Kyle Prevost, creator of 4 Steps to a Worry-Free Retirement, Canada’s DIY retirement planning course, shares financial headlines and offers context for Canadian investors.
Buffett not “uncomfortable” with Canada
When countries look to attract the attention of big financial funds, they often attempt to brand themselves in a manner that will bring much-needed foreign investment to their shores. For example, you might see buzzwords such as:
- Innovative
- Efficient
- Attractive
- Shareholder-friendly
But given Canada’s stagnating economy, I think it’s appropriate to get excited about this Warren Buffett quote:
“We do not feel uncomfortable in any shape or form putting our money into Canada.”
When Buffett takes the stage at his annual “Woodstock for capitalists” in Omaha each year, the investing world sits up to take notice. So, it was noteworthy to hear his lukewarm notes about Canada, including:
“There are a lot of countries we don’t understand at all. So, Canada, it’s terrific when you’ve got a major economy, not the size of the U.S., but a major economy that you feel confident about operating there. … Obviously, there aren’t as many big companies up there as there are in the United States. There are things we actually can do fairly well that Canada could benefit from Berkshire’s participation.”
He went on to reveal his company’s possible Canadian strategy, saying, “In fact, we’re actually looking at one thing now.” While most other investors are cool on Canadian stocks, it’s interesting to see Buffett warm (again).
Buffett’s last major foray into Canada generated a massive 70% gain in a single year back in 2017 when he invested in Home Capital Group, so he may know a thing or two about making money in the Great White North.
Other highlights from the annual general meeting included (all figures in U.S. dollars):
- Buffett’s company, Berkshire Hathaway (BRK.A/NYSE) is currently benefiting from high interest rates, as it sits on a massive cash hoard of $189 billion.
- Berkshire sold about $39 billion worth of Apple stock during the quarter. Berkshire remains Apple’s single biggest shareholder with over $135 billion still invested.
- In the absence of big deals, Berkshire continues to reward its shareholders by buying back its own shares to the tune of $2.6 billion for the quarter. When asked why he hadn’t used the cash to make big, flashy investments, Buffett responded, “I don’t think anyone sitting at this table has any idea how to use it effectively, and therefore we don’t use it. We only swing at pitches we like.”
- Berkshire’s operating profit rocketed up 39% on a year-over-year basis.
- Underwriting profits at Buffett’s insurance companies were up 185% year-over-year to $2.6 billion.
- Buffett told the audience that he had sold all of Berkshire’s remaining Paramount Global shares and was refreshingly honest in admitting, “It was 100% my decision, and we’ve sold it all and we lost quite a bit of money.”
Buffett wrapped up the annual meeting by saying humbly, “I not only hope you come next year, [but] I hope I come next year.” He later added, “I know a little about actuarial tables,” in reference to his insurance expertise.
This insight was made particularly relevant given the absence of long-time friend and partner Charlie Munger at this year’s event. Munger passed away at age 99 in November 2023.
Investors appear to see value in Buffett’s patience to wait for the right pitch, as Berkshire shares are up 11.5% so far in 2024.
Disney gets dumped
Despite a small earnings beat on Monday, shares of The Walt Disney Company were down more than 10% after the earnings report was released. Disney reports earnings in USD.
Disney earnings highlights
The company responsible for the Happiest Place on Earth released the following:
- Disney (DIS/NYSE): Earnings per share of $1.21 (versus $1.10 predicted), and revenues of $22.08 billion (versus $22.11 billion predicted).
Disney CEO Bob Iger was quick to point out the progress the company had made in making its streaming service profitable. However, investors weren’t buying the bigger picture as future revenues appear “soft” based on updated guidance.
Here’s how Disney’s various entertainment verticals fared during Q1:
- Disney+ and Hulu were profitable for the first time ever.
- When ESPN+ is included in the overall streaming accounting, there was a net streaming loss of $18 million (a massive improvement on the $659-million loss reported for 2023’s first quarter).
- Revenue from traditional television (cable) declined 8% to $2.77 billion, and operating profit in that division fell 22%.
- U.S. amusement parks and experiences rose 7% to $5.96 billion.
- International parks and experiences rose 29% to $1.52 billion.
- Due to the lack of a blockbuster movie release, content sales and licensing fell 40% to $1.39 billion.
The bottom line: While Disney is still very profitable, high expectations are baked into the share price. The company is in the midst of a major cost-cutting strategy to turn its massive bet on streaming into a source of profit instead of a net loser each quarter.
Iger admitted that Disney was in transition. He tried to manage investors’ expectations, stating “We’ve said all along that our path to profitability will not be linear.”
Betting against Disney and Iger in the past has not been a good idea.
That said, the current price-to-earnings ratio of 65x indicates just how high expectations remain, even after the rough earnings day.
Reddit makes auspicious debut—Lyft shareholders get free ride
It was another interesting earnings week in the world of U.S. tech, as Reddit released its first-ever earnings report as a publicly traded company.
Tech growth stocks earnings highlights
All earnings below are in U.S. dollars.
- Reddit (RDDT/NYSE): Earnings loss per share of $8.19 (versus $8.71 predicted) and revenues of $243 million (versus $212.8 million predicted).
- Uber Technologies Inc. (UBER/NASDAQ): Earnings loss per share of $0.32 (versus $0.23 predicted), and revenues of $10.13 billion (versus $10.11 billion predicted).
- Lyft, Inc. (LYFT/NASDAQ): Earnings per share of $0.15 (versus $0.08 predicted) and revenues of $1.28 billion (versus $1.16 billion predicted).
Reddit shares were up more than 15% in after-hours trading after announcing a surprising rise in revenues on Tuesday. While Reddit did have a quarterly loss of $575 million (mostly due to one-time costs around its initial public offering), revenues of $243 million represented a 48% increase on the fourth quarter of 2023. User numbers also surprised to the upside, with a 37% increase versus last quarter.
CEO Steve Huffman stated:
“We are happy with our progress this quarter. Our management target is to grow revenue twice as fast as total adjusted costs, but this quarter we grew revenue five times faster.”
Notably, Reddit’s potential to benefit from artificial intelligence has been much speculated upon, due to OpenAI’s Sam Altman’s owning $800 million worth of Reddit shares. “By leveraging its trove of user-generated content to train AI models on conversational language, Reddit has unlocked a lucrative revenue stream,” senior director of briefings Jeremy Goldman stated. (Read: “Is AI stealing my job?”)
In the ride-sharing battle of Uber versus Lyft, Uber maintained its market-share advantage, but had an otherwise disappointing earnings day.
After reporting a larger-than-expected loss Uber shares were down 5.72% on Wednesday. While Uber’s revenues grew 15% year over year, the company is still having trouble controlling costs.
Uber CEO Dara Khosrowshahi explained the loss by referring to non-operating investment losses:
“We did have to mark down those equity stakes that resulted in a loss. We don’t expect that to keep happening going forward.”
The Uber app is more popular than ever with 2.6 billion trips completed in the first quarter of 2024, up 21% from last year.
Lyft, by contrast, outperformed profit forecasts and shares were up 7.11% on Wednesday.
Lyft has slashed costs by 13% since 2023, and shares are up nearly 30% this year.
Shopify’s slide stuns shareholders
Shopify Inc. started Wednesday as the second most valuable company in Canada and fell to the fourth largest by sundown. Shopify shares were down 18% in one day despite an earnings beat.
Canadian earnings highlights
These companies are listed on both the Toronto and New York stock exchanges. All figures in U.S. dollars.
- Shopify (SHOP/TSX): Earnings per share of $0.20 (versus USD$0.17 predicted), and revenues of $1.86 billion (versus $1.85 billion predicted).
- Brookfield Renewable Partners L.P. (BEP/TSX): Loss per share of $0.23 (versus $0.17 predicted) and revenues of $1.49 billion (versus $1.43 billion predicted).
- Brookfield Asset Management (BN/TSX): Earnings per share of $0.77 (versus $0.72 predicted) and revenues of $22.91 billion (versus $21.75 billion predicted).
The rationale for the sudden panic in the markets appears to stem from decreased profit guidance going forward. With Shopify forecasting slower sales growth and a decline in profit margins in the next few quarters, clearly investors are questioning the current trajectory of the company and reevaluating the previous premium valuation.
Executives justified the cautious forward guidance. Jeff Hoffmeister, Shopify’s CFO, said: “We have factored in headwinds related to [foreign exchange] from the strong U.S. dollar and some softness in European consumer spending in our Q2 outlook.”
Two of the Brookfield family of companies also reported this week, with Brookfield Renewables losing slightly more money than predicted, and Brookfield Asset Management posting a small earnings beat.
For more on my thoughts on Shopify, please read my article on the best tech stocks in Canada at MillionDollarJourney.com.
Read more about investing:
- Shopify shares sink as company posts Q1 loss
- How much is capital gains tax and other questions answered
- A closer look at “Sell in May and go away”
- Influencer Joyee Yang on making the smart money moves early
The post Making sense of the markets this week: May 12, 2024 appeared first on MoneySense.
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