Intuit (NASDAQ: INTU) surprised the market with its $12 billion deal to buy Mailchimp, a privately held provider of email delivery services. It’s an attempt to bolster the company’s connection to small businesses which are the primary users of its QuickBooks accounting software.

The move follows the company’s 2020 purchase of Credit Karma for more than $8 billion. The Mailchimp deal is the largest in the company’s history.

Mailchimp has “a lot of customer data. We have all the purchase data,” Intuit CEO Sasan Goodarzi told media on a conference call about the deal. “The magic is putting these two together.”

It’s a deal where you can see the logic but it’s not one that anyone saw coming, Simon Erickson, Steve Symington, Matt Cochrane, and Maxx Chatsko joined Dan Kline on the Sept. 17 edition of “7investing Now” to take a look at the deal and what it means for Intuit. We also examine whether investing in an email platform makes sense given the move toward social media and why some of the other big tech players do not have a product that competes with Mailchimp,

A full transcript follows the video.

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Dan Kline: Normally we do something a little silly when we have the whole team here, Dana Abramovitz might join us later as well. But we’re gonna push this something silly a little further down into the show, because we want to talk a little bit at the top about a deal that surprised us, came out of nowhere. Intuit (NASDAQ: INTU), a company that’s incredibly big that we never think of, or most people don’t think of they own QuickBooks, they own Credit Karma, they bought MailChimp for $12 billion.

MailChimp was a private company. So we had no way of knowing if it was worth 300 million or 12 billion, but I’m going to assume the people at Intuit know what they’re doing, then we’re going to talk about the new iPhone, I tried all morning, while we were doing other things to log in and buy the new iPhone, and I couldn’t get into T Mobile, I could not log in. So I’m taking that as a good sign that pre-orders are heavy.

So let’s get right to it. Intuit is buying MailChimp for 12 billion, that’s billion with a B, if I’d said 12 million, I wouldn’t be that surprised either. Again, we have no information about MailChimp’s customer base, they’re an email sub service, it’s actually more expensive than you’d think it would be to sell email, and even to send email. And even though it’s a commodity, those prices have largely been the same since like, like the 90s. Like so this is actually an area where there’s cost associated with it, even though it doesn’t feel like it should be.

Intuit owns TurboTax, they own Credit Karma. They have their mint product for small businesses, this is a deceptively gigantic company and JT looked it up JT Street, our producer, they’re up something like 84% for the year. So this has been a company that is doing really well. But their previous largest acquisition was Credit Karma for 8 billion. And that has worked well. It’s it’s a highly integrated product. But let me just throw it out there. And we’ll start with Steve first, Steve and a very surface level because I know Intuit is not a company you spend a ton of time on. Do you like this deal?

Steve Symington  2:28  I think I could, Intuit is interesting. I applaud their acquisitive history, right. But we do have some perspective on MailChimp audience kind of after this deal came out, right, they said they have 2.4 million monthly active users, about 800,000 of those are actually paying customers. And I think 800 million in annual revenue in 2020, which was up about 20% year over year. So I should assume that maybe they’ve continued that growth, especially given the premium that they’ve kind of squeezed out of Intuit here.

But you know, Intuit itself is $150 billion business. Now I just took a look before the show. It’s its stock is kind of quietly quintupled over the past five years, it’s up about 83%, over the last year, about 50%, year-to-date in 2021. So Intuit definitely taking advantage of its kind of newfound size to acquire a business that five years ago, it wasn’t that much larger than so kind of an interesting deal. And definitely a play on small and medium businesses, which is kind of into its bread and butter, right. So I can see the synergies here. And it makes sense. It doesn’t mean I’m any more tempted to buy the stock, but makes sense.

Dan Kline  3:42  I’ve always been tempted to buy the stock. We’re gonna go to Matt Cochrane in a second, but I want to throw two things out. First, we’d love your questions and comments. So if you’re watching the show, if you have questions about what’s happening in the market, what we’re talking about what we might talk about, feel free to ask them.

I will say that I’ve regularly met with Intuit executives at various trade shows I go to, and I’m always impressed with how deep their company goes, they have a really large investment in AI, and knowing things about your finances as a way to sort of disrupt or to help you plan. So let’s say Matt Cochrane, you have like a retirement goal, Intuit as a really good picture of what you need to do and what products might benefit you. In my opinion, they don’t do a good enough job marketing themselves as a technology company, like we think of it as just this boring QuickBooks product, which is obviously a default, but I don’t think that’s actually what they are. But Matt, you’ve covered this company for many years. So what of your What are your top-line takeaways for this deal?

Matt Cochrane  4:38 Intuit is such a great company. And yes, they do have a consumer side. I mean, they purchased Credit Karma last year, the big acquisition for them, but more importantly, we talked about Square (NYSE: SQ) and Shopify (NYSE: SHOP)all the time about empowering small businesses. Well, Intuit was like the OG, right of the enabler of small businesses. They’ve been democratizing that technology you’re just talking about Dan. The AI. They’ve been giving that out with their platforms to small businesses for years decades, their stock is up approximately a kajillion trillion percent since it’s since it went public. I mean, it’s outperformed the market for years, great margins, great growth rates, and they know what small businesses want.

And so they bought MailChimp, because this is a great marketing tool for small businesses can reach out to their customers through email. And you know, the great thing about email is you can’t be de-platformed. So if you’re, you know, if you’re worried about being canceled, if you’re worried about like Facebook changing its algorithm, or whatever, you know, we’ve had problems. I’ve had problems on Twitter before, like being kicked off, because there was an imposter account.

And then they kicked me off, you know, for a few days. Like if you’re a business and you’re worried about these kinds of things. Well, the one thing you can’t be de-platformed from is email. So I don’t know about the price, I don’t know, MailChimp, numbers, but I mean, you know, Intuit has a lot of cash, they can afford to spend up for these kinds of acquisitions, and especially if they think it’s going to help their overall bundle that they can offer to small merchants.

Dan Kline  6:05  It’s sneaky, slowly, building out this platform of services. Simon, I know you want to weigh in Maxx, I apologize. I’m not gonna bring you in here because this is not really Maxx’s area, but I promise we will get him involved later

Maxx Chatsko  6:17  Intuit really needs to bolster his drug pipeline and Mailchimp has hardly any drugs. I don’t know what they’re doing.

Dan Kline  6:25  That would be a bold move for Intuit as well, though, I could see the quick brand, being a popular one. In the drug space, though maybe Nestle would have something to say about that as well. Simon Erickson, your thoughts here?

Simon Erickson  6:37  Dan, I think that you and Steve and Matt together nailed it. It’s exactly what I would like to echo, which is that AI is so important for this company. And when we say that it’s Intuit can actually make this happen because they really have all the information about you. TurboTax, year after year, you know, import your tax return from last year, QuickBooks, import your income statement and your financial statements from last year. And now you’ve got email, which is you know, import your email list and your open rates and all the things that people are doing email things are interested in.

And Intuit has done such a fantastic job, not only is it kind of the continuity of that information, right, you pay for this year for TurboTax versus last year, and everything just kind of lines up and makes it easy for you. But if you can use AI on that, that’s a that’s a huge ROI for any business or any individual that’s using this as well.

And I think that Intuit has done a fantastic job, Matt touched on this a little bit, but kind of the subscription model has moved digitally, right, you used to get the TurboTax, CD ROMs, you put them in, you’d install on your computer, and then you do it every year. Now it’s just seamless. It just happens online, there’s more and more information in the cloud for Intuit. They’ve done fantastic with that.

And I think one of the reasons that the stock has done so well is it’s more profitable that way, look at the operating margins of Intuit, they’re fantastic. And I think that the MailChimp, acquisition is going to be even better for them.

Dan Kline  7:52  Matt still uses a CD ROM. So now what I love about this is they have a sticky, sticky product, because here’s the reality, if you’ve used TurboTax, year after year, are you really going to export your taxes to go to something else that’s $70 cheaper, you’re just not going to do that.

And the same thing with QuickBooks like yes, you could go to another platform, but with AI, they have your taxes, they in a lot of cases have your payroll information, their ability to disrupt the mortgage business, even if they don’t become a lender, or we’ve talked a lot about buy now pay later, there is no company out there that isn’t a credit bureau, that could be a better gauge of creditworthiness, then Intuit.

Now, they might be doing some of that they might be powering, they might be selling some of that data on an aggregate basis. But their optionality in their business is very, very strong. We’re going to get to some of your questions soon. But Matt, I want to throwback to you here. My only question here on this one is email a declining service in the era of slack and social media and all that? My son doesn’t use email, like every now and then he has to get an email and he’ll like ask me for his password. It’s like, Well, you know, you really need to have an active email account. And the reality is he actually doesn’t. Matt?

Matt Cochrane  9:04  I think I would say email is an enduring service, I don’t think it’s going to go away. I think it’s going to be a fixture. Look, there’s a lot of social media platforms out there. But you’ve seen businesses complain all the time, or influencers and things like that, like when one of these like companies changes its algorithm a little bit or, or wants to emphasize like more positive interactions or whatever, and they tweak their algorithms, and then all of a sudden, they get half the engagement they used to, or they get de-platformed or who knows.

I mean, there’s just, there’s like a million when you’re if you build a business on top of a social media platform, you’re really putting your fate in their hands and a way to like take that control back is email, you get a customer’s email, you have a direct line to them. Look, you know, my son has an email address, you know, I just I don’t think email is going away.

Dan Kline  9:54  That ya know, I tend to believe that I do think it is a little bit more of an older person’s game. But if you use QuickBooks, you are likely a small business, integrate every small business has an email list and probably also post to social media. Being able to do that from one platform is very valuable. Simon, do we use QuickBooks? I hate to put you on the spot there.

Simon Erickson  10:17  I’ve used QuickBooks personally, and also, for business purposes for more than a decade, probably do two decades now, actually, Dan, it’s just a sticky platform. I use TurboTax for a long time, too. And MailChimp, you know, obviously, if you’re doing content marketing, or you know, like, like Matt just said, email is a much more in-depth engagement with your audience, then something like a social media platform would be.

And there’s a lot of information, a lot of data that you can mine from that. So I I don’t think it’s going away either. I think that maybe it’s it’s less used, then kind of the Twitter’s and the Facebook’s of the world are today by younger audiences. But I think it’s actually a probably a pretty fitting acquisition for Intuit.

Dan Kline  10:57  I have one last question. I’ll let anybody weigh in. We’re gonna after that, we’re going to take West band hands, question and feel free to get your questions and comments, and we’ll take them periodically throughout the show. We also know it’s a Friday, and it’s hard to type and people are tired. So we are more than happy to just have you watching along at home.

But I’ll let Matt answer this first. But why are Microsoft and Google not doing a MailChimp like product? It feels like you’re on their platforms, you’re probably writing your stuff in Gmail, why is there not an easy integration for business use there, Matt? Sorry, to put you on the spot. But it wasn’t a script. So if you could see it earlier?

Matt Cochrane  11:33  Yeah. Ah, you know, it’s a great question. I don’t have I don’t have a good answer for that. I would say like they have both like Google, they are not inherently an enterprise company. And they have a hard time reaching enterprise customers. They’re doing a much better job with that with their Google Cloud products. But everything is very consumer-oriented.

Microsoft, that’s a great question. You know, their email platform. They have Microsoft Teams like they should have could they do have Microsoft Dynamics, which is a customer relationship management platform competes a lot with Salesforce. I’m not sure if they have specific email solutions within that they probably do. But is it as a is it as ingrained as MailChimp with small businesses? Probably not even close. So but I don’t have a better answer for that.

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