A tax season that was mired in low volume at the outset revived substantially during Intuit's (NASDAQ: INTU) 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
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:
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:
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.
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