Intuit’s (INTU) upgraded annual outlook demonstrated the financial technology platform’s durable earnings growth, though unit share losses in consumer tax and a sequential deceleration in online services growth could “stoke concerns” about sales-growth durability, Morgan Stanley said Friday.
Late Thursday, the parent of tax-preparation software TurboTax posted stronger-than-expected fiscal third-quarter results. It said at the time that it expected full-year adjusted per-share earnings of $16.79 to $16.84, up from its prior outlook of $16.17 to $16.47. Intuit increased its revenue forecast to between $16.16 billion and $16.20 billion from its previous guidance of $15.89 billion to $16.11 billion. Analysts polled by Capital IQ are looking for normalized EPS $16.70 on revenue of $16.18 billion.
The company expects the number of customers “paying nothing” for filing returns to be more than 10 million for the full year, down from more than 11 million last year, according to a statement.
“Due to yielding shares with pay-nothing and lower (average revenue per return) customers, we expect our share of total consumer returns to decline approximately 80 basis points this year and total TurboTax units to decline 1%,” Chief Financial Officer Sandeep Aujla said on an earnings conference call, according to a Capital IQ transcript. During the third quarter, Intuit continued to see select partners taking “a conservative approach” to extending credit in both personal loans and credit cards, Aujla told analysts.
The company’s shares were down 8.3% in Friday afternoon trade.
Annual revenue growth in small business online services slowed to 20% in the third quarter from 24% in the prior three-month period. Small business growth, which came in at 18% in the third quarter, is expected to decelerate further into 2025, Morgan Stanley said in a note. “While historically Intuit would point to today’s free users as tomorrow’s paid users, the company now looks to mine a more lucrative opportunity in the assisted tax category.”
Tax preparation represents a $35 billion total addressable market in the US, including $31 billion within the assisted consumer and business tax categories, Intuit Chief Executive Sasan Goodarzi said on the call.
Morgan Stanley said TurboTax is likely to generate revenue of $4.5 billion in the current fiscal year, aided largely by the do-it-yourself category. “Quick math would suggest there is really no more dollar share to be had in the DIY category, which necessitates Intuit’s investment into penetrating the assisted space,” the brokerage wrote.
The TurboTax Live Full Assist solution saw a doubling in customers in the current tax year and tripling in net new customers, according to the note. “While pleased with the effectiveness of the company’s stepped-up marketing behind full assist to drive top-of funnel, Intuit has work to do to improve conversion once prospects are on the site,” Morgan Stanley said.
The firm adjusted its price target on the Intuit stock to $750 from $740, with an overweight rating. “The Intuit platform continues to drive durable high-teens earnings growth even while investing for future opportunities, a durability that should be reflected in a premium multiple,” the brokerage wrote.