And really, as I look at it, what gives me confidence is that we are an AI-driven expert platform, and we operate as an ecosystem across technology, across customer success, across marketing. So in addition to giving us a competitive advantage for having faster time to market as a — from opting as an ecosystem, it also gives us advantage in getting operating leverage as we scale as a business.
Michael Turrin: Thank you.
Operator: Our next question comes from Taylor McGinnis with UBS. Your line is open.
Taylor McGinnis: Yeah. Hi, thanks so much for taking my question. Maybe I’ll focus on the Small Business and Self-Employed full year guide, which was really strong. So I know there’s a bunch of moving pieces in there between customer ads, mix shift, online services attach and price. But are you able to help us understand how each of those levers are contributing to the guide? And based on what you’re seeing in the environment, what’s giving you comfort and the durability of those growth drivers?
Sasan Goodarzi: Yeah. Thank you for your questions. Let me start us off and Sandeep, please jump in if you want to add anything. First of all, we have a framework at the company level where we want to drive the majority of our growth from volume and mix and the lesser part from price, but we always focus on pricing for value. And so when we look at our growth drivers this year, it is coming from customer growth, and it is coming from mix and to a lesser extent this year compared to last year, by the way, from price. With that as context, I would just remind you that the big picture, when you look at our opportunity this coming year, but even in the next three to five years plus, we now have a platform and a portfolio of services where we have the opportunity to drive further adoption of our services from Mailchimp to payments, to payroll to time tracking and to a lot of our new innovations around Bill Pay and digitizing B2B that I just mentioned.
But also, although we are three to four years in, we’re just at the beginning of what’s possible in the midmarket. Big market is a significant ARPC opportunity because these customers use a lot of the capabilities that I just mentioned, except they pay a lot more. And we’re just at the beginning of the flywheel of penetrating mid-market. So when you look at the portfolio of the services that we have, the strength of the experience that we’re delivering because of data and AI and because of mid-market, it allows us to drive most of our growth from customer growth and mix. And none of that, by the way, takes into account what’s possible as we look into the future with our generative AI experiences that you’ll be able to observe on September 6.
But those are the main drivers.
Sandeep Aujla: And Taylor, I would add, over the long term, we remain committed to our growth algorithm of 10% to 20% ARPC and customer growth. That remains unchanged. And really, as Sasan mentioned, is our innovation across our platform that gives us — opens up the aperture for us to cross-sell and upsell our customers across more offerings on our platform as those opportunities for us to price for value as we look ahead.
Taylor McGinnis: Great. Thank you.
Sasan Goodarzi: Very welcome.
Kim Watkins: Raiza, we’re ready for our next question.
Operator: And our next question comes from Kash Rangan with Goldman Sachs. Your line is open.
Kash Rangan: Hi. Thank you very much. I hope you can hear me okay. So the recession that everybody’s been expecting, it doesn’t seem to be quite happening. Sasan, I know you’ve got a great read on your SMB ecosystem. What are some of the indicators that you’re seeing? And if you’ve already proactively addressed this, my apologies for bringing it up again. But what are some of the forward-looking indicators that you see in the Credit Karma business or the SMB ecosystem that give you renewed confidence that we are going to be okay? Because your fiscal ’24 guidance definitely is not reflecting of any caution in the environment, but more like a continuation of what we’ve seen in the last four quarters. Just some thoughts there would be great. Thank you so much and congrats.
Sasan Goodarzi: Yeah, sure. Thank you for your question. And you’re loud and clear, my friend. So let me start with Small Business. And generally, I would just lead with they continue to be healthy, but they’re challenged in this environment. The specifics that I would share is the cash flow — cash reserves of Small Businesses is 90% of what it was this time last year. However, it is still stronger than pre-pandemic. The — in terms of looking for labor and finding employees to drive their growth, that’s still quite strong. And in fact, in this environment, Small Businesses are able to do a better job finding what they need versus when the market was hot, which is good for them because then they can deliver for their customers and drive growth.
And the last thing I would just say is there are certain sectors that are very weak, transportation, real estate, advertising, is very weak within small businesses. So that’s the aggregate picture. I’ll end with what where I started, struggling, but still healthy compared to pre-pandemic. On the consumer side, let me hit on sort of two different points. I’ll quickly hit on Credit Karma. As you know, Sandeep mentioned, what we’re seeing is stability and our innovation that we’ve been focused on is really getting hold, and there’s some exciting things that we’re working on in Credit Karma that we’ll share both on September 6 and at Investor Day, one where we redesigned the entire app. And we have begun to roll it out to a small cohort of customers and will eventually scale it.
And we’re actually seeing very good engagement with the redesigned app. And then that, coupled with our GenAI experiences, along with all of our innovation with Lightbox and Credit Karma Money gives us a lot of excitement around the future, none of which, by the way, is in our guidance. But the headline is stability in Credit Karma and lots of innovation that is helping us with where we are and coming. If I just focus on the consumer, a couple of things I would say. If you look back to last March of 2022, credit scores are, on average, down 13 points. Credit balances are up about 30%. And the credit band of like [600 to 660] (ph) have the largest balances. They’re carrying about $10,000 on average. And the Gen Z balances have gone up the most, are up 45% year-over-year.
So job market is still good. People still have jobs, but there’s certainly some level of strain on the consumer.
Kash Rangan: Brilliant. Thank you so much.
Sasan Goodarzi: Very welcome.
Operator: Our next question comes from Brad Reback with Stifel. Your line is open.
Brad Reback: Great. Sasan, following up on that Credit Karma commentary. Obviously, the world we live in today is different than when you acquired the business. Do you think the long-term growth rate of Credit Karma is meaningfully different in a world where interest rates are mid-single digits versus zero? Thanks.
