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Intuit Is Not Getting SaaS Credit

Posted on Wednesday, Dec 26th 2007

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.

Intuit Inc. (INTU)

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Your $7b number on netsuite is way off, they are a $2.2b market cap co.

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Scot Wednesday, December 26, 2007 at 8:12 AM PT

Have a look at the Yahoo Finance summary:
https://finance.yahoo.com/q?s=N

Sramana Mitra Wednesday, December 26, 2007 at 9:57 AM PT

What about the lawsuit issued today by Intuit users, claiming their data was destroyed by the company’s latest automated update? Will that affect financials at all?

Mary Jander Wednesday, December 26, 2007 at 12:19 PM PT

Well, I think it would. Especially if the lawsuit becomes ugly, and companies like Netsuite use it as
an excuse to pitch their own solutions.

SaaS is actually a great protection against situations like this. The data can be predictably and securely backed up at the provider, instead of depending on the whims of the small business users.

I think, the entire SME category will move to SaaS over the next decade.

Sramana Mitra Wednesday, December 26, 2007 at 1:37 PM PT

how can ADP consolidate? its share of payroll processing is large enough to call FTC oversight and blockage. Also, most of intuit’s consumer revenue already as a “saas” element to it (even the prepackaged shrinkwrap versions need web-enabled talkback to INtuit servers, to read in last year’s filing details etc.). What exactly is your point?

tinfish Wednesday, December 26, 2007 at 8:04 PM PT

The point is that data is still on the desktop, not the server.

Sramana Mitra Wednesday, December 26, 2007 at 8:52 PM PT

[…] earlier argued that Intuit needs an aggressive SaaS strategy and needs to shift to the subscription business model. The company is finally making some […]

Intuit Poised - Sramana Mitra on Strategy Thursday, August 28, 2008 at 8:57 AM PT