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By Sarah Lacy Last August, Intuit (INTU
) CEO Stephen Bennett had the tough job of announcing weak results. In the 2004 fiscal year, the Silicon Valley software company's revenue growth had fallen from 26% to 12%. For many outfits, the latter increase would have still qualified as cause for celebration. But at Intuit, it came as a disappointment.
Making matters worse, Bennett said fiscal 2005 growth could be as low as 6%. As investors grumbled, he made them a promise: We're going to get back to double-digit growth -- at some point.
It was an ambitious, if vague, promise for the $1.9 billion software maker. Its well-known accounting software brands Quicken, Quickbooks, and TurboTax already dominate competitors. Meanwhile, recent acquisitions of payroll and accounting software for specific businesses like construction haven't done as well as Intuit execs had hoped.
TURBO POWER. So Bennett proposed going back to what made Intuit one of the rare, lasting names in retail software -- homework. Intuit product managers followed customers home, watched what they did, and tweaked their software as a result (see BW Online, 3/23/05, "Turbocharging TurboTax").
Less than a year later, that homework has paid off faster than the company or Wall Street expected. Intuit updated earnings guidance on Apr. 21 for its fiscal 2005, which ends in August, and said sales will increase 11% to 12%. Profits should be up 22% to 25% -- as much as 10 percentage points above previous estimates.
For the fiscal third quarter, which ends this month, sales should climb 18% to 19% over last year, well above the 12% jump Intuit had in the same quarter last year and at least 4 percentage points higher than the outfit expected. Intuit won't provide actual revenue numbers until the current quarter ends. The main reason for the leap: Unit shipments of Intuit's TurboTax software are up 27% over last year, according to preliminary estimates.
BEATING BLOCK. There's an important caveat to note, however. The 27% increase represents units shipped or downloaded, not revenue. Why? Because this year, Intuit was much more aggressive with the IRS's Free File Alliance program, a gratis service to consumers that offers Intuit's TurboTax software.
Without the free downloads, Intuit still saw a 13% increase in units actually sold. That's higher than the 10% bullish analysts were expecting and almost double last year's growth in paid units.
It's more impressive when Intuit's biggest tax-preparation software competitor, H&R Block, is taken into account. H&R Block announced on Apr. 18 that it has 6% fewer software customers than last year.
GROWTH CHALLENGE. Intuit's stock rose 3% in one day of trading after the news, to $42.58, and some analysts like ThinkEquity's Glenn Greene believe it can climb more. He has a $52 price target on the shares, well above the 52-week high of $47.13. "We've been pretty bullish, and they still did better than we thought," he says.
Analysts think Intuit's forays to attract more first-time and young filers, including a new, easy-to-use package called SnapTax, played a role. Intuit overhauled its tax software, making it easier and quicker to use, and stepped up its advertising for the second year in a row.
In an interview with BusinessWeek Online in March, Brad Smith, the head of Intuit's consumer tax division, said his biggest challenge would be accelerating growth. "That's what we've been single-mindedly focused on for the last year," he said. So far, that focus has paid off. Lacy is a BusinessWeek Online reporter in Silicon Valley