Online provider of tax and small-business software Intuit (NASDAQ:INTU) reported a vibrant start to its fiscal 2019 year on Monday. The company handily exceeded revenue guidance it had previously provided to investors, and once again, flagship accounting software QuickBooks Online (QBO) provided the lift between projected and actual results. Can the company continue to extract value from its small-business platform going forward? After a review of summary numbers and important details from the quarter, we'll review management's perspective on new offerings designed to retain and expand small-business market share.
Intuit: The raw numbers
|Metric||Q1 2019||Q1 2018||Year-Over-Year Change|
|Revenue||$1.016 billion||$0.910 billion||11.6%|
|Net income||$34 million||($2 million)||N/A|
|Diluted earnings per share||$0.13||($0.01)||N/A|
What happened with Intuit this quarter?
The company's double-digit revenue growth was paced by its small-business and self-employed group, which increased revenue by 11% versus the prior-year quarter. Intuit's top line of more than $1 billion exceeded the midpoint of its guidance forecast by roughly $60 million, or 5.2%.
As I wrote in my earnings preview, growth in the company's QuickBooks Online (QBO) product will eventually moderate, but for now, new subscriber additions remain robust. QBO subscribers scaled up by 41% year over year, ending the quarter at a total of 3.6 million. This is just slightly below last year's annual expansion rate of 43%.
Non-U.S. QBO growth continued to flourish. While the U.S. year-over-year subscriber count improved by 35% to 2.7 million, international subscribers jumped 61% to 880,000, roughly in line with last year's annual growth rate of 62%.
QuickBooks Self-Employed, a service aimed at small entrepreneurs and freelancers in the gig economy, finished the quarter with 745,000 subscribers, against 425,000 at the end of the fiscal first quarter last year. Note that Self-Employed numbers are included within the overall QBO count.
The organization generated a $10 million operating loss during the quarter, substantially better than a projected loss of $70 million to $80 million (the first quarter is traditionally a money-losing quarter in the run-up to tax season).
A tax benefit of $41 million related to share-based compensation helped absorb the operating loss and was the primary factor producing positive net income and earnings per share in the table above.
Intuit introduced enhancements to the company's assisted-tax-return product, TurboTax Live, in advance of the upcoming tax season. New features include the ability for customers to receive an answer from a tax expert on a question within 24 hours and direct access to live tax experts via mobile devices.
The company raised its quarterly dividend by 21% to $0.47 per share.
Intuit repurchased $101 million worth of its own shares during the quarter, leaving a generous $3.1 billion remaining on its current share repurchase authorization.
What management had to say
During Intuit's earnings conference call, CEO Brad Smith discussed the company's first online accounting product for the middle market. This offering is geared toward new customer acquisition. However, it should also help retain customers who eventually outgrow the QBO ecosystem but don't necessarily need advanced enterprise software. Smith summarized the product as follows:
We're also serving a broader range of customers with the recent introduction of QuickBooks Online Advanced. This offering is designed for the 1.5 million mid-market customers with 10 to 100 employees. Approximately 180,000 of our existing QBO customers fit this target profile, providing us with a significant opportunity to grow with them over time. While it's still early customer feedback on QBO Advanced is quite positive, and we're optimistic about the opportunity as we introduced additional functionality in the months ahead.
Smith also discussed QuickBooks Capital, the company's new loan product for small businesses. This is a value-added service designed to generate incremental profit for Intuit while, again, keeping customers loyal to the QuickBooks platform:
QuickBooks Capital [leverages] QuickBooks Online customer data to provides loans to small businesses. Nearly 60% of whom may not qualify for loans elsewhere. QuickBooks Capital has funded $200 million in cumulative loans over the first 12 months since launching publicly. Customer receptivity has exceeded our expectations, with 84% of QuickBooks Capital customers stating an intent to apply for a second loan in the future.
Intuit is targeting revenue growth of 10% to 11% in the fiscal second quarter, which equates to a top line of $1.47 billion to $1.49 billion. The company anticipates operating income of $180 million to $190 million and diluted earnings per share (EPS) of $0.55 to $0.58.
As for a 12-month overview, management didn't notch up full-year guidance but merely reaffirmed fiscal 2019 targets. Intuit expects fiscal 2019 revenue of $6.53 billion to $6.63 billion (good for 8% to 10% growth). Operating income is set to rise 11% to 14%, or between $1.725 billion and $1.775 billion. Diluted EPS is still anticipated to advance a modest 3% to 5%, thus falling between $5.25 and $5.35. Despite the strong first quarter, as in past years, management may be waiting to ascertain initial tax season volume before issuing rosier full-year revisions.