OK, on the surface, Intuit's (Nasdaq: INTU) fiscal year-end 2008 earnings report looked fine. I certainly understand why a "revenue beat" and pretty solid guidance has investors bidding up the shares -- but me, I'm not happy.
Fiscal 2008 ended with solid revenue growth -- up 15% to $3.1 billion. Margins resumed their contracting ways, with the operating margin dropping to about 21.2%, which is still ahead of H&R Block (NYSE: HRB) and ADP (NYSE: ADP), but behind Jackson Hewitt (NYSE: JTX) and Paychex (Nasdaq: PAYX). Despite this disappointment, though, profits grew a respectable 14% to $1.41 per share.
Somebody seems easy to please
Now, according to management: "Growth was driven by strong performance in Intuit's tax business and the acquisition of Digital Insight (since renamed "Financial Institutions.")" And yet, if you look closely, the tax business didn't actually do any better than Intuit overall -- its sales grew only 14%. And as for the "FI" division, maybe it added some inorganic growth to Intuit's total, but now that FI is part of the company, growth seems anemic.
Consider this: Over the five years preceding its integration into Intuit, Digital Insight grew revenues at a compounded rate in excess of 22% per year. That was much better than Intuit's own pace, which explained the acquirer's willingness to take on new rivals (in the form of Fiserv (Nasdaq: FISV), Online Resources (Nasdaq: ORCC), and S1). Simply put, Digital Insight was a good enough business to be worth the added competition. But over the two years since DI became FI, growth has slowed to just 12% compounded.
Killing the golden goose
As bad as that sounds, the future may be worse. Management predicts 9% to 12% companywide revenue growth next year, led by double-digit growth in every division save two: "Accounting Professionals" and -- you guessed it -- FI, which is expected to grow only 7% year over year.
Now, to hear CEO Brad Smith tell it, Intuit is "building up momentum [at FI] as we head into fiscal '09 and then fiscal year '10, we continue to increase the trajectory." Maybe he's right -- certainly the CEO should know better what's going on at his company than does your humble Foolish writer. But from where I sit, 22% becoming 12% becoming 7% doesn't sound a whole lot like "increasing" anything.
To me, it sounds like the mournful honk of Intuit's golden goose as it plunges to earth.
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