that that pretty extensive payments network

[00:44:42] obviously can't compete in terms of acceptance with a visa or mastercard but i it's a very

[00:44:48] interesting business to be honest for me it's probably one of the only banks aside potentially

[00:44:54] from our sponsor ecu bank in canada that i would consider owning uh just because i like the fact

[00:45:01] that amex is kind of a hybrid between the two and just gives you that kind of extra differentiator

[00:45:08] and a lot of people like their amix cards because they give tons of perks too now to go back to

[00:45:14] the actual earnings so revenues net of interest expenses were up 11 to 15.8 billion net income

[00:45:21] was up 34 to 2.4 billion while eps was up 39 percent deposits were up 4 to 134 billion again

[00:45:30] it is a bank so that's why they have deposits loan loss provisions increased 20 to 1.3 billion

[00:45:36] and the loan loss provisions are actually a mix of actual write-offs and reserves for potential

[00:45:43] loans that will go bad and that's pretty typical so when we will be talking about

[00:45:48] canadian banks when you hear about loan loss provisions typically there will be an amount

[00:45:53] that's like almost like it's a given it's going to be written off and then there are extra funds

[00:45:58] that are allocated for loans that will potentially go bad so they're essentially provisioning for

[00:46:04] that so that's why they're their provisions and clearly here i think the higher interest rates

[00:46:10] and stimulus are getting out of the system and it's wearing on their loan books because

[00:46:15] i pulled out some data from their investor presentation i compared to the start of the pandemic

[00:46:21] just to have an idea so american express write-offs and pure sheer dollars was 287 million in q1 of 2022

[00:46:30] and that is now q 1.12 billion for q1 2024 so these are just the write-offs and the card

[00:46:39] member loans net write-offs rate was 0.8 in q1 of 2022 and 2.3 in q1 of 2024 now i don't want to be

[00:46:51] alarming because these are kind of more you know getting back at kind of pre-pandemic levels at

[00:46:58] 2.3 but i wanted i picked those days because it lines up with when interest rates started rising

[00:47:04] and it's also i think you were starting to see the savings related to all those stimulus checks

[00:47:12] because people in canada may not realize it but people in the u.s like pretty much everyone got

[00:47:16] like a stimulus like i think they got two stimulus checks like didn't matter here you had to be like

[00:47:21] in some kind of hardship and clearly there was like you know fraud that happened and all that

[00:47:27] stuff in canada without going into that but i think it was just to show that i think the combination of

[00:47:35] interest rates and stimulus money kind of slowly trickling out of the system i think is a good

[00:47:42] indicator as to why or a good reason as to why these rates uh these write-offs are actually

[00:47:48] starting to creep up and it's just i again i don't want to be alarming but it is something that

[00:47:55] you should be keeping an eye on if you do own american express or you're interesting in owning

[00:48:01] the bank i still think it's in really good financial situation i don't think it's in any

[00:48:06] trouble anything like that but it's something to keep an eye on because clearly things are picking

[00:48:12] up they're at the point of pre-pandemic but uh it is you know things are they're starting

[00:48:19] to be a bit of crags the economy we don't know where exactly it's going to go in that would

[00:48:24] be a really good indicator and maybe to add to that i was reading a report for household debt

[00:48:31] and credit in the u.s so the federal reserve bank of new york comes out with this quarterly survey

[00:48:38] and it's i mean there are some things to keep in mind that are not great so the latest survey

[00:48:45] was q4 2023 and it showed that credit card balances in the u.s are now at 1.13 trillion

[00:48:54] dollars in outstanding debt and that increased 50 billion in one quarter or 4.6 percent so i again

[00:49:04] i don't want to alarm people here i'm just trying to you know share the information i mean this

[00:49:09] it's as good as it gets right the new york fed like i mean if you uh you know as a source i

[00:49:14] don't think it gets much better than that and there are some clear sign that i think americans

[00:49:19] despite the economy doing so well are using more and more debt and credit card debt is clearly not

[00:49:26] the type of debt you want to be using so those are all things that i would keep in mind uh like

[00:49:32] an eye on especially if you own banks whether it's in the u.s or canada because it can definitely

[00:49:37] impact the future profitability of those banks yeah i mean credit card debt is pretty much

[00:49:42] your next step up is what a payday loan where it's like a 35 percent another credit card to pay the

[00:49:48] credit yeah exactly yeah yeah well i mean even when we went over the canadian banks uh this is just

[00:49:55] off the top of my head but i'm pretty sure most of them were reporting like anywhere from like 15

[00:50:00] to 18 increase in credit card spending over the last while and i mean i think we went over a canadian

[00:50:06] tire as well and wasn't there right off rate it was much higher than 2.3 percent from what i

[00:50:11] remember it was in the threes i think yeah i think so i think it was around there obviously we're

[00:50:15] going on memory we don't have you know but you're right yeah but yeah it's uh i mean there's no doubt

[00:50:21] credit card spending is is going up money's getting tighter but yeah it's it's interesting to keep an

[00:50:26] eye on it i mean it's still a relatively low uh write off rate i mean especially like i said you

[00:50:32] compare it to a canadian tire which is seeing huge growth i'm pretty sure in card spend as well

[00:50:38] and then you know their rates their write off rates are quite a bit higher but yeah it's going to be

[00:50:43] interesting to see how this goes in the future yeah and one thing that's not talked too much about

[00:50:48] i was reading another um i can't remember i think it was the philadelphia fed one of the other feds

[00:50:53] in the us they had a paper on by now pay later oh yeah and basically they differentiated they

[00:51:01] did a survey and they compared people that had kind of um that were not financially stable and those

[00:51:08] were financially stable so they defined that i can't remember the exact definition but the tldr is that

[00:51:15] the non-financially stable were more likely to be repeating those by now pay later like to be a

[00:51:23] repeating customer it would tend to do it for smaller everyday purchases which means that clearly

[00:51:30] people are using that to probably make ends meet clearly it's better than a payday loan like that's

[00:51:36] you know it's a better option than that and then people that were financially stable would often

[00:51:41] just use it for larger purchases to avoid paying interest on whether it's a credit card whether

[00:51:48] it's taken out alone so it was interesting to see the the two differences and it's something

[00:51:54] they said they would keep an eye on but it is something that they kind of flag that a potential

[00:51:59] risk where i guess you know the financially vulnerable or whatever you want to call it it

[00:52:05] is definitely a risk that people are using that more and more just to make you know

[00:52:10] everyday needs met and that could and that that data doesn't really show off a lot of places

[00:52:17] and that's the issue with the by now pay later too yeah wasn't it uh you could buy a pizza

[00:52:22] i'm pretty sure i seen like a buy now i think so later for like dominoes like a $15 pizza you

[00:52:28] could split it into four payments and yeah yeah and yeah so it's i mean i think it defeats the purpose

[00:52:36] i think there needs to be probably more regulation around those services because i think a lot of

[00:52:40] people are probably starting to get into these kind of cycles and even though they're installments

[00:52:47] without interest if you don't make those installments you can you have fees that start

[00:52:52] tacking on and so on so it's not like a a perfect solution but i just figured i i would mention that

[00:52:58] and before we go on and um you know finish the episode because if we've been talking for a little

[00:53:04] bit in terms of guidance amix is guiding for nine to ten percent nine to eleven percent in terms of

[00:53:10] revenue growth and 13 to 17 percent terms of eps so despite all of this clearly you know

[00:53:16] earnings per share are growing nicely but again i think it's important to keep an eye on those

[00:53:21] credit card delinquencies because clearly i think they have other types of loans but predominantly

[00:53:27] it's a credit card loan business with you know the network attached to it but it's something people

[00:53:32] should be looking at if they're interested in amix yeah like the provisions are going to be much

[00:53:37] different than say a canadian bank who's got you know a lot of mortgage exposure things like

[00:53:42] that so it's kind of a different it's it's a different makeups but important to keep an eye

[00:53:46] on for sure yeah in terms of assets clearly they put way more aside than like an equivalent canadian

[00:53:52] banks just because you know i think it's a nature of things right you're going to get more delinquencies

[00:53:57] or write-offs on the credit card that's exactly mortgage for example so i think it's just

[00:54:02] you know keeping that in mind but it does come cheaper than these unmasked card you get a

[00:54:08] different kind of business but um you know that's probably why buffett owns it because he does

[00:54:13] like financials and banks um he's owned it for years i'm pretty sure i mean unless he's sold it

[00:54:18] recently i know he's owned it for a very long time yeah yeah and that was actually like primarily my

[00:54:24] decision to go away from this and to a company like visa because i do own you know not a crazy

[00:54:30] exposure but i do own quite a bit of canadian banks so it was just easier for me to kind of

[00:54:36] get away from this and go more to you know a company like visa who doesn't really deal on the

[00:54:41] loan end of things yeah or you could just buy bc and get uh 90 dividend exactly suck so we didn't

[00:54:48] have enough time to go over uh horizon maybe next week next week yeah i think it's i ran a bit long

[00:54:54] but you know we do this from time to time we run a bit long we keep the earnings and that when we

[00:54:58] have a bit of a lull in terms of earnings or news uh we'll catch up on it but uh i'm sure we'll

[00:55:04] have the chance to do Verizon soon enough and we can probably compare them to a few telecos in

[00:55:09] canada yeah because uh if you think the canadian telecoms are struggling the us telecoms are

[00:55:16] they're in pretty tough shape over the last while well looking forward to hear that so i think we'll

[00:55:22] call it an episode here thanks everyone for listening if you haven't done it i know we

[00:55:28] mentioned in every episode but i give us a five star review on apple podcast spotify

[00:55:33] whichever platform you listen to us on really helps people discovering us or if you have

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[00:55:52] as we can so uh we really appreciate when people share that with others but on that note yeah thanks

[00:55:58] for listening and we'll see you next thursday the canadian investor podcast should not be

[00:56:03] construed as investment or financial advice the host and guest featured may own securities or assets

[00:56:10] discussed on this podcast always do your own due diligence or consult with a financial professional

[00:56:17] before making any financial or investment decisions