Morningstar | Intuit Reports Healthy Growth in 4Q as CEO Brad Smith Departs; Shares Remain Overvalued
Intuit reported impressive results as it ended the fiscal year of a successful tax season. The season's higher retention rates and online ecosystem growth strengthened annual results and the top line saw little friction from subscribers' move to the cloud. Along with earnings came news of CEO Brad Smith stepping down after a notable 11-year run. Effective Jan. 1, 2019, Intuit executive vice president Sasan Goodarzi will take Smith's place, adding to his 13 years at the company.We're encouraged by this wide-moat name's ability to maintain increasing online subscriber growth and we do not expect the C-level switch to jolt the company's strong financials. We do not foresee a material change to our $135 fair value estimate for Intuit, however, and we continue to view the stock as overvalued.
In the fourth quarter, revenue rose 17% year over year to $988 million, driven by online ecosystem revenue growth of 43%. Within the ecosystem, small business and self-employed group revenue grew by 20% to $805 million and the mix of first-time filers expanded beyond expectations--likely propelled by the debut of TurboTax Live. U.S. QuickBooks Online subscribers grew by 38% to 2.6 million, while the international subscriber base grew by 62% to over 800,000. Of QuickBooks online growth, self-employed subscribers nearly doubled from 390,000 to 720,000 year over year.
Intuit forecasts revenue between $6.53 billion and $6.63 billion for fiscal 2019, reflecting 8% to 10% growth and led by success in small business and self-employed. Management guides for a single-digit decline in desktop revenue in the coming fiscal year given the cloud transition. However, online ecosystem revenue is expected to top 30% growth year over year despite deceleration in subscriber growth. Operating margins are guided to expand by a modest 10 to 50 basis points.
Moving forward, Intuit noted its ability to weather a changing tax landscape. Management believes tax simplification will be a net positive, attracting those who would typically seek in-person tax advisors to address more complex tax questions. However, we believe TurboTax Live's potential for improving retainment will better aid total customer count.
Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. The company also provides tax products to accounting personnels, who are main partners that help the company serves small business customers. The company organizes its businesses into three reportable segments: Small Business and Self-Employed, which provides QuickBooks financial management solutions to solve financial and compliance problems; Consumer, which includes TurboTax products and services to prepare and file income tax returns; and Strategic Partner, which includes professional tax offerings and serve professional accountants in United States and Canada.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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