Intuit Is Not Getting SaaS Credit

In my last post on Intuit, I said I wanted to see an International strategy from the company. There has been no progress on that front. But Intuit will now have a new CEO Brad Smith and a new CFO, Neil Williams.

Last week, Intuit Inc. (NASDAQ: INTU) announced its plans to acquire Electronic Clearing House Inc., (ECHO) for approximately $131 million and completed its acquisition of Homestead Technologies for approximately $170 million. ECHO is a leading provider of electronic payment processing solutions, including check, debit card and credit card processing. Homestead is a leader in Web site creation products and e-commerce solutions for small businesses.

On the financial front, Intuit reported earnings for Q1 2008 that ended October 31. Revenue was $444.9 million (up 27% y-o-y and up 3% q-o-q) driven by strong performance in Small Business and the Digital Insight acquisition. Traditionally a slow quarter, GAAP net loss was $20.8 million ($0.06 per share), compared with a net loss of $58.9 million ($0.17 per share) in Q1 2007. It spent $215 million in the quarter to buy 8.1 million shares of its stock.

Segment-wise, QuickBooks revenue was $146.9 million, up 9% y-o-y. Payroll and Payments revenue was $131.3 million, up 5% y-o-y. Consumer Tax revenue was $13.3 million, up 18% y-o-y. Professional Tax revenue was $11.0 million, up 13% y-o-y. Financial Institutions revenue (including Digital Insight) was $72.2 million. Other Businesses revenue was $70.2 million, up 11% y-o-y.

For the second quarter, revenue is expected to be between $833 million and $848 million, or growth of 11 to 13%. GAAP operating income is expected to $136 to $146 million, or a y-o-y decline of 37 to 32%. Non-GAAP diluted EPS is expected to be $0.34 to $0.36, down from $0.44 in Q2 2007. Excluding the impact of the acquisition of Digital Insight, the sale of outsourced payroll assets to ADP, discontinuation of the Pro Series Express product and the deferral of approximately $23 million of revenue from Q2 to Q3, Q2 revenue growth would have been expected to be 8 to 10% and non-GAAP diluted EPS between $0.40 and $0.42.

Its stock is trading around $32 and market cap is around $5.61 billion.

Against the backdrop of the recent NetSuite IPO which has surged from the opening price of $26 to almost $46 in 2 days, before settling down at $38.75, Intuit is in an interesting situation. Clearly, SaaS is in, as far as the market is concerned. The significantly smaller company’s valuation is now $7.34 billion, in what many consider an inflated situation.

Nonetheless, whether or not NetSuite’s valuation is artificial (we will discuss that later), the fact that Intuit needs a far more aggressive SaaS strategy is very clear. I have suggested that Paychex and ADP could be consolidators in the SaaS space.

Intuit should also consider a much more aggressive SaaS strategy.