A month has gone by since the last earnings report for Intuit (INTU - Free Report) . Shares have lost about 1.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Intuit due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Intuit Q3 Earnings and Revenues Surpass Estimates
Intuit reported third-quarter fiscal 2020 non-GAAP earnings of $4.49 per share, which beat the Zacks Consensus Estimate by 0.5%. However, the bottom line declined 19% on a year-over-year basis.
Further, this tax preparation-related software maker’s revenues grossed $3 billion, outpacing the consensus mark by 0.2%. Nevertheless, the top line declined 8% from the year-ago quarter.
Management noted that momentum in revenues continued in the beginning of the fiscal third quarter. However, the extension of the tax filing deadline to Jul 15, due to the COVID-19 pandemic, resulted in the postponement of tax filings, which caused decline in revenues.
Moreover, the shelter-in-place directives affected small businesses, consequently weighing on the company’s top-line performance in the quarter.
Quarter in Detail
Segment wise, Small Business and Self-Employed Group revenues jumped 11% year over year to $982 million. This rise was primarily driven by solid growth in customers for QuickBooks Online and higher effective prices.
Total Online Ecosystem revenues rose 28% year over year to $560 million. QuickBooks Online Accounting revenues were up 36% year-over-year to $353 million. Online Services revenue, which includes payroll, payments, time tracking and capital, grew 16% year over year to $207 million.
Within QuickBooks Online payroll, a mix-shift to Intuit’s full-service offering, was a tailwind. Moreover, within QuickBooks Online payments, continued uptick in customer base and an increase in charge volume per customer drove revenues.
Sturdy momentum in the company’s lending product QuickBooks Capital was a positive as well. At the end of the quarter, net loans receivable balance was $89 million.
Total Desktop ecosystem revenues declined 6% year over year in the reported quarter to $422 million. Within Desktop ecosystem, revenues from QuickBooks Desktop Enterprise grew at mid-single-digit pace.
In the fiscal third quarter, revenues from Consumer Group declined 15% year over year to $1.83 billion, due to the shift of tax-filing deadline to Jul 15 led by disruptions related to the coronavirus pandemic. Meanwhile, Strategic Partner Group backed by professional tax generated revenues of $193 million, down 18% year over year.
DIY category grew 2.2% year over year. Meanwhile, assisted category declined 18.8%.
Management is optimistic on growing clout of TurboTax Live and QuickBooks Live, which is expected to aid the company acquire new customers, with enhanced engagement and drive average revenue per customer or ARPC. This is likely to be accretive to the company’s Consumer business in the days ahead.
The company witnessed “highest customer satisfaction scores” for TurboTax Live driven by the usage of real-time chat and a floating Live Help button to simplify connection with live help, at all stages of the return process.
Intuit also continued to accelerate the application of AI to create tools to automate repetitive tasks, increase efficiency and improve customer experience.
The company posted non-GAAP operating income of $1.54 billion, down 18.5% year over year. Operating margin contracted 700 basis points year over year at 51%.
Balance Sheet and Cash Flow
As of Apr 30, 2020, Intuit’s cash and cash equivalents were $3.37 billion compared with $1.64 billion as of Jan 31, 2020.
Cash provided by operational activities was $2.13 billion for the nine months ended Apr 30, 2020, compared with $2.45 billion for nine-months ended Apr 30, 2019.
Total debt (short-term plus long-term), as of Apr 30, was $398 million compared with $411 million, as of Jan 31. Notably, on May 7, the company drew down the entire amount of its $1 billion revolving credit facility, in a bid to sustain financial flexibility.
During the fiscal third quarter, Intuit repurchased $40 million of shares, with $2.4 billion remaining on the company's authorization.
However, the company has temporarily suspended share purchases due to the pending Credit Karma acquisition, which is a stock-based transaction. Markedly, on Feb 25, 2020, the company had announced that it is set to acquire consumer technology platform Credit Karma, for approximately $7.1 billion. Management expects the acquisition to close during the second half of calendar year 2020 and be accretive over time.
Notably, Intuit’s board of directors approved a cash dividend of 53 cents per share, payable on Jul 20, to shareholders as on Jul 10. The dividend payout indicates a 13% increase on a year-over-year basis.
The company refrained from providing any guidance. Markedly, on May 7, 2020, the company withdrew guidance for fiscal 2020, citing uncertainty pertaining to impact of coronavirus crisis on small businesses.
How Have Estimates Been Moving Since Then?
Estimates revision followed an upward path over the past two months. The consensus estimate has shifted 14.94% due to these changes.
Currently, Intuit has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Intuit has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.