Intuit Is Not Getting SaaS Credit

In my last post on Intuit, I said I wanted to see an International strategy from the company. There has been no progress on that front. But Intuit will now have a new CEO Brad Smith, and a new CFO, Neil Williams.

Last week, Intuit Inc. (NASDAQ: INTU) announced its plans to acquire Electronic Clearing House Inc., (ECHO) for approximately $131 million and completed its acquisition of Homestead Technologies for approximately $170 million. ECHO is a leading provider of electronic payment processing solutions, including check, debit card and credit card processing. Homestead is a leader in Web site creation products and e-commerce solutions for small businesses.

On the financial front, Intuit reported earnings for Q1 2008 that ended October 31. Revenue was $444.9 million (up 27% y-o-y and up 3% q-o-q) driven by strong performance in the Small Business and the Digital Insight acquisition. Traditionally a slow quarter, GAAP net loss was $20.8 million ($0.06 per share), compared with a net loss of $58.9 million ($0.17 per share) in Q1 2007. It spent $215 million in the quarter to buy 8.1 million shares of its stock.

Segment-wise the revenue is as follows:

The revenue from QuickBooks was $146.9 million, up 9% y-o-y.

The revenue from Payroll and Payments was $131.3 million, up 5% y-o-y.

The revenue from Consumer Tax was $13.3 million, up 18% y-o-y.

The revenue from Professional Tax was $11.0 million, up 13% y-o-y.

The revenue from Financial Institutions (including Digital Insight) was $72.2 million.

The revenue from Other Businesses was $70.2 million, up 11% y-o-y.

For the second quarter, revenue is expected to be between $833 million and $848 million, or growth of 11 to 13%. GAAP operating income is expected to $136 to $146 million, or a y-o-y decline of 37 to 32%. Non-GAAP diluted EPS is expected to be $0.34 to $0.36, down from $0.44 in Q2 2007. Excluding the impact of the acquisition of Digital Insight, the sale of outsourced payroll assets to Automatic Data Processing Inc. (ADP), discontinuation of the Pro Series Express product, and the deferral of approximately $23 million of revenue from Q2 to Q3, Q2 revenue growth would have been expected to be 8 to 10%, and non-GAAP diluted EPS between $0.40 and $0.42.

Its stock is trading around $32, and the company has a market cap is around $5.61 billion.

Against the backdrop of the recent NetSuite IPO which has surged from the opening price of $26 to almost $46 in 2 days, before settling down at $38.75, Intuit is in an interesting situation. Clearly, SaaS is in, as far as the market is concerned. The significantly smaller company’s valuation is now $7.34 billion, in what many consider an inflated situation.

Nonetheless, whether or not NetSuite’s valuation is artificial (we will discuss that later), the fact that Intuit needs a far more aggressive SaaS strategy is very clear. I have suggested that Paychex (PAYX) and ADP could be consolidators in the SaaS space.

Intuit should also consider a much more aggressive SaaS strategy.

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Comments

[Bill B]

Sorry to deflate this premise but the market cap for INTU is incorrectly stated at $5.61 billion. It's actually greater than $10 billion. Yahoo! Finance has the wrong share count.

[Bill B]

Yahoo! Finance corrected their mistake. The INTU market cap is greater than $10 billion.