Intuit (NASDAQ:INTU) Q4: Beats On Revenue But Gross Margin Drops

Full Report / August 24, 2023

Tax and accounting software provider, Intuit (NASDAQ:INTU) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 12.3% year on year to $2.71 billion. The company's outlook for FY2024 was also close to analysts' estimates with revenue guided to $16 billion at the midpoint. Intuit made a GAAP profit of $89 million, improving from its loss of $56 million in the same quarter last year.

Intuit (INTU) Q4 FY2023 Highlights:

  • Revenue: $2.71 billion vs analyst estimates of $2.64 billion (2.63% beat)
  • EPS (non-GAAP): $1.65 vs analyst estimates of $1.44 (14.9% beat)
  • Management's revenue guidance for the upcoming financial year 2024 is $16 billion at the midpoint, in line with analyst expectations and implying 11.3% growth (vs 15.6% in FY2023)
  • Free Cash Flow of $1.15 billion, down 67.2% from the previous quarter
  • Gross Margin (GAAP): 75.2%, down from 76.8% in the 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 strong over the last two years, growing from $2.56 billion in Q4 FY2021 to $2.71 billion this quarter.

Intuit Total Revenue

This quarter, Intuit's quarterly revenue was once again up 12.3% year on year. However, the company's revenue actually decreased by $3.31 billion in Q4 compared to the $2.98 billion increase in Q3 2023. This situation is worth monitoring as Intuit's sales have historically followed a seasonal pattern but management is guiding for a further revenue drop in the next quarter.

For the upcoming financial year, management expects revenue to be $16 billion at the midpoint, growing 11.3% year on year compared to the 12.9% increase in FY2023.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.2% in Q4.

Intuit Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite the recent drop, Intuit still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Intuit's free cash flow came in at $1.15 billion in Q4, up 228% year on year.

Intuit Free Cash Flow

Intuit has generated $5.13 billion in free cash flow over the last 12 months, an eye-popping 29.4% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Intuit's Q4 Results

With a market capitalization of $140 billion, a $3.66 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Intuit has the resources needed to pursue a high-growth business strategy.

It was good to see Intuit beat analysts' revenue and EPS expectations this quarter. That really stood out as a positive in these results. On the other hand, its gross margin declined and its revenue guidance for next year suggests that growth will slow. Overall, this was a mediocre quarter for Intuit and the market was likely expecting higher revenue guidance for FY2024. The company is down 1.81% on the results and currently trades at $489 per share.

Is Now The Time?

When considering an investment in Intuit, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter. We think Intuit is a good business. We'd expect growth rates to moderate from here, but its revenue growth has been solid over the last two years. On top of that, its very efficient customer acquisition hints at the potential for strong profitability and its bountiful generation of free cash flow empowers it to invest in growth initiatives.

The market is certainly expecting long-term growth from Intuit given its price to sales ratio based on the next 12 months is 8.8x. There's definitely a lot of things to like about Intuit and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

Wall Street analysts covering the company had a one year price target of $510.5 per share right before these results, implying that they saw upside in buying Intuit even in the short term.

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