The strong and sustainable revival of the U.S. economy has not only spurred the operations of large corporation but also enhanced the volume and operations of small businesses. As a matter of fact, these small business are playing an important role in keeping the U.S. economy vibrant. Awhile back, Intuit (INTU, Financial), a leading company in small business management space released data on employment generated by these businesses as well as their revenue growth in the past year. Come to think of it, Intuit’s increasing presence in the small business systems space could favorably impact its operations in the coming quarters. Let us analyse if in the current economic scenario and at its current valuation, Intuit is a recommended buy.
QBO: The rising star
In the first quarter of 2015, Intuit reported strong numbers as it exceeded its own guidance by a comfortable margin. The company reported a revenue of $672 million for the quarter that bore a non-GAAP operating loss of $84 million. In the guidance given by the company, the top line was estimated to fall between $620- $630 million and its operating loss was pegged between $155-160 million. To add to that, Intuit also successful beat the consensus estimate of $634 million (as per Estimize) on the top line. The high growth in the top line was spurred by Intuit’s aggressive stride into the small business online ecosystem with its flagship product, QuickBooks Online.
The company well exceeded its QBO subscriber target in the quarter and added a whopping 43 percent to its QBO subscriber base in Q1. The company ended Q1 with 739,000 paying subscribers worldwide. Outside the U.S., QuickBooks Online subscribers were up more than 170% to 103,000, further accelerating from last quarter. In spite of such phenomenal growth in the QBO subscriber base, there is still tremendous scope in the market, as was pointed out by the management as well. There are 160 million small businesses globally and hence, QBO has immense potential to grow on a global scale. Currently, around 55 percent of total QuickBooks’ subscriber base are subscribed to QB online. This has happened due to Intuit’s aggressive push for cloud-based products and marketing it to small business as a mean to manage the processes efficiently.
Riding on the tax season
While the company is visibly making strides in the small business ecosystem, the tax segment has also been performing well. In the first quarter, tax revenue within the consumer group increased by 36 percent as compared to the prior year period. The growth is pretty impressive considering the fact that the first quarter was a light one in terms of demand. Intuit’s high-quality product TurboTax has been the go-to name for consumers for tax-filing and the company has ensured that it designs an intuitive and efficient product that offers a seamless experience.
On its earnings call, Intuit also mentioned about the Affordable Care Act and steps taken by it in order to incorporate the intricacies of Act in its product. Overall, increased government regulation can be seen as positive for Intuit's business model. As filing taxes and doing business in the United States becomes more cumbersome, more consumers and companies will look to Intuit to cut through the mess and provide the ease and security they need. However, the company has steer clear of negative word-of-mouth because for a product like TurboTax, the sales depend a lot on brand loyalty.
Recently, certain customers accused Intuit of taking away some important features from their TurboTax Deluxe product that people have used for years and imposing a charge for using the same. This article covers the entire story around accusations that Intuit has made unacceptable changes to the pricing structure for TurboTax Deluxe and of course, this might not go well with long-time users of Intuit’s products.
On January 6, Forbes reported that Intuit entered the oversold territory on the day after a session of heavy selling. Basically, shares of Intuit entered into oversold territory on Tuesday, hitting an RSI reading of 29.5, after changing hands as low as $87.61 per share. As the article also mentions, this heavy selling can provide a lucrative entry point for investors who are looking to build a position in the stock. As a result of this dip, some excessive valuation has been shed off and for now, the stock is trading at a trailing price-earnings multiple of around 30.6. Considering the abundant opportunities in the small business space and taxation, Intuit seems to be a fairly valued stock.
Final words
The improvement in the overall economy and a continuing increase in volume of small business provides Intuit with growth opportunities down the road. If the company can maintain customer traction in its consumer tax business and continue to innovate on QuickBooks Online to ensure convenience and efficiency, it would continue to expand its user base. The current dip in share price definitely makes Intuit a worthy buy.
