After upbeat start to FY21, Intuit looks to emerge stronger from COVID

Financial software company Intuit Inc. (NASDAQ: INTU) has remained resilient to the virus crisis so far, which reflects the sustainability of its business model. After a brief lull, customer acquisition in the company’s small business segment has returned to the pre-crisis levels, thanks to the recovery of online services.

Going by the current valuation – which some experts believe is high – Intuit’s stock can offer decent returns to shareholders going forward. Market watchers overwhelmingly recommend buying the stock, citing the solid growth prospects. Last week, the stock dropped despite the company reporting positive first-quarter results.

Capital Management

Intuit, the company behind popular software products like TurboTax, Mint, and QuickBooks, bets on its disciplined capital management to achieve long-term growth targets — investing cash in opportunities that yield return-on-investment that is higher than 15% and reallocating resources to top-priority areas with focus on becoming an AI-driven expert platform.

When it comes to capital spending, priority will also be given to expansion of the customer base and revenue growth. In the future, a part of the cash flow will be used for stock repurchases and dividend payments, though the capital return program is suspended temporarily.

From Intuit’s first-quarter 2021 earnings conference call:

“Most of our indicators are back to pre-pandemic levels, but charge volume is still several points lower, the number of companies running payroll is still several points lower. So, although things have recovered, the reality is things are still below pre-pandemic levels. …So just seeing how the platform is playing out and seeing the impact of our innovation is actually what gives us even more confidence.”

Strong Q1

In the first three months of fiscal 2021, double-digit growth in the Small Business segment pushed up total revenues by 14% to $1.3 billion, which also topped the Street view. Driven by the solid top-line performance, adjusted earnings more than doubled to $0.94 per share, and beat the forecast. The management attributed the strong demand to the continuing innovation, especially in the AI-supported services.

Tailwinds

The company expects future results to benefit from the upcoming acquisition of Credit Karma, considering its high relevance in times of difficulty when customers look for virtual solutions. However, the transaction is expected to be modestly dilutive to earnings in 2021 and neutral in 2022. When small businesses shift to online platforms, Intuit’s services help them carry out tax filing in a hassle-free manner while also saving money.

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Read management/analysts’ comments on Intuit’s Q1 earnings

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“I’m looking forward to welcoming the Credit Karma team to Intuit and we’re excited about the unprecedented benefit we can deliver for customers. I want to remind you that we continue to expect the acquisition to be accretive over time. However, Credit Karma’s business was negatively impacted over the last seven months, as lenders tightened access to credit due to economic uncertainty related to the pandemic,” said Intuit’s chief financial officer Michelle Clatterbuck during his post-earnings interaction with analysts.

Stock Performance

After retreating from the record highs seen earlier this month, Intuit’s shares are once again hovering near the peak. The stock has gained 29% so far this year, maintaining a steady uptrend after slipping to a one-year low at the beginning of the year amid the COVID-driven selloff.