What’s happening: Intuit reported stronger-than-expected results for the second quarter on Monday, topping estimates for both earnings and revenue.
What happened: Shares of the fintech company spiked 3% in extended trading on Monday, after the company posted an earnings beat and agreed to acquire consumer finance firm Credit Karma.
The latest deal will add to the 30 other acquisitions made by Intuit, which has a track record of buying start-ups that show high potential. Intuit has agreed to acquire Credit Karma for a whopping $7.1 billion in a cash and stock deal, making this its largest acquisition to date.
- Intuit posted second-quarter earnings of $240 million, up from $189 million reported in the same quarter in the previous year.
- The company announced 13% growth in quarterly sales to $1.7 billion, exceeding expectations of $1.68 billion.
- Intuit’s adjusted earnings grew 16% to $1.16 per share, beating the consensus estimate of $1.03 per share.
Why it matters: The acquisition of Credit Karma extends Intuit’s foothold in the mammoth financial products space and will help boost its foray into AI-based solutions. Artificial Intelligence has been a focus for the tax-software company, and it hopes to use Credit Karma’s massive consumer data to meet CEO Sasan Goodarzi’s aim of transforming Intuit into an AI-driven expert platform.
Credit Karma, founded in 2007, is a credit score solution, which also suggests products to users based on their financial data. The firm gets paid by the bank if the consumer takes a loan or uses any of its financial services through this network. Credit Karma already boasts 37 million active monthly users and generated revenue of around $1 billion in 2019.
Credit Karma will operate as a standalone entity led by founder and CEO Ken Lin following the acquisition. The deal, which is still pending regulatory approval, is expected to close in the second half of 2020.
Intuit’s strong top-line results were driven by 35% growth in its Small Business Online Ecosystem unit. Despite a price hike, Intuit witnessed good user growth for QuickBooks, where revenue grew 43%.
Intuit has projected 10-11% growth in revenue in 2020 to a range of $7.44 billion to $7.54 billion. The company also projects adjusted earnings growth of 11%-13% to $7.50-$7.60 per share. The company’s board announced a 13% increase to quarterly dividend to 53 cents per share.
Share Performance: Intuit shares fell around 4% in the regular trading session but rose 3% in after-trading hours following the release of quarterly results and the acquisition announcement. The company’s stock has gained 9.46% so far this year, but is still down 6.58% versus its 52-week high achieved last week. Intuit’s stock has outperformed the S&P 500 index, which has lost 0.54% year to date.
What to watch: Given the strong performance of Intuit’s stock since the beginning of this year, any dip is likely to be driven by profit-taking opportunities. Investor sentiment and analyst opinions of Intuit remain positive. Any news of regulatory or other hurdles in the acquisition of Credit Karma would exert pressure on Intuit’s stock.