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Robertson Stephens Tech: Intuit Says What the Crowd Wants to Hear

SAN FRANCISCO -- Nobody showed up to Intuit's (INTU) - Get Intuit Inc. Report session to give Scott Cook a black eye. Instead, they wanted to hear that the financial software maker that aims to become the leader in Net-based personal finance isn't going to blow it again.

And they were reassured by the chairman's smooth, garrulous presentation. Cook outlined the company's plan to move into nearly every major area of personal finance -- investments, taxes, mortgages and auto insurance -- to give it depth.

Of the questions investors asked: No, the privacy of customer data won't be compromised. No, there's no risk of conflict among partners like






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. And no, Intuit won't take on the online brokers -- none betrayed the kind of nervousness of money that's about to bolt. Nobody jumped on Cook's confession that "profit growth has been slower than revenue growth" or his pledge to keep costs down to change that.

All they wanted to hear was what they happily heard: Intuit's shift to the Net hasn't shown any hitches so far. That's good, because while the company's Internet sales last year were less than 5% of its total, they rose 200% to $7 million, nearly double the $4 million estimated by some analysts. "Intuit has to move to the Web. That's where everything in their market is moving, so they need to be there, too," one fund manager said after the presentation. "They've delivered on everything they've set out to do before, so if anyone can take a lead here, it's them."



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, which has its own glitzy investment site and is planning one for tracking the best mortgage? "It's tough to go up against Microsoft and win, but they're one of the few to have done it," said another fund manager. "That's why Microsoft wanted to buy them."

Intuit has had a roller-coaster time in the past three years. Its stock dwelled in the midteens for much of 1994, then shot up to the 90s in December 1995 amid speculation on how Intuit could deliver on the promise of PC finances. A year ago, the stock was treading back down in the 20s as the company failed to deliver on what the hype promised and as Microsoft launched rival software. Since September, the stock has more than doubled to 46 3/4 at Wednesday's close as the company has taken bold strides to lead in the coveted market of Web-based personal finance.

And the stock may be heading for a brief dip in coming weeks. On Wednesday,

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analyst Janet Regalia lowered her rating on Intuit to buy from strong buy, cautioning investors not to forget Intuit's high valuation. Its projected P/E for fiscal 1998 is 55 thanks to high hopes for Intuit's Net plans. "We believe the 'momentum frenzy' may subside as meaningful earnings upside is unlikely for the next couple of quarters," Regalia said in the report.

But Regalia also said Intuit's long-term outlook is buoyed by its "huge Internet opportunity," and most here agree. Intuit's strategy is to hold down expenses of its existing software programs while funneling the money they bring into the Internet. "We run our expenses expecting our revenues not to grow," Cook said, which very well may happen in coming years. There are only so many upgrades you can make to a software before loyal customers stop going for them. Cook sees this, hence the move to the Internet. "Upgrade rates will slow and we're prepared for that."

The company is also leveraging its understanding of finance software to build its plaza of finance sites on the Net. Intuit's tax software allows people to file taxes electronically, for which Intuit collects a small fee beyond ad revenues. Its Quickbooks software for small businesses will help them run payroll services on the Net. Quicken is quickly adapting to on the Web. And Intuit engineers have developed engines that will find the best auto insurance deal out there as well as the right mortgage for a homebuyer's needs.

"This mortgage engine is a real breakthrough. It's never been done before," Cook said. "And we expect auto insurance to be big. Most people hate paying auto insurance bills every six months. And brokers will be able to get new customers they otherwise wouldn't get. If you want new customers, you have to be willing to go where they are and not expect them to come to you." And once that happens, it's only a matter of time before someone lowers prices to lure new customers. "And that's when the economics of this will start to take effect," Cook said. "Then others will start to do the same."