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Morningstar | After Intuit Investor Day, We Raise Our FVE on Better Long-Term Outlook; Shares at a Premium

Intuit held its annual investor day and we came away from the event with revised enthusiasm over the firm’s long-term growth prospects. We believe the company’s ability to grow its userbase both domestically and internationally while monetizing new and existing customers will drive low-double-digit top line growth and midteens operating income growth for the firm over the foreseeable future. We see this outlook as sustainable over the long term and believe that Intuit’s wide economic moat is being reinforced by the company’s utilization of data science, machine learning, and artificial intelligence. These technologies are forecast to create tighter integration between sticky platforms like QuickBooks, TurboTax, and Mint, while allowing for better customer insight and outreach from Intuit. From a growth perspective, online SaaS-based products will lead the way, with QuickBooks Online and TurboTax Online expected to contribute about 68% of total revenue in fiscal 2021 (compared with 49% in fiscal 2017) and the rest being composed of profitable desktop-based software products. After incorporating our higher long-term growth outlook and enthusiasm into our discounted cash flow model, we raise our fair value estimate to $170 per share from $135. We maintain our wide economic moat rating and don’t see any significant competitive threats to Intuit’s well-established and trusted Small Business & Self Employed and Consumer Ecosystem businesses. Still, with shares continuing to trade at a premium to our fair value estimate, we’d seek a wider margin of safety before investing new capital in the name.

Within the Small Business & Self-Employed ecosystem, we believe Intuit has a massive serviceable addressable market, or SAM, opportunity of around 85 million consumers where the QuickBooks Online base is 3.4 million users. Increased penetration of this market remains a big opportunity as Intuit focuses on increasing the awareness of its brand, improving its first-time benefits, and delighting users with additional benefits to improve adoption and retention. So far, the firm’s strategy has been paying off with both rapid user and revenue growth. As a result, we are forecasting a long-term Small Business & Self-Employed ecosystem growth rate in the midteens.

On the Consumer Ecosystem front, Intuit remains very well placed in the tax industry’s long-term shift toward do-it-yourself, or DIY, software tax preparation. The firm continues to outperform all other tax avenues such as assisted preparation (using a CPA or tax professional), brick-and-mortar tax stores, other DIY peers, and manual tax preparation (pen and paper). Even in the face of zero fee competition, the company has been able to grow its average return per user in the U.S. ($58 in fiscal 2018) and we don’t see why this won’t continue to prove true as it layers in TurboTax Live and deeper personalized experiences around personal finance. As a result, we think the company can grow the Consumer Ecosystem’s top line in the high-single digits over the long term, up from our previous expectations of mid-single-digit growth.