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Intuit (NASDAQ:INTU) Exceeds Q1 Expectations, Next Quarter's Growth Looks Optimistic


Full Report / May 23, 2024

Tax and accounting software provider, Intuit (NASDAQ:INTU) reported Q1 CY2024 results topping analysts' expectations, with revenue up 11.9% year on year to $6.74 billion. Guidance for next quarter's revenue was also better than expected at $3.08 billion at the midpoint, 1.1% above analysts' estimates. It made a non-GAAP profit of $9.88 per share, improving from its profit of $8.92 per share in the same quarter last year.

Intuit (INTU) Q1 CY2024 Highlights:

  • Revenue: $6.74 billion vs analyst estimates of $6.64 billion (1.4% beat)
  • EPS (non-GAAP): $9.88 vs analyst estimates of $9.38 (5.3% beat)
  • Revenue Guidance for Q2 CY2024 is $3.08 billion at the midpoint, above analyst estimates of $3.05 billion
  • Gross Margin (GAAP): 84.7%, in line with the same quarter last year
  • Free Cash Flow of $3.89 billion, up from $550 million in the previous quarter
  • Market Capitalization: $187.7 billion

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.

Tax Software

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 three years, growing from $4.17 billion in Q3 2021 to $6.74 billion this quarter.

Intuit Total Revenue

This quarter, Intuit's quarterly revenue was once again up 11.9% year on year. We can see that Intuit's revenue increased by $3.35 billion quarter on quarter, which is a solid improvement from the $408 million increase in Q4 CY2023. Shareholders should applaud the re-acceleration of growth.

Next quarter's guidance suggests that Intuit is expecting revenue to grow 13.6% year on year to $3.08 billion, improving on the 12.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 11.6% over the next 12 months before the earnings results announcement.

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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 84.7% in Q1.

Intuit Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Intuit's excellent gross margin 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 $3.89 billion in Q1, up 11% year on year.

Intuit Free Cash Flow

Intuit has generated $5.06 billion in free cash flow over the last 12 months, an eye-popping 32% 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 Q1 Results

We were impressed by Intuit's strong gross margin improvement this quarter. We were also glad its revenue and EPS beat analysts' expectations as nearly all its business segments outperformed. The company also lifted its quarterly revenue and EPS guidance, which came in higher than Wall Street's estimates. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The market, however, was likely expecting more because competitor H&R Block (NYSE:HRB) reported a good quarter earlier this month, and the stock is down 4.6% after reporting. It currently trades at $632.05 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 three years. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives and its efficient customer acquisition hints at the potential for strong profitability.

Intuit's price-to-sales ratio of 10.7x based on the next 12 months indicates the market is certainly optimistic about its growth prospects. There are definitely things to like about Intuit, and there's no doubt it's a bit of a market darling, at least for some. But when comparing the company against the broader tech landscape, it seems there's a lot of good news already priced in.

Wall Street analysts covering the company had a one-year price target of $696.62 right before these results (compared to the current share price of $632.05).

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