Intuit (INTU, Financial) is a financial software company which focuses on accounting software for small businesses and individuals. The company saw its share price double in 2020, before recently correcting down by 29%.
Legendary investors George Soros (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) added to their position in this stock during the fourth quarter of 2021, during which it traded for an average price of $619 per share - that was at the top of the market! Let's dive into the company’s business model, financials and valuation to see whether this stock could be an attractive opportunity after the recent correction and support from these investing gurus.
Business overview
Intuit was founded back in 1983 in Mountain View, California. They had 1.3 million customers by the 1990s and have grown substantially to 100 million customers and $10 billion in revenue. The stock has rewarded shareholders substantially over this time.
Source: Intuit Investor Presentation
Intuit has continually innovated and acquired a suite of financial software products with a strong tilt towards U.S. small businesses. Their platforms include Quickbooks, Turbotax, CreditKarma, Mint and now Mailchimp, which they recently acquired.
Source: Intuit Investor Presentation
Mailchimp acquisition
Mailchimp is an email marketing platform which has a strong small business customer base of 2.4 million active users and a net promoter score of 60. This small customer base fits Intuit’s ideal demographic perfectly, and thus it seems they are acquiring for the major cross-selling opportunities. Intuit’s plan is to solve small business owners' problems across their entire journey, from getting customers, which two-thirds of small business owners cite as their biggest obstacle, to managing their accounting and getting tax rebates.
Intuit values this synergy greatly and acquired Mailchimp for an eye-watering $5.7 billion in cash and 10.1 million shares of Intuit common stock with a fair value of approximately $6.3 billion. According to Intuit CEO Sasan Goodarzi, “Together, Mailchimp and QuickBooks will help solve small and mid-market businesses’ biggest barriers to growth, getting and retaining customers."
The company has set its “Bold Goals for 2025,” which include reaching over 200 million customers. For fiscal year 2021, the company had 102 million customers and a fantastic 26% revenue growth rate. However, prior years showed a 13% sales growth rate; thus, to reach 200 million, I would expect more acquisitions to occur.
Source: Intuit Investor Presentation
Strong growth
For full-year fiscal 2021, Intuit grew revenues from $7.6 billion to $9.6 billion, or 26%, while gross profit jumped from $6.3 billion to $7.9 billion, a gain of 25%.
The company maintained its incredibly high software gross margins of 82%. Operating profit jumped 15% to $2.5 billion in fiscal 2021, and the company spent around $1.6 billion on R&D.
Growth has continued to accelerate for the three months ended Jan. 31, 2022, with revenue for the quarter coming in at $2.63 billion, up a tremendous 73% compared to the prior-year quarter.
Valuation
The GF Value line, a unique intrinsic value estimate from GuruFocus, suggests Intuit's stock is currently fairly valued.
The company trades at a mid-range enterprise-value-to-Ebitda ratio, which is lower than fintech payments processor Block (SQ, Financial) but higher than PayPal (PYPL, Financial) and software giant SAP (SAP, Financial).
I also noticed the company has consistently traded at a higher price-sales ratio than competitors and reached a “low” price-sales ratio of 7 during the March 2020 general market crash. This figure could be interesting to make note of for a potential entry point if a market crash occurs again, as it could provide support from a technical standpoint.
Overall, I believe Intuit is a fantastic company with very high software margins, strong revenue growth and an aggressive acquisition strategy. It is an established player and still has a large total addressable market left to penetrate. However, personally, I would like to see the stock trade a little cheaper before considering it.
