A tax season that was mired in low volume at the outset revived substantially during Intuit's (INTU -1.99%) fiscal third quarter. Reporting after markets closed on Thursday, the provider of cloud-based tax and accounting software revealed that both revenue and profits rose by double digits over the prior-year quarter, while it enjoyed market share gains in its tax preparation business. Below, we'll review the success factors behind Intuit's quarter, as well as management's positive revision to full-year earnings guidance. Note that all comparative numbers below refer to the prior-year quarter.
Intuit: The raw numbers
|Metric||Q3 2019||Q3 2018||Year-Over-Year Growth|
|Revenue||$3.3 billion||$2.9 billion||13.8%|
|Net income||$1.4 billion||$1.2 billion||16.7%|
|Diluted earnings per share||$5.22||$4.53||15.2%|
What happened with Intuit this quarter?
- Consumer segment revenue, which consists primarily of TurboTax and related consumer tax preparation products and services, increased by 10.3% to $2.15 billion. TurboTax online units sold increased by 7%, while registered users on the company's new Turbo personal finance platform jumped to 14 million, from 5 million a year ago.
- Intuit estimated that it grew TurboTax Online market share within the DIY (do-it-yourself) tax category by 0.5 percent. The company estimates that TurboTax now holds a 28% share of total U.S. individual tax returns.
- Revenue in the small-business and self-employed segment improved nearly 19% to $887 million. QuickBooks Online (QBO) subscribers grew 32%, ending the quarter at 4.2 million subscribers. U.S. subscriptions increased 25% to 3.1 million, while international subscriptions leaped by 55% to 1.1 million.
- QuickBooks Self-Employed (a subset of QBO) saw subscriptions rise nearly 43% to 970,000. Illustrating the strength of Intuit's cross-selling capabilities, management noted that 440,000 QuickBooks Self-Employed customers have been referred from TurboTax Self-Employed, up from last year's cumulative total of 330,000.
- Operating margin dipped 50 basis points to 54.5% as the company increased spending on selling and marketing, research and development, and general and administrative expenses.
- Intuit increased its quarterly dividend by 21% to $0.47, which at current share price yields 0.7% annually.
- The organization repurchased $135 million worth of its common stock, leaving $2.8 billion on its current repurchase authorization. Intuit has repurchased $408 million worth of its own shares year to date.
- In what's traditionally its most lucrative quarter due to tax filings, Intuit produced ample cash flow, generating $2.44 billion of operating cash over the last three months, against $2.15 billion in the third quarter of fiscal 2018.
What management had to say
Intuit has invested heavily in tax product differentiation in recent years. TurboTax Live, a help feature that connects customers to certified public accountants and enrolled agents (tax practitioners), is a key offering meant to protect TurboTax's market advantage. During the company's earnings conference call, CEO Sasan Goodarzi recapped TurboTax Live's rapid growth to date:
After just two years, TurboTax Live is now a meaningful contributor to our business, and this product line is among the fastest ever to reach this revenue level. The number of customers using TurboTax Live more than tripled year over year. We estimate 70% of customers who were new to Intuit this season and used TurboTax Live came from the assisted method the prior year, higher than [those who came from] TurboTax Online.
In his prepared remarks, Goodarzi also updated investors on the company's newest differentiator, its Turbo personal finance platform, which uses IRS-verified income data and credit scoring to match users with lending and investment products:
Beyond tax, our consumer platform is aimed at helping customers unlock smart money decisions by connecting them to financial products to help make ends meet. As we learn about their financial lives, we can notify them of benefits that can save them money. We now have over 14 million customers registered for Turbo, up from 5 million last season. We have approximately 70 offers this season focusing on four verticals, including credit cards, lending, investing, and mortgages. We continue to test different benefits and monetization models. While we don't expect a significant contribution to revenue in the near term, we're making progress and continue to be excited about this opportunity.
Intuit provided both fourth-quarter and full-year guidance alongside earnings. The company expects revenue to grow by 10% to 12% in the final quarter of the year, resulting in a loss per share during the traditionally slow period of $0.33 to $0.35.
For the entire fiscal year, Intuit now expects 12% revenue growth to a range of $6.74 billion to $6.76 billion, against a previous forecast of 8% to 10% top-line growth. Management anticipates diluted earnings per share of $5.72 to $5.74, representing 12% to 14% growth over fiscal 2018, versus an earlier expectation of $5.25 to $5.35 (growth of 3% to 5%). Shareholders appreciated the top- and bottom-line outlook boost: Shares of Intuit traded up as much as 7% in the Friday session following the company's earnings release.