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Intuit's Small Business and Self-Employed Group Is Thriving

By Asit Sharma - Updated Jan 15, 2020 at 9:38AM

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Robust subscriber metrics provided the foundation for a strong earnings report as Intuit reached the midpoint of its fiscal year.

A delayed start to the current year's tax season didn't slow Intuit (INTU 3.95%) very much in the second quarter of its fiscal year, as earnings released on Feb. 22nd revealed.

Intuit: The raw numbers

Metric Q2 2018 Q2 2017 Year-Over-Year Change
Revenue $1.17 billion $1.02 billion 14.7%
Net income (loss) ($21 million) $13 million N/A*
Diluted earnings (loss) per share ($0.08) $0.13 N/A

Data source: Intuit.  *Difference to great for a meaningful comparison.

What happened with Intuit this quarter?

  • Intuit's top-line performance was paced by the small business and self-employed segment, which includes QuickBooks Online (QBO), as well as payroll and payment processing services. The segment reported year-over-year quarterly revenue growth of 19%, to $736 million.

  • Additions of QBO subscribers continued to play the dominant role in Intuit's quarterly growth. The company added 275,000 QBO customers, a 51% leap over the comparable-year quarter. Intuit's total QBO subscriber count exceeded 2.8 million globally at quarter-end.

  • As has been the case in recent quarters, non-U.S. subscriptions grew at a higher rate than the overall base. These subscriptions surged 69% from the 2017 quarter and now total 630,000. On a sequential basis, Intuit added 80,000 new international "subs" from the prior three months.

  • Another subset of QBO, QuickBooks Self-Employed, also exhibited burgeoning growth. With 490,000 total subscribers, the service has nearly tripled its base against last year's quarter-end tally of 180,000. QuickBooks Self-Employed grew by 65,000 subs over the past three months.

  • Intuit's revenue may have landed even higher, but the IRS delayed the opening of tax season by one week compared with last year, to Jan. 29. Thus, some tax season revenue will shift into the third quarter.

  • The consumer group segment, which includes TurboTax software sales, expanded revenue by 12% to $334 million. In its first tax season update, released alongside earnings, Intuit reported that TurboTax-filed returns grew 2% at the outset of the season. In addition, the volume of TurboTax units sold improved by 1%, to 18.6 million. 

  • While the company reported positive operating income of $20 million, it recorded an income tax provision of $40 million during the quarter to comply with recently enacted tax legislation in the U.S., resulting in a diluted earnings-per-share loss of $0.08.

  • Intuit announced a quarterly dividend increase of 15% to $0.39 per share, which will yield 0.90% on an annualized basis at the current share price.

  • The company completed three acquisitions in the quarter, totaling $412 million., Exactor, Inc., and Applatix, Inc., each produce applications for use within the QBO ecosystem.

Two young florists using tablet device in their shop while putting together a flower arrangement.

QuickBooks Self-Employed caters to small business owners. Image source: Getty Images.

What management had to say

During the company's earnings conference call, CEO Brad Smith touched on various new product offerings and cross-marketing opportunities within the current tax season. Smith's comments illuminate differentiators that Intuit is employing to maintain TurboTax's competitive advantages and indicate how the company is leveraging its ecosystem to increase annual revenue per customer:

Product innovation is the key to our strategy. ... We improved the TurboTax customer experience again this year by further automating data entry, improving the onboarding experience, and simplifying the help functions by leveraging artificial intelligence and machine learning. TurboTax Self-Employed is a part of our line-up again this season, targeting approximately 4 million self-employed who use TurboTax. TurboTax Self-Employed also comes with a 12-month subscription to QuickBooks Self-Employed so these customers can benefit from tracking their financials throughout the year.

We also introduced TurboTax Live, leveraging one-way video technology enabling our customers to access an expert to answer those nagging questions that erode confidence when completing a return on their own. We built an end-to-end expert platform that enables approximately 2,000 certified public accountants and enrolled agents to serve our customers. This has opened up the nearly $20 billion assisted market to Intuit, providing an opportunity to grow our dollar share of the tax prep market while increasing our average revenue per return.

Looking forward

Earlier this month, Intuit issued revised guidance as a result of the current U.S. tax law changes. The organization left much of its full-year outlook unchanged. Revenue is still projected to grow by 9%-11%, landing in a range of $5.64 billion to $5.74 billion. And operating income is still expected to expand 6%-10%, to a band of between $1.485 billion and $1.535 billion. However, as a result of the 2017 Tax Cuts and Jobs Act, Intuit will apply a lower effective tax rate to income, and thus, diluted earnings per share are now expected to land between $4.20 and $4.30, against an earlier estimate of $4.00 to $4.10, representing a growth rate in EPS of 13% to 16% over 2017. 

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