The enterprise services industry often goes without mention in the technology sector. Internet information providers like Facebook Inc. (FB, Financial) and Alphabet Inc. (GOOG, Financial) (GOOG), e-commerce giants led by Amazon.com Inc. (AMZN, Financial) and smartphone makers like Apple Inc. (AAPL, Financial), among others, tend to get all the praise.
Enterprise service providers, however, present some of the most exciting verticals to invest in the current business environment. The e-commerce industry, the fintech market and other related shoulder industries continue to play crucial roles in the growth of the enterprise services market.
While most investors will probably think of SAP SE (SAP, Financial) and Salesforce.com Inc. (CRM, Financial), Intuit Inc. (INTU, Financial) is one of the few players in the segment that has been flying under the radar.
Intuit, the maker of the world’s most popular accounting software, QuickBooks, has rallied 41% over the last 12 months. So far this year, shares are up nearly 20% from Jan. 3, which has led many to believe that perhaps the boat to catch on Intuit’s exciting growth story has already left the shore.
At the current price of about $225 per share, shares of Intuit are now just a few dollars from eclipsing the company’s all-time high. Considering the current general market momentum, it won’t be too long before that ceiling is breached. Intuit has all that it needs to go beyond its all-time high of $227.54 per share.
Where Intuit derives its growth
Intuit’s top products, QuickBooks and TurboTax, have been experiencing massive growth over the last several years. The company continues to dominate the market in these two categories, maintaining its leadership for over two decades now. Yet, even with the growth already realized, Intuit sees more opportunities to continue its expansion to other markets. The company has launched some additional features and services that have made its products more compelling.
Currently, it has a service that allows certified public accountants and registered agents to review tax returns on the platform, a feature that analysts say has improved confidence in tax filing. The company is also targeting mid-sized businesses as an avenue for growth with more SMEs adapting to automated accounting systems.
Over the last decade, the internet, especially e-commerce and social media, have become crucial sales streams for all types of businesses regardless of whether it is an internet-based business or the local restaurant.
Now, nearly every business in the market that wants to keep up with the latest industry trends has a POS system that helps to capture most of the operations data at the very moment a sale is initiated. With this, it becomes easier to organize data and create accurate performance reports, which can be used to apply for business loans, tax deductions as well as venture capital funding.
Intuit has seized this opportunity by investing heavily in data and artificial intelligence. At its fifth annual QuickBooks Connect event last November, the company introduced a new product innovation “designed to give 3.4 million online customers advantages through machine learning, artificial intelligence and data innovation.”
Intuit’s smart money product, which allows businesses to get funding the next day when they need it, is another item that is likely to drive growth for the company. These will bring small businesses and self-employed people to its growing network of services.
Revenues from some of these products and features have yet to kick in, but once they do, this will have a positive impact on the company's overall performance.
Some of Intuit’s financials are also very compelling
The company enjoys an impressive profitability margin of 20.54% thanks, in part, to the cash cow TurboTax. In fiscal 2018, the TurboTax business realized revenue of $2.54 billion and from it, made $1.596 billion in operating income, which translates to an operating margin of 63%.
Intuit’s revenue and net income are expected to experience steady growth for the next three years, which should get shareholders excited for the future.
The company currently has more than $1 billion in leveraged free cash flow while its operating cash flow stands at a staggering $2.05 billion.
Conclusion
Intuit appears to be in a strong financial position even as it continues to invest in more customer-focused products. As such, the current rally may have taken Intuit’s stock price closer to an all-time high, but there is surely more to the company’s growth story that will propel the stock even higher.
Disclosure: I have no positions in the stocks mentioned in this article.
Read more here:
