Being an entrepreneur myself, I am aware of the hassles that are faced by small businesses in managing a horde of systems. Therefore, a company which manages the nuances of small businesses definitely has a sustainable demand with immense potential to expand overall operations. In its Q1 2015 quarterly results, Intuit (INTU, Financial) has proved this notion with a steady growth of 5 percent in its small business segment with new customer acquisition driving dedicated growth. Intuit topped Street estimates in its latest quarterly report and while, the result was not jaw-dropping, it has managed to satiate its investors.
The leading tax and accounting software company reported a loss of 29 cents per share. On a non-GAAP basis, the company reported a loss of 10 cents per share. Though the company failed to achieve estimates on earnings, which was pegged at a loss of 20 cents per share (assuming the same was calculated on a GAAP basis) yet in terms of revenue, the company comfortably beat the consensus estimate. Intuit delivered total company revenue of $672 million, up 8 percent from the previous year period and coming conveniently ahead of $620.8 million estimate. In fact, the revenue growth is quite considerable keeping in mind that the first quarter is not a tax-heavy one for the company. On that note, let me also make it clear that Intuit’s Consumer Tax division expanded revenue by a phenomenal 36 percent and Professional Tax grew 46 percent.
The quick growth of QuickBooks
Coming back to the point that I started with, it is significant for investors to understand that Intuit has been attempting tirelessly to create a parallel business in the small business space. With the help of Cloud-based accounting, the company is aggressively increasing the reach of QuickBooks Online. Basically, Intuit is trying to create a one-stop resource for small-sized companies to manage most of their activities and by integrating Cloud power, these activities can be undertaken on real time basis. Back in August, the company had come out publicly with its growing investment into the “Small Business Online Ecosystem” led by QuickBooks online. True to their word, Intuit’s Small business online ecosystem revenue grew 30 percent and in alignment with their vision to promote cloud-based accounting, QuickBooks desktop ecosystem revenue declined 2 percent, in line with expectations, as the focus continues to shift to QuickBooks Online.
In the quarter, QuickBooks online grew its subscriber base by a magnificent 43 percent to 739,000, up from 40 percent growth achieved in the previous year period. The sweet surprise in terms of online subscriber growth was a phenomenal 170 percent uptick in the U.S. online subscribers. The online payments charge grew 22 percent, driven by an increase in charge volume per user whereas online payroll customers grew by 24 percent. Based on the earnings report, one clear thing is that Intuit is accelerating its online effort and as a result, the subscription mix is shifting towards Cloud-based services. Considering that the world is now moving towards Cloud computing in a big way, the company is doing it right by building its capability in this space.
A look at other metrics
A strong highlight from Q1 earnings was Intuit’s financial strength judged in terms of its quarter-end cash balance and value returned to shareholders. The company ended the first quarter with approximately $1.6 billion in cash and investments even after it completed two acquisitions totalling around $10 million, in the first quarter. Besides these acquisitions, Intuit spent around $1.8 billion (already authorized) in order to purchase $114 million shares. To add to that, the board of Intuit has already approved a dividend of $0.25 per share for the fiscal second quarter, payable on Jan. 20. This represents a 32 percent increase versus last year. Therefore, it is clear that Intuit is well placed with respect to its finances and for conservative value-seeking investors, it is a well-deserved choice.
Coming to the tax division of the company, I already mentioned that the first quarter is a lean time for the company and still it successfully managed to achieve high growth rates. TurboTax, the single tax solution from Intuit has been hugely successful in the past years and it is safe to expect that ongoing innovations like this one will only expand the reach of this product. Therefore, investors should not be worried about tax revenue because of its seasonality and should consider that Intuit is nicely placed to leverage from any positive trend in this area.
Takeaway
Intuit has announced its intent to become a commanding force in the small business space and even though I already said it earlier, let me assert that this is a high-demand space. Also, an established presence in this sector will even out seasonal hiccups in Intuit’s tax related revenue. The company has without doubts posted a strong result and its fundamental strength makes it an ideal buy for your portfolio.
