INTERVIEW: Brad Smith, President and CEO, Intuit
April 12, 2011 (Associated Press) Brad Smith, President and CEO of Intuit, Talks About Intuit to Bloomberg TV.
Note: This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.
APRIL 12, 2011
SPEAKERS: EMILY CHANG, BLOOMBERG NEWS ANCHOR; CORY JOHNSON, BLOOMBERG NEWS ANCHOR; BRAD SMITH, PRESIDENT AND CEO, INTUIT
EMILY CHANG, BLOOMBERG NEWS ANCHOR: April may be the cruelest month but if you haven't done your taxes yet, good news. You've got three extra days. Uncle Sam is giving Americans until Monday, April 18 to file this year. Joining us today on "Bloomberg West" is the CEO of Intuit, maker of the ever-popular TurboTax software. Intuit of course also owns Quicken and Mint, among many other products.
Brad, thanks so much for joining us. So we know e-filings are up. Specifically, what kind of trends are you seeing? Where are you gaining the most share?
BRAD SMITH, PRESIDENT AND CEO, INTUIT: So we're seeing a couple of trends, Emily. First of all, this year with Intuit the number of tax filers who are filing with the IRS is coming in as expected. It's going to be relatively flat because it's a recessionary economy.
But if you look at those that are choosing to file their taxes digitally, which is through software whether it's web based or desktop, that's up almost 9 percent this year. And that's continuing a trend we've seen for the last decade. More and more people want to do taxes online. So that's good news for us. We're gaining share in retail for those people who want desktop software and we are competing effectively online as well. So we're feeling good so far about the tax season.
CHANG: You bought Mint back in 2009 for $170 million, 5.6 million users. How much revenue is Mint bringing in for you at this point? Is it significant?
SMITH: So in terms of total revenue we don't break out Mint. But I will tell you when we purchased them they had 1.7 million users and 18 months later they have 5.6 million users. And they're also helping us go global. We're now taking Mint into Canada, a few other countries that we have on the list as we look to the balance of the year. And they're also teaching us how to be much more of a nimble, fast-moving entrepreneurial company. So we love what Mint has done since we brought them into the company.
CHANG: Obviously though Mint is free. How do you turn it into a moneymaker?
SMITH: That's the magic. Mint has a third-party pay model, which is the end user is able to use the product and they give us permission to go find them better deals, like lower credit card fees. And then the actual credit card companies or the mortgages and loan companies will pay us to be able to reach that end user. It's all with consumer permission, and we're making between $12 and $16 on the end user with the consumer not paying a single penny.
CORY JOHNSON, BLOOMBERG NEWS ANCHOR: Brad, if - I don't (ph) understand why you don't break out Mint, but if Mint were more than 5 percent of revenues would you?
SMITH: Yes, we would. But today Mint and Quicken combined, Cory, are combined to be less than 5 percent. So we don't break them out as something that's material to the company in terms of total revenue. But in terms of the DNA, the culture and what they're teaching the company, you can't put a value on it.
JOHNSON: Right. Well, investors will have to. But - so 5 percent is your cut off. Because companies always have different sort of levels at which they would change that.
SMITH: Yes. That's correct.
JOHNSON: So talk about QuickBooks and how economically sensitive that has been. The (ph) business has sprung back for you but I wonder if a lot of that's about the economy coming back. How can you tell if you're gaining share?
SMITH: Cory, it's actually been a remarkably resilient product through the downturn. Because basically QuickBooks helps small businesses manage their finances. But if you think about the ultimate opportunity that we have right now, we've learned how to do smarter discounting in the downturn. We've also learned to be able to reach out through small businesses through our online version.
So it's bounced back because customers are, A, coming in to buy the solution online, B, they're also looking for additional services to buy from us like payroll and payment, and that's driving total growth. In terms of the macro environment, I would tell you we're seeing some modest improvement but it's certainly not on its way back yet.
CHANG: I want to talk to you about mobile payments. You've got your GoPayment system. You've also got a market that's changing really fast, big players like Google and Amazon considering getting into the game. How do you keep up with more nimble start-up companies, like for example a Square, that's entirely focused on this market?
SMITH: First by trying to remain nimble ourselves. We have a couple of rules of thumb in the company. One is we want to have an entrepreneurial environment where no team is bigger than two pizzas can feed. So our teams are no bigger than four to six engineers. Secondly, we have a rule of thumb which is you've got to go from idea to end market in less than six weeks and you've got to quickly decide if you're going to keep it or shut it down. And so we practice that every single day and that allows us to move quickly.
Our GoPayment product, which is our mobile offering at Intuit, we now have over $12 million of charge volume moving through that product a week through GoPayment and our related services. That eclipses any other opportunity in the market and we're excited about the growth rates.
JOHNSON: Brad, let me ask you about gross margins in new product launches. When you look at a new product, such as mobile payments which could be gigantic, do you have to imagine it's going to keep your gross margins up in the really stratospheric levels where they've been? Although they've been coming off.
SMITH: Well Cory, what we look at is we have a model where the last unit we sell is the most profitable unit we sell. And so ultimately we have a scale business. And we've had fast (ph) versions of our products in the market since the late '90s. And when we introduce a new product -
JOHNSON: Sorry, jargon alert. Software as a service.
SMITH: Absolutely. Software as a service, hosted products, cloud computing. Those products would (ph) allow us to basically leverage the capital investment we've already made for products like TurboTax. And we simply put it on a mobile computing platform. So last year we expanded our margins 180 basis points. This year we've got between 40 and 80 basis points. So we continue to get operating leverage even with these newer offerings.
CHANG: Acquisitions have obviously been part of your strategy with Mint and others. We were speaking to the founder of Mint a couple of weeks ago. And he said if he had to do it again he might not have sold to you guys because the price of start ups have really gone up and up and up. Is that making acquisitions more difficult for you and do you see that continuing to be part of your strategy?
SMITH: So it definitely is a part of our strategy. We typically look for talent and technology tuck ins, those things that are earlier in their start-up phase that we think we can help them grow and achieve their vision by being a part of a company that quite frankly still has a very actively involved entrepreneur in Scott Cook. He founded the company 28 years ago. He still works full time. And so yeah, we have those conversations. I will say that right now some valuations and expectations may be a little different than they were 18 months ago, but if we can find the right opportunity for the right entrepreneur, we absolutely will do acquisitions.
JOHNSON: So how many acquisitions are too many? Folding on (ph) acquisitions when we talk to CEOs is the toughest thing about doing these deals. So what's the number?
SMITH: So I would say that we would look at anywhere between three to four acquisitions as being something we could actually assimilate and do well in a given 12-month period. I wouldn't hold us to that number. We may not do that many. In fact, we haven't done some for the last four or five months. At the same time, if we came across a half a dozen that looked good we would find a way to make sure that we executed well.
CHANG: In terms of mobile payments, some are speculating that Square and Apple are trying to create a closed system using POS, payroll, customer and business interface. Intel has a lot of these building blocks already. Is a closed payroll system something that you're considering? We only have 30 more seconds.
SMITH: I would say that a closed system is certainly something that's going to be subject to consumer and small business adoption. Let me say this. One-fifth of the United States gross domestic product flows through QuickBooks. That's $2.6 trillion. There's 4 million small businesses out there using it today. They're going to want to make sure that their stuff works.
CHANG: All right. Thank you so much. Brad Smith, CEO of Intuit. Great to have you here on "Bloomberg West."
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