Software

Return to Article

Profit Jumps at Intuit

Ivy Lessner

A strong tax season drove third-quarter revenue and profit at Intuit(INTU Quote - Cramer on INTU - Stock Picks) as results topped analysts' estimates.

The tax software maker said net income for the quarter ended April 30 rose to $367.2 million, or $1.04 a share, from $298.6 million, or 84 cents a share, a year earlier.

Excluding items, Intuit earned $1.13 a share, beating Thomson Financial's analyst consensus estimate of $1.08 a share.

Revenue rose 21% to $1.15 billion, despite a tax-day system glitch that had stymied last-minute filers. Analysts had expected revenue of $1.11 billion.

Sales of professional tax software (up 32%, year over year) and QuickBooks (up 22%) showed the strongest growth. Consumer tax software revenue rose 14% to $567 million over the same period last year.

Revenue growth was attributed to price increases. "We needed to test price elasticity at retail," said CEO Steve Bennett said.

But don't look for the company to hike prices every year. "While we held unit share, we were disappointed in category growth at retail," Bennett added.

In spite of a price increase, the self-prep software held its own in market share against a competing product that had been priced aggressively, he added. "The decision to raise the price turned out to be a good one."

Needing to be address the low end of the market for tax software, Intuit also experimented by giving away a no-frills versions of TurboTax, while raising prices on the fully featured versions with new functionality, Bennett said.

Offering free software as an on-ramp to new users was a "breakthrough," that had only limited cannibalization of unit sales. The experiment will change the company's entry-level software strategies.

"You'll see some new things from us like that in the future," Bennett said. While the federal tax prep freebie was offered late in the season, some free software may be offered year-round, he added.

Seeking ways to increase web revenue and expand offerings for financial institutions, the company completed the acquisition of Digital Insight, which saw growth for the quarter of 26% in the number of bill-pay users and 17% in online banking services, Bennett said.

Intuit's Web revenue will grow from 14% to 15% for the year, faster than the industry average, Bennett said.

The company got cold feet on two acquisitions during the quarter, including one of Electronic Clearing House(ECHO Quote - Cramer on ECHO - Stock Picks), which would have increased Intuit's market share in payment processing for Internet retailers, many of which rely on QuickBooks accounting software.

"Most growth is going to happen on the Web," Bennett said. "We're pleased we made such progress this year. We've got to win on the Web."

Intuit's strong results prompted the company to raise its full-year forecast, while not changing fourth-quarter guidance. The company now expects to earn $1.38 to $1.40 a share before items on revenue of $2.685 billion to $2.7 billion.

Intuit also announced a new stock repurchase program for up to $800 million over the next three years. Intuit used all remaining funds in its last $500 million repurchase program, authorized in May 2006.

The computer problem that shut out tax filers in mid-April "was a database problem in our electronic filing system, not in our application," Bennett said.

Shares of Intuit were recently up $2.69, or 9.7%, to $30.41.