This was originally posted at ZDNet's Between the Lines.
Intuit delivered second-quarter results that illustrate that it is recession-resistant, but a lot of the game plan revolves around cost cutting and innovating in a downturn. The rub: Intuit CEO Brad Smith doesn't consider the economic landscape a downturn per se, but a "new normal."
On the company's earnings conference call (statement), Smith said:
Now clearly we have seen some fundamental changes in the economy in the recent months. These changes have only bolstered my confidence that we are on the right path. We don't view this as a short-term downturn. In fact, we think of it as a new normal. A new normal that plays well to who we are and what we deliver as a company.
Smith outlined the five parts of its grand plan: play offense and focus on customers; cut spending; commit to growth; innovate; and acquire companies that make sense.
What Smith was really getting at is Intuit's killer instinct. The tech sector is becoming a fascinating study in the survival of the fittest. Many companies are taking aim at each other for market share and the financial spoils. You're beginning to see examples every day: Citrix and Red Hat joining forces with Microsoft to hit VMware hard is a prime example; HP cutting pay instead of employees so it can give Dell and IBM fits; Intuit offering Coghead customers an out to add to its Quickbase roster of clients. (Coghead, which went out of business, was scooped up by SAP).
Intuit is clearly now in the recession-resistant club and it's likely to take on established rivals like H&R Block and thwart upcomers like Mint by offering a nice exit strategy. In other words, Intuit has what it takes to simply buy its threats. And it will because it has a decent mix of established products it can milk for cash, new growth services, and discipline to cut expenses to keep Wall Street happy.
Here's a look at those moving parts:
Established products: TurboTax and QuickBooks can fund new businesses for Intuit. The company reported earnings per share of 26 cents a share on revenue of $791 million, down 5 percent from a year ago. Revenue would have been up 2 percent if revenue weren't shifted for Intuit's tax products. Excluding charges, Intuit would have had earnings of 34 cents a share, 7 cents better than Wall Street estimates.
As is customary with Intuit, TurboTax pays the bills in the fiscal second and third quarters. Here's where Intuit stands with TurboTax as it shifts the product from the desktop to the Web.
(Credit:
ZDNet)
QuickBooks, however, is under economic pressure. Smith said:
However, as I mentioned last quarter, some of our businesses are more exposed to the economic downturn. These businesses include QuickBooks, Real Estate Solutions, and Quicken. Each of them has come under increasing pressure as the economic environment has deteriorated. As a result we have reduced our full year revenue expectations for these businesses and adjusted the outlook for the company as a whole to reflect these changes.
Add it up and Intuit still has a solid stable of products that generate a lot of cash.
Growth services: Intuit has been adding extensions off of its QuickBook juggernaut, and some of these businesses are showing solid growth in a downturn. Intuit's payroll and payments revenue in the second quarter was $158 million, up 14 percent from a year ago. Professional accounting software revenue was $133 million, up 14 percent. Meanwhile, SaaS efforts such as Intuit's Quickbase tools aren't material to report, but will benefit from growing from a small base.
Financial heft: Sure, Intuit cut its outlook. For the third quarter, Intuit projected revenue of $1.38 billion to $1.46 billion, up 5 percent to 11 percent. Operating income will be $723 million to $778 million, up 7 percent to 15 percent. That tally equates to $1.38 to $1.49 a share for the third quarter. Excluding charges and other items, Intuit's third-quarter earnings are expected to be $1.57 to $1.68 a share. Wall Street was expecting earnings of $1.67 a share excluding items.
For fiscal 2009, Intuit projected revenue of $3.13 billion to $3.25 billion, up 2 percent to 6 percent. Intuit had projected growth of 6 percent to 10 percent. Operating income excluding items will be $917 million to $970 million, or $1.78 a share to $1.89 a share. Wall Street was looking for 2009 earnings of $1.79 a share.
Amid the weaker-than-expected outlook, Intuit said it is slowing hiring, evaluating compensation programs, monitoring marketing costs and cutting spending and "taking a hard look at what is truly necessary," said Intuit CFO R. Neil Williams.
Intuit seems to be navigating the downturn--or the new normal--well. Intuit ended the second quarter with $802 million in cash and investments and expects to generate $900 million in operating cash in fiscal 2009. Add it up and Intuit has more than enough to play offense and defense as needed.
In response to a customer revolt on the Internet, Intuit has decided to eliminate fees it introduced with TurboTax 2008 that would charge users for preparing multiple returns.
The maker of the popular tax-preparation program announced Thursday that it would drop the $9.95 fee it introduced with this year's release, while still maintaining free e-filing for its customers.
(Credit:
Intuit)
"We're responding to changing market conditions and customer feedback," Dan Maurer, general manager of Intuit's consumer division, said in a statement. "We believe this better positions TurboTax in the marketplace with an even stronger value proposition for consumers."
The reversal comes as the software maker grappled with an Internet protest from longtime customers that included an overwhelmingly subpar rating by Amazon.com reviewers, as well as a bevy of negative comments on Intuit's own user message boards. Many users, who said they also prepare returns for elderly parents and young children, complained that the new fees would double the cost of using the software compared with last year.
Many Amazon reviewers used the online retailer's feedback section to vent their frustration, with some users calling the new fees a "scam" and "unjustifiable and unsubstantiated."
The avalanche of outrage is reminiscent of the well-publicized and coordinated user revolt against the digital rights management restrictions on Electronic Arts' game Spore, which resulted in more than 2,000 one-star ratings being left on the game's Amazon page.
Company representatives defended the new charges to me a few days ago, saying that users would actually save money because e-filing was included in this year's version.
Many readers responded that they were so upset by the new fee that they would not be purchasing the product this year, but it's unclear whether this reversal will lure back users who defected.
Updated December 8 at 9 p.m. with Inuit comment.
Revisions incorporated into Intuit's TurboTax 2008 have led to a bit of a tax revolt by reviewers on Amazon.com.
The tax preparation program, which is a top seller at the online retailer, has garnered an Amazon customer rating of one and a half stars out of five. As of Sunday afternoon, an overwhelming 82 reviewers (out of 90) gave the program the minimum one star, compared with four reviewers who gave it the full five-star rating.
However, it's not the features nor functionality with which the majority of reviewers are taking issue. Many reviewers were upset that Intuit increased the retail price of the software from $44.95 for the 2007 edition to $59.95 for the 2008 edition--a 33 percent price bump.
(Credit:
Intuit)
Most frustrating for reviewers--many of whom identified themselves as longtime TurboTax users--were the revised fees for the number of returns prepared. This year, Intuit began charging users an additional $9.95 for each additional return they prepare, regardless of whether the return is printed or filed electronically.
An Amazon reviewer who identified himself as Mark Adler said the new fee would increase the cost to him dramatically:
Not only did the price go up (though now including federal e-file "at no extra charge"--yeah, right), but the number of returns you can do was reduced by a factor of five!
Last year's and previous years' software licenses allowed you to do up to five tax returns with the software. Now you can only do one, even if you're just printing returns! You have to pay $10 more for every additional return you print! I do three household returns every year. So for me, the price goes up to $80 retail.
One reviewer identified as "Bill B," who said he has been using TurboTax since 1997 and has always thought of it as "a great program for doing taxes," called the new pricing "unjustifiable and unsubstantiated":
This is a dramatic change from past practice, when the software license allowed PRINTING up to five returns at no additional cost. It is important to note that printing and mailing additional returns comes at no cost to Intuit. And forcing everyone to pay for "free" e-filing through the product price increase is a scam.
While Intuit representatives did not immediately return a request for comment, a few Amazon reviewers did come to the defense of the software company.
A reviewer going by the handle p89jjy717 implored buyers to "read the fine print":
I think all the people who are outraged by the increased price for TurboTax and the $9.95 extra charge for each additional tax return (printed or e-filed) might not have read the product description carefully...I cannot remember what an e-filing cost last year, but I believe it was between $15 and $20. So, if an extra return costs $9.95, but the e-filing is free, there would indeed be a savings. But you have to use e-filing, rather than mailing, to realize the savings.
Another user suggested a certain irony as an answer to the users' complaints:
You don't think you ripped off Intuit for years, doing your son's, your daughters, your neighbor's, and their grandmother's returns for FREE? Geeze.
It should be noted that many of the reviews were posted by first-timers, and the avalanche of outrage is reminiscent of the well-publicized and coordinated user revolt against the new Electronic Arts' game Spore, which resulted in more than 2,000 one-star ratings being left on the game's Amazon page.
A company spokesperson told me that Inuit is aware of the complaints and is responding to those comments daily on Amazon and other Internet communities.
The company defended the pricing changes as saving most users money.
"Federal e-filing is now included in all TurboTax desktop products," said Intuit spokesperson Julie Miller. "This just makes sense since the majority of TurboTax customers now e-file. With this change, the majority of TurboTax customers will actually save a few dollars when they purchase the product versus last year."
Miller also asserted that users who e-filed one or more returns last year will actually save money this year. For more an in-depth explanation of this position, see comments in this report's TalkBack section made by Bob Meighan, vice president of TurboTax.
But Intuit is no stranger to customer frustration. Many last-minute filers were outraged in 2007, when their by overloaded servers. Also affected were TurboTax users' attempts to verify whether a previously filed return had been accepted by the IRS and state tax collectors.
In 2003, Intuit embedded flawed antipiracy technology in TurboTax, and was forced to abandon the idea and apologize to customers.
Two years later, the version of TurboTax designed to handle the 2004 tax year was plagued by glitches and installation problems. It also accidentally directed customers to a phone number used by a sex chat operation called Intimate Encounters.
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