We Study Billionaires - The Investor’s Podcast Network - TIP835: Intuit (INTU): The S&P 500's Biggest Loser w/ Shawn O’Malley & Kyle Grieve

Episode Date: August 2, 2026

Shawn O'Malley and Kyle Grieve explore Intuit (ticker: INTU). In this episode, you'll learn what narratives have underpinned the company’s more than 60% selloff, as Intuit claims the undesirable title of “worst performer in the S&P 500” this year. But is this a bargain price for a high-quality SaaS business, or a value trap? That’s the key question that Shawn & Kyle discuss, plus so much more! IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:03:48) How Intuit’s accounting software became so popular (00:12:49) What makes QuickBooks such a great business (00:20:54) Why Intuit is the worst performing stock in the S&P 500 this year (00:24:05) How to think about Intuit as either a value trap or bargain (00:38:45) Whether Intuit’s TurboTax business is resistant to AI disruptions (01:17:02) Valuation discussion of Intuit (01:18:55) How to model Intuit’s intrinsic value (01:20:04) Whether Shawn & Kyle add Intuit to The Intrinsic Value Portfolio Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Track ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Portfolio⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about how to join us in NYC for our ⁠⁠⁠⁠⁠Intrinsic Value Conference⁠⁠⁠⁠⁠. Portfolio Review ⁠⁠⁠⁠Submit Tool⁠⁠⁠⁠. See Shawn’s ⁠financial model for Intuit⁠. The Finance Corner: "⁠Deep Dive Into Intuit⁠". Business Breakdowns Podcast — ⁠Intuit⁠ (2022). Intuit’s 2025 Investor Day ⁠Presentation⁠. Intuit’s 2026 latest Investor Day ⁠Presentation⁠. Check out our previous Intrinsic Value breakdowns: ⁠⁠⁠⁠Wix⁠, ⁠Microsoft⁠, ⁠Kelly Partners Group⁠. Follow Kyle on ⁠⁠X⁠⁠ and ⁠⁠LinkedIn⁠⁠. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠⁠sponsors⁠⁠: ⁠⁠Plus500⁠⁠ ⁠⁠Netsuite⁠⁠ ⁠⁠Shopify⁠⁠ ⁠⁠Plaud References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Hey folks, welcome back to the investors podcast. We're on episode 835 here. And, well, we have a lot to talk about here, Sean. Let me just start by asking, is this the most compelling opportunity in large caps that we've come across all year? You know, I've been thinking about that a lot,

and it might just be. Adobe has looked pretty interesting at times, to be fair, but we originally pitched that idea last year, and we were pretty early on it. But I'm not sure I can think of any setups more compelling in looking at the company that is the worst performer in the S&P 500 for 2026, when that same company was the textbook example of a quality compounder, what, just 18 months ago? AI eat software.

It seems like AI just eats everything, I guess. But, you know, if that AI eat software narrative just collapses, I think there's going to be a lot of money to be made investing specifically in companies like into it at current prices. So I'm really excited for today's episode. Should we do it? Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.

We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your hosts, Sean O'Malley and Kyle Greve. Today we're covering a company that I suspect most North American listeners have probably interacted with whether they realize it or not. And that company is into it, ticker I-N-T-U. This is the company behind businesses like TurboTax, QuickBooks, Credit Karma, and MailChimp.

So if you filed your own taxes, run a small business, check your credit scores for free, signed up for a recommended credit card or even sent a marketing email at scale, there's a pretty good chance that you've touched some sort of into a product. And the reason that I think this episode is going to be a fun one is that it sits right at the intersection of two themes that we just seem to keep circling back to this year. The first is high-quality SaaS compounders, dominant mission-critical software and data businesses like an Adobe or a co-star. And then the second theme is just the great AI disruption debate, which is the single biggest question that seems to be hanging over technology investing right now, which is which incumbents are going to

to be supercharged by AI and which ones will have their business models completely hollowed out by it. The narratives are changing very quickly here by the day. A year ago, Alphabet was seen as one of the biggest potential losers from ChatGBT, GBT, disrupting search to now, sentiment has completely 180. And Alphabet is very much seen to be an AI winner with Gemini and cloud computing and the stock has doubled. And we're just talking before the call. Buffett and Berkshire have invested billions of dollars into Alphabet, too. That's right. So as the market has manically reacted to advances in LLMs, we've looked for great businesses

that were just kind of thrown out with the bathwater. With Adobe and Co-Star, these are companies that were seen as the epitome of quality in wide modes just not that long ago. And yet both have just been beaten down badly this year, which is what caught our attention when we added them to the intrinsic value portfolio. Into it, though, is maybe the purest illustration of this debate that I've seen so far, because the market has very loudly voted that it's a loser. And Sean, you know, you're going to argue the opposite.

It's a business that compounded its stock at nearly 24% a year for a decade from 2015 through 2025, but is now sold off 60% and is actually the worst performer in the S&P 500 this year. So that's the setup. And before we really jump in, I want to just quickly plug that we'll be hosting our second intrinsic value conference in Midtown Manhattan this September on Saturday the 19th. And if you want to join us and network with a great group of investors, please head out to intrinsic valueconference.com to purchase your ticket before they sell out. All right, Sean, you've been buried in Intuit's filings for the last couple of weeks, so where do you want to start?

I want to start with just how unusual it is to be having this conversation at all, because as you alluded to for decades, Intuit was the definition of an incredible business where the market recognized that quality. And you could very rarely get that at any kind of discount. And for that 2015 to 2025 period, you mentioned, Intuit's median price to earnings ratio was almost 50x. And just to say that again, 50 times earnings, that is a premium of more than twice the S&P 500's typical PE ratio for context. But if you look at what has happened this year, the stock price and correspondingly the PE ratio have absolutely fallen off a cliff. We're talking about going from 60 times earnings to 16 times earnings.

And so in layman's terms, what that means is the market has gone from seeing Intuit as being a business that could sustain exceptional growth and profitability for a long time, to now being seen as a business at risk of probably not just accelerating growth rates, but potentially even declining earnings in the coming years. Yeah, and like Adobe, Intuit has been widely discussed battleground stock, and the setup, again, is quite similar. Despite the massive revaluations of these businesses and their earnings multiples, the underlying businesses have kept, you know, just chugging along, growing at double-digit rates, while management

it also continues to project these strong growth numbers into the future. So there's a major disconnect here between the market's current assessment of Intuit's prospects with the company's track record and management's own outlook. And that's why it's such an interesting moment in markets. Businesses like Salesforce, Adobe, and Intuit may be offering generational buying opportunities, depending on who you ask, or they could also be the ultimate value trap, sucking investors in based on their past success, while AI fundamentally changes. their core business models.

And with Adobe, the concern is that small to medium businesses and really the next generation of creative professionals and designers will increasingly turn to new AI-based design tools over Adobe's product ecosystem that can sometimes be very complex. While with Intuit, the concern, I would say, is probably more around turbotax, where Intuit has monetized regulatory complexity to their advantage, and that drives a huge chunk of Intuit's overall profitability. Turbotax is potentially as much as two-thirds of the company's operating income, depending on how you allocate overhead costs. And there are a lot of overhead costs to allocate, but we can talk about that more later. You know, they've made

billions of dollars from helping people navigate their tax returns, while also somewhat controversially lobbying against free government filing alternatives. And the concern now is that facilitating DIY tax returns or even tax returns that are more complicated and are assisted by professional accountants, that is a business with a limited lifespan. There's a shelf life on it because AI tools just are making it easier and easier to tackle complexity at a minimal cost. So the counter argument being that taxes are incredibly high stakes, not only is your refund money on the line, but if you mess up, there's the risk that you could be audited. So I think Bulls would say that TurboTax has built up a really trusted brand. And even if AI makes it easier

to file taxes, many people will still want to do that within an ecosystem exactly like TurboTax versus doing it directly in some sort of LLM like Claude where you just don't have the same certainty that everything is going to be done correctly. So because TurboTax specializes in tax software and can customize its own AI tools for this, rather than trying to use a general purpose LLM for taxes or some upstart service powered by AI that doesn't have the same recognition, the idea is that most customers will still end up coming back to TurboTax for many, many years to come. Or at least, I think that's where your thesis, Sean, is based on what we chatted about before we started recording. That's probably the right way to frame it. And it's

something I personally relate to. I had a falling out with my accountant last summer after they kept delaying my tax filing months past the April deadline. And so anyways, I decided I was going to look into doing my wife and I's taxes myself, building on what my accountant had done previously and then using AI to kind of fill in the gaps. And so I was honestly pretty confident that I could figure it out and probably save myself something like $600 in accounting fees. And this could easily just be user error or maybe me being a Luddite. But the more I looked into doing it myself, the more I realized I just didn't understand what I was doing. And the unknown unknowns were very big, while the cost of being wrong could be very substantial. And so

that made the whole process pretty stressful for me. And so my taxes, I would say, are maybe a little bit more complicated than most, but without getting into all that detail as to why, I just don't think that the experience I had was all that abnormal because taxes are so high stakes. And anyways, I quickly found myself looking for a new accountant and actually paying even more for what I felt was higher quality tax advice. So I went the opposite direction of, you know, the AI disrupting. narrative. And again, what that made me realize is something as high stakes as taxes, I absolutely want to pay a premium to get the best advice and to have peace of mind. That's really valuable. And in 2026, and I think for years to come, getting peace of mind will still

primarily come from human experts. Yeah. I mean, believe me, I completely understand the pain that you had doing your own taxes. So the most annoying experience that I had with taxes was when I tried to do them on my own many, many years ago. And this was when my tax filings were as simple probably as it could possibly have been. So I remember putting a number accidentally just in the wrong box. It would, you know, box 101 and it was supposed to be in box 100. Basically, it ended up that I put a number in for charitable contributions. And to be honest, I didn't even read the charitable contributions part when I was inputting my taxes. My bad, I probably should have been paying a lot more attention. But to be honest, I just thought it was a different box and I thought I was putting

into the right box. So after that, The Canada Revenue Agency gave me a refund that I shouldn't have gotten. And then after I paid back what I owed, after they realized that I made me at the mistake, they basically hounded me for many, many years afterwards, making sure that I was doing everything right. So, you know, it was a completely honest mistake, but I really realized that I should just probably just leave my taxes, specifically to professionals who won't make those same boneheaded mistakes that I did.

And this was before AI could lend a helping hand and maybe help me identify my own mistakes on my own. So today, you know, I just leave my accounting to my account. I still do some of my own bookkeeping, but it's super, super low tech, mostly just filling information in an Excel spreadsheet. But my wife is a bookkeeper for a small boutique accounting firm, and before that, she was a bookkeeper for a few other businesses as well. And in all three of those businesses, she was using an Intuit product among many others in her day-to-day work.

So I know firsthand that Intuit is a vital product for both bookkeepers and accountants. And speaking to a couple of other accountants, they both use Intuit products as well, and they didn't seem to be in any hurry to use an LLM to replace what the service that they get from into it. It sort of reminds me of how with Adobe, there's the narrative that creative professionals are moving away from Adobe tools. And yet our company behind the scenes runs on a whole bunch of different Adobe tools. And in the four years since ChatGBT came out, I'm pretty sure we only have expanded our

number of subscriptions and are paying more money into the Adobe ecosystem. And I think there's something similar to be said with Intuit. And so those are just a couple anecdotes from our experiences. But when I see the market narrative about TurboTax's DIY funnel for tax filings, just exploding. Clearly, I'm skeptical of that. And for sure, with really straightforward tax filings, there is a real risk that those people stop coming to TurboTax. But these are not the customers that Intuit makes money on. Anyways, all the money in tax comes from. from providing a mix of paid AI tools and human expertise virtually in what they call assisted tax filings.

So these are people paying hundreds of dollars or sometimes more for help through TurboTax. And again, I just don't see that being disrupted as easily from my own experience because of the high stakes and the amount of trust involved and the fact that there is a necessity for a human component, at least in a lot of people's minds. I'm teasing here a bit, but you don't use TurboTax, right? You said that you have a separate accountant. That's true. I like the idea of having a long-term relationship with an accountant who knows my situation,

but others do feel that way with the TurboTax ecosystem as a platform because it has all their records and past filing. So it's easiest to keep coming back there each year rather than starting from scratch with a different tax software or with a different account. and even though I don't personally use TurboTax's assisted product, I would be open to it. And I do still actually end up paying into it one way or the other. And what I mean by that is, and this is a common thing, my accountant runs all of his tax filings through and to it.

And so he asks his clients to sign up for QuickBooks. So we can get more into the QuickBooks conversation. But I do my personal bookkeeping in QuickBooks, and I pay a subscription fee to use the service and I got a discount on that subscription from a referral code from my accountant. And my accountant from his perspective, it's nice to have all of your clients financial data logged in the same software system. That keeps all of their work much more streamlined. And there is also an incentive to encourage your clients to use QuickBooks because accountants get kickbacks on those referrals too. So it simplifies your workflow and Intuit knows that they need to give you a little bit of a financial

motivation to start pushing your customers over to QuickBooks. So my accountant was pretty keen on getting me set up on QuickBooks. And I've very much seen the value of it. So what we're actually talking about really is something of a network effect amongst accountants and their clients in using QuickBooks, which is a great potential moat source for the company. Yeah, that's right. And with a lot of these SaaS-based businesses, you do see network effects being kind of a common thread in some of these really, really successful businesses. But,

you know, long and short, even if you don't file your taxes personally through TurboTax, the broader Intuit ecosystem is still profiting specifically off of Sean's accounting and taxes. It's 100%. And we also haven't talked about credit karma, which for anyone not familiar, is this all-in-one personal finance platform. And it's a great place to find credit card recommendations based on your financial situation, compare car insurance policies. I've used it for that. You can check your credit score and actually get tips on improving it, shop mortgages, compare interest rates on bank accounts, explore personal loan options, track your net worth. And there's like a dozen of other things that I'm probably not thinking of in that vein

that you can do. So, I mean, it's a cool website, I think objectively for anybody just into personal finance. And the thing is, if you sign up for a credit card or a car insurance policy there through Credit Karma's website, they get paid for those clicks and signups by the companies using those products. So they get their own kickbacks from directing that traffic. So Credit Karma is not taking on any financial risk and making any loans on its own, but they are getting compensated for just being this really simple but effective platform for navigating the vast majority of people's personal finance needs and making recommendations. And I think you could say that that is an area that's more clearly under pressure from LLMs, right? You might open chat,

GBT, and say, hey, what is the best credit card? But there is still something to be said for brand trust. And credit karma has a lot of brand trust. And knowing that, you know, the recommendation you're getting from Credit Karma comes with a lot of customer reviews in vetting in a way that the response you get from an LLM is maybe more of a black box. I don't want to say that there's a wide moat around Credit Karma's business, but it is an important part of the ecosystem and the funnel into the rest of and to its products. Yeah. So I'm kind of imagining that Credit Karma is kind of a type of lead generator for TurboTax

and into it more broadly, right? I mean, someone comes in, they explore the tools to maybe support their financial situation, and then they see the option to file taxes for free through Credit Karma or maybe even get an advanced loan on their refund. And boom, they're right there inside of the TurboTax ecosystem. So TurboTax is actually integrated directly into Credit Karma right now. And maybe this person takes a DIY approach this year, but maybe next year they decided that it was a bit too complicated.

So they pay for assisted tax support and then maybe they start a small business hustle on the side and now they're using QuickBooks to do the bookkeeping specifically for that. And anyways, you can just see how over time people get sucked deeper and deeper into the ecosystem. There's just a ton of stickiness and pretty good opportunity to cross-sell and upsell. The other thing is that TurboTaxes business is pretty much as seasonal as it gets. Everything kind of happens in the first half of the year, but at least with Credit Karma, Intuit has more recurring and year-round touchpoints with people's financial needs.

What that also means effectively is that Credit Karma helps lower Intuit's customer acquisition costs, especially for TurboTax. And that's one reason of many why Intuit paid $8 billion to acquire Credit Karma in 2020. And I always bring up Uber. So people are probably sick of it, but it does mirror some of the same things we see in their ecosystem. People start by using ride-hailing. And as Uber learns where they work and learns more about them, because they're Ubering back and forth from the same place, Monday through Fridays at 9 a.m. and 5 p.m.

They can then learn to show you promotions for ordering lunch to your office. Maybe they offer you a coupon to do so. And before you know it, you've got someone using both Uber and Uber Eats, earning credits and getting free delivery and just getting more and more locked into the ecosystem. And so it's dramatically cheaper to get an existing customer for one of your other products like Uber with Ryan Hailing to try Uber Eats than it is to acquire a brand new customer from scratch with marketing. And Intuit knows that very well too. Right. So I actually got a chance to speak with David Fagan, who's actually a recurring guest on TIP,

and he's also the owner of an accounting firm. So we got a chance to speak at length specifically about Intuit. And regarding Credit Karma and MailChimp, he thought that Intuit was trying to improve their service offering to their customers. So this can kind of work out really well if you truly add value to your customers and can charge them a little bit more. Or it can backfire. And we'll go over this a little more today.

But I really see your connection here with Uber. If you can acquire a business for a reasonable price that lowers your customer acquisition costs and can land you similar quality leads to just. spending more money on marketing. As long as the economics makes sense, I think that can make for a very, very good acquisition. Now, I love that we're covering so much ground here pretty quickly, but I did actually want to return to that point about Intuit being kind of this perennial compounder. And the fact that, you know, based on conventional valuation metrics, it was never a cheap stock, at least not at any time in recent memory. Personally, it's a business

that I've admired from a distance because the financials are so good. And the growth process have always made a lot of sense. It's just been a valuation question. It's just always been too expensive for my taste, and it was just been one of those businesses where I'm like, I'm going to watch the show from the sidelines, eat some popcorn and see what happens. But now, given the way the price has dropped, perhaps it's an opportunity. To your point there, the stock peaked at over $800 a share last year. And yet, as we're recording, it's now trading well below $300 per share. So we're talking about a drawdown of roughly two-thirds in a company that is still growing revenue double digits and also gushing cash. And in the last 12 months, revenue,

has grown 15% year over year. Operating profit margins have risen by more than a full percentage point. And then correspondingly, you've seen operating profits grow at nearly 30% from this time last year. So that's more than double their revenue growth rate thanks to the business's incredible operating leverage. And that kind of move doesn't just happen because of one bad quarter. And in into its case, there isn't necessarily even a bad quarter to point to anyways. Yet something structurally spooked the market. So the bare narrative behind this is that if LLMs can answer any tax question you throw at them, then who needs turbotax? And if an AI agent can do your bookkeeping for you, then who needs quickbooks?

And so the whole company is software that helps you do financial tasks. And as we move into a world where we all have hyper-personalized AI assistance, maybe with Godlike computing power and digital capabilities, then they can do everything for us. And, you know, simplistically, there's just no need for any SaaS business to exist. And I'm not necessarily saying that that is the mainstream view, but there are definitely people out there that would make that argument and are trying to say that Intuit is dead and Adobe is dead and the Salesforce is dead and so on. Yeah, I mean, the list is nearly endless today. So, you know, there will be without a doubt software companies that are losers, specifically because of AI agents and vibe coding where, you know, the barriers

to building software tools and websites have probably fallen to almost nothing. But then there's a big difference between being a paid software that's really just a glorified spreadsheet, you know, something like Monday.com comes to mind for that. Just acting as a service for tracking tasks and projects across the team and actually having a complementary ecosystem of products and massive amounts of proprietary data on their core customers. So I know that juxtaposition underpins your thoughts on the so-called SaaSpocalypse, but at the same time, uncertainty-facing businesses like Intuit has genuinely increased very significantly. So, you know,

that means it should be reflected in the valuations. But there are also bigger risks to Intuit's business model today than anyone would have anticipated five years ago. But, you know, the question I think with Intuit and all of these SaaS giants that have sold off is whether the market has just gone too far. Yes, Intuit should definitely not trade at 60 times earnings today. But should it really be just 16 times earnings, that's a 50% discount to the broader S&P 500's price to earnings ratio, which implies that most of the business in the S&P 500 are higher quality and have better growth prospects than into it. And I just don't think that's a logical leap that I'm inclined to really make at this point in time. It's a hard pill for me to swallow when you look at a

company with 80% gross margins and 30% operating profit margins are nearly so, which for context is not all that far off from alphabets operating profit margins, which is, you know, a pillar of the mag seven. And so I say that a little tongue and cheekly, but not entirely. And to be clear, we are simplifying things, of course, in terms of how to think about what the right valuation multiple is, but still, directionally, the point remains. Unless Intuit's business is going to collapse in the next five to 10 years, or there's just no terminal value, despite the fact that management has actually guided for double-digit growth consistently longer term, it's hard not to think that at a minimum intuit would be a good mean reversion bet, where the stock could just simply double by

simply returning to a PE multiple in line with the broader market average. But let me just play devil's advocate here, or just play the role of someone who needs to be convinced. So I will say that the bears don't sound completely crazy. You know, AI, genuinely, is a very good method for answering questions and automating repetitive digital work. which is at the heart of what Intuit's products do. So granted, that's kind of an oversimplification, but it's not super far off. So why exactly is the market wrong? To me, it comes down to the market confusing the idea that AI can do a piece of a task

with the notion that AI therefore destroys the entire business that owns that task and related tasks. And so I do think those are very different statements. And to its moat, in my opinion, is a tangled. of switching costs, proprietary data, distribution, trust, and crucially, accountability, right? If your taxes get messed up and you get audited it, you can point to it and say it's Intuit's fault. And, you know, that sounds bad for Intuit, but that actually is a good reason for customers to want to stick with the product. And so before I make the case for why

maybe the fears are potentially ever blown, I do think we owe listeners the story of how this company came to be so we can inform our perception of how durable the business truly is. I'm ready for it. Okay. So, Rewinded in 1983, there's a guy named Scott Cook. He's a former Procter & Gamble marketing executive. And as the story goes, he's sitting there at dinner one night watching his wife work at the kitchen table.

And she's frustrated. She's trying to balance the family checkbook by hand. And Cook, having come from Procter & Gamble, has this very deep instinct for. we're understanding consumer paint points, right? Procter & Gamble is sort of famous for doing an excellent job of listening to what consumers are saying and creating products that actually address their pain points and even very small ones. And so he looks at what his wife is doing and her struggles and things. Personal computers are going to become more common in homes. And this is a chore that a computer should be able to do. So he teams up with a Stanford undergrad with a programming

background. And together, they build a piece of software to manage personal finances, and they call it Quicken. And they name the parent company Intuit because the whole idea is that using it should be intuitive. It should just make sense to a regular person who is not an accountant. And that is the whole ethos behind TurboTax, Credit Karma, and QuickBooks for small to medium size businesses doing bookkeeping, payroll, and a bunch of other stuff. Let's take a quick break and hear from today's sponsors. Curious about online trading, but haven't taken the first step yet, you're not alone. And plus 500 futures is a great place to start.

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With Shopify, nothing stands between your idea and a real business, so go make it one. Start your free trial at Shopify.com slash TIP. Start your free trial at Shopify.com slash TIP. All right, back to the show. So I love that the entire company started from watching one person struggle at a kitchen table. That's about, you know, as grassroots as it gets for what has now become. a $200 billion company at its peak valuation. It does sound a bit woo-woo, but my perception is that this thought process with a focus on

things literally being as intuitive as possible and also sort of obsessing over optimizing for customer pain points, like the founder's wife sitting at the kitchen table, struggling with balancing the checkbook. I think that really has come to define the company's culture and And Cook actually made famous this practice called Follow Me Home, where Intuit would literally ask customers to be able to follow them to their homes or to their offices and just watch them use the software so they could see any real friction points as they arise in real time, rather than trying to guess at what problems people might have. And it does sound a little bit creepy, admittedly, in hindsight.

But it's metaphorical, mostly. I mean, I'm sure they really have gone to people's offices and homes to observe them using Intuit software. But to me, I see it as more of a mindset. It's a commitment to not designing some beautifully engineered and wildly complex tax solution, for example, that no one knows how to use, but to instead focus on creating products, people can easily navigate by closely listening to their feedback of, you know, what is confusing and what's not confusing and what's helpful and what's not helpful.

And so it is sort of very similar to the design ethos at Apple 2 of things should just work and you shouldn't really have to think about it. Yeah, I mean, it sounds so obvious because, you know, there's just so many software products I've come across where you look at it. And it's like, wow, this seems really, really powerful. But I'm also going to have to spend like 100 hours trying to learn how to use it to actually get the full use case out of it. So, you know, Canva, for instance, is kind of on the low end of design work. I think it's a really, really good example, though, of this kind of subject of simplicity. If you just need to make a really, really basic graphic, you don't want to have to go out and learn how to use Photoshop. You just want to jump on a Canva.

And even someone with no design background, like myself, can actually figure out how to use its tools pretty easily. So before working with TIP, I actually use Canva kind of all the time to help make images for use on Twitter and substack. It was super easy. It was super intuitive. and I didn't have to spend really any time trying to figure out how to use it. It was just that easy. But I must admit, I haven't used Canva in years. And once I could use AI to generate images, I was less and less likely to use it over time. So yeah, there's often this kind of disconnect in the software world between products that engineers build and then what is actually most

useful to customers. And the vast majority of users, for example, they don't really need complicated software services to file taxes that know every single line of the tax code to a T. need something that's, well, intuitive, something that's basic and something that's good enough for 95% of the people out there. I agree with that. And that obsession with watching what customers actually do rather than what they say they do is a thread that runs through the entire company and has for 40 years now. And so Cook actually has this really great line. He says, a brand is no longer what the company tells the consumer it is. It's what consumers tell each other that it is. And yeah, I really like that. And, and,

just to continue on with the story here, you can imagine that by the mid-1990s. With Quicken winning a lot of users over with their accounting software, this naturally caught the attention of the most powerful software company on Earth at the time, Microsoft. Yeah, it's interesting that when you think that Wall Street runs on Excel spreadsheets, it seems like an opportunity that was clearly missed by Microsoft to turn that advantage into a broader, you know, total available market, building out consumer-friendly accounting products. Now, I don't want to get too ahead of the story, though, here. Well, so in 1994, Microsoft tried to acquire into it outright for about $1.5 billion,

which was an enormous price at the time. But the deal ultimately was abandoned over antitrust concerns. So what does Microsoft do then? Well, they build a direct competitor called Microsoft Money. And they come after Quicken with the full weight of the Windows operators. system behind them and evidently, Intuit not only survived, but it won. And one of the expressions internally at the time, which there was some truth to, I believe, was that, quote, Microsoft can't match our depth of consumer empathy. And Microsoft did eventually give up and

discontinued Microsoft money after having built a product that was more complex than it needed to be. It had fantastic engineering behind it because Microsoft had the best engineers, but it was not intuitive to the everyday user like Quicken products were. I see what you did there, not as intuitive. It isn't really a one-to-one comparison, but the historical parallel that you're drawing is that this is a company that has already stared down this kind of existential platform threat from literally one of the scariest possible incumbents of its era, and they actually came out even stronger on the other side.

And so, you know, I think that really means that Intuit is kind of a scrappy company. And the business has only gotten more robust since this clash with Microsoft, which is something to really keep in mind for those that are prepared to write off into it entirely due to this next battle that they're supposedly going to have with AI. It is a good parallel to think through, though. I don't want to lean on it too hard because AI risks are definitely not the same as what they face with Microsoft money, obviously. But I just don't see Intuit as some naive victim either, who's never faced a situation. disruption risk before and is just sitting there on its laurels waiting to, you know, get taken down by AI. So I think nearly any compounder that you actually look at, they basically all go through

their periods where investors really question whether the business can even stay alive or not. I mean, you know, being challenged by Microsoft, their army of engineers and their nearly endless funding, they could theoretically pump into a business is a very, very scary thought to me. But, you know, it goes to show you that if a business really focuses on delighting its customers, it can take on opponents that it probably shouldn't be able to, given the gap in resources, which is exactly what Intuit did back then. But let's get exactly from how they got to Quicken, a personal finance tool, to the two huge

franchises that we've mentioned here in QuickBooks for small businesses and then TurboTax. I'm going to probably start to sound like a broken record here, but with Intuit, everything truly comes back to watching customer behavior. So, for example, a couple of years after Quicken launched, the team was running service. and notice something strange in their data, and that was a meaningful chunk of Quicken users were not individuals managing a household budget. Instead, they were small business owners using a personal finance tool to run their businesses on because the B2B accounting software available at the time was too clunky or complex and built for trained accountants. And so

just to put that differently, and to it built a bookkeeping tool so good. that an entirely different customer cohort than they had targeted, adopted the product in addition to what was originally their core customer. And so naturally, Intuit then focused on building a version specifically for these business owners. And that became QuickBooks. And this is the crown jewel of the business still to this day. And over the following decades, QuickBooks became really the standard in small business accounting in the United States. And that really is not an exaggeration because for context, we're talking about a more market share as high as 85 to 90% amongst small businesses. And so that is a, you tell me, Kyle,

that's getting pretty close to the M word monopoly. Yes, it is. And what about TurboTax? So if you're helping people and businesses manage their money, taxes are sort of a clear vertical to move into next. They took their signature customer-centric focus to tax prep. and TurboTax quickly became the dominant do-it-yourself tax filing product in the country. So the main brick-and-mortar competitor historically had been H&R block. But in the DIY software category, TurboTax became the runaway leader. And to this day, more than 40 million people file their taxes through TurboTax. So as we look at the business today, and Tuit has assembled this collection of products

that all sit at critical and recurring moments in a person's financial life. That's how I think about it, or maybe a business's financial life. Your books have to be right. For example, your taxes have to be filed. If you're small business, your employees have to get paid. These are not optional things. They're very, very high stakes. And again, as I realized with my own taxes, you want to have very high conviction and confidence

in the accuracy of your filing, which for most people means, connecting with a human accountant at some point in the process or at a minimum, working with a brand that is as trusted as TurboTax and QuickBooks and Intuit generally, as opposed to some new upstart AI powered tool. And so Intuit will proudly tell you on their earnings calls about how they're blending artificial intelligence with human intelligence too. So on the TurboTax live platform for getting human assistance, and to it has more than 12,000 licensed accountants and tax attorneys that are ready to help you with really any problem you face.

And so you can also connect with an accountant to do all the filing work for you through TurboTax, like I do with my accountant. And if you want more complete support, as opposed to getting limited access to tax professionals for specific questions, you can take that approach of getting connected with a sort of a full-time accountant that works with you on a recurring basis. So point being, TurboTax offers a full spectrum of options for people's taxes really based on the complexity and amount of help that they need. So there's actually no doubt that TurboTax is a great product that users love.

Whenever tax season comes along, I remember seeing all sorts of department stores with Intuit TurboTax products prominently featured in high traffic areas. And this is in Canada, specifically, not even the U.S., which you said basically, a monopoly. So, you know, this is a product that is very, very well known. And I think if you asked a friend or a family member, if they've ever heard of TurboTax, there's a very, very good chance that the answer to that is going to be yes, which speaks to the monopoly-like characteristics of that business segment. But let's map out what the company actually kind of looks like today, because I know that they've kind of reorganized their reporting segments recently and that it can get

somewhat confusing. It can. So I'll try to simplify it to the best of my ability. And to it reports the business in essentially two big buckets. And so the larger bucket is called Global Business Solutions, very catchy name, and it's roughly 60% of total revenue. So when you hear Global Business Solutions or GBS, just think about Intuit's small and medium-sized business empire, basically. And the heart of that is QuickBooks, but it's wrapped around an increasingly large money business, as they refer to it. And so what that includes, is payments, payroll, business checking accounts, lending, and bill pay services. And so not only are these very sticky parts of QuickBooks's various subscription offerings, but they're built on Intuit's

underlying data advantage. And so, for example, Intuit can see your cash flow and your payroll history, and then it can underwrite a short-term loan to help your company cover payroll in a month when cash is low. And it sort of reminds me of Mercado Libre, which people like to think of as the Amazon of Latin America for anybody not familiar with the company. And the reason I make the comparison is because they have all these data points on consumer shopping habits. And they actually use that information to issue credit cards to underbanked population. So people that wouldn't otherwise have credit scores, they use the sort of alternative data source to determine their credit worthiness. And so in my opinion, Intuit is doing something similar with their customer

data, but they're using it to build a fintech arm that's more focused on B2B offerings, right? Products for small and medium businesses. And so they now actually carry almost $2 billion in net loan exposure from the loans that they've underwritten themselves. And the last part of this segment that I should mention is also MailChimp. And that is the email and marketing platform they acquired for $12 billion in 2021. And then the newest piece to the global business solutions segment is something known as Intuit Enterprise Suite.

And we'll get more into that too. Wow. So wait a minute. They went through quite an acquisitive spree during the pandemic, though, didn't they? 20 billions on acquisitions in 12 months or so? It's true. And given that the MailChamp acquisition, at least, hasn't exactly been a home run. You can see why that same pace of M&A has not exactly continued.

Mailchimp is okay, but there's a lot of competition in email marketing platforms, and I would not say there's anything particularly unique about it that makes the business an obvious fit inside of Intuit's ecosystem. And so really, the acquisition there was a little bizarre to me, honestly. And I think it's telling that when you hear management report growth figures and make growth projections, they literally do so by giving the numbers with and without accounting for Mailchip. And so that is absolutely not an accident. And I don't think it's an accident either that MailChimp's performance has largely been obfuscated by QuickBooks outperformance by clumping them together in the same reporting segment. So the MailChimp example kind of makes me think of one of Peter Lynch's

principles of diversification, which I'm sure you've heard of before. You know, his idea was that when a business gets flush with cash, instead of doing simple things like just paying a dividend or buying back shares, they decide to get a little bit fancy. And in that, process, they can use the cash to buy businesses which are veiled as diversifying the business, but really just make the business worse. So in my view, MailChimp was kind of just that. But you said there are actually two buckets to into its business. So that's the global business solutions group. The other bucket is obviously more on the consumer side of things with turbo tax and credit karma. That's right. Yeah, they actually combined consumer taxes and credit

karma, but also they're professional tax group that sells software to professional accountants. like the accountant I work with, that is also included in this reporting structure as of 2025. So that's why it's a little confusing because it's consumer, but also there are professional accountants involved. It's just that really at the end of the day, the end customer is a B2C. It's not necessarily B2B. Okay. So I think we've kind of gotten the lay of the land here a bit for anyone wanting to dig into its

financials. But I want to get back to your comment that QuickBooks has something like 80% or more market share among small businesses because that's an astronomically high number. Where exactly is that growth coming from when you have that degree of penetration? You know, if you already own almost the entire market, you can't just continue adding customers on and on forever. So growth in QuickBooks can come from three lovers. Lever one is price when your entire financial history and your reconciled transactions, your payroll, your tax records. You have all of that living inside of QuickBooks. A price bump of a few dollars a month is not going to be worth the enormous pain of migrating.

And so Intuit probably has a lot of untapped pricing power on that front still. And lever two boils down to cross-selling, which means selling each customer more services. So moving them from just accounting to maybe add on subscriptions like being able to process payments, payroll, and all that kind of stuff. And this is how combined with price eggs, you consistently, grow average revenue per customer, which is a key metric for this company. And they may potentially be able to do so at double-digit percentages for a long time to come. That's my hope, as a bull on the company. And this, again, is part of what they call the money business. Even if that

doesn't get carved out and reported separately, it does appear to be growing very fast. Payment volumes facilitated by Intuit are up nearly 30% year over year. So each one of those services deepens the relationship and raises the revenue per customer. And when I say payments processed by Intuit, you know, this means the ability for a business owner to generate invoices. So, you know, imagine you're a farmer working at the local farmer's market. You don't actually, it's not as easy as you'd think it is to get the money from one bank account to another to get paid. And by just having an Intuit subscription, they give you the ability to create invoices that allow you to process payments. And so that is, that's a huge value add for a lot of small businesses. And then the third

lever, which I would say is the one Wall Street is most focused on, is moving up market into reaching bigger companies. And so that's what the Intuit Enterprise suite or IES is that I mentioned a minute ago. Yeah, that makes sense. You know, the higher up the market you go, the more valuable each customer is. And correspondingly, the competitive intensity also increases too. So to what extent are they expanding their TAM attractively versus just widening their scope, but kind of getting bogged down by competitors in areas where they have maybe fewer and fewer advantages? The way I think about it is Intuit is more targeting a gap in the middle of the market than they are trying to go all the way up to providing business software for the largest

corporations in the world. That's just not an area where they can compete. And so on one end of the market, you have a simple quick book and that costs a small business. Maybe a, 50 to 100 bucks or more a month at most, a couple hundred bucks. But on the other end, you have full enterprise resource planning systems like Oracle's NetSuite that runs tens of thousands of dollars a month. It takes years to implement. Then there's this enormous underserved middle market in between. And so what Intuit noticed was that, of course, many medium-sized businesses were once small businesses, which means that they were probably customers of Intuit. at one point. And then for whatever reason, they grew out of the QuickBooks software. And maybe

their financial needs became too complicated for what could be tracked in QuickBooks. And so many of these companies, though, could not justify or afford the cost of full ERP systems, Oracle NetSuite type systems. But they loved their QuickBooks subscriptions and they really were just wishing that they could get more out of them. So the Intuit Enterprise Suite really seeks to rectify that dynamic. And the hope is that maybe they can win over some new mid-sized clients. But long term, if they can just simply stop losing as many subscribers as businesses mature to a more medium size, that actually can dramatically expand their earnings, assuming they continue to dominate the top of the funnel with small businesses. And as we said earlier,

it's far more cheaper to keep an existing customer than it is to acquire a new one. And so if they can keep small businesses as customers for longer as they progress into being medium-sized businesses, that is a huge boon for the overall company. I like this. I really like their strategy for lengthening the runway that they currently have. You know, the lifetime value of the average customer can keep growing as into it improves its ability to cater to these kind of more and more mature businesses and reduce these unwanted churn where businesses didn't necessarily want a switch, but with no other option, they basically were forced to do so. Yeah, and they're already having success with it. So Intuit Enterprise Suite in its first year drove something like 40% mid-market

revenue growth. And Quickbook customers who upgraded to IES more than doubled their spending with Intuit. So historically, a business would use QuickBooks for maybe seven to 15 years on average. But now, as you said, that runway can potentially be much, much longer. I think intuitive executive suite was kind of the logical choice for Intuit to develop internally. They wanted to avoid kind of that, you know, match.com issue where successful users of their product no longer have any actual use for it. So in Intuit's case, you don't want to lose customers who love your product just because they've gotten too big for it. So IES is kind of a way for Intuit to continue diversifying its services. And so far, it really appears to be the good

kind of diversification based on those revenue growth numbers that you just quoted. So before we get to talking more and more about moats and the robustness of those moats specifically in regards to AI, let's maybe linger a little bit longer on the consumer side of things. This really is what's driving most of the bearish sentiment on Wall Street today as I see it. That's probably fair. And so with DIY taxes being a roughly $5 billion addressable market, and to it actually only sees that as being about 12% of TurboTax's total opportunity. So while maybe that sounds promising or not, it's not helping sentiment that these DIY volumes on TurboTax have actually been declining slightly for a few years.

So even if you're more than making up for that by monetizing tax assistance on more complicated returns, the flywheel is premised on drawing in more users for free and then monetizing them over time as those users' taxes become more complex. but to very much simplify the narrative, if fewer and fewer people are entering the top of the funnel of the TurboTax ecosystem, then the terminal value of that business is going to suffer because eventually it catches up with you

when customers stop flowing through the top of the funnel and you run out of customers to monetize lower down with more complicated tax assistance. I mean, you can kind of see why the market is uneasy here. Even if the slowdown in DIY tax violence has nothing, to do with AI and is maybe just some sort of mean reversion thing because you had an abnormally large number of people filing taxes during the pandemic specifically to get tax credits, the market still has to react in case there is something more chronically wrong with the business.

So we saw that with Netflix a few years ago, you know? The pandemic pulled forward a lot of new subscriptions with people just being stuck at home. So when Netflix had its first ever decline in subscribers shortly thereafter, the market slipped over it, which in hindsight we can see was an overreaction, but it certainly wasn't obvious at that time. And that's why investing is so hard, as you know, nothing is ever obvious. And you're trying to balance assessing how much truth there is to a concern versus how much is overblown panic. And the peak in DIY filings was 2022, which perhaps not coincidentally is right before Chatbti launched, but also this was still a part of the COVID era too. So it makes things a little

messy to break out and attribute the causes. But since then, TurboTax's federal DIY volumes are down 9% cumulatively. So filing has dropped about 5% in 2023 and then less than 2% in each of the next few years. And then there are some small declines in 2026. And you've also had this narrative for a long time out there that the IRS would create a direct e-filing system for free that cuts out middlemen like Intuit. And that was the bare argument before AI. And yet, the IRS did actually try this and it did not exactly catch on. And so the reality is that taxes are incredibly complicated, as we keep saying. And the government is not exactly famous for building great consumer-facing products to solve complex problems. But that is what Intuit is really good at, better than

anyone at. And anyways, as we've talked through, all the money is in assisted taxes from H&R Block offices to your local CPA, that's a roughly $37 billion market. And so that's 88% of the total tax prep market for context. And so the DIY software slice that everybody's obsessing over here is, you know, it is real money, but the big money has always been in the smaller percentage of people paying for professional assistance. Plus, TurboTax Live has actually been the fastest this growing part of the consumer business by a mile. It's not even close. It's compounded at something 38% a year for over five years now and now represents a majority of TurboTax's total revenue. Yeah. So kind of what I'm hearing here is that TurboTax clearly isn't dying so much as maybe the

low end of the tax market is slowly maturing while the company uses that foundation as a launch pad specifically to attack a market that is literally, you know, 10 times larger, and they do seem to be succeeding in doing so. That's the whole point. The bears, to me, are hyper-fixating on the small, mature slice that's shrinking at 1% a year and then declaring victory as the stock has fallen. While the company is actually taking share in a bigger market, it barely used to touch, and then the AI angle actually accelerates this because a hybrid of AI plus human

expertise, to me, seems like a fantastic way to deliver different tiers of paid tax prep assistance at scale. Let's take a quick break and hear from today's sponsors. One part of being an investor that I don't think gets enough attention is how hard it can be to continue to improve as an investment researcher. And for myself, I often find that when I finish a great conversation with some industry expert or fund manager, my head is full of ideas. But by the time I sit down to write a it all up, half of them are already gone. That's why I've been using Plod Note Pro. It's a small device that sticks to the back of my phone and captures the conversation and hands me back a clean, searchable recap. And so the key points, the follow-ups, the things I usually want to act on,

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Not all applicants will qualify. Plus 500. It's trading with a plus. All right. Back to the show. All right. Well, this is the part where you're going to really have to earn it here, Sean, because everything comes back to just one question.

Is any of this actually defensible in a world of increasingly capable AI? So make the case for Intuit's moat. You know, why hasn't some startup or maybe even anthropic or open AI come in and try to disrupt them? I really don't want to underestimate the importance of switching costs when you're talking about migrating your financial books and transaction records. You're talking about taking on huge costs if things go wrong to save yourself a pretty negligible subscription fee.

And so on the consumer tax side, the switching cost argument is maybe a little less persuasive, but still, TurboTax already has all of your prior to your information and just auto fills it. And that can save you hours. And so that would be one motivation just to keep coming back. Okay. I can kind of get behind the quickbook switching costs there for sure. But I don't think this is where the market is most. nervous anyways. A bear would say that an AI agent could do the painful migration for you as a

business, and it could definitely reenter all your tax info automatically just by reading your documents. So if all Intuit has are switching costs around one of its biggest businesses, then I can absolutely see how half of Intuit's market cap has justifiably been cut in half. Half of the business's total earnings could theoretically be at risk if, say, the turbo tax business goes the way of blockbuster over the next decade. In that case, the market's reaction today wouldn't really seem so exaggerated, wouldn't it? That's probably fair. And I do also think that proprietary data is a big part of the QuickBooks and TurboTax moat along with already having distribution in place. And so a chatbot can scan the internet, yes, but Intuit knows what actually happened on tens of

millions of real tax returns and on the small business ledgers of millions of companies. And that is not data that you can legally source to the same extent as an Intuit competitor. And we're seeing them increasingly roll this data into growing the fintech business. And so I used the payroll example earlier, but really, they can see at exactly which moment a business needs capital and then actually underwrite a variety of different types of loans with far better information than what a bank would have. And so the way this broadly works is that they do actually have banking partners that make the loans for them technically, since Intuit is not a bank, but Intuit agrees to then

immediately repurchase all or a percentage of those loans from their partner banks. And so the way it works from there is that Intuit keeps a portion of their loans on their books and hopefully gets repaid by customers or they sell the loans off to institutional investors on Wall Street if they want to reduce some of their credit risk exposure on their balance sheet. And so we're talking about purchasing billions of dollars in business loans and the data advantage underpinning that I do think lowers their lending risk, but it also locks in customers even further. That's sort of a subtle point that works in their favor. So what I mean is that even if a better bookkeeping tool comes along the market, maybe an AI based one, the question is, are you really going to switch

to it if you rely on Intuit for getting financing to pay your bills? And my answer to that would be probably not. Yeah, the loan book part of Intuit that you just discussed there, kind of reminds me of a business that I pitched to you a while back in NVR. So NVR would originate the loan, then sell them to a third party and collect a fee. Now, it wasn't a huge part of their business, but it still generated this kind of high margin revenue and provided some extra revenue, which is never a bad thing as long as risk is controlled and you're not hyper cyclical. But similar to Intuit, NVR had access to large amounts of this kind of proprietary data that I could use to create these loans. Now, it's kind of hard to say how

proprietary this data is in and to its case. But my guess is that they would have some very, very good insights that an LLM simply would not have any access to. And to your point about increasing customer lock-in, that's just really hard to argue against. If Intuit is taking care of your financing, then an AI bookkeeping model will have to offer much more than just an AI chatbot and some lower prices to get customers to switch over to their product. But how about we allow ourselves to indulge a little bit and consider a bull case where AI is a actual boon for Intuit. What would that look like? Intuit has been building what they call GenOS, and essentially that's their own generative AI operating system. And on top of it,

they're rolling out AI agents. And so the vision they talk about is moving from software tools where you're the one doing the work to done for you experiences, where AI agents act like a virtual team to manage your financial workflows. And so that could be everything from getting a customer lead to getting paid from a sale, whereas they put it a lead to cash end-to-end system. And so their accounting AI agents are actually already doing work at scale. So I would say that's the vision for how Intuit is going to continue to create value and potentially drive excess returns in this post-AI world because they have the distribution and the data to do the best job building the agents that are going to revolutionize these

workflows. Yeah, I'll be the first to say that the kind of done for you framing is very compelling, but Intuit is very much not the only software company on Earth saying some version of that right now in response to AI, which is that AI is actually helping them. So why should we believe into its management team in particular? There are at least three things you actually need to make agentic AI business models work. And so you need proprietary data for data accuracy. We've talked about that already. You need distribution to tens of millions of customers that you can deploy the agents to, and to it has that. And so you need a trusted brand. And I would subjectively argue a human backstop. So people will actually let the AI touch their money, right?

Can you imagine what it takes for you to feel comfortable allowing an AI agent to access your bank account? And I don't know how easy it will be to accomplish that. But if you're If anybody has the brand and the resources and the data and the team of human expertise to sort of fill in the confidence gap that people need to feel comfortable allowing AI agents to have the kind of access, I would say that exclusively belongs to Intuit. And so a brilliant AI model with no data, no distribution, and no trust is nothing. And so there's this great analogy that I actually came across for how to think about about Agintic AI and what it means here.

And so just to pass it along, imagine you go to a hardware store, let's say, and you buy a drill. And so normally you would bring it home and you would do the work, obviously. And you measure, you do the drilling, you build the shelf. Agentic AI is the idea of that drill growing legs, walking over to the wall, and then building the shelf for you while you sit back and have a coffee. And so in this analogy, the drill is your accounting software. And instead of passively tracking expenses, it's actively reconciling your books, paying your bills, lending your capital, and getting your taxes ready while you sleep.

And so just like how I think the company that dominates traditional internet search in alphabet is best positioned to dominate chatbot-based search. I also think that the company best positioned to build an ecosystem of trustworthy, autonomous financial assistance for individuals and small businesses is very good. by far the one that is already sitting on your financial data and already has that trust, and that would be, of course, into it. I will admit that is pretty compelling. And to your analogy there, you might even add that they'll go to your store for you and

get your inputs for you as well as just building the shelf. So if I was a business owner of a small or medium-sized business, I'd think I'd be all over this specific product offering. And from my research, once a customer of an SMBR embedded into its products, the chances of them leaving are very, very low. So where I think Intuit has an advantage is in this form of financial integrations, that AI, as it currently stands, just simply can't replicate as you just kind of mentioned there. So just to kind of give an example, you know, on QuickBooks Online, you can actually directly link your bank account. So when you make a transaction from the bank account, QuickBooks Online will automatically sort the transactions out for you, specifically for bookkeeping and tax purposes.

Now, could you get this done with AI? Maybe, but it would require some annual labor on your end. But, you know, if you're a business owner, I think the chances are pretty high that you're probably going to want to allocate your time to just running your business and, you know, not using Claude Co-work to save a few bucks on your bookkeeping expenses. So if management is so confident in their positioning, why did they just recently announce a 17% workforce layoff? Is AI already creating these massive efficiencies internally or is it about signaling cost discipline to Wall Street? I think the reality is that when you're running a company that has. seen its stock just get wiped out by 60%. It does feel psychologically important to employees and management to feel like there's a floor beneath your feet. And one way that you can do that

is by promising to trim the workforce and to also spend $8 billion on share buybacks, which is the other piece of context here. So it's really impressive to me is that Intuit's revenue per employee since 2017 has risen from $633,000 per employee to an estimated one. $1.2 million per employee after these cuts. So just an incredibly profitable business. And they've shown an ability to generate dramatically more revenue with less. And you could also think of this as being like operating leverage. And supposedly the cuts are being done to weed out unnecessary middle management and to make into it a leaner and faster organization, which is, you know, it's pretty standard corporate speak. But I do think that if the stock had not come under such

remarkable pressure, you probably don't make these moves while everything else is seemingly going well. So that's my speculation. And to the extent that this is true, it would be a bit of a modest yellow flag because you don't want management to be running the business with a focus on the short-term stock price over what's best for the business long term. So that's something for us to keep in mind as we continue to keep an eye on into it. I wouldn't say it's a disqualifying concern in my book, but it is something to, you know, where you're reading between the lines and really want to understand why that decision was made. Yeah.

And doing the same thing, reading between the lines there, if you look at it from the positive aspect, it just means that they're hopefully going to continue making the same amount of revenue, if not more. And now their operating expenses have gone down, meaning you should even maybe even see some operating leverage, which is obviously a great thing to see in something that they've been very good at developing in their past. So with all that said, I think it's a great segue. here to talk more about the people running this company and how they spend the corporate treasury

because obviously a cash machine like into it lives and dies really on their ability to allocate capital properly. The CEO is Zazan Gadarsi, who has been running the company since 2019 and came up through the business. He actually ran the small business group and the consumer group before taking the top job. So I like that he knows all the products intimately. Scott Cook, the founder, is still around as chairman of the executive committee. So there is still that founder DNA that's kind of lingering around. And then I would generally characterize management as competent, mission driven, and clearly aggressive about pushing the company into AI tools and upmarket.

And so their slated long-term target is to accelerate revenue growth back toward 20% a year by 2030, which is ambitious, but I love it. It's certainly completely at odds with the narrative that you're seeing from the market. And you actually might find this interesting, Kyle. 95% of the CEO's comp is performance-based, which is, I think, a good thing. But it comes with an annual bonus split between revenue and non-gap operating income metrics, which are less of a good thing. Yeah, there's part of that comp structure that I definitely like and something that I dislike.

You know, I really like that 95% competition weighting as being performance-based. Love that. But this means that Sasan Godartzi cannot just sit on his laurels and expect to be paid. He literally has to perform in order to earn his incentive. But the revenue and non-gap operating income metrics are, as you'd assume, not the ones that I think best align management with shareholders. And then longer term equity incentives are largely paid out based on total shareholder returns over 36 months relative to a set of peer companies.

So that's good. That's a check. That's a pro. But I'm always dubious, though, of how the peer comp sets are defined when you have this kind of setup and whether management is being given a layup to earn their stock-based comp against some arbitrary definition of companies that are peers and aren't peers where they're being set to compete against inferior companies. And I also wouldn't necessarily say that 36 months is what I would consider longer term,

but you got to get what you can take sometimes. And all in all, it's not a non-starter comp. package. It has good things about it, it has bad things about it. But again, for me, it's not necessarily something that would disqualify me from wanting to invest in the business. It probably doesn't rev up my enthusiasm, but not necessarily a disqualifying factor. And so one other detail here is that Intuit CEO is required to hold 10 times his base salary in stock. That sounds good. But when you remember that it's a very modest base salary to judge against since it's 95% of his comp is coming from bonuses, well, then that,

sort of just makes it feel silly. And what that actually means is Godarsie only owns about $5 million worth of shares after seven years as CEO. And I find that really disappointing and really not one of the most inspiring parts of the thesis. It's not terrible, but it's not inspiring. On the other hand, management does combine to own about two and a half percent of all shares outstanding, which is pretty good for a company of this size. And with Scott Cook as founder of the company, he still owns $1.5 billion of stock. So he definitely has skin in the game as chairman of the board and is making sure that the culture of the company is not moving in the wrong direction. Now, there's kind of a red or yellow flag here that I need to ask you about here. And that's not about 10% of revenue is paid in stock

based comp, if I'm reading this correctly. So I wouldn't say that stock based comp here is modest here at all with into it. Honestly, it's kind of a bit concerning to me that we've seen SBC as a share of revenue increasing over time. That's not supposed to happen. It's actually doubled as a share of revenue since 2020. And the result of that and also the acquisitions is that we've seen the share count compounded about 1% per year since 2020, which isn't egregious, but that's still a very real dilution cost. And as we've seen the buyback yield spike as the stock has declined and as they've committed

more and more to buybacks, I'd say this isn't entirely just a signal strength. You very much need to be buying back billions of stock just to offset the shares that you've been issuing. But at the same time, besides previously scheduled repurchases, the there's not really any indication that management is putting their own money to work, buying shares if they believe that they're materially undervalued. What's also true? And as we bring it all together, I should mention there's a modest dividend for us to factor

into our expected returns. They pay out about 20% of earnings as a dividend. And the good thing is when you gush cash the way this business does with really high margins, you can afford to do three things simultaneously. And that is adequately reinvest. in your business, repurchase shares to shrink the share account

and also to pay dividends. Those are sort of the three pillars of shareholder returns. Well, that's our cue. Let's talk more about valuation. And I want to hold you to your own standard here because you're the one who's always saying that a great business

is only a great investment at the right price. Now, I would say that the parts of Intuit kind of have me at a little bit of odds. You know, QuickBooks is a great business. Turbo tax is a decent business. Credit karma is a solid part, I think, of the entire flywheel. But then you get to MailChimp, which most definitely is the weak link. So the quality here is kind of mixed, but overall it's pretty good. And so the question is, what's the price? Is it right? Starting with a basic just price to earnings lens at around $270 a share, which is where we're at

at the time of recording, Intuit trades at roughly 15 to 16 times trailing earnings on a reported basis. And so to me, that's very attractive. And it's even more attractive when you look at the forward PE projections that put it at about 10 times earnings. So as the business keeps growing, if the stock is flat, the discount to intrinsic value, of course, will only widen. And honestly, coming down from 60 times earnings, I do feel as though that's a pretty sufficient margin of safety.

And it's not to say that Intuit can't go lower, but it's definitely not a half bad entry point. Okay, but a cheap multiple on a company the market thinks is completely impaired isn't automatically a bargain. It could also be a value trap. So what's your estimate of what the company is actually worth? With the usual caveats about financial modeling, I do run through three scenarios where the business sees turbotax, basically flatline in a bare case. Things keep chugging along as management expects in the base case. And then in the bull case, you have a scenario where AI, it really helps drive growth and further profit margin expansion because they're able to get more revenue out of each employee if they have on their team. That's a great example of

that. And if that trend continues, that would be a great illustration of what the bull case looks like. And so anyways, the pretty crude approach to that modeling, accounting for dividends, I see into its fair value as being about $400 per share. And so stacking on an additional just arbitrary number here, but an additional 20% margin of safety, suggest that shares are attractive to buy at around $320 or lower. And just to quickly mention it, if you want to see my model, you can click down into the show notes for the episode, into the description. It's going to be available to download entirely for free. And you can look through my model and my assumptions. And so at current prices, the expected return from the model is

18% a year per year over the next five years. And that is just sort of a mathematical calculation. but I actually think a lot of those returns will be front-loaded. And so at some point, me speculating here, maybe later this year or next, I would not be surprised if the narrative switches again and Intuit rallies significantly in the same way that Alphabet rallied last year when the narrative flipped with ChatGBTBT being a competitor or not. And so again, that's my speculation. And so it's also not uncommon to see the SMP's worst performer in one year become one of

the better, if not the best performers the following year. That's a well-known pattern. So with all that said, I am pretty excited for a variety of reasons about buying into it below $300 per share. To me, it feels like a real bargain, and I would love to add it to the intrinsic value portfolio. And personally, I would probably be comfortable making it as much as a 5% position in the portfolio. But if you have hesitancies, Kyle, maybe we can treat it as a 2% tracker position for now. And then we should obviously get Daniel's input to. I know he's overheard our conversations about Intuit. And I would love to hear where he lands on it.

So yeah, what's your take, Kyle? Yeah, I mean, I think you've definitely sold me on Intuit more so than what I used to think about it before kind of researching this and before hearing more about your thesis. I think, you know, Intuit is very clearly a high quality business. But for me, I think the question really comes down to whether the business's moat is widening or shrinking. To me, QuickBooks Online, which I think we've made really apparent here, is the Crown but I do have some questions on the other three segments that I don't think they're necessarily

a zero by any means, but I think I'd want to spend some more time really understanding them before wanting this to be a completely full 5% position. So I will say this, you know, the business is super cheap. I'm right there with you. I think Inuit, similar to some of the other SaaS things that we've covered, Constellation Software, for instance, have just been completely unfairly punished. Intuit has some real switching costs. And I think that's going to keep them competitive a lot longer than the market is currently

valuing them for. So I think we kind of maybe stick with this 2% track position and then add on increased conviction or if the price continues to drop. Okay. All right. So we'll be adding into it to our portfolio. And as always, if you want to follow along with the portfolio and see what it looks like, you can sign up for our intrinsic value newsletter. Just head over to the investors podcast.com. That's completely for free. And with that, folks, let me leave everyone with a quote from Intuit's founder Scott Cook that I think captures why I'm willing to step in here and invest while a lot of other people are running for the exit. So Cook said, instead of focusing on the competition, focus on the customer. And the market right now is telling itself a story that AI makes Intuit

Intuit appellate. But the people who actually use Intuit and QuickBooks every day are telling each other something completely different, including me as a user. And Intuit has shown that culturally, there is a maniacal focus on the customer first, sort of like Amazon, which is famous for that. And so I think that makes it a very hard business to beat. And with that, we will see you all again next time. Thanks for listening to TIP. Follow the Investors podcast on your favorite podcast app and visit the Investorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax, or legal advice. The content is impersonal and does not consider your objectives, financial situation

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