Hi there! I go by KG, and I love studying the history of business and investing. I’ll be sharing some notes from one Investor/Shareholder letter per weekday (mostly from my compilations) here.
Today’s notes are on Bill Campbell’s 1999 Intuit Shareholder Letter.
If you don’t know who Bill Campbell is, here’s the opening paragraph from his Wikipedia Page.
William Vincent Campbell Jr. (August 31, 1940 – April 18, 2016) was an American businessman and chairman of the board of trustees of Columbia University and chairman of the board of Intuit. He was VP of Marketing and board director for Apple Inc. and CEO for Claris, Intuit, and GO Corporation. Campbell coached, among others, Larry Page, Sergey Brin, Eric Schmidt, Jonathan Rosenberg and Sundar Pichai at Google, Steve Jobs at Apple, Brad D. Smith at Intuit, Jeff Bezos at Amazon, John Donahoe at eBay, Marissa Mayer at Yahoo, Jack Dorsey and Dick Costolo at Twitter, and Sheryl Sandberg at Facebook.
So yea, that’s who he is. I don’t think I need to say anymore haha. I don’t actually know what else I would add if I had to.
He’s also the subject of the book Trillion Dollar Coach: The Leadership Playbook of Silicon Valley's Bill Campbell, written by Eric Schmidt (Google CEO and chairman from 2001 until 2011, Google executive chairman from 2011 to 2015, and Alphabet executive chairman from 2015 to 2018).
Two years ago, Intuit launched Quicken.com and embarked on a strategy to use the power of the Internet to revolutionize people’s financial lives. Since then, we have been defining a new world of connected finance using both the PC and the Internet to deliver this revolution.
Starts off with the company’s mission
Today, Intuit is leading electronic finance thanks to the strong endorsement of our customers and the hard work of our employees. Our products and services enable people to connect to a wide range of financial resources and destinations—from banks and insurance companies to lenders, investment firms and tax agencies. At the same time, we are creating links between these destinations, with the ultimate goal of completely interconnecting—and simplifying—all aspects of a person’s financial life.
Still the goal of all Fintech companies in 2020 lol
Fiscal 1999 Results
Fiscal 1999 was a terrific year for Intuit. We saw our Internet efforts take off while at the same time we had continued strength in our traditional desktop software businesses. We reported revenue of $847.6 million in fiscal 1999, including revenues from Lacerte, the professional tax software company we acquired in June 1998 and CRI, the payroll processing company we acquired in May 1999. This was an increase of 43% from fiscal 1998 revenue, which did not include CRI and Lacerte. Even more important, our internal revenue growth rate, excluding the effect of acquisitions, more than doubles… rising to 27%.
Honestly had to read this several times — switching between including and excluding acquisitions. Anyways, great year for both organic and inorganic growth
Net income, on a pro forma basis, was up 90%, to $88.9 million or $1.39 per share. The many infrastructure improvements the Company put in place over the past year contributed to the growth in pro forma profitability. For example, we have increasingly used the Internet to improve the efficiency of our direct distribution channel. In fiscal 1999, the amount of products ordered or distributed over the Internet tripled, and we now do approximately 6% of our business this way. Pro forma financial information excludes gain on disposal of business, non-recurring marketing charges, acquisition-related charges, and gains related to the sale of marketable securities. On a GAAP basis, net income increased from a loss of $12.2 million to a profit of $376.5 million, which included $579.2 million, in pre-tax gains related to sales of marketable securities.
Good to move fast and break things, but sometimes you need to lay the infrastructure to scale efficiently when needed
I wonder what percentage of their business in 2020 is ordered or distributed over the Internet… would not be surprised if it was flipped (94%)
Driving these powerful financial results was strong demand for QuickBooks, which helped grow small business division revenue by 40%. Our personal tax products, including TurboTax and WebTurboTax, had a banner year with revenue growth of 36%. Intuit’s Internet-based revenue increased 157% on a year-over-year basis and while not yet contributing to overall profitability it now represents $125.3 million in revenue.
Scariest words in venture/business “not yet contributing to overall profitability”—See Internet Investors: Beware of the Proxy Valuation by Bill Gurley (Page 234)
We are also driving an increase in revenue per customer, much of it repeat in nature, as we expand our e-finance solutions. For example, a small business customer may purchase QuickBooks once every three years, producing approximately $60 in annualized revenue. With the November 1998 launch of QuickBooks Online Payroll, that same customer can now sign up for our payroll service, representing more than $500 in additional potential revenue each year.
During fiscal 1999, we saw our Internet businesses ramp. Quicken.com monthly page views increased 78% year-over-year, reaching 160 million in July 1999. Along with this tremendous growth in traffic, advertising revenue more than doubled to $29 million. Our QuickenMortgage online mortgage service originated closed loans exceeding $1.2 billion, although the business has not yet generated profits or significant revenue. Plus, we launched two Web-based products — online payroll service for small businesses and WebTurboTax for individual tax-payers. The two-fold increase in the number of tax returns filed electronically and the ten-fold increase in WebTurboTax returns demonstrated the growing popularity of Intuit’s Internet-based tax products.
Again with the “not yet generated profits or significant revenue”
Find the balance behind positive economics and cash-burning infrastructure laying
Fiscal 1999 was also a good year for our core desktop software businesses. Quicken grew its installed base to 11 million users, and now has more than 1 million online banking customers. Benefiting from the January 1999 introduction of QuickBooks 99, sales for QuickBooks grew 47%, with the isntalled base rising to 2.7 million users. Intuit’s tax products also experienced a record year. We sold more than 4.4 million units of TurboTax in fiscal 1999, a 27% increase over the previous year, and revenues for our personal tax business increased 36%. In the professional tax area, our ProSeries and Lacerte products finished the tax year with a customer renewal rate over 92%. This high level of customer loyalty creates a very valuable base of reliable, recurring revenue and healthy profits.
Renewal rate of 92% is AMAZING — focus on recurring revenue and positive profits — software margins are great
Establishing Leadership in Electronic Finance
Over the course of history, technology innovations have created fundamental changes in people’s lives and in society as a whole. And, in the process, they have created enormous opportunities for companies to create value for customers and investors alike. The development of the internal combustion engine not only created the automobile industry, it spurred development and growth in such related industries as oil, steel making, construction, and travel and leisure. The semi-conductor similarly revolutionized our society, giving birth to a wide range of innovations from computers to consumer electronics.
Tech drives the economy — it touches and envelopes everything
Today’s technology innovation is the Internet, and nowhere is the potential for change more profound than in financial services. Because financial transactions essentially consist of electronic pieces of data — bits and bytes — the Internet is ideally suited to deliver anytime anywhere connectivity.
Our fundamental strategy unites the PC and the Internet to connect consumers and small business owners with a whole host of financial products and services to revolutionize how people do financial work. More important, Intuit is developing links between the various destinations to create interconnected financial solutions that will not only take the user to discrete destinations but also link one destination to another.
Consistent messaging — reiterate company messaging (see second paragraph) — think of Peter Thiel post Zero to One and Jeff Bezos over the past 20 years
It is this interconnection that makes e-finance so compelling. It’s what will truly change how people manage their everyday finances as well as major financial events and decisions.
Interconnection vs network effects
Interconnection is/will be Intuit’s key driver
Following are some of the ways that connections and interconnections are delivering tangible benefits to Intuit customers.
Show, don’t tell
E-Finance for Small Business
Intuit made significant strides in simplifying finance for small business owners. Our ultimate goal is simple: to create a seamless connected system that links small business owners to their financial institutions, accountants, tax authorities, suppliers, customers and employees, so that financial information can be automatically shared and updated. The result is that small business owners will be able to spend more time focusing on building their businesses and less on managing the tremendous volume of data and paper and accounting transactions.
Consistent messaging — creating seamless connected system
Help SME’s focus on their actual business operations rather than getting bogged down by back office activities
The market for payroll processing is huge, and payroll processing is a business, that is ideally suited for re-invention using the Internet and Intuit’s e-finance solutions. The introduction of our QuickBooks Online Payroll Service business in November 1998 was an important step in deploying e-finance to simplify small business owners’ lives. The service is designed to take the hassle out of payroll management, tax filings, W2 processing, payroll data back-up and direct deposits for our QuickBooks, business owners no longer have to re-enter the payroll data that’s already in their accounting system. They also enjoy greater flexibility than with traditional payroll companies and save significantly on payroll costs. Equally important, Web-based payroll helps business owners track state and federal payroll tax changes and more accurately compute their tax liability, which significantly reduces the chance of errors and resulting IRS penalties.
Huge market ripe for disruption
Dealing with a real pain point — “There are two certainties in life: Death and Taxes” and I’d argue people are more afraid of taxes than death
Since the launch of QuickBooks Online Payroll in November 1998, we have signed up approximately 6,000 businesses and processed over $250 million in payrolls.
What’s this as a percentage of total? Google this later.
Our acquisition of Computing Resources, Inc., the Reno, Nevada-based payroll services provider, was key in executing on our small business strategy during fiscal 1999. With CRI, we have gained an established platform for delivering our current payroll services and expanding the suite of products we offer in the future. We are delighted to have the employees of CRI as part of the Intuit team.
Explain synergies and acknowledge/welcome newly acquired team/family members
As we go forward, Intuit will be integrating multiple Web-based services into QuickBooks, interconnecting small business owners in more ways with customers, suppliers and the government.
Consistent messaging — connect all stakeholders
E-Finance and Tax
Intuit’s vision for the personal tax business also is simple. We are working toward the day when it takes a taxpayer just two minutes to electronically retrieve all of the their relevant financial and past tax data, automatically load the data into tax preparation software and then automatically prepare and file their tax returns with federal and state tax agencies.
Make hard, annoying shit easy — your customers will love you
In fiscal 1999, we continued to make strides in reaching this vision. Intuit is now recognized by the IRS as an official agent for receipt of electronic tax returns, which means that a return e-filed with Intuit is officially postmarked when received by an Intuit server. In addition, Intuit was approved for participation in an electronic signature program, eliminating the need to send a separate piece of paper to the IRS when filing tax returns electronically. Fiscal 1999 brought explosive growth in our Web-based personal tax preparation and electronic filing business. We saw a ten-fold increase in the volume of our WebTurboTax business, with more than 240,000 federal tax returns and 148,000 state tax returns filed. The opportunity for continued volume growth is enormous, with more than 43 million taxpayers who manually prepare their income taxes.
Big year regulation-wise — if you get approved by the government, things get A LOT easier
Crazy Stat: Docusign in 2020, which basically ONLY does electronic signatures, does $1B in revenue and a market cap of $35B. (For reference, Intuit in 2020 has a market cap of $78B.)
We’re especially happy to see lower income individuals take advantage of the Internet and jump the “digital divide.” Through our Quicken Tax Freedom program, we donated WebTurboTax preparation and filing at no charge for taxpayers with adjusted annual incomes of $20,000 or less. Last year, more than 100,000 federal and state tax returns were prepared and filed through this program. We plan to expand this program even further for tax year 1999, donating online preparation and electronic filing to all taxpayer using the 1040EZ form, regardless of their annual income.
In 1999, 50% of households had access to a computer, I’m curious as to how many of those had incomes of less than $20,000 — also wonder how they donated this?
Using the Internet to streamline the preparation and filing component of taxes is only part of our vision. We are actively working with the organizations that provide individuals with tax data — bank and lenders, investment brokers and managers, employers — to develop the interconnections that can revolutionize the front-end data-gathering component.
The consistency!!!!!! I want to say this is the fifth time he’s mentioned the word/mission/vision “interconnection”
Consistency is the key to success in *almost* everything
Revolutionizing Personal Financial Management
Intuit continues to revolutionize the lives of individual consumers by connecting and interconnecting their financial information. During the past fiscal year, more and more Intuit customers enjoyed the convenience and flexibility of e-finance, from banking online with Quicken to comparing and applying for mortgages on QuickenMortgage.
Consistency, consistency, consistency. Make sure your shareholders know your vision, and drill it in to make sure they do.
Through Quicken Mortgage, consumers throughout the United States can now access home equity loans and sub-prime mortgages as well as obtain online pre-approval letters. Intuit has invested aggressively in software technology linking consumers to mortgage lenders over the Internet. As a result, QuickenMortgage is unique in providing mortgage quotes tailored to each borrower, so those consumers see only those loans for which they qualify.
Being an early adopter in the early days of the Internet was a clear advantage — allowed for features and personalization like never before
Our Quicken InsureMarket website on Quicken.com continues to ramp both its life and auto insurance offerings. Although this business has not yet generated profits or significant revenue, life insurance policy applications per month grew 66% during fiscal year 1999. And, more than 70% of the US driving population can obtain multiple online auto insurance quotes on Quicken InsureMarket. Our vision for the future includes completely interconnecting consumers’ financial data. For example, Web tax return information can feed mortgage applications, which gathers price quotes from moving companies. In short, the financial information, products and services that people want and need — anytime, anywhere, in less time and for less money.
Similar to Bezos — people will never say too much variety (sure there’s decision fatigue, but Brandless hasn’t exactly done great), they got something too fast, or something cost too little.
A Look Ahead
Intuit enters fiscal 2000 with a solid strategy, a valuable base of loyal customers, great people and great products, and a strong balance sheet. The foundation for our continued growth is impressive:
We enter fiscal 2000 with 15 million customers who use our products, many of whom have been loyal Intuit custoemrs for more than a decade.
We have retained compelling market leadership with our three flagship brands — Quicken, QuickBooks, and Turbo Tax
At the same time, we are transforming finance on the Internet and are emerging as the e-finance leader.
We have grown the total earning power of our core business with pro-forma operating profits double the prior year.
Strategy, customers, people, products, balance sheet — these are the core pillars needed to support any business
The strategy that will bring you closer to your vision and accomplishing your mission
The customers for whom you are building and will fund your expansion
The people building for the customers
The products serving the customers
The balance sheet to invest in operations and expand during good times, and the security to get through tough times
As well as we are doing in our e-finance efforts, we must do even more. We need to step up employee hiring and retention. We need to manage the appropriate balance between short-term profits and long-term investments in our high-growth Internet businesses. Above all, as we get larger, we need to maintain the speed and agility to move quickly and decisively.
This may be one of the best paragraphs I’ve ever read:
Day 1 Mentality — we’re doing good but we can always do better
We need to expand and improve — better people, better products, better customer service (dude, retention is already 92%)
Balance short-term profits with long-term investments — keep both Wall Street (quarterly earnings) and Value Investors (long-term orientation) happy
Again — Day 1 Mentality — stay nimble, be decisive, and execute quickly
We are delighted with the growth Intuit achieved this year — particularly on the Internet. And, we want to make fiscal 2000 the year we unmistakably establish Intuit as the leader in electronic finance.
Close on a happy note :)
If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kgao1412 or my email at email@example.com.
Please DM or email me any time — to share non-obvious intel, views and correct or solicit mine. I appreciate your continued support and partnership :D.
All compilations here.
As many of you know, making compilations and this newsletter is a (very time consuming) passion project for me. Multiple people have reached out about how they can support me so that I continue, so I set up with a few ways: