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In Focus: Intuit
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November 22, 2000: 1:01 p.m. ET
Credit Suisse First Boston Analyst James Marks expounds on Intuit
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NEW YORK (CNNfn) - Intuit posted a loss of 10 cents a share for their fiscal first quarter. James Marks, financial technology analyst for Credit Suisse First Boston, discusses his outlook on the company's future, and for online brokerage firms.
In Focus airs daily on CNNfn's network at 12:10 p.m. The following includes comments Marks made both during the show and in the pre-show interview.
CNNfn: Intuit posted a loss of 10 cents a share for their fiscal first quarter, 23 percent better than the same time last year and beating street estimates of 16 cents a share -- is that what you were expecting?
Marks: The results were better than expected. Revenues were in line but they did better on the expense side. The real positive development is the continued growth in the ancillary services they are selling from their QuickBooks relationships, like payroll and Web hosting services for small businesses and partner products they sell through the Internet gateway.
Those areas saw significant progress in the quarter and that's where the investment story lies in the future. Intuit has a unique position, their relationships with small businesses have been formed by the dominant position of QuickBooks.
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We've got a "buy" recommendation and a $72 price target for the stock. We expect [Intuit] to continue to be volatile because it's a high P/E stock.
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James Marks, analyst, CSFB |
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With the Internet, they have the ability to connect the financial technology relationships they have with the three million small businesses, and create an interface through which they can sell additional products and services to those small businesses.
That's where a large part of Intuit's value will be derived. Consequently, we'll be monitoring the progress they're making in those areas and it was very good this quarter. Growth in payroll revenues was up 13 percent sequentially.
They signed up the first 6,000 users for the Site Builder product, a Web hosting service for small businesses, and they have another 70,000 on trial for that product. They also continue to make progress with the gateway product they're selling.
CNNfn: Those are all positives -- why is the stock down?
Marks: The issue out there is that they beat the quarter by 6 cents yet they're not raising expectations for the year, and if you do the math that means they're lowering expectations for the future quarters. You can interpret that as lack of confidence or as a conservative outlook on the part of management, which is what we believe it is.
CNNfn: Online sales jumped 42 percent from a year ago and now represent 27 percent of its total sales -- the company has said it's shifting more into the Web and retail channels. How important will the Web be to them?
Marks: In terms of value, we don't distinguish between sales on or off the Internet. What's critical is recognizing that the company has successfully integrated the Web into its products. The Internet doesn't only represent a shift, it also represents a whole new opportunity to deliver new products and services.
CNNfn: Sales in the Quicken Loans Mortgage business jumped 53 percent and the company has said they're gaining market share here. How do they compare with their competition here?
Marks: The mortgage business improved from the last quarter -- it was a small improvement, from $13.4 million to $17 million in revenues. They did $450 million in loans in the quarter. There's a trillion a year in mortgage origination, and they're on pace to do $2 billion -- that just reflects the rebound in the refinancing market from the first quarter to this quarter. What is pleasantly surprising from that unit is that they were profitable, which is more than can be said from other online mortgage providers in the space.
CNNfn: The company is launching some nifty tax preparation and small-business products next year. How long before we see that having a positive impact on the bottom line?
Marks: They have offered users the ability to download financial transactions from their financial institutions for a while now. They have plans to create automated tax products that tie into payroll and 1099 forms from your employer, and other 1099 information.
With that, there are a lot of opportunities opening up related to using the Internet creatively to make consumers and small businesses lives more convenient, but it's a slow process. They won't see the benefits in the next three to four quarters.
This is something that wasn't possible before the Internet. They're bringing in better interconnectivity, which will appeal to a wide range of consumers and small businesses and create multiple opportunities to generate revenue from those relationships.
Over time they're shifting away from being a software provider to becoming a services provider. These new initiatives expand the potential size and profitability of the company.
CNNfn: Intuit is expecting revenue growth of 22 percent next year, and operating income growth in the low 30s -- is that what you're expecting?
Marks: They are consistent with previous guidance. We're comfortable with those numbers right now. The company is currently a software company and a lot of what they produce depends on results over the next two quarters. Our interest is less in software and more with the potential of having small businesses use QuickBooks and consumers use Quicken and the opportunity to create multiple revenue streams from that.
CNNfn: Intuit stock is off almost 5 points this morning and at about $43, it's trading way below its high of $90. What's your outlook for the stock?
Marks: We've got a "buy" recommendation and a $72 price target for the stock. We expect [Intuit (INTU: Research, Estimates)] to continue to be volatile because it's a high P/E stock. We see maybe four to five companies out there that have the opportunity unfolding that Intuit has in Internet-enabled financial services -- it's the creation of a hybrid technology and companies have to first form relationships and then lock in those relationships with a variety of products that will keep consumers coming back on a repetitive basis. Then it's creating the sets of products or services that can be sold to monetize the value of the relationships. It's a new operating paradigm opening up in the financial services industry and few companies are positioned as well as Intuit to take advantage of this.
CNNfn: What's your outlook for the group?
Marks: Online brokers are extremely attractive investments but people have to understand what they're paying for. Those stocks won't move much until the market settles down and starts to recover. For processing companies and Web services companies, prices have come in tremendously and there are opportunities out there. We like companies that are showing stable earnings and growth and are at reasonable multiples.
CNNfn: What are your favorite stocks?
ETrade (EGRP: Research, Estimates), Ameritrade (AMTD: Research, Estimates) and First Data (FDC: Research, Estimates).
--Compiled by Tanya Helenius. Carmina Perez contributed to this report. 
* Disclaimer
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