Intuit's Implausible Guidance Explanation Isn't Fooling the Street

We recently said that

As we have pointed out before, Intuit’s (INTU) stock price is highly seasonal. It goes up in anticipation of tax season, but “sells on the news” while tax season is actually here. The confusion around… earnings and all the buying and selling is simply part of the overall process - Intuit getting cheaper during tax season, possibly presenting an opportunity to buy shares with your refund in April.

The latest news is yet another example.

Intuit 2006 TurboTax Sales Up 1 Percent:

Personal finance and business software maker Intuit Inc. said Wednesday sales of its TurboTax software for the 2006 tax period have increased 1 percent from the same period last year.

The period includes sales of TurboTax software since the launch of the 2006 version, released in late November, through March 17, 2007. The company also said it continues to expect TurboTax unit sales growth of 3 percent to 5 percent for the full season, and backed a February forecast for full-year earnings of $1.10 per share to $1.14 per share, or $1.33 to $1.37 per share on an adjusted basis, on $2.63 billion to $2.68 billion in revenue.

Analysts expect average earnings of $1.37 per share on $2.66 billion in revenue, according to a Thomson Financial survey. Analysts typically exclude charges in their estimates.

Sales since November are up 1%, but the company expects sales for the full season - ending in less than a month - to be up 3-5%? We know people procrastinate on their taxes, but didn’t they procrastinate last year as well? By sticking to the previous guidance, Intuit is saying people are significantly more likely to procrastinate this year than they were last year.

And even with the implausible guidance, consensus estimates were at the high end of management’s range. No wonder the shares are down nearly 9% in early trading. For those procrastinators out there, however, it’s time to file your taxes. If you’re getting a refund it should arrive just as the stock is bottoming.

INTU 1-yr chart:

Comments

[d reeves:]

The guidance isn't at all implausible. Intuit delivers TurboTax two basic ways: through software installed on desktop computers, and with a web version. With the desktop version, you pay up front; with the web version, you pay only when you file. Both products cost the same amount.

If the broad trend toward the web version continues, you would expect a higher percentage of turbotax purchases to occur when people finish their taxes, not when they start them. And it's not completely a guessing game, either; Intuit can track activity on the web version, and they should have a pretty good idea of who is and isn't likely to ultimately purchase and file through TurboTax.

2007 Mar 22 12:11 PM

[William Trent:]

Fair enough. Still, the implication is that there are an awful lot of tax returns in process.

2007 Mar 22 03:52 PM