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Intuit (NASDAQ:INTU) Posts Better-Than-Expected Sales In Q4 But Growth To Slow Down Next Year


Full Report / August 23, 2022
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Tax and accounting software provider, Intuit (NASDAQ:INTU) beat analyst expectations in Q4 FY2022 quarter, with revenue down 5.73% year on year to $2.41 billion. Intuit made a GAAP loss of $56 million, down on its profit of $380 million, in the same quarter last year.

Intuit (INTU) Q4 FY2022 Highlights:

  • Revenue: $2.41 billion vs analyst estimates of $2.32 billion (3.61% beat)
  • EPS (non-GAAP): $1.10 vs analyst estimates of $0.98 (12.4% beat)
  • Management's revenue guidance for upcoming financial year 2023 is $14.5 billion at the midpoint, in line with analyst expectations and predicting 14.6% growth (vs 37.6% in FY2022)
  • Free cash flow of $278 million, down 91.4% from previous quarter
  • Gross Margin (GAAP): 76.8%, down from 82.4% same quarter last year

Created in 1983 when founder Scott Cook watched his wife struggle to reconcile the family's checkbook, Intuit provides tax and accounting software for small and medium-sized businesses.

For many small and medium sized businesses, managing accounting, payroll, and taxes are difficult and time consuming and often are handled by an accountant which is an unnecessarily expensive use of resources, or Excel-like spreadsheets which don’t have sufficient functionality.

Intuit is the originator of easy to use tax and accounting software, from the first version of Quicken in the mid-1980s to today’s suite of well known cloud-based SaaS offerings including TurboTax and Quickbooks that run the spectrum of small business accounting software. In recent years, Intuit has made acquisitions extending its functionality into personal finance through the acquisitions of Mint.com and Credit Karma, and email marketing with Mailchimp.

The company has long held a significant market share of software aimed at individuals and SMBs. TurboTax accounted for a third of total IRS tax returns in 2020, including the majority of those that submitted do-it-yourself returns. With an installed base of over 6m users which accounts for over 1/3rd of global SMBs with fewer than 20 employees. The huge installed base has allowed Intuit to build a recognizable brand over the decades, with the vast majority of customers coming directly to Intuit through digital marketing channels.

The demand for easy to use, integrated cloud based finance software that integrates tax and accounting operations continues to rise in tandem with the difficulty workers find trying to use existing accounting tools like spreadsheets given the growing volume of finance data littered across a multitude of enterprise applications. A related demand driver is the secular increase of e-commerce and rising adoption of modern point of sales and payments platforms which easily integrate with backend financial software.

Intuit’s main competitors are a mix of accounting software providers like Microsoft’s Dynamics (NASDAQ:MSFT), Sage Group (LSE: SGE), Xero (ASX:XRO) and payroll processors such as ADP (NASDAQ:ADP), Paychex (NASDAQ:PAYX), and Paycom (NYSE:PAYC).

Sales Growth

As you can see below, Intuit's revenue growth has been weak over the last year, decelerating from quarterly revenue of $2.56 billion, to $2.41 billion.

Intuit Total Revenue

For the upcoming financial year management expects revenue to be $14.5 billion at the midpoint, growing 14.6% compared to 37.6% increase in FY2022.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Intuit's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 76.8% in Q4.

Intuit Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still a good gross margin that allows companies like Intuit to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Intuit's free cash flow came in at $278 million in Q4, down 52.8% year on year.

Intuit Free Cash Flow

Intuit has generated $3.66 billion in free cash flow over the last twelve months, an impressive 28.7% of revenues. This robust FCF margin is a result of Intuit asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Intuit's Q4 Results

Sporting a market capitalization of $125 billion, more than $3.28 billion in cash and with positive free cash flow over the last twelve months, we're confident that Intuit has the resources it needs to pursue a high growth business strategy.

It was good to see Intuit outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown and the revenue growth was quite weak. Overall, this quarter's results could have been better. The company is up 3.92% on the results and currently trades at $467 per share.

Is Now The Time?

When considering Intuit, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think Intuit is a great business. While we would expect growth rates to moderate from here, its revenue growth has been strong, over the last two years. On top of that, its very efficient customer acquisition hints at the potential for strong profitability, and its impressive gross margins are indicative of excellent business economics.

Intuit's price to sales ratio based on the next twelve months is 8.7x, suggesting that the market is expecting more measured growth, relative to the hottest tech stocks. Looking at the tech landscape today, Intuit's qualities as a business really stand out and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $528.6 per share right before these results, implying that they saw upside in buying Intuit even in the short term.

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