Intuit – the ‘Xero’ of the US
Intuit is the dominant player in accounting and finance software for small businesses and consumers in the United States. The success of this $114bn company can in part be attributed to our very own home-grown Xero (despite Xero being less than 1/10th the size).
Intuit was founded in 1983 and shook up the financial software world by launching Quicken, which developed over time into a comprehensive desktop solution for accountants. However, in the early 2000’s, the migration of data to the cloud and the rapid rise of smartphones were changing how small business owners wanted to use technology. Xero spotted this “once-in-a-lifetime land grab” opportunity to get data off PCs and into the cloud and launched its cloud accounting software in 2006. To avoid being disrupted, Intuit was forced to reinvent itself and become a cloud software player too.
Fast forward to today, Intuit has established itself as the clear leader in each of its business segments:
- – QuickBooks:
o The flagship product of Intuit: a small business and self-employed accounting software available via desktop or cloud.
o Intuit has a roughly 80% share of US Small and Medium Businesses (SMBs) that use accounting software, but a long runway for growth remains, supported by low penetration of accounting software use among SMBs. Intuit has just 8m customers, out of roughly 63m SMB and self-employed customers in the US (as well as a global opportunity).
- – TurboTax:
o Tax preparation software to assist customers filing federal and state income tax returns.
o The US tax industry is split into DIY (46%) and Assisted e.g. professionals and tax stores (54%). TurboTax has a leading market share in the DIY segment (roughly 66%) and is beginning to make headway in the Assisted category via its ‘Live’ offering.
- – Credit Karma:
o The leading personalised pre-approved loan platform, connecting 110m customers to financial institutions offering credit cards, loans, and insurance.
Across these segments, Intuit is realising synergies and becoming more of an ecosystem where products and data interact to provide additional benefits to both businesses and consumers.
Laser Focused on Solving Customer’s Largest Pain Points
Intuit CEO, Sasan Goodarzi, believes that “in order to win, we must be far more customer-obsessed.” Customer-driven innovation requires every Intuit employee to look for new and better ways to improve customers’ lives – the focus is always on the problem, not the solution. In turn, this helps to increase product ‘stickiness’, reduce churn, and drive up the average price per subscriber as additional services (payroll, payment processing etc.) are added to its suite.
For example, two thirds of small businesses say their biggest challenge is attracting customers. In response, Intuit acquired MailChimp which provides marketing solutions for SMBs to attract and retain customers. This was the missing link for Intuit to become a one-stop shop, enabling customers to run their entire business on Intuit’s platform.
Intuit believes it should remain well placed in a softer macroeconomic environment:
– Accounting software is mission critical for small business. The pandemic also taught businesses the importance of digitalisation to remain nimble and competitive.
– Benjamin Franklin once said, “in this world, nothing is certain except death and taxes”, leaving Intuit well-placed to deliver on the second part of that statement with its TurboTax product.
– Credit Karma is also well positioned because in tougher economic times, demand for credit increases as consumers look to bridge the gap between income and spending. In addition, financial institutions tend to look for higher quality credit customers, which Credit Karma’s extensive dataset can help provide.
Intuit shares have de-rated this year on the back of higher market interest rates and the rotation out of growth stocks, whereas the underlying fundamentals of the business remain strong. We believe the duration of Intuit’s growth is underestimated by the market, and we expect Intuit’s shares to appreciate over time as management continue to execute on the sizeable opportunity ahead.