Tax and accounting software behemoth Intuit (INTU +0.94%) exceeded its own quarterly and yearly expectations in its fiscal fourth-quarter 2019 report released on Aug. 22, capping an extremely successful year. Shareholders have resoundingly endorsed Intuit's ability to set ambitious earnings targets and meet or exceed them with almost boring consistency: Shares have soared 44% year to date.
Below, let's dig into details from the last three months and review management's outlook for the full fiscal 2020 year. Note that all comparative numbers that follow refer to those of the prior-year quarter.
Intuit: The raw numbers
| Metric | Q4 2019 | Q4 2018 | Change |
|---|---|---|---|
| Revenue | $994 million | $864 million | 15% |
| Net income (loss) | ($44 million) | ($38 million) | (15.8%) |
| Diluted earnings (loss) per share | ($0.17) | ($0.15) | (13.3%) |
Data source: Intuit.
What happened with Intuit this quarter?
- Fourth-quarter revenue growth of 15% surpassed management's guidance for 10%-12% expansion, while full-year revenue growth of 13% exceeded management's target of 12%.
- The small-business and self-employed segment improved its top line by 15%, and the consumer segment expanded revenue by 11%.
- QuickBooks Online (QBO) finished the year with a subscriber base of 4.5 million, representing 33% growth against the end of the fourth quarter of 2018. For the year, U.S. QBO subscribers grew by 25% to 3.2 million, while international (all non-U.S.) subscribers soared by 58% to 1.3 million.
- QBO's momentum has propelled growth in Intuit's small-business ecosystem, which includes accounting, payroll, and business tax services. Intuit continues to add new services and products to its small-business ecosystem to increase revenue opportunities. For example, the company pointed out in the earnings release that it's funded $441 million in cumulative loans to small businesses over the last two years through its new QuickBooks Capital service.
- The fourth quarter is traditionally a loss quarter for Intuit as it gears up for the following year's tax season and ramps up spending in critical categories. This quarter, cost of services rose by 25% to $259 million; selling and marketing expense also increased by 25%, to $381 million. Research and development expense rose 7% to $333 million.
- However, general and administrative (G&A) expense declined by 31% to $150 million. This reflects a broader trend -- for the full year, Intuit's G&A expense dropped by 10% to $664 million. The company actually finished the quarter with a smaller operating loss versus the prior year, losing $153 million against $200 million in the fourth quarter of 2018. But a smaller tax benefit against the prior period led to the larger net loss.
- Intuit raised its quarterly dividend by 13% to $0.53. While the bump was generous, the company's overall payout may not entice yield-seeking investors. A soaring stock price has kept a lid on Intuit's dividend yield: Including this latest increase, shares yield just 0.7% on an annualized basis.
What management had to say
In my earnings preview, I discussed Intuit's recent investments in artificial intelligence (AI), by which it aims to accelerate revenue growth and sharpen profit margins. Management illuminated specific contributions of AI technology during the company's earnings conference call. Below, CFO Michelle Clatterbuck explains how Intuit uses AI to increase the efficiency of its TurboTax "Pro" service, which offers customers with complex tax questions access to live help from tax professionals:
We made great progress with our TurboTax Live offering this year; the number of TurboTax Live customers more than tripled year over year. We also enhanced the efficiency of our pros this season, improving both the onboarding experience and technology tools for pros on our platform. This resulted in lower attrition and better operating efficiencies throughout the season.
For example, we utilized natural language processing and application of artificial intelligence to [route] about 100% of TurboTax Live customer questions to the optimal pro, based on their type and complexity. This technology-first approach gives us confidence we can expand our live offerings and maintain [an attractive] operating margin longer term.
Looking forward
Alongside earnings, Intuit released an outlook that projects more double-digit growth in the coming quarters. For the first quarter of the fiscal year, Intuit expects year-over-year revenue growth of 9%-11%, or roughly $1.1 billion at the midpoint of the range. The company anticipates a per-share loss according to generally accepted accounting principles (GAAP) of $0.02-$0.04, and foresees non-GAAP earnings per share (EPS) of $0.23-$0.25.
As for the complete fiscal year, management has advised investors to expect revenue expansion in a range of 10%-11%, which equals approximately $7.50 billion at the midpoint. The organization has chalked in 2020 GAAP EPS of $6.35-$6.45, representing growth of 9%-11%, and non-GAAP EPS of $7.50-$7.60, which, if achieved, will mark an improvement of 11%-13%.
