TurboTax to Credit Karma: How Intuit’s AI Bet Is Paying Off

We have embedded AI in the customer experience end-to-end, as well as embedded AI in the experts experience. So this is where it becomes a unique combination of AI plus AI to serve our customers.

While many companies still have AI as a buzzword, Intuit is changing the way people manage their money, handle their taxes, and operate their businesses. Across all of its major product lines, TurboTax, QuickBooks and Credit Karma. Intuit reported strong recent earnings and has excited the market about its AI enhanced future credit. Karma revenue was up 31%. For example, as AI powered underwriting drove a rising credit card and auto loan products, the company reported 7.75 billion as its latest quarterly revenue up 15% year over year, and it raised full year guidance with all of this, the stock has gone up over 20% in the past six months, but the human element remains important. TurboTax has turbo charged growth to an expected 47% for this year, driven by human assisted offerings like TurboTax Live, which is on track to generate $2 billion. We sit down with chief financial officer Santi Arula to discuss how Intuit combines human and artificial intelligence turning QuickBooks into a one-stop shop for broad business solutions and what his data says about the state of the US consumer. Let's get into it. Let's start with tax. When we look at the performance of the TurboTax revenue line, looking like you're on track for 47% growth of the live product in particular, what is driving this? And here's the reason I ask President Trump's clearly got his eyes on tax policy. Are your users equally focused on tax and whether the change in regimes we may see coming is that driving more adoption of your products?

It's been amazing momentum this year across the business, particularly in tax is a return to double digit growth in tax that we last had in fiscal 22. So it is a long time coming and to your point, a key catalyst of the growth has been our focus on disrupting the $35 billion assisted tax category. A category that historically we have not focused on and where we are share rounds John two Zero and our true north in that category is to grow our revenue 15 to 20%. So this year, to your point, growing 47% on revenue, 24% on customers was an exceptional outcome and what drove it? Like many things in business, it's hard to say. Here's a one or two things that drove it. It was I would say multiple things that we tried and that we had made progress on that drove the outcomes. But the three top ones that come to mind would be one, just driving marketing at the time that those in the assisted category of thinking about switching.

(02:47)
To give you an example, traditionally we would start our marketing after the Christmas holidays because that's when the retailers stopped their marketing and we would start purchasing those spots. However, our research showed us that 30% of those who do taxes assisted way make the decision on switching Well before December. For example, someone who had a bad tax filing experience right now in April May is thinking about how are they going to do the taxes different next year? We just weren't reaching them and they weren't thinking about us. So we started changing our marketing campaigns and started running them around the year and particularly leaning into fall when people do the tax extension findings two is changing our mindset from going from behaving like a software business to behaving like a services business. Let me give you an example. In the past we will have customers come to our website and want to have us do the taxes on their behalf, yet we would give them a lineup, Hey, pick which lineup you want to pick. That's a very software based way of doing taxes and we've changed that to being one where you come and you engage with a live expert, the expert understands your needs and then propose is an offering for you. So that was two and the last and third one, that was a big catalyst we're showing up local. Again, going from a software mindset to a services mindset. When you're looking for a software provider, people go on their web search tool of choice and type in what's the best software for tax returns

(04:28)
And you will of course show up, but when you are looking to have someone do your text filing, you typically type in text preparers near me and we don't show up in locally and this year we may changes to show up locally. So those are the three big things that really help drive this 47% growth for us in the live offering.

It's interesting you talk about that because the heart of what you are referring to Sandeep is having a real human being on the other end of that service supporting you, the tax filer, and yet you talk a lot in your earnings and in your strategy materials about using AI to enhance your product offering and to enhance the user interface. Help us reconcile that. Help us understand how the assisted services rely on the consumer desire for more human interaction, but how AI also feeds into that.

Absolutely, and I think this is where we are so uniquely positioned the market. We are actually a blend of AI

And

Ai, artificial intelligence and human intelligence working together. So when we get customers who are previous year, they had someone do the tax falling for them and they come onto a platform, many of them get started in TurboTax and use the AI tools in TurboTax to gain the confidence because at the end of the day what they are solving for is a fear, the uncertainty, the doubt they have about doing their own tax returns. And many of them would say, oh, with ai this tool is actually really helpful. I can do my taxes myself and they will reach out to an expert to address one or two key questions they have such as my daughter is starting college next year, can I deduct the donor apartment? And that becomes what we call a do it with me offering customers does some of the work and we help address others would completely outsource that work to our agents and our agents are using AI to also do the work on behalf of the customers is resulting in productivity gains year after year. This past year it took them 20% less time to do a customer's return. So we have embedded AI in the customer experience end to end as well as embedded AI in the experts experience end to end. So this is where it becomes a unique combination of AI plus AI to serve our customers.

Let's talk about AI in some of your other products. Let's talk about Credit Karma Sandeep. Now, I went onto the Credit Karma website and took a look at the user experience there and the business model's interesting to me. I go in, you guys take a look at my credit score for example, and then depending on which kind of product I want, you'll make recommendations and then the actual lenders compensate you for that. Now in previous interviews on after earnings, I've been lucky enough to spend time with the likes of Dave Gerard upstart and we spent a lot of our time talking about how the credit score itself is no longer an adequate reflection of the consumer's credit worthiness. How are you using non-credit score data to get Credit Karma to the next level of finding the right products for your client base?

This is where we are using a combination of innovation such as Lightbox as well as our combination of data that we have on the customer across our ecosystem to really help uplevel their experience on Credit Karma. So Lightbox is a technology which we work closely with our partners to help them put their underwriting models into our box. These models take into account factors beyond to your point, just a credit score that is a very legacy approach of underwriting credit for an individual and by using the Lightbox technology, our partners are seeing a greater hit rate and ROI on their marketing dollars. At the same time we have embedded AI into experiences to where our customers are better able to understand, for example, if you came in, were looking for credit card or an insurance, why a particular product we are recommending is a better product for you. We explained that in very plain spoken English, so that's using AI as well as opening up the aperture beyond credit scores to help underwrite credit. That's actually resonating really well and we are taking share on both the credit card side and the personal loan side as a result of our innovations on Credit Karma.

Sandeep give us some perspective on what the data that you're collecting through Credit Karma is telling us about the state of the consumer. There's so much conflicting data on that. On the one hand it looks like spending is strong. On the other hand we hear about a rise in credit card delinquencies and debt defaults. What are you seeing?

What we are seeing is a relative amount of stability in essence we have and both on the consumer side and if you want to open up the apps later on in the conversation, on the small business side, on the consumer side, we are seeing the credit balances are up mid to single digits. Those in the younger generations have their credit balances up the most. The credit scores are down about 16% year over year. Sorry, 16 points year over year, not 16%, pardon me. But that has been in essence at Trent over the last 12 months of thereabout. So we haven't seen any discernible change in the last three, four months on the platform. Hence why I say it's been largely stable over the last year,

But it's not a great trend. Right? I mean you've just talked about decline in the credit score levels. Does that make you concerned? I mean it might be stable relative to the last 12 months. It doesn't feel like it's going in the right direction.

I think what the biggest variable that matters to a consumer's ability to continue to spend, which as is the biggest contributor to A GDP growth is employment. Employment continues to stay strong and that is a key indicator that we watch internally and I think the key indicator that we should watch collectively across the economy because as long as the consumers continues to feel confident about their job prospects, about their income prospects, the balancing being up is not as much of a challenge. However, if those prospects about their confidence in their future earnings potentially come down, then I think we could be in a different situation.

Let's switch gears a bit and talk about QuickBooks Sandeep. When I take a look at the global business solutions side of your business, that's well over 58% of Intuit's revenue base. What have been some of the trends that you've experienced lately?

The trends that we have experienced recently on the side is great success in driving adoption of our platform. So if I back up and share the strategy on the Global Business Solutions group, which to your point is nearly 60% of the company's revenue and its fastest growing division outside of Credit Karma

(11:25)
Is that we want to grow our customers five to 10%, but we want to grow our A RPC average revenue per customer 10 to 20% because we believe there is significant opportunity for us to look at these small businesses who are using anywhere from three to 15 applications and bring them onto our platform where they are using fewer our startup applications and getting their end-to-end perspective on how they're doing in their how to make smart decisions on our platform with one dashboard across QuickBooks. So that's the strategy there and the trend that we are seeing is we are continuing to see customers adopt the platform and we are also seeing customers who are particularly larger and think of these as customers with the two and a half million to a hundred million in revenue, they actually tend to adopt our platform at a greater pace than the smaller customers we see them adopt. For example, payroll offerings at 12 points higher payments offerings and nine 10 points higher. So the strategies resonating in driving a broader set of adoption across both the small business as well as moving upmarket with the mid-market customers.

We'll come back to Platformization in a minute, but just to dig a little into the history Sandeep of QuickBooks, and this is sort of anecdotal because I've served on a lot of corporate boards and my experience has been often when they've been smaller, they have started out on QuickBooks but past a certain point in size, the conversations I've been in, it's always been it doesn't really have the right functionality for us. It doesn't necessarily plug into some of bigger ERP systems if we're a manufacturing business or a distribution business, is that perception of QuickBooks still accurate that it has limitations once a business hits a certain scale or operational complexity?

That perception of QuickBooks is more of a legacy perception of QuickBooks. The work we did, and this is when I was in the Global Business Solutions group before I became CFO, the team I led did some work, why do people leave?

And

We realized that there were a set of complexities. As an example, when you are a successful construction company, just to take that example, you may set up multiple entities. One entity may be focused on remodeling, another entity may be focused on sourcing, warehousing, another entity, new construction. And traditionally QuickBooks could not handle multiple entities. You had to set up different QuickBook subscriptions and a business owner was frustrated because they could not get one holistic view on how their business was doing.

That was my experience.

They could not get their Exactly. And that's where IES Intuit Enterprise Suite came in because we saw that opportunity and that's a new product we launched invent general availability in September, and that's a product that is resonating much more with these more complex businesses such as the ones you probably serve on the board on and we are having some good early success with those businesses.

Let's talk about how that ties into something that you talked about, which is the platform as opposed to just the single product. And I'm a real believer in this platformization argument that businesses small medium enterprises bigger want to go to one place to one solutions provider for a whole host of reasons. With that in mind, what's your m and a strategy? Are you out there looking at other targets to integrate so you can actually reach that platformization scale faster?

Let me back up the aperture just broadly. Our focus is to continue to accelerate the pace of innovation, the pace of innovation of the company has gone up and we want to continue to accelerate

It,

But we are also not one of those companies that believe in not invented here type of mindset. So we are very unemotional and we look at buy build partner all the time and we will acquire companies. We recently did a payroll acquisition that brings on more sophisticated payroll onboarding, employee performance reviews type of functionality to app payroll product that we knew we could develop internally, but take us a few more quarters than just to go out to buy a company which we did and we bolt on those capabilities. So I would expect us to continue to be very disciplined in the buy build partner and continue to possibly look at Bolton add-on type acquisitions to augment our technology stack to serve the mid-market in particular.

What about just taking to use your language, a broader market, aperture, Sandeep, you've seen a lot. Do you think that we're going to enter a phase where I'm making this up, Workday turns around and comes into it and says we should get together, we should merge rather than doing Bolton acquisitions, we should just go big or go home and own end-to-end solutions for enterprises? Completely.

I think without technology talking about any other public company per se, let me just address your question. I think the digitization is over. Digitization of mid-market businesses in particular is a challenge. And when I speak with customers, when we speak with partners, where we are seeing the greatest pain point are these businesses with anywhere from 10 to hundred to $200 million in revenue, having to actually use 10, 12 apps and everyone has become this super virtualized type of an offering that is serving one pain point. And I think this is where having an end-to-end ecosystem that serves the needs of the customer as a platform is going to be a unique value proposition. We think it's going to lead to certain winners such as we think Intuit is well positioned to be a winner in this era of platformization and that's where our focus is. And again, bringing back to buy build partner, if we think buying some assets could make sense, we will absolutely be in the market to do so. We have a very robust balance sheet and ability to do so, but our focus is continue to look at what are the key pain points for our customers, what are the other apps that they're using and what is that we can displace to make adopting our into an enterprise suite and other capabilities ROI positive for the end customer.

And on that point, Sandeep, before we move into our last couple of minutes together, as you do that exercise of asking what is the pain point out there for our customers, we don't address yet what are the top one or two white space areas where you say we can go after that next.

The biggest pain points they have is helping them get and grow their customers. And we are going after

That

Helping them get paid. A large percentage of small business invoices end up going unpaid, not because of any malice, they just get lost in stack of noise and we are focused on addressing these needs. Let me give you two examples of how we're addressing this needs a, for our customer side, we, our customer agent, AI-based tool we launched, we'll be able to go through a small or mid-size businesses emails and highlight to those customers, hey, these tend to look like they're high probability of converting jobs, so prioritize getting these estimates out. As an example, in California right now, there's a big desire to change wooden fences into metal fences because that's what the insurance companies are requiring. Our agent as an example, will be able to say, these customers are looking to replace the wood fences in areas that have a high degree of fire risk. These people are highly likely to turn into paying jobs less prioritize getting these estimates out. That's immediate ROI for these customers. So those are some examples where our capabilities is going to be maximizing ROI for the end user and addressing the key pain point.

We're going to wrap Sandeep with a couple of rapid fire questions and the first one is, let's do it. The first one is, which company do you most admire and you're not allowed to say into it?

Absolutely. A company I admire a great deal and recently has been a little bit caught up in the political turmoil. So I'll put that aside, is frankly Tesla. And what I admire a great deal about the company is its ability to focus on something that at the time, if you look at their 2010s, many large auto manufacturers didn't think was possible and they really broke through that noise and now they're looking to break through on the autonomous taxi. So it's a company that has taken risks and has underwritten his own future, which I admire greatly

Of the full suite of Intuit products. Which ones do you use the most? Personally?

I used to use Mint quite a bit, but right now I would say I use Credit Karma. I go into Credit Karma a couple of times a week and the one that I have used, gosh, going back to the late nineties when I was still an undergrad, is TurboTax.

There you go.

And even today, even though I have a profession do my taxes, I'll use TurboTax to do my taxes just to make sure they did it right. And I get to see the innovation that we're bringing to our customers.

I love it. Auditing your own tax, your own tax accountant. Exactly. And last question for you, the Intuit Dome officially opened year, that's in Los Angeles. The 2028 Olympics is going to be a big moment for that. Do s Lundy, which event would you be most excited to watch?

Basketball. Alright, there we go. Yeah, I'm super excited to do that and my daughter is going to be starting school in Southern California next year, so they'll give me an opportunity to watch the Olympics and also get to spend more time with her While these events are going on,

Sandeep Aula, chief Financial Officer of Intuit, thank you for joining Comeback. There's a ton going on and we'd love to hear how it's all progressing as the next couple of earnings come out.

Absolutely. Thank you for having me. I appreciate the conversation.

I'm Anne Barry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learn something today, don't forget to like, subscribe, and share with your friends. Upcoming episodes will feature CEOs and CFOs from Block Axon and many more. Come back and we'll see you soon.