STOCK PICK: A Company Offering A Suite Of World-Class Financial Products

In the world of finance, simplifying and automating as much as possible makes life so much better - and this company helps consumers and businesses of all size do just that.

In 1983, two men realized the difficulties of balancing the family checkbook and saw an opportunity to leverage computers to solve this growing problem. The solution they created became a company worth over $140 billion and serves over 100 million customers.

Today's stock pick is the software as a service platform we all know and love come tax season, called Intuit (NASDAQ: INTU). Intuit owns many major SaaS products, including TurboTax, Quickbooks, Credit Karma, Mint, and Mailchimp.

Company Overview 

Intuit Inc. is an American financial software company headquartered in Mountain View, California, and founded in 1983 by Scott Cook and Tom Proulx in Palo Alto, California. It develops and sells financial, accounting, and tax preparation software, as well as related services for small businesses, accountants, and individuals. 

Chances are most of us have used at least one of their products before, if not annually, during everyone's favorite time of year - tax season. The company's primary products include:

1. QuickBooks: An accounting software package primarily targeted at small and medium-sized businesses. It offers standalone accounting applications and cloud-based versions, providing business payments, payroll functions, and comprehensive financial management capabilities.

2. TurboTax: A tax preparation software designed to guide users step by step through their federal and state tax returns. It automates data entry based on the user's answers to simple questions, and it aims to maximize deductions and credits to ensure users receive the largest refund possible. 

3. Mint: This is a free, web-based personal finance management service that allows users to track bank accounts, credit cards, investments, and loan transactions and balances through a single user interface. Mint also provides bill-tracking tools, free credit scores, and financial advice to help users manage their finances and improve their financial health.

4. Credit Karma: A personal finance technology company that offers free credit scores, reports, and insights, enabling users to manage their financial health. Additionally, it provides tools for finding and comparing financial products like credit cards, loans, and insurance, making personalized recommendations based on users' credit profiles.

5. Mailchimp: An email marketing automation platform and a marketing service that provides tools for businesses to design, send, and track email newsletters. In addition to its core email tools, Mailchimp offers features for landing pages, customer relationship management (CRM), ads, social media, and other marketing efforts.

The company went public in 1993 and has continuously expanded its product line and market reach ever since. In the early 2000s, Intuit shifted its focus from traditional software products to online services, giving rise to its flagship products' cloud-based versions. Today, it is one of the leading financial software companies worldwide.

Today, Intuit is working to integrate artificial intelligence and machine learning into its products to further streamline and improve financial tasks for its users.

How Intuit Makes Money

Intuit's main revenue driver comes from selling and leasing its software products to consumers, small businesses, and the self-employed. Its products and services are available through various channels, including online, mobile, and desktop applications, as well as through third-party partners. Customers can purchase a license to download the software to a computer device or pay a subscription fee to access their products via cloud computing. 

Leadership

The current CEO of Intuit is Sasan Goodarzi, who was elevated to the role in 2019.¹ Since assuming the role of chief executive, Goodarzi has set ambitious goals for Intuit's growth and has made a bold public pledge to the company's customers.² He has driven record results as he transforms Intuit into an AI-driven expert platform through the recent additions of MailChimp and Credit Karma to the product line-up that includes Mint, TurboTax, and QuickBooks.³ 

Sasan Goodarzi fairs well with the company employees and the general public, with 96% of employees saying they Approve of the CEO and 92% saying they would recommend working at Intuit to a friend.⁴

Furthermore, Goodarzi has hundreds of employee ratings with a score of 84/100 on Comparably, ranking him in the top 5% of similar sized companies and the top 10% of other companies in San Francisco.⁵

Company Vision, Forecast, & Growth Potential

Intuit's mission is to "Power Prosperity Around the World." How? In its own words: 

"Serving more than 100 million customers worldwide with TurboTax, QuickBooks, Mint, Credit Karma and Mailchimp, Intuit helps put more money in consumers' and small businesses' pockets, saving them time by eliminating work, and ensuring they have confidence in every financial decision they make."⁶

CEO Sasan Goodarzi has reiterated that a few years ago, the company focused mainly on tax software for consumers and small businesses and has since shifted to being a company focused on helping individuals and small businesses in multiple areas related to money, taxes, small business, etc. With its new focus, Intuit has acquired two major companies - Credit Karma and Mailchimp.

Most recently, Intuit launched Intuit Ventures, a corporate venture capital program, which will invest in series B and C-stage companies, with areas of interest including fintech, virtual expertise, consumer finance, omnichannel commerce, AI-enabled services, and crypto/DeFi.⁷ 

Intuit has fantastic growth potential. According to Analysys Mason's SMB Technology Forecaster, its total addressable market (TAM) for home-based businesses and SMBs (with 1–999 employees) in 2021 is $31 billion. This combined TAM is expected to grow to $114 billion by 2026, at a compound annual growth rate (CAGR) of 11%2.⁸

More Reasons To Invest In Intuit

For a company that's been around for a long time to continue to be a market leader, it must show a strong ability to continually innovate. Intuit has demonstrated a consistent ability to innovate and adapt to changes in the market. This includes transitioning to cloud-based services, incorporating AI and machine learning into its products, and continuing to streamline and improve the user experience.

Furthermore, Intuit has excellent financials and a long list of competitive advantages. 

Superior Financials

Intuit has a ton of cash on its books, with relatively little debt compared to its cash. Although I generally prefer a company to have less debt than cash, its other financial strengths make up for any lost points here. 

It shows fantastic growth rates, including growing earnings and return on equity, with excellent profit margins and operating margins. Having a decent amount of inside ownership always indicates that the company's employees' or executives' interests align because, with inside ownership, they also have some skin in the game. 

Take a look at some financial highlights (financial data is as of this writing and will change over time):⁹ ¹⁰

• Cash & debt: $4.27 billion in cash with $7.2 billion in debt

• Growth rates: Quarterly earnings growth (yoy) is 16.3% return on equity of 12.96%.

• Inside ownership: 2.88% of shares held by insiders

• Profitability: Profit margin currently sits at 15.91%, and operating margin (ttm) sits at 22.12%

• Earnings: Current forward diluted earnings per share are estimated to be about 17.65% 

Industry moats

Part of what makes Intuit a solid long-term investment is the many competitive advantages - aka "moats" - that it has over the competition. Some of the broadest "moats" include:

1. Brand Strength: Intuit has strong brand recognition and loyalty in its markets. Its products, such as TurboTax and QuickBooks, are often top-of-mind choices for personal tax and small business accounting software.

2. High Switching Costs: Once customers start using tax or accounting software and input their data, they are generally disinclined to switch to a different platform due to the high switching costs (both time and effort).

3. An Ecosystem of Products: Intuit has created an ecosystem of products that integrate well with one another, creating a seamless user experience. For instance, a small business might use QuickBooks for accounting, TurboTax for tax preparation, and Mint for personal finance, all of which can exchange data easily. This interoperability encourages users to stick with Intuit products.

4. Data and Machine Learning Capabilities: Its large user base and the extensive data it collects provide the company with valuable insights and enable it to refine its machine learning algorithms, improving its product offerings and creating a better user experience.

5. Regulatory Barriers: In some markets, such as tax preparation, there are significant regulatory barriers to entry. Intuit's existing knowledge and compliance with these regulations provide a considerable advantage over potential new entrants.

These wide moats keep Intuit in an advantageous position against the competition and provide a long runway for growth and innovation. Some of the other, perhaps more narrow "moats" that Intuit has include:

1. Scale: Intuit is one of the most prominent players in the financial software industry, and this scale provides several advantages. For example, Intuit can spread its significant R&D costs over a large number of customers, enabling it to invest in new products and improvements while keeping prices competitive.

2. Customer Trust: Over the years, Intuit has built a significant amount of trust with its users, particularly regarding data security. This is especially important given the sensitive financial data that users entrust to Intuit's products.

3. Diverse Revenue Streams: Intuit's range of products allows it to generate revenue from several sources, including software sales, subscription fees, and service fees, making it less dependent on any single product or market.

4. Strong Distribution Network: Intuit's products are widely available and are distributed through various channels, including direct sales, retail, and partnerships with other businesses.

These advantages have helped Intuit maintain a leading position in its markets and serve as a positive indicator from an investor's point of view that the company has bright days ahead.

Competitors to Intuit

It's always good to identify the competitors of a stock investment. Is there a better option than Intuit? If so, why not invest in them? Intuit faces competition in different segments from several companies. However, Intuit continues to be the top choice for the majority of customers in the respective markets. Some of the most notable competitors include:

1. H&R Block: This company is one of the biggest competitors to TurboTax in the tax preparation software market. H&R Block offers both online and in-person tax filing services.

2. Sage: A UK-based company that offers a range of accounting and payroll software, Sage is one of the key players in the small and medium-sized business accounting software market, competing directly with Intuit's QuickBooks.

3. Xero: This New Zealand-based company provides cloud-based accounting software for small and medium-sized businesses, making it a direct competitor to QuickBooks.

4. Microsoft: With products like Microsoft Money and Excel, Microsoft is a competitor in the personal finance and small business accounting software markets.

5. FreshBooks: This is another popular cloud-based accounting software aimed at small businesses, competing directly with QuickBooks.

6. Zoho Books: Part of Zoho Corporation's business software suite, Zoho Books competes in the accounting software space.

7. Wave Financial: Wave provides free accounting and bookkeeping software, making it a competitor in the small business market.

You'll notice that most of these companies are tax prep software and small business accounting software. What I like about Intuit is it offers a wide range of products related to its stalwart services, giving even more reason for customers to choose Intuit over these competitors.

Potential Risks of Investing In Intuit

As with any investment, there are several risks associated with investing in Intuit's stock. These include, but are not limited to:

1. Regulatory Risks: Intuit is subject to numerous regulations as a provider of financial software. Changes in these regulations, or failure to comply with them, could hurt the company.

2. Data Security: As a company that handles sensitive financial data, Intuit is at risk of data breaches. Any such breach could harm the company's reputation, result in significant costs, and lead to a loss of users.

3. Dependence on Seasonal Revenue: Intuit generates a significant portion of its revenue during the tax season. If, for any reason, this revenue is lower than expected, it could significantly impact the company's financial performance for the year.

4. Product concentration: The company generates significant revenue from a few key products, which could make it vulnerable to changes in demand or competition.¹¹ 

5. IRS Free Solutions: The IRS currently offers a free federal tax filing option called Free File, which uses third-party software and is only available to households with an adjusted gross income of up to $73,000.¹² However, the IRS is planning to test a free online tax-filing program for 2024 that could lead to a full-scale electronic filing system similar to paid offerings from TurboTax and TaxSlayer.¹³ This type of release could significantly impact Intuit's revenues should consumers and businesses have a free, alternative filing option. This would largely depend on the product's user-friendliness, which, if I were to guess, would be sub-par, being a government-owned and managed software.

The Bottom Line

Intuit has an impressive track record of consistent growth, a growing product base via acquisitions and product innovations, an addressable market with over 100 million customers worldwide, and fantastic financials to fuel its growth trajectory. I personally use almost all of their products and can say from firsthand experience they are the best in class. Last but not least, they have a strong leadership team with impressive approval ratings and company culture. For these reasons, I'm in with Intuit for years to come.

1. https://www.forbes.com/sites/karenwalker/2022/06/15/sasan-goodarzi-ceo-at-intuit-anything-is-possible/

2. https://time.com/6235182/interview-intuit-ceo-sasan-goodarzi/

3. https://www.forbes.com/sites/karenwalker/2022/06/15/sasan-goodarzi-ceo-at-intuit-anything-is-possible/

4. https://www.glassdoor.com/Reviews/Intuit-Reviews-E2293.htm

5. https://www.comparably.com/companies/intuit/ceo-rating

6. https://www.intuit.com/company/

7. https://investors.intuit.com/events-and-presentations/event-details/2022/Intuit-Investor-Day-2022/default.aspx

8. https://www.analysysmason.com/research/content/articles/intuit-mailchimp-purchase/

9. https://seekingalpha.com/symbol/INTU/growth

10. https://finance.yahoo.com/quote/INTU/key-statistics?p=INTU

11. https://seekingalpha.com/article/4496264-intuit-stock-strategy-shift-high-momentum-exposure

12. https://www.irs.gov/payments/eftps-the-electronic-federal-tax-payment-system

13. https://www.irs.gov/filing/e-file-options