Intuit (NASDAQ:INTU) reports fiscal first-quarter 2019 earnings on Nov. 19 after the close of trading. The tax and small business software giant will attempt to produce another set of vigorous numbers in a run of quarters that has pushed its stock up 33% year to date. Let's walk through the key metrics and themes investors should consider when evaluating the start of the new fiscal year.
First-quarter earnings targets
Intuit's fiscal fourth-quarter 2018 earnings report presented the company's outlook for the new quarter, which is traditionally a loss-generating quarter as it gears up for tax season. Management expects year-over-year revenue to improve between 5% and 7% to a range of $955 million to $975 million in the first quarter. If met, this target will generate a GAAP loss of $70 million to $80 million, and a diluted earnings-per-share (EPS) loss of $0.17 to $0.19.
Management noted in its outlook last quarter that the company has adopted a new accounting standard addressing revenue recognition, ASC 606. Thus, its first-quarter revenue guidance is $30 million less than it would have been under the old standard.
Impact on full-year guidance
Investors will want to evaluate Monday's report in the context of the company's full-year 2019 outlook. Intuit anticipates current-year revenue to improve 8% to 10%, which translates to a top line of between $6.5 billion and $6.6 billion. Operating income is expected to rise between 11% and 14%, or from $1.73 billion to $1.78 billion. Diluted EPS for the full year is pegged at $5.25 to $5.35, equating to a per-share growth rate of 3%-5%. Any significant deviation from first-quarter targets will affect the company's ability to hit these 12-month goals.
QBO subscription acquisition
Intuit is expecting full-year revenue growth of 9% to 11% in its "Small Business and Self-Employed Group," the business segment in which the company sells its QuickBooks Online (QBO) small business ecosystem software. This segment expanded at a year-over-year growth rate of 18% in fiscal 2018, largely because of the continued brisk pace of QBO subscription additions.
Intuit widened its QBO base by 43% last year, ending the period with 3.4 million subscribers. While this growth rate will inevitably slow over time, first-quarter 2019 results will provide an expectation into the full-year subscriber growth rate, which is likely to remain somewhere in the double-digit expansion range.
Shareholders should also observe the breakdown of U.S. QBO subscriber growth versus non-U.S. additions. In fiscal 2018, the U.S. subscriber base expanded by 38% to 2.6 million customers, while non-U.S. subs soared by 62% to 800,000. If international numbers scale up in similar fashion this year, they may absorb a less vigorous U.S. growth rate.
Each year, Intuit attempts to improve full-year revenue through volume growth in its flagship tax product, TurboTax, as well as through value-added services and the cross-selling of tax and small business ecosystem products during the January-through-April period.
As we head into the upcoming tax season, expect to hear management convey plans for Turbo, the company's new personal-finance offering. Turbo combines IRS-verified income data obtained through TurboTax with credit information through Intuit's Mint personal-finance program to assess a user's financial health.
With permission, Intuit can provide customized loan offers to Turbo users. The company signed up 5 million customers during last year's tax season and is currently working with an initial group of lenders to expand loan products. Management will probably discuss current-season plans for the new product during the company's earnings call, and it may even disclose initial monetization goals.
Upcoming strategic opportunities
As I discussed last quarter, longtime CEO Brad Smith will step down in January to become executive chairman of Intuit. He'll be replaced by Sasan Goodarzi, his chosen successor, who currently leads the Small Business and Self-Employed Group. While it's early for Smith's successor to discuss any significant changes he may be planning to implement, Goodarzi has already indicated that he's interested in pursuing revenue expansion in the middle market.
In a recent interview, Goodarzi observed that companies at the lower end of the middle market have often outgrown Intuit's current small-business products but end up in an overkill situation, as they're forced to trade up to enterprise software designed for much larger entities. The incoming CEO sees these transitional companies as a future source of revenue for the organization -- higher-end products could keep such organizations in the Intuit fold. Shareholders may hear Goodarzi address this market opportunity as soon as Monday on the company's post-earnings conference call.