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Robert Stephens, CFA
Robert Stephens, CFA
Articles (93) 

Why Intuit’s Stock Price Could Soar

The company’s strategy may catalyze its financial prospects

January 10, 2019 | About:

An increasing focus on innovation could boost Intuit Inc.'s (NASDAQ:INTU) stock price. The company is expanding its range of features to boost its total addressable market, increasing the speed of payments and providing faster access to expert help in order to improve customer productivity and retention rates.

Its innovative loan offering has proven popular with customers. It is simplifying the process of applying for loans, which may offer cross-selling opportunities among existing customers.

Although a change in management is a risk facing the company, Intuit has promoted internally and its current strategy is likely to remain in place. Having risen 23% in the last year versus a 6% fall for the S&P 500, it appears to have investment potential.

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Loans

The company’s diversification into providing loans to small businesses could catalyze its financial outlook. It is utilizing customer data already held via QuickBooks Online in order to offer loans to customers, with $200 million in cumulative loans already offered in the first year since launching the service. It has proven popular, with 84% of loanees stating that they intend to take out a second loan in the near future.

Intuit is seeking to develop a competitive advantage in the lending space through disrupting existing industry processes. By utilizing customer data it already holds, it is able to simplify and quicken the process of applying for loans and mortgages. It estimates the vast majority of loan applications can be pre-filled for existing customers who are using its TurboTax product. This provides the company with a large total addressable market as well as cross-selling opportunities. The company may also be able to proactively search for better deals for customers with existing debt, since the data it holds is verified with that provided to the Internal Revenue Service. This could improve the customer experience through reducing interest costs and may improve retention rates.

Innovation

The launch of QuickBooks Online Advanced could increase the company’s total addressable market through accessing a broader range of customers. The service is aimed at the 1.5 million mid-market customers with between 10 and 100 employees. It is also launching next-day funding through QuickBooks Payments. This will allow small businesses and self-employed customers to receive their funds the next business day, which is faster than the two to three-day waiting period at present. Faster payments are also being made available for payroll. This could help customers manage their cash flow more effectively.

The company is introducing a wider range of price points for its products as it seeks to increase its total addressable market. It is investing in mobile capabilities by offering access to an expert through mobile devices. This could prove popular, since 50% of online tax filers use a mobile device. It is also seeking to provide faster expert advice when requested, which could improve productivity for its customers.

Threats

After 11 years as CEO, Brad Smith stepped down at the beginning of 2019 to become executive chairman. At the same time, the company’s chief technology officer of nine years, Tayloe Stansbury, left. Under their management, the company successfully transitioned from desktop software sales to a software-as-a-service model offering a range of innovative products that resonate with customers. In addition, the company’s revenue doubled under Smith. The loss of key management could cause investors to become increasingly cautious about the company’s financial prospects.

As chairman, Smith will be able to influence strategy, while the new CEO and CTO are internal replacements who have been part of the company’s growth journey. The current strategy provides a clear growth path over the medium term. This should allow Intuit to maintain its recent pace and for the management changes to be relatively seamless.

Outlook

An increasing focus on innovation could increase the company’s total addressable market. New features, such as faster payment processing and increasing availability of expert advice, may improve the customer experience and encourage higher loyalty. The company’s loan offering has proven popular and has the potential to increase cross-selling opportunities among existing customers. It may also diversify the business into a new market segment.

A change in management may cause uncertainty among investors, but internal promotions, as well as the former CEO becoming executive chairman, could preserve what has been a successful growth strategy. Having outperformed the S&P 500 over the last year, further stock price gains could be ahead.

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