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.