Intuit's Big Opportunity

Intuit, Inc. (INTU) has a significant opportunity to increase its market share in the personal finance market with Microsoft (MSFT) recently announcing plans to exit its personal finance program. MSFT has been one of the prime competitors in recent times for INTU, which creates small business accounting, personal finance and tax preparation software for accountants, small businesses and consumers.

Microsoft’s exit should significantly help Intuit's small business arena. The company earlier announced the acquisition in June 2009 of online payroll services provider PayCycle Inc for about $170 million. PayCycle specializes in serving small businesses, accountants and financial institutions and has more than 85,000 small-business users.

PayCycle will be integrated into Intuit's small business group. We believe the acquisition makes sense as it expands the company’s footprint -- extending access to PayCycle's portfolio of financial-institutional and small-business clients, among which are Capital One (COF) and PNC Bank (PNC). The acquisition also advances Intuit’s move into the “software as a service” (SaaS) market for small businesses.

On the other hand, it will make good use of it its cash balance of $1.2 billion. INTU has so far weathered the downturn quite well and reported better-than-expected third quarter results. The company had earlier announced plans to cut about 300 employees or about 4% of its workforce, primarily in its small business division.

In our opinion, management’s strategy of managing resources on an ongoing basis and deploying the rapidly evolving next generation of online processing tools more efficiently should augur well for INTU. We maintain our Hold rating on the stock.

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