The market loves Intuit (Nasdaq: INTU) again, at least for today. The stock turned up more than 20% this morning following the release of the company's third-quarter earnings, which include the all-important tax season, after the bell yesterday.
Revenue struck $329 million, 26% better than the year-ago quarter. Excluding acquired businesses, revenue grew 30%.
Because of slightly higher costs associated with the company's expanded service and Internet products, operating income grew at a slower rate, expanding 20% to $60 million.
Excluding extraordinary costs and gains, net income hit $76 million, or $0.36 per share, three cents better than analysts polled by First Call were expecting.
The crazy thing about today's move is that it was already clear that Intuit had a great tax season. At the beginning of the year, much fear, wailing, and gnashing of teeth had followed Microsoft's (Nasdaq: MSFT)announcement in January that it was offering tax software and online services. Coincidentally, Intuit's stock reached its 52-week high right about the time of Microsoft's statement. Intuit proceeded to fall 30% over the next two months.
In late March, however, Microsoft said that it was exiting that market, though it would partner with Intuit's primary competitor in tax preparation, H&R Block(NYSE: HRB) , in the future. That didn't stop Intuit shares from falling another 50% before today, thanks in part to an analyst's downgrade.
Ours is not to reason why the market moves, thank goodness. I much prefer to look at a company's industry, market position, and business model. In each of those areas, Intuit exhibits real beauty.
The company has three dominant software products:
Quicken, the most popular personal finance software (84% market share in Q2, with 12 million users), which has held up against strong competition from Microsoft Money.
TurboTax (market share in the high 60s this quarter, 5 million users).
QuickBooks, software for small-business accounting (87% market share in Q2, 3 million users, though sales dropped this quarter because of a post-Y2K upgrade drought).
Those are strong numbers in a very high-margin business. Once a software product is developed, the cost of sales is minimal. Furthermore, as an accounting software provider, Intuit has excellent opportunities to derive incremental revenue from its user base. The company is most excited about its Internet initiatives in tax and small-business services. Internet revenue doubled year-over-year to $117 million this quarter, up 31% sequentially. It accounted for 35% of total revenue this quarter, up from 21% in Q2. Quicken's TurboTax and e-filing websites processed 2.2 million tax returns this year, and each site will attain profitability in fiscal 2000.
The QuickBooks Internet gateway, which Intuit launched in January, will also reach profitability this year. That's a very good sign coming from the business segment with the most potential. The site offers Web page creation and hosting, credit card payments, online postage, and other services to its users. Online small-business payroll accounts increased to about 13,500, up 270% year-over-year and 35% sequentially. Intuit plans to expand its service offerings in the near future.
And it's got the cash to do so. With over $1.9 billion in cash and marketable securities -- about 25% of its market cap -- and little debt, Intuit has the money, the customer base, and the market to solidify its position as the premier personal and professional finance site on the Internet. That's a lot of potential, and it comes a lot cheaper now than it used to.
It's times like this that you have to love the Market's schizophrenia.
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