Intuit (INTU) stock price today was up over 8% after their recent earnings call.
“Intuit had solid performance across all segments despite economic headwinds. It has 67% market share in the U.S. tax software market,” says Andrew Wang. Will Intuit continue its growth via acquisitions?
“Live tax assistance has helped Intuit gain market share. INTU stock price is attractive currently. Intuit's innovation levels prove that maturity does not always come with age,” adds Julie Bhusal Sharma.
- Solid performance across all segments despite the current economic headwinds
- Grew total revenue to $5.6 billion, up 35%, including the addition of Mailchimp. Excluding Mailchimp, total revenue grew 29%
- Steady revenue streams with Quickbooks (52% of revenue) followed by TurboTax (41% of revenue) with a 67% market share in the US tax software market
- Recent acquisitions mark a strategy shift that investors should monitor
- Software valuations could see further multiple contraction in anticipation of a recession
Intuit had a good print with revenue growth over 30% and is making headway against its large addressable market. It showed progress across all segments this quarter.
Investors should note the company's strong performance within its Small Business and Self Employed segment – because more established Small and Midsize business customers should be able to withstand challenging economic environments.
I like that the tax software market is forecasted to grow at a compound annual growth rate of 9-10% over the next 5 years.
As a market share leader, Intuit should have multiple years of durable mid-teens+ growth and 20%+ profit growth ahead of it.
Both MailChimp and Credit Karma continue proving accretive, adding $257mn and $468mm in revenue this quarter.
Company Management provided positive comments about the integration of both services.
While Credit Karma and Mail Chimp have the potential for integrations and cross-selling, these are bigger acquisitions than Intuit has made historically.
Investors should be watching management’s strategy and execution closely if this indeed marks a change in strategy from organic growth to being more acquisitive.
Investors should be mindful that software stocks have been under pressure this year. Multiple have contacted from high teens to mid-single-digit multiples on a forward revenue basis. In past recessions, the multiple has been as low as 3x.
INTU stock is not cheap selling at 48x this year's earnings of $8.14 and 41x next year's estimates $9.40.
If there is a recession, software companies will lower their numbers.
What do you think of the software sector? Buying opportunity or need to be patient?