Intuit Overview

March 9th, 2005 - Copyright by Morris Rosenthal - - contact info

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Trading Notes

Copyright 2005 by Morris Rosenthal

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Notes on trading INTU stock for investing in my SEP

Intuit is primarily known for their QuickBooks accounting software (both consumer and small business) and their tax software, TurboTax. The tax software can be seen as a niche field (with competition from H.R. Block's TaxCut software), but their Quicken software competes heads-up with Microsoft's Money product (some would say that Money is no competition), and if I recall, Microsoft actually tried to acquire Intuit some years back but was discouraged by the anti-trust folks. Intuit currently has a market cap of around $8 billion, making it a little bigger than well know chip makers AMD and Micron. However, INTU trades about a quarter of the volume of those stocks, down under 2 million shares a day, and has a similar level of institutional ownership, just under 80%. INTU shares are trading at around 2/3 of their bubble valuation, with a P/E multiple a little over 25 times earnings.

Intuit's FY 2004 (FY ends in July) revenue was $1.87 billion, up 13% from 2003, with net income of $317 million, or $1.62 per share. Intuit had around $1 billion in cash left at the end of 2004, I say "left" because they have an aggressive share repurchasing program, and have bought in 39 million shares ($1.9 billion worth) since 2001. Intuit is no one-trick pony, revenue is spread across five product lines with QuickBooks leads with 35% of the total, followed by consumer tax products with 26%, small business (ex-QuickBooks) at 15%, professional tax software at 13%, with Quicken plus Canadian operations good for 11%. Intuit does something I really like in their annual report, they break out their customer service costs. Tech support and customers service cost Intuit $195 million in FY 2004, or 10% of revenue. R&D investment was $281 million, or 15% of revenue, marketing and sales came to $369 million, or 20% of revenue, and overhead was $183 million, also 10%.

One of the main risks I see for Intuit is that the Federal and State governments all start giving away consumer tax prep software, something that is already happening to some extent. Government might be slow to get it right, but it the end, they probably want to exercise the maximum control possible over tax revenue, and how better than to essentially fill out our tax forms for us? Another risk is that Microsoft is running out of areas to grow in, and the small business that many see as the engine of the American economy are a likely (and stated) target.

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