Intuit enjoys positive karma as UK rival Sage wilts

Darren Sinden

Credit Karama provides many of its services for free and had had to sell off its own tax preparation product to electronic payments provider Square in order to avoid competition issues that arose from Intuit’s interest in the business.

US online tax and accounting software provider Intuit (INTU) closed the $8.10 billion acquisition of credit tracking app Credit Karma yesterday.

The deal was not without controversy, however.

Credit Karama provides many of its services for free and had had to sell off its own tax preparation product to electronic payments provider Square in order to avoid competition issues that arose from Intuit’s interest in the business.

Intuit is perhaps best known for its Turbo tax product which is used by millions of Americans to keep track of their tax affairs and to help create their annual tax returns.

Intuit has grown to become a $95.0 billion dollar company with annual sales of some $7.67 billion but despite that scale, it had not been able to achieve the penetration among key audience segments that Credit Karma had, hence the decision to buy the credit tracker.

For its part Credit Karma, a thirteen-year-old start-up had gathered 110 million members for its range of tracking and price comparison tools that cover credit cards, bank accounts, loans and saving rates.

Credit Karma was able to utilise its members tax prep data to fine-tune its recommendations for other products and services by, for example, finding loans with monthly repayments that were in line with members  likely disposal income.

Credit Karma will be able to access similar information about users of Turbo Tax and other Intuit products and thus continue to make targeted product recommendations. This is a perfect example of how Fintechs can use big data to provide personalised services to their end-users.

Those “ bespoke “ recommendations resonate with consumers.  After all, everyone likes to feel that they’re special rather than just another face in the crowd.

Intuit announced its intention to buy Credit Karma back in February as the markets started to sell off, but in the nine months since the market rebounded, Intuit’s stock price has risen more than 62.0%.

Those gains are in stark contrast to the fortunes of UK listed Sage Group PLC (SGE. L) which is often seen as almost a mirror image of Intuit, offering as it does online tax tracking and tax preparation software though with a focus on the UK and Europe as opposed to North America.

Sage shares have had a tough time in 2020. They traded down to 594p in March having been 200p higher a month before.

Like many stocks, they bounced away from their lows over the coming months and traded at 774p in August. That was as good as got for the Newcastle based software group.

When Sage reported full-year results in late November expectations were high. After all the move to working from home or remotely had been very beneficial for other software providers, and Sage had a cloud-based product that should have fared well under these circumstances.

Revenues were up by 8.50% year over year the balance sheet was looking healthy, with £1.20 billion of cash or near cash liquidity available to the company which has low rates of debt.

However, the shares nosed dived falling from 678p to a low of 583.85p before closing at 588p.

What was the reason behind that fall?

Well, profit margins were down by between 1.60 and 1.70 percentage points thanks to continued investment in the cloud business and systems, something that the market clearly couldn’t stomach.

Full-year revenues at Sage were £1.768 billion, and operating profits were £391 million, those are numbers that many businesses in the world of Fintech could only dream of yet the consensus recommendation among analysts for Sage is a sell, and the share price languishes at 573p as I write.

The market that puts such a low valuation on Sage and its attempts to build a bigger presence in the cloud is the same market that is happy to pump millions into loss-making startups which may never make a profit but have a sexy story, it’s the same market that has pushed Intuit’s stock to 27 consecutive highs this year.

George Bernard Shaw once described the UK and the USA as being two countries divided by a common language, however, it seems that we are in fact two markets divided by very different valuation methodologies instead.

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