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Intuit Beats the Street

Intuit reported better-than-expected fiscal fourth-quarter earnings on Tuesday. The personal finance software company has a strong brand with a loyal customer base. As the company moves further toward Web-enabled applications, revenue should continue to grow.

By Mike Trigg (TMF Tonto)
August 25, 2000

Who sent the Mighty Microsoft (Nasdaq: MSFT) out of the tax preparation software business? You guessed it, Intuit (Nasdaq: INTU).

During the past tax session, Intuit faced stiff competition from Microsoft in desktop software. When the smoke cleared, Microsoft announced it was leaving the consumer software tax market to set up a joint venture with H&R Block (NYSE: HRB) in what amounted to an admission of defeat.

Intuit surfaced with 70% of the consumer market chanting, "Pay heed, all who enter here."

Fiscal Q4
The personal finance and tax software provider reported better-than-expected earnings Tuesday despite weak sales in its seasonally slow period. The company maintains a bullish outlook for its new fiscal year.

Intuit's fiscal fourth-quarter (ended July 31) loss before adjustments was $8.2 million, or $0.04 per share, exceeding Street estimates by five cents. In the same period last year, the company reported a loss of $16.6 million, or $0.08 per share.

Revenue fell slightly to $162.3 million, down from $168.3 million in the same period a year ago. The slip in revenue resulted from its acquisition of Rock Financial and slumping sales internationally due to untimely European product launches.

Internet time, baby!
Intuit has made a strong push to expand its current products from PC software to the Internet over the past two years. The business now includes Web-enabled accounting, financial services, payroll, and tax software designed for small businesses and individuals.

As Intuit maintains software profitability it will direct more of its cash toward Web-enabled applications. The company indicated it will double its investment in the Internet for the next fiscal year. In fiscal 2000, the company reported $294 million in Web-related revenue, nearly $52 million in the fourth quarter.

Intuit has entered eight Internet business segments and all have shown growth. Quicken TurboTax (tax preparation), electronic fax filing, and QuickBooks Internet Gateway (small business management) were all profitable in 2000. Expect additional product rollouts to meet consumer Internet demand.

To promote its online products, Intuit is launching a national marketing campaign. Its financial content website, Quicken.com, had over 200 million page views per month in the most recent quarter. The number will certainly increase going forward as the company plans on spending over $250 million for TV, radio, and print media.

Party time in fiscal 2001
Intuit is expecting a breakout year in 2001. In a conference call Tuesday, Intuit CEO Steve Bennett said he expects revenue growth of 22%, up from 16% in fiscal 2000. He also called for operating income in the low 30% range, up from 13% growth.

Those numbers appear to be reachable with Microsoft exiting the tax business and additional opportunities in the online tax arena. Small business applications should also be a huge source of growth. They have an 80% market share in small business desktop applications and their QuickBooks Internet Gateway will provide small businesses with a presence on the Internet.

A Fool would be wise to take a long look at this company. It has a strong brand with loyal customers. Its software business commands a dominant market share and still generates the majority of its revenue. Internet-related revenue grew 108% in the past year and should increase. Plus, I love the fact they sent Microsoft packing.

Your Turn:
Will Intuit succeed in the Internet market? Will it meet its ambitious growth expectations? Has it seen the last of Microsoft? Share your thoughts on the Intuit discussion board?

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