Tax and accounting software provider, Intuit (NASDAQ:INTU) reported Q1 FY2022 results that beat analyst expectations, with revenue up 51.7% year on year to $2 billion, driven partly by acquisition of Credit Karma. Intuit made a GAAP profit of $228 million, improving on its profit of $198 million, in the same quarter last year.
Intuit (INTU) Q1 FY2022 Highlights:
- Revenue: $2.01 billion vs analyst estimates of $1.81 billion (10.6% beat)
- EPS (GAAP): $0.82
- The company lifted revenue guidance for the full year, from $11.1 billion to $12.2 billion at the midpoint, a 9.95% increase
- Free cash flow of $103 million, down 80.1% from previous quarter
- Gross Margin (GAAP): 80.7%, in line with 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.
Small business owners struggle to manage their accounts and still rely on manual bookkeeping methods, which are slow and error prone. Intuit solves these problems by providing cloud-based software tools for companies to efficiently manage their financial accounts.
Whenever customers log into the Intuit software platform, they access a wide array of integrated finance tools. These tools analyze customers' business and financial information and make intelligent financial recommendations when managing taxes, credit scores, and payments. Intuit also provides access to live experts, such as accountants and tax consultants, who educate users on how to efficiently use its platform.
The idea behind Intuit was Intuit faced intense competition from Microsoft in its early years to lead the adoption of financial management software by small and medium-sized enterprises. Today, Intuit continues to improve its platform by adding machine intelligence to generate better financial insights for its customers.
The digitization of financial processes is expected to drive the acceleration of the adoption of financial technology solutions.
The top competitors providing financial management software include Square (NYSE: SQ) and H&R Block (NYSE: HRB).
As you can see below, Intuit's revenue growth has been very strong over the last year, growing from quarterly revenue of $1.32 billion, to $2 billion.
This was a standout quarter for Intuit with quarterly revenue up an absolutely stunning 51.7% year on year. which is above average for the company. But the revenue actually decreased again in Q1 by $554 million, compared to $1.61 billion decrease in Q4 2021. Intuit's revenue is more seasonal than would be typical for a SaaS company, as it closely aligns with the tax year.
Analysts covering the company are expecting the revenues to grow 11% over the next twelve months, although estimates are likely to change post earnings.
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 80.7% in Q1.
That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great 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.
Key Takeaways from Intuit's Q1 Results
Sporting a market capitalization of $179 billion, more than $3.25 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.
We were impressed by how strongly Intuit outperformed analysts’ revenue expectations this quarter. And we were also excited to see the really strong revenue growth. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 6.72% on the results and currently trades at $673.26 per share.
Is Now The Time?
Intuit may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Intuit is a solid business. We would 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 impressive gross margins are indicative of excellent business economics.
The market is certainly expecting long term growth from Intuit given its price to sales ratio based on the next twelve months is 15.4x. There are definitely 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.
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