Constellation Won't Slowdown 📈

Happy Sunday! (Unless you’re a TikTok user 😬)

In this edition of the FinChat Newsletter we’ll take a look at the “earthquake” shaking up the real estate industry, a potential ban on TikTok, and the impressive results of Canada’s 2nd largest software company.

Let’s get into it.

News Roundup

• Adobe Earnings: Software giant Adobe, reported better than expected results this quarter on both the top and bottom line. However, after issuing weaker guidance than Wall Street was hoping for and paying $1 billion just to forego its proposed acquisition of Figma, shareholders were left upset. Despite consistent growth, so far this year Adobe’s stock is down 15%, while the S&P 500 is up 8%.

• An “Earthquake” in Real Estate: On Friday of this week, The National Association of Realtors (NAR) reached a settlement with groups of homesellers that could have major implications for the real estate market across the United States. The settlement includes $418 million in damages to be paid by the NAR and the elimination of rules around commissions. This means the 6% commission that homesellers often pay to both the buyer’s and seller’s agent could disappear.

• A TikTok Ban? This week, the US House of Representatives passed a bill that would require TikTok’s owner Bytedance to either sell its TikTok operations in the US or have the app banned. The bill still needs to pass the Senate, but President Joe Biden has already stated that he would sign it if the bill were to pass. This means that for the ~170 million TikTok users in the US, they may soon have to go elsewhere to consume their short-form content.

• Match Group Attracts Another Activist: Reports came out this week that the online dating conglomerate Match Group is facing interest from yet another activist investor in Anson Funds. The limited parntership based out of Dallas, Texas with just under $1 billion in assets under management is apparently in talks with Match Group’s management team to refresh their board of directors among other suggested changes. This news comes just 3 months after famed activist investment firm Elliott Management took a 10% stake in the company. So far Match Group’s stock is down 8% since the start of the year and roughly 80% from its 2021 highs.

Partner Spotlight

The following is an edited snippet from FinChat partner, Best Anchor Stocks.

Constellation’s Q4 and FY 2023: Misleading Numbers Can Be Great

Constellation Software (CSU.TO) reported its Q4 and 2023 earnings Wednesday evening, and, let’s go straight to the point, they were great.

The accounting is still messy, but there was great news regarding capital allocation and cash flows, two of Constellation’s main KPIs (Key Performance Indicators).

Note that I will focus mainly on the yearly numbers as I believe that makes the most sense. When one invests for the long term, the more one can zoom out, the better. And I think that (nearly?) all of Constellation Software shareholders are in it for the long term.

The numbers

Constellation reported great numbers, as usual. Revenue grew at a good pace again, climbing 27% year-over-year in 2023, and Constellation also enjoyed margin expansion at the operating level for the full year and quarter. This is great news and is probably related to the fact that organic growth is becoming a bigger contributor to the company’s growth than in the past. Organic growth is a more profitable growth avenue than inorganic growth.

Digging deeper into revenue

Constellation has two sources of revenue growth: acquisitions and organic growth. Acquisitions were again responsible for the bulk of the company’s growth, but organic growth remained resilient once again despite facing tougher comps:

It’s tough to really gauge the reason behind the improvement in organic growth. The recent acceleration might stem from aggressive price increases the company has undertaken to offset inflationary pressures. This would mean this growth rate is temporary and not the new norm. However, we can’t know at this point if it's inflation or the company’s new organic growth practices that are behind the acceleration. We’ll probably have to wait until Constellation’s Annual General Meeting to get some more clarity. Probably, that will be in early May.

Acquisitions - Yet another record year

Constellation enjoyed yet another record year in terms of capital deployment. The company deployed almost $2.3 billion into acquisitions this year. This is an increase of 34% compared to last year, which was also a record year back then (note that the table below does not show committed capital but rather the capital outflows as such):

To see the full article from Best Anchor Stocks, click the button below.

Join Us 🎉

On March 27th at 12PM EST (noon), we’re hosting a free webinar and you’re invited!

We’ll be joined by Compounding Quality and the focus of the discussion will be “How to identify high-quality businesses".

There will also be an open Q&A for all attendees, so make sure to bring your questions.

Meme of The Week

Growth Investors When They Pay 100x Earnings

Dune Part 2 memes are alive and well.

And for all the investors out there that have overpaid because they invest for the “ultra long-term” (myself included) this one might just hit a little too close to home.