Intuit to Acquire Credit Karma for $7.1 Billion

By | February 25, 2020

Intuit, the maker of TurboTax, QuickBooks and Mint, has agreed to acquire Credit Karma, the consumer technology platform, for approximately $7.1 billion in cash and stock.

The combination brings together two technology leaders focused on personal and small business owner financial challenges that include paying taxes, managing debt, maximizing savings, business accounting, accessing better credit cards and loans – and even recommending car and home insurance, a market Credit Karma entered in 2018.

“Our mission is to power prosperity around the world with a bold goal of doubling the household savings rate for customers on our platform,” said Sasan Goodarzi, CEO of Intuit. “We wake up every day trying to help consumers make ends meet.”

Credit Karma serves consumers by matching them with financial services providers. The platform leverages artificial intelligence and connections to more than 100 financial partners. Its services are free to members; it gets paid by the lenders and other product providers it supplies with leads.

From Insurance Journal’s report on the 2018 Insuretech Connect Conference, remarks by Credit Karma founder Kenneth Lin:

Kenneth Lin, founder of 85-million-member Credit Karma, gives technology credit but only up to a point. “We can do things faster, and we can pay with more payment methods, we can take applications online. We’ve made streamlining and underwriting easier. We’ve done a lot of amazing things in capturing data.”

All of that is great but it leaves the real financial issues facing consumers unsolved. “We are failing a lot of consumers,” Lin says. For example, 28% of consumers have no money left at the end of the month; they need to borrow. Less than 46% of consumers have less than $500 in savings, and even includes people with incomes of a $100,000 or more. Credit Karma teaches that shopping around for financial products really matters and, Lin hopes, building products to help them do that really matters, too. He challenged everyone to think about building products that solve little consumer problems.

Credit Karma started out giving free credit reports on its way to becoming a trusted source for shopping for credit cards, loans, a tax service and now, advice on car insurance. “All of these things are not about building revenue but about building trust and building engagement with our overall user base.” It’s also about education. Lin says as members learn how their credit scores work they tend to become better consumers and financial risks.

Recently Credit Karma started helping its members track the value of their cars — which for many is their most important asset — and also learn about safety recalls on their makes and models. So over time Credit Karma has collected its members’ demographics, address, credit score, tax information and car information and even traffic violation along with other any public records. Eight million members have synced their cars to Credit Karma’s platform since launch of its auto feature a year ago.

The next logical step is to help them find the best rates on car insurance without them having to input any additional information. And teach them how their credit score and other factors affect what they pay for insurance. The insurance shopping service has been launched first in California and Texas. Consumers can get anywhere from 10 to 30 quotes with little or no data entry. Lin’s firm is not partnering with any insurers or being paid for this service, at least not yet. “Through all the journey, we think about being a champion for our members,” said Lin.

This is how Credit Karma explains its business model to its members:

“Credit Karma will always be free. The offers on our site help us keep it that way. When you take an offer through Credit Karma (like for a credit card or a loan), we usually make some money from one of our partners (like the bank that issues the card or the lender who funds your loan). We’ll even crunch the numbers and give you personalized recommendations. When those tips are on target, we both win. But if you’re not interested, that’s totally fine too – you’ll never get charged for using Credit Karma.”

Credit Karma reports having more than 100 million members in the U.S., Canada and U.K. and nearly $1 billion in revenue in 2019, up 20% from the previous year. It is based in San Francisco and has 1,300 employees.

“We started Credit Karma with a goal to build a trusted destination for all consumers, to make financial progress regardless of where they are in life,” said Kenneth Lin, founder and CEO of Credit Karma. “We saw the opportunity to enrich people’s financial lives through transparency, simplicity and certainty.”

Lin will report directly to Goodarzi. Credit Karma will remain in San Francisco and continue under its current name.

Intuit says that 50 million customers use its main products that include QuickBooks for small business accounting; TurboTax for tax preparation; and Mint for personal financial management. About 52% of its customers are small business and self-employed; 41% are consumers and 7% are partners including financial institutions, educational institutions and accountants.

Intuit formerly also owned Quicken personal money management software products but it sold that division in 2016.

Intuit’s total net revenue in 2019 came in at $6.8 billion; up from $6.0 billion in 2018. Operating income in 2019 was $1.9 billion, up 19%. Net income was $1.6 billion in 2019, up 17%

“There’s a lot of innovation and investment in FinTech, but we don’t see anyone, with our collective capabilities, pursuing a personalized financial assistant to help consumers take control of their financial lives,” Goodarzi said.

Intuit has ties to the insurance business as well. In 2001, it sold its QuickenInsurance business to InsWeb Corp. Intuit received a minority stake in InsWeb. InsWeb became the exclusive consumer insurance aggregator for Intuit’s Quicken.com and QuickenInsurance Web sites and certain consumer desktop products. Today, Intuit has a relationship with insurance broker AP Intego to sell small business insurance. Its Intuit Insurance Services Inc. is licensed as an insurance agent and/or broker.

During 2018 Intuit acquired TSheets.com, Exactor, Inc., and Applatix, Inc. for total combined consideration of approximately $412 million. These three businesses provide additional features to its QuickBooks offerings such as automated time tracking and scheduling and the calculation and filing of sales and use taxes.

The total consideration of $7.1 billion Intuit will pay for Credit Karma includes an estimated $1 billion of equity awards that will be expensed over up to three years. Following the close of the transaction Intuit will issue approximately $300 million of restricted stock units to Credit Karma employees, which will be expensed over four years.

Intuit said it expects the cash consideration to be financed through cash and its existing unsecured line of credit. The transaction is not expected to have an impact on Intuit’s existing dividend and share repurchase principles. The transaction is expected to close in the second half of calendar year 2020, subject to receipt of required regulatory approvals and satisfaction or waiver of other customary closing conditions.

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