Microsoft just had their developer keynote and they announced a lot of new things, but there are three primary announcements that really put pressure on Microsoft competitor. The first one is Windows co-pilot, Microsoft is merging chat. TBT technology with the windows interface, then we have being cheap. ET so, like Google, they're merging AI with their being serviced.
And then they announced Azure AI Studio, the integration of AI into their Azure service, which will put immense pressure on their competitors primarily a double U.s. so, Microsoft is going after numerous big Tech competitors and they're doing so at the same time and then we also have a news that one of the companies, I recently purchased into reported, its earnings in.
It was subpar, in fact, investors didn't like the earnings of into it. And the stock is, currently traded down around six percent after earnings will be taking a look at their earnings and seeing how bad it really was. And then, we also have a report from The Wall Street Journal that stocks are buying back their own, shares at a torrid pace and it goes through and highlights, which stocks are doing the most BuyBacks and what this Quickly means for the stock
market. So as always, we have a lot to get to in this episode. Let's go ahead and jump in now. Let's first start off with an update on my portfolio and specifically, one of the companies that I recently bought into that just reported earnings we have into it. I added into it as a concentrated core position into my portfolio last week and my previous video highlighted why I
purchased the company. I went over the entire investment thesis and why I believe this company is a great investment over the next five to ten years Into it as I highlighted in the previous episode is a company that I consider to be a quality. Compounder, a company that has a franchise Suite of software that all has a wide mode and trench
Mark position. Incredibly High barriers to entry gray economics in a long Runway of organic growth and pricing power over all I think into it is a fantastic company that doesn't get paid to quite as much because it's not a flashy tech company. So after going over the company's qualities and the fundamentals and evaluation based on its free cash. Yield. I decided to add it to the portfolio buying in twenty four thousand dollars over the past. Five days that makes up around a
5% position. So my core positions around 10%, this one's currently about a half size position. Now into it recently reported earnings and it was a little bit underwhelming to investors. They did beat on their earnings per share, but they missed on their revenue guidance by a narrow Miss, so they nearly missed on their revenue. This caused a stock to sell down around 1% today, so it's trading down a little bit today. Now this is caused a lot of
people to look at this and say. Well, Joseph bought into this company five days ago, and they reported earnings and the earnings were bad. Therefore, that makes this investment a terrible investment. It was an ill-conceived investment from the beginning because now it's sold off right after being bought into. And I want to address those claims. So, first of all, let's go ahead and just take a look at what's happened over the past five days, right?
Out as a buying into into it, I am down less than 4% on this
holding into its stock. Price is back to where it was five days ago and it's where it was about eight days ago and 12 days ago, in fact into it, year-to-date is still up around 8 percent and it's repeatedly traded around this much the jump from this point to. This point was 5%, the jump from this point to this point was 5%. Same from here to here, and here to here, and here to here, and here to here, Those are all five percent or more in fact so far year-to-date into it has had
over six different times where it's traded above 5 percent in just a day or two. So volatility is something that is not rare for this company but even so I still see comments of people looking at the past week and saying that the company's gone down therefore it's a bad investment. So let me just address those comments which I think are frankly dangerous to any investor to address these comments. I want to highlight a couple
facts here. The first fact that I want to highlight and these aren't really These are just facts. If you judge the performance of an investment on a five-day period, you are not an investor. I don't know what you are, but you're not an investor, you're not investing. You're not doing value, investing you're not doing growth investing. You're not doing any type of
investing. If you're judging the performance of any company into it included, on a five-day period, Then You're a traitor, you're a gambler. You're, you're somebody that likes to base things off of market trading day in and day out. That's not the game that I'm playing here. The game that I'm playing is long term, fundamental driven investing investing. In companies, that, I believe the intrinsic value will grow over a five-year period.
The second thing that I would point out, if you let a short-term market trading instruct, you, or inform you on value, you're also not an investor if you're looking at the price of a company and the fact that the price goes down, makes you feel like the investment was a bad investment or the fact that the Price goes up makes you feel like it was a good investment if that's the way that you're investing. Then what you're doing is looking for other Market.
Participants to instruct you on the value of a company while the company went up in price, therefore the intrinsic value must have grown that's not necessarily. So if that was the case, we could go back to companies like fubo. We can look at the price chart here, look over the past five years and if you simply took the approach that the company was worth more money than during 2020. Fuba was really worth $50 per
share intrinsically. You'd have to believe that that was the true value of the company. Clearly that was not correct. Investors didn't know what they're doing and they got overly hyped and excited about a low quality company. Bidding it up to extremely high valuations, far above any level of fundamental or intrinsic, value fundamental value investors, do not look at short-term Market volatility, or the bids of other Market participants to instruct them on the intrinsic value of a Buddy,
they recognize that. The valuation is based off of cash flow and future growth prospects. So if you let short-term market trading instruct, you and form you or educate you on the value of a company, you're not an investor, you're certainly not a fundamentally driven value investor. And then, finally, number three value. Investors judge an investment based on the fundamental and intrinsic value improvements, or declines, not the market trading.
This is one of the hardest things for investors to do to disconnect from market trading and actually look at the intrinsic value drivers of a company. It's so difficult to do because we have these numbers glaring in our face. All the time, we have the Dow Jones and the NASDAQ and the S&P 500. When these go down, other companies, go down.
In some cases more, we have the numbers, the quote, price, every single day, every hour of every company on every Financial Service. And in many cases, it's very difficult to disconnect from this mentally, but as fundamentally driven value investors that Thing that you're required to do, you have to disconnect from the market trading? When I look at the value of n to it or any other company, I judge it based on the fundamental Direction and developments of the company.
And when we judge this company in particular on its fundamental developments, we have them right here, based on last quarter, the revenue grew 7% year-over-year, That's against very tough comps, the operating income grew 16 percent year-over-year, the earnings per share on a gaap basis. Grew 18% year-over-year, all three core parts of the growth profile. I love this company are going along quite nicely. The intrinsic value has increased for into it. Not decreased.
They also said in the earnings call that they're raising their full-year guidance for operating income revenue and earnings per share. So they're not guiding down there actually guiding up. And in terms of short-term market trading, this is something that I really do not concern myself with at all. I'm so used to this, I've done this for long enough, and I've seen this so many times that I know better by now, every single one of my companies and especially the best buys that I've done.
And have had quarters where they sell off immediately after the quarter. I've owned Apple for over five years. This company has had so many cases where it sells off 5% 10%, or as a twenty percent dip, its countless the amount of times that's happened. Microsoft is another company that I started to load up into and the company traded down Satya Nadella sold out of the company. The stock price went down and I ended up in the red around five thousand dollars.
What I had to do which was difficult to do. With Microsoft was ignore all the Comets of people saying it was overvalued and just wait and waiting-maid that five thousand dollars in the red turned to 7,500 dollars in the green because Microsoft is a great company. It is a compounder and when you wait long enough with Compounders they work their way back into the green. VG, was a company that I first bought into and it went heavily
in the red. This is a company that I was openly mocked for buying because it was overvalued and it went into the red right after I bought it. And I received a number of critical comments after buying into this one. Simply waiting brought this one back into the green, the same story for Texas Roadhouse. This company went into the red immediately after buying it.
The same thing with Starbucks, I bought Starbucks at $90 per share, and it went all the way down to 70 dollars per share, based off of Labor, concerns and unionization. What I had to do with these Holdings to turn them from losses into gains was simply ignore the critics and wait with Quality Companies. It doesn't take much.
It just takes what Peter Lynch calls having a Um, stomach, avoiding the temptation to sell out of Quality Companies and simply waiting waiting in both cases, turn both of these losers
back into winners. Some terms of into it having the quarter trade down a little bit after earnings does not concern me and if this concerns you that's fine you should buy an ETF because in almost every case every company you buy they're going to have time periods where they trade down after earnings that just comes along with individual investing but overall I'm happy with the report I think.
Into its doing a great job and they addressed a lot of the concerns that investors have as well about upcoming developments. One of the biggest concerns that investors had about into it. One of the things I heard the most was, the recent news that the FED is coming out with free tax filing software, and the concern is that a government provided free tax. Filing software is going to impact into it by taking customers.
Here's what they had to say on the earnings call, if you look at the last four years, plus there were several entrants big entrance into the free. E tax software. One was Credit Karma before we acquired them where they have 100 million plus customers, a trusted platform, and they entered into the market, providing free tax software with sort of a very little no impact. So, that's the first thing they
highlight here. Credit Karma, one of the companies they now own previously had a free tax filing software, competitor to into it. And it had almost no traction. They said the point is that free tax software is already available has been available. Every customer and the awareness is extremely high. And so, to have another sort of free tax software that's available is really immaterial in the way that we think about it. And I'll remind you by the way, it's actually not free.
This is going to cost taxpayers billions of dollars and so it's really not free. So they're pointing out that the government developing, this product is not going to be free because it costs taxpayer money. Now, another thing I wanted to highlight as part of the Strategic execution, this company's doing something that I think is very significant, they say that their desktop ecosystem, Revenue.
Grew 16 percent and desktop, Enterprise Revenue grew 20% so into it has a whole portion of their customer base that is using desktop applications and they mentioned that we are over halfway through a three-year transition to a subscription model for our desktop Accounting Solutions making this Revenue more predictable. We also raise our desktop prices for several products last September to price for Value.
So what I believe they're doing here is they're trying to shift all of their Top users over to the online SAS solution where they have more of a reoccurring revenue and more predictable pricing power. This is the same exact transition that adobe did 10 years ago and we can look at the impact that this transition had on adobe's business. The revenue for example of adobe was basically flat for about six or seven years from 2007 to 2014.
This is precisely when they shifted from desktop to a SAS model, the revenue suddenly exploded growing at A rapid race. An adobe was a legacy business that had been around for decades before this pivotal Point, transitioning from desktop to SAS model online with constant updates and reoccurring Revenue, really helped out this company. You can see the same type of things in the cash flows, basically flat for about six or seven years and then it
exploded. As soon as they switched over to the SAS model away from desktop into it right now, is in the transition of switching their users. From desktop to the SAS model. And this is for their biggest part of their franchise for QuickBooks and TurboTax, they said looking ahead. We expect continued strong desktop, ecosystem Revenue over the next quarter as we complete. The remaining part of the three-year transition.
We will continue to build out our online ecosystem and help our desktop customers migrate seamlessly to our online offering when they're ready. We continue to expect the online ecosystem, to be our growth Catalyst, long term. So that is where their major focus is. Is the long-term growth of their online ecosystem. And here we have into a midst that transition, currently, I think this will be a long-term growth driver for the company.
So what I saw as a company that still executing on their plan growing, their earnings per share growing their revenue growing their operating income and transitioning their clients from Legacy desktop over to SAS solution overall. I think the future is very bright for into it now. Not everyone, shares in my enthusiasm for the success of into it. In fact, a lot of people seem to really hate this Company part of the feedback I received in the last episode. Is that into it bad?
That's the the feedback I received into it is bad. Here's one of the comments on the last video with all due respect, I hope into it goes out of business. 84 thumbs up. Lots of people do not like into it because they deal with taxes and worse. Yet into it. Lobbies the government, they spend millions of dollars lobbying the government, they Lobby, the government.
As they sit there, all the board of directors in the Executives of into it, they sit there conspiring together in the dimly lit, rooms only lit by the light of their cigar and they talked about how they're going to make the tax system, further complex, so that they can have the solution. It's like creating a problem that they have the antidote to. This is a big conspiracy of into it and why. So many people seemingly hated now we just address this for a
second here. First of all it is true that into it does lopping they spend around two million dollars per year on lobbying which is pretty Run-of-the-mill. Virtually every large company, especially tech companies Lobby for their own benefit. Every single one of them Google spent over twenty million dollars in lobbying last year over 10 times. The amount that into it, did
every large company in the u.s. spends lobbying to inform and help direct policy that they think will be beneficial to both people and their shareholders into it is being blamed by some people for making the tax system complex. And to that. I just have a hard time keeping a straight face when I read those comments. Do you think that two million dollars of lobbying to million is, what's causing the US tax system? And all of federal taxes to be complex?
Is that really the stance you're taking into it is the cause of the entire United States government, having a complex tax system, I'm sorry to be the buzzkill if you actually believe that. But that's not the reason why our tax system has been far complex far before into it had anything to do with it. Into it takes an incredibly complex. Tax system and boils it down to a very easy to use interface so that their customers can
actually navigate a problem. The government has created long ago, a second thing that I'll mention is virtually every company that I've ever invested in is evil for one reason or another. I always get the same response. This company is bad, bad bad for XYZ reasons, SMP Global. Well I can invest in that company, look what they did back in 2007, they got all the ratings wrong on the mortgage crisis and they caused a huge. Huge economic crisis.
That's all their fault. This company's bad MasterCard, this company's monopolistic, they run a duopoly with Visa. They leech off of the American system, getting a revenue share of every single transaction. And they hurt small, businesses, Microsoft is so big and powerful that they just spread out into every single category of product. And their, this unmitigated monopolistic company.
They've exercised so much power over so many industries that they're virtually Unstoppable. At this point. This company's bad for society because of how big and how Much control, they have apple charges developers, 15 percent, or 30 percent of their take, and every transaction of the Apple store. That's an unfair Monopoly, apples bad, and the real estate category VT owns a lot of gambling real estate and as we know gambling's a bad addiction and causes lots of problems.
VG's, bad in the restaurant category, Texas Roadhouse is contributing to global warming Starbucks. As a union Buster, it's bad to go against unions in Industrials. There's no industry that treats their employees worse than railroads railroads treat their employees. Horrible. The railroads are bad in the consumer category. Costco shut, things down during covid and made people wear masks Pepsi's causing obesity and making people die.
Early Nike has child, labor and Estee Lauder does business in China, for one reason, or another, all of these companies are bad as well. So let me be clear on this when I'm doing analysis on companies, my goal is not to try to figure out the best way. The world should be ran, and try to project my own morality or thoughts on to these companies. What I'm doing as an investor is making investments in already.
Established companies and then I'm modeling out what I believe will be the likely probable outcome over the future companies that I think will likely have a great deal of success and I'm making large concentrated positions into those companies. This has nothing to do with me. Trying to judge morality, trying to say how I think these companies should be or things overall should operate. This is what I believe, the reality is in the world, we live in. So if you think that into, it's
a bad company, that's fine. You can have that Viewpoint. I personally think that you're wrong. Young. But in terms of my actual investing, it doesn't make a difference. Now, moving on, we have some major news which was Microsoft's keynote and they announced three big advancements in AI that I believe will be impactful to both Microsoft and their largest competitors. The first one is the merging of
AI and two windows. Next, we are bringing the copilot to the biggest canvas of all windows, you're going to hear a lot from Panos tomorrow about it. But I think that this is going to make every user, a power user of Windows. Let's roll the video. It shows a panel off to the right of Windows where it pops out and then it's basically chat GPT right on your desktop. I see Microsoft taking a note from Apple. Apple likes to do this with their devices.
They put their products right in the Forefront. They default their own products and Microsoft is doing this with Windows. Defaulting. Copilot is a very, very Apple like move. And I actually believe that this integration of AI into Windows.
I think it pressures. Apple, apple has a great ecosystem, they have a great operating system, I think that users really like it, but it doesn't have a deep level of a, I already integrated into it. If Windows starts coming in with these huge Integrations, I think it's going to put pressure on an Apple to, at least match the capability of Microsoft, which may be difficult to do. We'll see how Apple response later this year, but they are already doing this.
This. Now the next thing that Microsoft is doing is merging chat GPT AI technology into being searched. This isn't a surprise. It's something we knew that they were doing before but they're really not taking any half-measures here, they're doing a fully-fledged integration. Your Chad GPT is the most sort of fast growing consumer app we've ever seen. And searched, grounding is very
key feature, right? So that all the information is current and grounded by what you have from the crawl and the index. And so, it's fantastic to see that we previously. Chechi PT was based on models that were static models. It wasn't hooked up to search. Now, chat GPT will have the power of live search, which will make it man. Civ lie, more powerful excited to be able to is going to launch in chat, GPD Place immediately and quickly coming even to the free tier.
And very, this is just the start of what we plan to do with our partners and open a.i. to bring the best of being to the chat gpg experience. Now, of course, this Market is currently owned by Google. They have the leading market share and most analysts expect Google to continue with their massive market share lead. So right now, most investors are not really underwriting that Microsoft is Take massive market share from Google, but there's always a chance that they can
actually make some gains. If they're pushing this hard, making chat, GPT and being this good, they do have a chance at really competing with Google. But Sasha wasn't done there. He announced dead. Another big integration of AI into existing Microsoft Technology this time into Azure. Of course, when we talk about the AI platform and the copilot stack, the next thing for us which is really exciting.
Ting is AI Studio. This is the full lifecycle toolchain for you to be able to build your intelligent AI apps and your co-pilots everything from being able to train your own models, to be able to then ground whether its opening II or any open source model. With data of that you bring built-in Vector indexing in Azure search built-in support for rag or Rich. Will augment degeneration, support built-in support for prompt engineering but prompt
flow and orchestration. And of course built-in support for perhaps the most important feature, which is AI safety. Now Azure has its full on AI studio with a variety of features built into it. The developers can build upon very similar to Amazon's AWS into a I move that they made and in this we have Microsoft again putting massive pressure on Another big tech company this time, Amazon.
Now I'm not saying that Microsoft is going to destroy Apple or Google or Amazon. I don't believe that will happen. But we do see, here is Microsoft continually being incredibly aggressively competitive with. Even their biggest peers. Microsoft doesn't stay in their Lane. They continually move out of their Lane into competitors categories and incrementally
shave away market share. They're doing that with desktop OS. They're doing that with search and they're doing that with Cloud Microsoft. He needs to be great at taking market share in different categories. Now, in terms of valuation, Microsoft has had an incredible run. Its up 32 percent year-to-date. I believe there's a lot of enthusiasm being priced into the stock now with all of the AI news. So I think we have a lot of AI, enthusiasm into this free cash flow yield.
I think it's a little bit of excitement currently right now. I'm holding the stock, but I am not buying it. So right now, it just remains a hold.
Now, moving on, we have another piece of news that I wanted to dive into it. A report from The Wall Street Journal on BuyBacks. And it says that they're, they're happening at a torrid pace and I wanted to address this because I feel like so often BuyBacks are misunderstood by investors, they're misunderstood by Congress and they're often highlighted in a very negative light.
Now, we have news here that companies in the Russell, 3000, have unveiled plans to buy back more than 600 billion shares this year, in line with last year's record Pace last year, BuyBacks amounted to one Point two seven trillion of share repurchases. And there is a completed one point zero five trillion and Buybacks in 2022.
So over a trillion and BuyBacks and you can see that right here a record year in 2022. We're on track to possibly beat that in 2023. So massive amounts of BuyBacks and this always draws a lot of attention. Why aren't these companies investing in future growth, or so on and so forth. Let me show an illustration of what a buyback actually. Is we have right here in the top left Left a company represented by this stick figure. This stick figure is the company.
The person that started a company, and they run a publicly traded company. The company chooses to do a buyback. Well, we have two different shareholders. Let's say that we have shareholder one right here, and then we have shareholder to right here. Shareholder to doesn't want to have a stake in this company anymore. So what does he do? He sells his shares back to the company. The company bought back shares. From shareholder to so shareholder. To is out. He has his cash moved on, it's
doing other things now. Now, since there's less shareholders shareholder, one has a bigger proportion ownership of the company and enjoys a bigger portion of the profits and in this exchange of a buyback. Nobody was harmed. There are no victims, it is a mutual transaction amongst investors in a Company. The company is simply trading shares from some of its investors who are choosing to exit out of the company and sell their position further and Creasing, the stake of the
existing investors. There are no victims in the process of a buyback BuyBacks. Also have a lot of benefits. For example, when a company's price goes down, and investors
are looking to sell. It's nice for the company, to be able to scoop back up, those shares at lower prices with Intuit trading down today, for example, this is a company that likes to do a lot of BuyBacks. So as the stock price trades down into it, will buy back the shares from investors, looking to sell further, increasing the steak that I have in into it without me, buying any additional shares. So we look at news like this, that BuyBacks are at record
high. Don't let the media convince you. That that's an alarming thing or something. That's inherently bad and most cases it's not a bad thing. Now, that's all the update for this episode. I'll have more content out later this week, so make sure you're subscribed and I'll see you in the next one.