PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
The buzzword of the quarter on Wall Street is B2B. That's shorthand, as anyone proficient in buzz will tell you, for a company that facilitates e-commerce between businesses. For instance, a pipe fitter in Denver needs a new load of copper tubing, so he goes to www.coppertubing.com and orders a ton of it from a manufacturer in Georgia. Such is the current logic of Wall Street that the pipe fitter makes $10 an hour, the pipe manufacturer makes a 2% profit margin, and coppertubing.com is awarded a market valuation of $12 billion.
Now, you can imagine why every corporation on earth wants to be called a business to business company. It's pretty easy to separate the wheat from the chaff, though. If you operate a Web site that serves as a meeting place for suppliers and buyers of industrial commodities, you're in the B2B business.
The world of small businesses is one that isn't yet dominated by a B2B intermediary. Plenty of financial-service companies would be glad to fill that role, from American Express (AXP) to Citigroup (C), but none has the infrastructure in place yet. Now, investors are becoming aware of another contender: Intuit (INTU).
THREE LEGS.
That's right, the financial-software folks. Intuit's most famous products are TurboTax, which helps people file their taxes, and Quicken, which helps them plan their personal finances. But Intuit has another major source of revenue called QuickBooks, the leading accounting software for small businesses. In fact, QuickBooks has 80% of the small-business accounting software market. "If Intuit can convince its 6.5 million QuickBooks users to log onto its Web site as customers, it's going to dominate the small business B2B market the way it now dominates the tax software market," says Prudential Securities analyst Bryan Keane, who has an accumulate rating on the stock.
Keane points out that if a small business wants to lease some property, a logical first option would be to go to Intuit's leasing area on the QuickBooks Web site and download a lease agreement into QuickBooks, which would then be automatically integrated into the company's financial statements.
Sounds like a great idea, right? But before you get too excited, remember that it isn't easy for a software company to morph into an Internet company. "You'd think that because they come from a technology background, software executives would make excellent Internet managers," says Robertson Stephens analyst Scott Appleby. "But that's not always the case. There's a long list of failed software Web sites. Fortunately, the guys at Intuit understand [the Net] and are really producing a tremendous product."
"INVISIBLE" SHIFT.
Among the things the company has added recently to its QuickBooks site to make it a B2B portal is a homepage construction kit, free hosting for a company's Web site, and more seamless integration between the software on the desktop and the Web. "Eventually, the goal is to make the transition from the software to the Web invisible," says Intuit Corporate Development Senior Vice-President Raymond Stern. "We want to provide every online service a QuickBooks customer might need."
Of course, Intuit isn't just a small-business software company. It collected $847 million in revenue in its 1999 fiscal year and earned about $80 million. Much of its revenue comes in its fiscal third quarter, which includes the critical tax-preparation months of February, March, and April.
In fact, Intuit has quietly created its own version of an online financial supermarket that's as active as that of any broker, bank, or insurance company. In addition to its tax and planning software and information at quicken.com, it has marketplaces where consumers can arrange car loans and mortgages, and buy insurance products. Although Intuit makes some loans itself, most of the products sold on its Web site come from partners.
WELL-ROUNDED.
That's where Intuit's software customers come in handy. "They completely dictate the terms to their partners," says Prudential's Keane. "If they want to, they can demand 60% of the revenue and 80% of the profits while taking on 10% of the risk. And if the partner says no, they can just say 'Fine, you can't touch our 18 million customers.'"
There's one more advantage to investing in Intuit, according to Keane. Because its product line is spread across so many different types of financial services, it's a financial play that will rarely be laid low by bad news in any one sector. "If interest rates go up, it makes little difference because Intuit is a lot more than a mortgage company. It's a great hedge play."
Just in the past month, the stock market has just become a believer in Intuit's potential. The company was once a darling of investors, back when its Quicken product was experiencing skyrocketing growth. Then its earnings grew more slowly than expected, and the stock came back to earth.
After a couple of years in the wilderness, Intuit has reemerged as a growth stock. In the past three months, its price has doubled, to close at $69 on Feb. 8. That gives it a price-to-earnings ratio of 35.9, which still doesn't sound too high for an Internet stock. Analysts expect the company to produce 59 cents a share in earnings for its 2000 fiscal year, up from 47 cents in 1999. As Intuit becomes a Net enterprise, you can expect both its profits and its stock to go up, just as surely as you can expect death and taxes.
Jaffe writes about the markets for Business Week Online
Get BusinessWeek directly on your desktop with our RSS feeds.
Add BusinessWeek news to your Web site with our headline feed.
Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video.
To subscribe online to BusinessWeek magazine, please click here.
Copyright 2000 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
