As the saying goes: "The only two certainties in life are death and taxes." Yet for investors looking to count on the stability of companies that prosper during tax season, such certainty of late has been far from stable. The advent of the digital era, along with a growing do-it-yourself mentality, has changed the playing field of the tax industry. All the while, the need for external tax assistance is only going to grow as the shifting political landscape is likely to introduce additional complexities in the tax code.
One such winner to gain from this changing landscape is Intuit Inc. (INTU). The financial management solution provider responsible for the popular software brand of "TurboTax" has consistently proven itself to be a leader in tax-related software. Yet part of the company's success has been its ability to also diversify into other areas geared towards small and medium-sized businesses. Intuit's "GoPayment" mobile payment system has begun to gain momentum, competing well in a market that is beginning to be crowded out by such players as "Square", Ebay's (EBAY) "Paypal", and Google's (GOOG) "Google Wallet."
Intuit recently reported its second quarter results, with profit soaring 62% on strong revenue of $1.02 Billion. Intuit's TurboTax brand experienced a 10% increase season-to-date through February 2012, allowing for the company to confidently reiterate its full-year guidance that consumer tax revenue will grow about 10-13% for the year.
We are off to a great start in tax. Early indications are positive and we are pleased with how the business is performing so far. Third-party data and our unit sales through Feb. 18 give us confidence that the software category is growing and that we are executing well. - Brad Smith, CEO of Intuit.
While such positive news for Intuit may be sounding optimism for the industry, those looking at the brick-and-mortar tax store operator of H&R Block (HRB) still have much to worry about. Since 2005, the company's share price has steadily declined almost 40%. In its last quarterly report, the company saw a wider net loss, as it was wounded by higher expenses, including the discontinuation of its Express Tax business. Even with an 8% rise in revenues, the last quarter demonstrated the rough patch H&R is going through as its fights to keep up with the changing times.
Yet even as the share price falls, the company continues to show confidence in itself. Apart from a stable dividend that has grown to a 4.9% yield, the company also retains an ongoing share buyback program. Additionally, the company recently announced its interim tax results which allude to a stronger year than that of the prior.
It is still early, but we believe that we are clearly on pace to gain share in both our retail and digital channels this tax season... - Bill Cobb, CEO of H&R Block.
In light of the changing tax assistance field, one additional play investors may choose to be on the lookout for comes from the likely IPO of JTH Holding Inc. JTH Holding serves as the parent company of Liberty Tax Service. From 2001 to 2011, Liberty Tax's number of locations jumped from 508 to almost 3900 stores. It now stands as the No. 3 retail provider of tax returns in the United States and the No. 2 provider in all of Canada.
In its S-1 filing, the company has shown its business model is succeeding, as its net income grew 43% to $15.8 million in 2011, up from $11.0 million in 2010. Working under a franchise system, JTH Holding believes this is the key to their success, as it allows for the parent company to focus on the marketing, support and development aspects of the company's initiatives.
Taken as a whole, JTH Holding looks as if its entrance in the public market could provide an opportunity for investors looking to further diversify into the industry of tax assistance. Found again in its S-1 filing, the company asserts that the number of tax returns filed with the IRS looks to increase at a rate of 5% for the years of 2011 to 2015. With such consistent growth to a potential market of 131 million current tax return filers, there remains a sizable opportunity for business expansion for all those involved.