Can Intuit Be Safe -- and Hot?


By Sarah Lacy Intuit has been a hearty survivor in the desktop-software world by building a popular portfolio of core brands: Quicken for personal finance, QuickBooks for small-business finances, and TurboTax for income-tax filing. The competitively priced, easy-to-use software is the leader in each of those three markets. But such dominance also means slowing growth rates, and the formerly high-flying outfit is staring down the barrel of its first-ever year of single-digit revenue growth.

Intuit (INTU) started its new fiscal year Aug. 1, and 2005 revenue is expected to increase just 6% to 9%, vs. 13% in 2004 and 26% in 2003. In the eyes of Wall Street, it has gone from a premier high-growth company to what no Silicon Valley concern wants to be called -- a value play. "They are at a 10-year low in terms of price-to-earnings multiple," notes Hari Srinivasan, an analyst with Banc of America Securities. "With revenues slowing the last two years, it's really a value story now."

FUMBLED LAUNCH. That story has a good side: Intuit's newly acquired reputation as a safe, staid stock is one reason attendance at its Sept. 29 investor day was up, according to the company. But CEO Steve Bennett is trying to make the case that Intuit can again be both safe and hot. His goal: annual growth of 15% to 20%. The timeline? He's not making any promises.

Bennett's reticence is no doubt due to the fact that some previously announced plans haven't panned out. Case in point: QuickBooks Enterprise, a product for companies with 20 to 250 employees. Sales have been lackluster, and Bennett admits the product still isn't quite right.

Intuit also made a series of acquisitions that provide business software for construction, warehousing and distribution, nonprofits, and real estate outfits. The thinking was that maturing small businesses in these sectors would graduate from QuickBooks to the new products. But there, too, growth has been slower than expected.

"IN TRANSITION." Bennett's new plan hinges on growth coming from even smaller niches and consumers with less complicated needs. To that end, Intuit is introducing four new products this year: a simpler QuickBooks called SimpleStart, a TurboTax, codenamed SKI, for those filing 1040A or 1040EZ forms, and two new products for professional accountants. Intuit sees them replacing pen-and-paper or simple spreadsheets.

While some analysts are skeptical about growth prospects, a consensus agrees that Bennett's plan makes Intuit a good long-term hold. "If they grow revenue 10%, that's a phenomenal result," says David Farina, technology analyst at investment bank William Blair & Co. "In Silicon Valley, you're a failure if you're not growing 30%, but Intuit is in a different phase of its life. It's a very good, very dominant business that's well run. It's just in a transition in terms of buyers."

Even the most optimistic say a return to double-digit growth will take time. The stock rose only 1.2% after the investor event, as many analysts believe any good news was already priced into the shares. Half of the 18 analysts covering Intuit rate it a hold, and eight rate it a buy or strong buy. The consensus one-year price target is $49.08. The stock closed Oct. 7 at $45.31.

KITCHEN-TABLE LOGIC. Analyst optimism seems more driven by Intuit's approach to developing more new products. Customer-driven innovation (CDI) is how Intuit describes it practice of literally following customers home and watching how they use software -- or in some cases, pen and paper.

Intuit used CDI to develop SimpleStart, revamp its core TurboTax product, and come up with a new point-of-sale system that has been a huge success. Designed for small retailers, it combines a credit-card swipe, cash drawer, barcode scanner, and a personal computer. The product automatically updates the company's QuickBooks software when any items are purchased. QuickBooks Point-of-Sale, introduced in May, 2002, saw sales grow 69% last year over the previous year.

Although it may sound touchy-feely, several analysts point out that CDI was a hallmark of Intuit's past success. Company founder Scott Cook came up with the first product, Quicken, by watching his wife pay bills at the kitchen table. As Intuit grew, it got away from doing business this way, the company acknowledges. Now it's back to the tried-and-true. Bennett says future products will again spring from internal and grass-roots efforts, rather than acquisitions, which has been the strategy over the last few years.

EASING THE SWITCH. Analysts like that kind of talk from Intuit. "The odds are definitely stacked in favor of organic products," Srinivasan says. For one thing, it'll be easier for customers to migrate from one product to another if they're built by the same company, he says.

A lot depends on how Intuit strengthens its business product lines, where the competition is becoming fierce. NetSuite, a San Mateo (Calif.)-based startup that's backed by Oracle (ORCL) CEO Laurence Ellison, tries to lure such companies away from Intuit's QuickBooks with free training sessions and data-transfer promotions for its own product. But changing accounting software can be a huge hassle for businesses, points out Raymond Boggs, vice-president at research firm IDC.

Bennett concedes Intuit hasn't executed well with its Enterprise product, but he promises improvements. Intuit has outlasted many competitors, thanks to loyal fans of Quicken, QuickBooks, and TurboTax. It will take time for Intuit to conquer new markets and achieve the kind of growth Bennett is aiming for. In the meantime, maturity may have its appeal. Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau


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