From the blurbs:
"We continue to see strong progress delivering on our connected services strategy across our businesses in the third quarter," said Brad Smith, Intuit's president and chief executive officer. "TurboTax paid units increased 4 percent, and we expect TurboTax revenue growth of about 4 percent for the fiscal year. While it was a challenging tax season overall, we made progress in several key areas, growing new customers including first-time filers and former tax store customers, and significantly increasing mobile adoption. Activity is already well underway for next year, with an intense focus on product and customer experience.
Intuit's results in Q3 are heavily influenced by the success or otherwise of its TurboTax division. This is because that quarter is US tax filing season. From management's discussion with financial analysts:
While we grew share in retail and the emerging mobile category, we did not grow our online share as expected. Maintaining a roughly 60% share in a highly competitive season is a positive outcome, but it is not what we set out to achieve. Each point of software share equals about 1.5 points of TurboTax growth.
So there is competition and Intuit can be beaten. This is an important consideration because it tells you that an incumbent can be threatened, even when they are a clear market leader. This is a risk factor for businesses of any size committing their financial affairs to a single provider.
I am not suggesting that Intuit is doomed. Far from it. The company is pivoting around new services that embrace some of the market trends we see like mobile and digital payment services. What's interesting is that Intuit sees this as purely an execution problem but apparently did not anticipate a deviation from plan until well into the tax season.
Notably, the company knows that tax filing is a horrible experience and that the simpler it is to achieve, the more likely customers are to convert to paid services. It is addressing that topic, noting along the way that uptake from what it terms 'digital natives' and the military grew in double digits.
On more business focused products, the company said:
...we completely reimagined QuickBooks Online for the iPad, which is more like CRM with the accounting just happening in the background. It is designed for small businesses who are mobile by nature, and about half of the customers who downloaded and launched the app are new to the QuickBooks franchise. We also launched Intuit Pay in the United Kingdom, making Intuit the first to market in the region with a mobile payment solution designed for small businesses. QuickBooks Online has doubled to 27,000 paying customers in more than 100 countries outside the United States.
QBO at 27,000 seems a very small number to me and especially for a market where it is the incumbent and where the domestic market can be sized at around 40 million alone. Compare this with Xero which grew its US market alone from 4,000 to 11,000 in the 2012-2013 period. That's a jump of 175 percent. Why the comparison? Xero is tiny in comparison to Intuit. It has a tiny fraction of Intuit's marketing budget yet its growth rate is much higher.
On the call, a specific question about cloud progress drew something of a messy response from Brad Smith, CEO Intuit:
And I know we always talk about online because that is the future, but retail is still 25% of the market in the units. So 200 basis points was good results. And then mobile, quite frankly, it looks like we outsold the second closest competitor, 8 to 1. When we get into online, it looks like right now, from the data we've seen, we use third-party data sources, that we had a couple of key competitors, 2 competitors who may have picked up about 0.5 point each, and then everyone else is pretty much neutral. So I would say that it's probably those 2 competitors that picked up a little bit and then everyone else pretty much had a flat year, and that would put us into the flat category as well.
Given what we are seeing can you make sense of that?
Elsewhere on the call, Intuit talked about international expansion. Truth be known, the company has been in market and especially in English speaking non-US markets for many years. However, it has never seemed to want to do enough to project it into a truly competitive position in those markets.
On the shift from manual to digital tax filing, I got the impression the company is engaged in a number of experiments, most of which ar not paying off. I was shocked to find the company does not believe it needs to spend mor in marketing that solution set and I didn't hear anything that convinces me it understands the new forms of digital marketing that are emerging.
Instead it chose to concentrate on saying something like this: make the product simple and our delighted customers will tell the world for us. I'm not sure things work that way. If anything, those happy customer need specific forms of curation that don't work in the old world but which are eminently workable in the digital world.
All in, Intuit seems to be in something akin to head scratching mode. That should not surprise. It is a problem we see time and again in companies that have a long legacy in on premise. What it should tell us though is that there are viable, competitive alternatives in the market.
The analyst call transcript can be found here.
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