Intuit
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Intuit (creator of TurboTax and Quickbooks), unsurprisingly, makes all of its profit in a 3-month window.
Guess which three months? 😅
Let’s start with revenue.
You can see that Q2 and Q3 are the biggest revenue quarters, with Q3, being the real driver.
In fact, Q3 is responsible for 44% of annual sales. I would have guessed even higher probably.
But here's where it gets interesting.
Here are EBIT margins. In Q3, EBIT margins are Mastercard-like!
And Visa-like for free cash flow.
About 100% of EBIT and FCF come from Q3 alone.
So for 9 months of the year, Intuit just about breaks even. Then it adds almost $2 billion in profit in a span of 90 days.
Talk about seasonality!
Intuit is a pretty interesting business as it has done a good job of shifting from desktop downloads to a SaaS model. And the brand is second to none; TurboTax and Quickbooks have become synonymous with tax/accounting software.
Founding Story
Intuit was founded in 1983 by Scott Cook and Tom Proulx. Cook was working at Procter & Gamble when he had an idea for a budgeting app. Not being super technical himself, he approached Proulx, a Stanford engineering student.
After leaving Procter & Gamble, Cook and Proulx decided to continue working on their budgeting software and founded Intuit. The company's first product was called Quicken, a personal finance management tool that helped users track their income and expenses, create budgets, and manage their finances.
Intuit initially struggled to gain traction and was on the brink of bankruptcy in the early 1990s. However, the company was able to turn things around by focusing on expanding its product line to include tools for small businesses.
In 1993, Intuit went public and grew significantly. The company continued to expand its product offerings and acquired several other companies, including QuickBase, Mint, and TurboTax. Today, Intuit is a leading provider of financial software and services, with products that are used by millions of people and businesses around the world, including more acquisitions like CreditKarma and Mailchimp.
Business Overview
Intuit's business is divided into three main segments: Small Business, Consumer Tax, and ProConnect.
The Small Business segment offers products and services for small businesses, including QuickBooks, payroll, and payment processing solutions. This segment also includes the company's self-employed and freelancer product lines, such as TurboTax Self-Employed and QuickBooks Self-Employed. The company somewhat recently bought Mailchimp $12 billion to bolster this segment. Mailchimp is an email marketing platform that has morphed into a website builder as well.
The Consumer Tax segment offers products and services for individuals to prepare and file their taxes, including TurboTax, which is one of the most popular tax preparation software products in the United States. This segment also includes the company's Mint personal finance platform, which helps individuals manage their budgets and track their spending. The company also bought CreditKarma for $8 billion to build out its vision of a consumer finance platform. CreditKarma gives out free credit reports as a tool to get information. The company then becomes a hub of lead generation for other financial products like credit cards or savings accounts. Using Mint and CreditKarma, Intuit is able to recommend helpful financial products.
The ProConnect segment offers products and services for professional accountants, including Lacerte and ProSeries tax preparation software and ProConnect Tax Online, which is a cloud-based tax preparation and filing platform.
Moat
Intuit has a strong moat. One of the key components of Intuit's moat is its strong brand. The company has established itself as a leader in financial software and services, and has a loyal customer base. This provides the company with a significant advantage over competitors, as it is difficult for other companies to compete with Intuit's brand recognition and customer loyalty. TurboTax and Quickbooks are the go-to products when anyone wants to do their taxes or their payroll for their small business. They are pretty synonymous with those areas.
Another aspect of Intuit's moat is its network effects. The company's products and services, such as QuickBooks and TurboTax, are designed to be used together, creating a strong ecosystem that encourages customers to stick with Intuit. This creates a barrier to entry for competitors, as they would have to invest heavily in order to replicate Intuit's ecosystem. For example, it’s very easy to import all of your Quickbooks data to TurboTax, limiting the manual input of all your data.
Risks
One of Intuit's main risks is the potential for increased competition from new entrants. As the financial software industry becomes more crowded, it becomes more difficult for Intuit to maintain its market share and retain its customers. New entrants may offer more innovative products and services, or may be able to offer lower prices, which could lead to a decline in Intuit's revenues and profitability. For example, Gusto or Rippling are two private companies with an arguably much better consumer experience than clunky Quickbooks. Both companies are growing quite quickly but they have a long way to go until rivaling Intuit’s distribution power and brand name.
A second risk for Intuit is the impact of regulatory changes on the company's operations. The financial software industry is heavily regulated, and changes in regulations could have a significant impact on the company's operations. For example, changes in tax laws or accounting standards could require Intuit to make significant changes to its products and services, which could be costly and time-consuming such as the IRS’s free-to-file push.
Conclusion
All in all, Intuit is a strong, leading company with entrenched products like TurboTax and Quickbooks. Its powerful brand and distribution enable it to continue growing. Although the capital allocation could be called into question after spending $20 billion on the CreditKarma and Mailchimp acquisitions, the company continues to perform well and its moat has held up despite more competition.
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