Intuit helps consumers and small businesses prosper by providing financial management, compliance, and marketing products and services. I believe their products will continue to be in high demand for many years to come. Intuit has acquired Credit Karma and Mailchimp in recent years, aiming to take their business to the next level. Does this mean that now is the time to buy Intuit shares? This is what I will investigate in this analysis.
This is not a financial advice. I am not a financial advisor and I only do these posts in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should mention that at the time of writing this analysis, I do not own any shares in Intuit. If you would like to copy my portfolio or view the stocks in my portfolio, you can find instructions on how to do so here. I don't own shares in any of their direct competitors either. You can purchase Intuit's shares or fractional shares on eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $100.
The Business
Intuit, founded in 1983 in California, is an American business software company specializing in financial technology solutions. Known for its flagship products—TurboTax, QuickBooks, Credit Karma, and Mailchimp—Intuit serves a diverse customer base, addressing needs ranging from tax preparation and personal finance to small business accounting and marketing. The company currently supports approximately 100 million customers worldwide. Intuit operates through four segments. The largest segment, Small Business and Self-Employed, accounts for 59% of revenue and will soon be renamed the Global Business Solutions Group. This segment serves small and mid-market businesses globally, as well as the accountants who support them. It offers QuickBooks for financial and business management, payroll, and payment processing, and Mailchimp for marketing automation and customer management. The Consumer segment, which represents 27% of revenue, provides TurboTax for DIY and assisted income tax preparation in the U.S. and Canada. Credit Karma, accounting for 10% of revenue, is a personal finance platform that offers credit scores, financial product recommendations, and online banking services. ProTax, making up 4% of revenue, supports U.S. and Canadian accountants with professional tax preparation software, aiding small businesses and tax compliance efforts. Most of Intuit's revenue is recurring, as the company has transitioned to a subscription-based revenue model. This shift provides a steady and predictable income stream while improving customer retention. Intuit’s moat lies in its integrated platform, the Intuit Operating System, which combines essential tools to support both individuals and businesses. The platform creates high switching costs, as its services become deeply embedded in customers' workflows, making it difficult for users to switch to competing solutions. Intuit’s products are also widely trusted, enhancing customer loyalty and encouraging the adoption of multiple offerings.
Management
Sasan Goodarzi is the CEO of Intuit. He joined the company in 2009 and held various leadership positions before becoming CEO in 2019. Prior to joining Intuit, Sasan Goodarzi held leadership roles at Invensys and Honeywell, and he also served as the CEO and co-founder of Lazer Cables Inc. He earned a bachelor's degree in electrical engineering from the University of Central Florida and a master's degree in business administration from the Kellogg School of Management at Northwestern University. He also serves on the Board of Directors at Intuit and Atlassian. Under his leadership, Intuit has taken significant steps to elevate its business by acquiring Credit Karma in 2020 and Mailchimp in 2021. Sasan Goodarzi has emphasized how these acquisitions align with Intuit's transformation. In an interview, he stated, "We were a company focused on tax and accounting, a platform company, but focused on solving those two fundamental problems. And we wanted to be a company that helped firms make ends meet, helped you save money, helped you get out of debt, and succeed as a small business." This statement reflects his ambitious vision for the company. Moreover, Sasan Goodarzi has excelled in fostering a positive corporate culture at Intuit. The company has been recognized as one of the "100 Best Companies to Work For" by Fortune and acknowledged as one of the "Best Managed Companies" by The Wall Street Journal. I believe that Sasan Goodarzi's extensive experience, visionary aspirations, and focus on cultivating a great working culture make him the ideal leader to guide Intuit into the future.
The Numbers
The first number I will investigate is the return on invested capital, also known as ROIC. Ideally, a company should deliver a ROIC above 10% annually. Intuit has consistently delivered a high ROIC, achieving above 10% in nine out of the past ten years. It is slightly concerning that ROIC has significantly decreased since 2019. However, I believe there are valid reasons for this decline. Factors such as the pandemic and macroeconomic challenges have negatively impacted many companies, including Intuit. Additionally, the acquisitions of Credit Karma and Mailchimp require time for integration, which can temporarily affect ROIC. While I am not pleased with the decline in ROIC over recent years, I am not overly concerned, as these explanations provide context for the drop. It is also encouraging that ROIC has increased over the past two years, even though it has not yet returned to previous highs.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. The numbers look strong from 2017 onwards, as equity has increased every year. There was a significant jump in fiscal year 2021 due to the acquisition of Credit Karma and another in fiscal year 2022 following the acquisition of Mailchimp. It is reassuring to see that Intuit continued to grow its equity in both 2023 and 2024 after these acquisitions, which suggests that the trend of increasing equity is likely to continue.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Intuit has generated positive free cash flow every year over the past decade. The company achieved its highest free cash flow in the past two years, although there was a slight decline from fiscal year 2023 to fiscal year 2024. While the company did not cite a specific reason for the decrease, fiscal year 2024 was impacted by macroeconomic challenges, which likely affected Intuit as well. This may also explain why the levered free cash flow margin is at its lowest level since fiscal year 2017. While I do not find the numbers concerning, it would be encouraging to see Intuit achieve a levered free cash flow margin above 30% again in fiscal year 2025. Additionally, the free cash flow yield is below the ten-year average, which suggests that the shares are trading at a high valuation. However, this is something we will revisit later in the analysis.
Debt
Another important aspect to consider is the level of debt. It is crucial to determine whether a business has a manageable debt level that can be repaid within a three-year period. This can be assessed by calculating the ratio of long-term debt to earnings. After performing the calculation for Intuit, I found that the company has a debt-to-earnings ratio of 1,87 years, which is well below the three-year threshold. Intuit has only exceeded a debt-to-earnings ratio of 3 years once in the past decade, during fiscal year 2022, following the acquisitions of Credit Karma and Mailchimp. This indicates that Intuit's debt level is not a cause for concern and should not pose a significant risk for investors.
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Risks
Like any other investment, there are risks associated with investing in Intuit. One notable risk is competition. Competition presents a significant challenge to Intuit due to the diverse and intensifying nature of rival offerings and market dynamics. Intuit operates in markets characterized by both established players and emerging start-ups, all vying for market share in areas such as tax preparation, accounting, payments, and personal finance. Competitors often introduce superior or innovative products, particularly those leveraging advancements like artificial intelligence (AI), which could reduce customer reliance on Intuit’s solutions. Additionally, aggressive pricing strategies, including free or low-cost alternatives, could erode Intuit’s customer base and profitability. The presence of large technology firms with extensive user bases and strong brand recognition poses another challenge. These companies can quickly pivot their strategies to target Intuit’s customers and often have greater resources for marketing and innovation, potentially enabling them to outpace Intuit in delivering new solutions. In the consumer tax segment, competition is further intensified by government initiatives, as federal and state tax authorities increasingly develop and expand free direct tax filing systems.
Regulatory risks. Intuit faces significant risks from increasing and evolving regulations across its diverse range of products and services. The company operates in highly regulated industries, including tax preparation, financial services, and emerging technologies like artificial intelligence (AI). These regulatory frameworks vary across jurisdictions and are subject to frequent changes and differing interpretations, creating a complex and uncertain environment that can impact Intuit’s ability to innovate and operate efficiently. One major challenge is compliance with emerging global regulations, such as the European Union’s AI Act, which introduces stringent requirements for AI systems affecting individuals in the EU. Adapting to such regulations can impose significant costs on Intuit, limit the adoption of innovative technologies, and potentially necessitate changes to existing business practices. The company’s tax preparation business is particularly vulnerable to regulatory scrutiny. Heightened attention from federal and state governments may lead to new laws or interpretations that restrict the types of products Intuit can offer, the prices it can charge, or how it operates its tax business. Such changes could significantly impact its ability to maintain profitability and market leadership in this segment.
Macroeconomics. Intuit is particularly vulnerable to adverse global macroeconomic conditions, which can significantly affect its business operations and financial performance. Economic challenges such as inflationary pressures, rising interest rates, unemployment, or reduced consumer confidence can disrupt the financial stability of Intuit’s customers, partners, and markets, leading to lower demand for its products and services. In challenging economic conditions, potential customers may delay purchasing or upgrading Intuit's offerings, while existing customers may reduce their spending or discontinue using the company’s products altogether. For instance, high unemployment or changes in tax codes can reduce the number of tax returns filed, directly impacting the demand for TurboTax services. Similarly, decreased consumer spending can lead to lower payment processing volumes, negatively affecting revenue from QuickBooks and related services. The Credit Karma platform is particularly sensitive to economic pressures. Rising interest rates may make offers from Credit Karma’s financial partners less attractive to users, while financial institutions may scale back their activity on the platform due to market instability. Additionally, deteriorating consumer creditworthiness can lower engagement on the platform and reduce the number of users qualifying for credit cards and loans, further limiting Credit Karma’s revenue opportunities.
Reasons to invest
There are also numerous reasons to invest in Intuit. One is its focus on artificial intelligence (AI). Intuit’s early investments in AI, combined with its extensive data platform and expertise in machine learning and generative AI (GenAI), have positioned the company as a leader in leveraging AI to enhance customer experiences and drive operational efficiency. Through tools like Intuit Assist, a GenAI-powered financial assistant, the company simplifies complex financial tasks for millions of consumers and businesses. Intuit’s AI-driven solutions not only improve customer outcomes but also enable the company to penetrate broader markets by serving new customer segments and increasing the adoption of its services. AI has also significantly improved Intuit’s internal operations, enhancing productivity in areas such as software development and administrative functions while keeping the business asset-light and cost-efficient. By leveraging AI, Intuit can scale its offerings without requiring substantial infrastructure investments, while maintaining strong margins. Although AI does not yet materially contribute to revenue, it is expected to drive future growth by increasing service adoption, customer retention, and conversion rates. The integration of AI across its platform enables Intuit to deliver more personalized, efficient, and scalable solutions. This positions the company to unlock significant opportunities in existing and new markets while enhancing long-term profitability.
TurboTax is a compelling reason to invest in Intuit due to its impressive growth trajectory and significant potential in the broader tax market. In fiscal 2024, TurboTax Live revenue grew by 17%, with customer growth of 11%. Full-service customers doubled, and those new to TurboTax tripled, highlighting the strong momentum and increasing adoption of its platform. TurboTax Live alone accounted for approximately 30% of the Consumer Group's revenue, with expectations that it will become the majority in the coming years as its revenue grows at a projected 15% to 20% annually. The total addressable tax market is approximately $35 billion, with $30 billion in assisted tax preparation and $5 billion in the do-it-yourself (DIY) category. TurboTax Live, which bridges DIY and assisted services, has a unique opportunity to disrupt this space. Its ability to provide a seamless, scalable experience—whether users complete taxes themselves, with assistance, or opt for full-service—positions Intuit to capture significant market share. By consolidating DIY, assisted, and full-service options into one platform, TurboTax benefits from economies of scale and data-driven efficiencies that enhance customer experiences. The focus on expanding assisted services and penetrating the high-growth, high-margin segments of the tax market provides a clear path for sustained revenue growth and market leadership.
Focusing on the mid-market is a compelling reason to invest in Intuit, given the company’s growing momentum and the untapped potential in this segment. Over the past five years, Intuit has steadily built its capabilities to serve mid-market businesses, with fiscal year 2024 marking significant progress. The company is now doubling down on this opportunity by accelerating investments to address the more complex needs of mid-market businesses, including advanced accounting, reporting, business intelligence, money management, human capital management, and customer acquisition solutions. The mid-market represents a significant growth opportunity for Intuit, as many customers in this segment are currently underserved. These businesses often rely on disjointed systems, including multiple software applications, spreadsheets, and various service providers, which lead to inefficiencies and high costs. Intuit’s integrated business suite, which combines financial management, customer relationship management, and AI-powered tools, addresses this pain point by offering a seamless, all-in-one platform that simplifies operations and reduces costs. The focus on the mid-market is particularly promising because this space is relatively uncrowded compared to smaller business segments.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 10,43, which is from fiscal year 2023. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 27% in the next five years, but 15% is the highest number I use. Additionally, I have chosen a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on the fact that Intuit has historically had a higher P/E ratio. Lastly, our minimum acceptable rate of return is already set at 15%. Doing the calculations, we come up with the sticker price (some call it fair value or intrinsic value) of $298,74. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Intuit at a price of $149,37 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is called the Ten Cap price. The rate of return that an owner of a company (or stock) receives on the purchase price of the company is essentially its return on investment. The return should be at least 10% annually, and I calculate it as follows: The operating cash flow last year was 4.884 and capital expenditures were 250. I attempted to review their annual report to determine the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated for maintenance purposes. This means that we will use 175 in our calculations. The tax provision was 587. We have 280,268 outstanding shares. Hence, the calculation will be as follows: (4.884 – 175 + 587) / 280,268 x 10 = $188,96 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Intuit's Free Cash Flow Per Share at $16,79 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $261,46.
Conclusion
I believe that Intuit is a great company with excellent management. The company has developed a strong moat, making it a high-quality business. While ROIC has not been strong over the past three to four years, I believe this is due to the recent acquisitions of Credit Karma and Mailchimp. As such, I am not overly concerned about the lower ROIC. Free cash flow remains high, but I would like to see an improvement in the levered free cash flow margin. Competition poses a significant risk for Intuit, as it faces pressure from established players, emerging start-ups, and government initiatives that introduce innovative or low-cost alternatives in tax preparation, accounting, and personal finance. Regulatory risks are another challenge, as Intuit operates in highly regulated industries like tax preparation, financial services, and AI. Evolving laws and varying interpretations across jurisdictions could increase compliance costs, constrain innovation, and disrupt operations. Macroeconomic conditions also pose a risk, with challenges like inflation, rising interest rates, and reduced consumer confidence potentially lowering demand for Intuit’s products and services, as customers delay purchases or reduce spending. Despite these risks, Intuit’s extensive investments in AI are a major growth driver. AI enhances operational efficiency, improves margins, and is expected to fuel future growth by increasing service adoption, customer retention, and conversion rates. This unlocks significant opportunities in existing and new markets. TurboTax remains a key driver of Intuit's growth, with its seamless integration of DIY, assisted, and full-service options positioning Intuit to capture significant market share. TurboTax also enables the company to expand into high-growth, high-margin segments, driving long-term revenue growth and market leadership. Intuit's focus on the mid-market offers another significant growth opportunity. By targeting an underserved segment with complex needs, Intuit is well-positioned to capitalize on this high-potential area. I would love to add Intuit to my portfolio, but I also need a margin of safety. This means I will buy Intuit shares if they drop to $365, which represents a 30% discount on the intrinsic value of the Payback Time price.
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