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Cloud Stocks: Intuit Targets Online User Base Through Acquisition

Posted on Wednesday, Feb 26th 2020

Quickbooks’s parent company Intuit (NASDAQ: INTU) is the talk of the town these days. Not only did it deliver stellar second quarter results, but the company also recently announced a $7.1 billion acquisition – its biggest acquisition till date.

Intuit’s Financials

Revenues for the quarter grew 13% to $1.696 billion, ahead of the market’s expectations of $1.68 billion. Net income rose 27% to $240 million. On an adjusted basis, it reported quarterly earnings of $1.16 per share, up 16% and ahead of market estimate of $1.02.

By segment, Small Business and Self-Employed Group revenues grew 17% to $973 million. Online ecosystem revenues which include Quick Books and other online services grew 35% over the year. Consumer Group revenues grew 8% to $499 million.

Among other key metrics, QuickBooks online accounting revenue grew 43% driven by strong customer growth. The 23% growth in Online Services was driven by the continued adoption of QuickBooks Online payroll and QuickBooks Online payments. Its total international online revenue grew by more than 60%.

Within the Consumer and Strategic Partner Groups, DIY revenues grew by 3.5%. Professional tax revenue in the Strategic Partner Group grew 8% to $224 million.

Intuit expects to end the current year with revenues of $7.44-$7.54 billion and an adjusted EPS of $7.50-$7.60. The market was looking for revenues of $7.53 billion with an EPS of $7.57. Intuit forecast an EPS of $5.90-$5.95 for the quarter with a revenue growth forecast of 10%-11%. The market was looking for an EPS of $6.17 for the quarter.

Intuit’s Credit Karma Acquisition

Intuit’s result announcement was overshadowed by the $7.1 billion acquisition of Credit Karma. San Francisco-based Credit Karma was set up in 2007 as a tool to help consumers get deeper insight into their credit scores. Since being set up, the company had diversified into other personal finance management tools such as tax filing assistance and help on vehicle purchase documentation and financing. The company claims to have over 37 million monthly active users.

Prior to the acquisition, Credit Karma had raised $645.3 million in funding from investors including Silver Lake Partners, Google Capital, Tiger Global Management, Susquehanna Growth Equity, Ribbit Capital, 500 Startups, Susquehanna Growth Equity, Angel LLC, QED Investors, SV Angel, Founders Fund, and Felicis Ventures. Its latest round of funding was held in March 2018 when it raised $500 million in a round led by Silver Lake Partners at a valuation of $4 billion.

Credit Karma offers its services for free to its customers, but earns revenues through advertisements. It has been profitable since 2015. Reports suggest that it generated revenues of over $1 billion last year. Intuit plans to let Credit Karma run as a standalone entity for now. It will leverage the acquisition to grow its customer base and service offerings. Credit Karma’s marketplace of service offerings already has more than 100 financial services partners that provide credit cards, loans, and auto loan and insurance services. Consumers can apply to leading credit cards and also shop around for home loans, personal loans, auto loans, and refinance opportunities. Credit Karma’s online calculators help users calculate amortization, debt repayment and simple loan details. Users can also simulate their credit scores to see impacts of their transactions on the credit rating.

Overall, the acquisition is a good strategic fit. Credit Karma has a subscriber base of over 106 million customers and 37 million monthly active users. Combining this with data from Intuit’s own portfolio of 37 million Turbo users and more than 40 million TurboTax users will create an opportunity to build one of the largest consumer marketplaces that can connect these consumers to thousands of financial institutions.

Intuit will be looking to cross-sell and upsell its own services to Credit Karma’s user-base. Analysts expect that the acquisition will help Intuit tap into Credit Karma’s younger client demographic. Together, the companies will be able to offer individuals the ability to access personal financial information such as income, spending, and credit history in a single place. They can use this knowledge and the right kind of tools to simplify personal financial planning and get access to the right financial products and insights that help them achieve their financial goals.

Its stock is trading at $297.57 with a market cap of $74.6 billion. It had soared to a record high of $306.89 earlier this month. The stock has climbed from the year low of $236.03 it was trading at in May last year.

This segment is a part in the series : Cloud Stocks


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