With a $7 Billion Price Tag, Is Intuit Overpaying for Credit Karma?
Intuit's (NASDAQ: INTU) acquisition of personal finance site Credit Karma, announced Monday alongside its fiscal second-quarter 2020 earnings, is a pretty sizable deal: Intuit will fork over total consideration of $7.1 billion, funded equally between cash and Intuit stock, to fold in the popular finance destination. Per CFO Michelle Clatterbuck in the company's earnings conference call on Monday, Intuit will supply the cash portion through existing resources and by utilizing its $1 billion unsecured revolving credit facility.
How can shareholders determine whether this princely sum is appropriate considering the assets being acquired? Intuit relayed that Credit Karma's revenue, based on unaudited results, expanded by 20% in 2019, to $1 billion. The company didn't provide any insight into Credit Karma's profitability, but we can make an educated guess that it's unlikely to enjoy a profit margin anywhere near Intuit's high annual net profit margin of 23%. This is because management expects the transaction to be "neutral to accretive" to Intuit's non-GAAP (adjusted) earnings per share in the first full fiscal year after the deal closes.
This leaves investors with a single yardstick to gauge the deal's reasonableness: Intuit is buying Credit Karma at a multiple of seven times its annual sales. This seems a steep price on the surface, especially since management doesn't project an immediate, quantifiable impact on 2021 fiscal earnings per share.
Source Fool.com
