Intuit (INTU) Down 17.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Intuit (INTU). Shares have lost about 17.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Intuit due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Intuit's Q2 Earnings and Revenues Top Estimates

Intuit reported second-quarter fiscal 2020 non-GAAP earnings of $1.16 per share, beating than the Zacks Consensus Estimate by 13.7%. Moreover, the bottom line also improved 16% on a year-over-year basis.

Further, this tax preparation-related software maker’s revenues grossed $1.7 billion, up 13% from the year-ago quarter’s adjusted revenues. The top line also outpaced the consensus mark by 1.1%. Strong momentum in Online ecosystem revenues and growth in the Small Business and Self-Employed Group business drove revenues.

Quarter in Detail

Segment wise, Small Business and Self-Employed Group revenues jumped 17% year over year to $973 million. This rise was primarily driven by solid growth in customers for QuickBooks Online and higher effective prices, which led to a 43% year-over-year improvement in accounting revenues.

Online ecosystem revenues rose 35% year over year. Online Services revenue, which includes payroll, payments, time tracking and capital, grew 23% year over year.

Within QuickBooks Online payroll, a mix-shift to Intuit’s full-service offering, which is priced 75% higher than self-service, was a tailwind. Moreover, within QuickBooks Online payments, continued uptick in customer base and an increase in charge volume per customer drove revenues.

Sturdy momentum in the company’s lending product QuickBooks Capital was a positive as well. At the end of the quarter, net loans receivable balance was $103 million.

Desktop ecosystem revenues inched up 1% year over year during the quarter under review. Within Desktop ecosystem, revenues from QuickBooks Desktop Enterprise consistently grew at double-digit pace.

In the fiscal second quarter, revenues from Consumer Group improved 8% year over year to $499 million while Strategic Partner Group backed by professional tax generated revenues of $224 million, up 8% year over year. This highlighted delivery of more forms during the reported quarter compared with the prior-year comparable period.

DIY category grew 3.5% year over year. Meanwhile assisted category declined 3.7%.

TurboTax Live is likely to be accretive to the company’s Consumer business in the days ahead.

The company introduced real-time chat and a floating Live Help button to simplify connection with live help at all stages of the return process.

Intuit also continued to accelerate the application of AI to create tools to automate repetitive tasks, increase efficiency and improve customer experience.

Operating Results

The company posted non-GAAP operating income of $384 million, up 13% year over year. Operating margin remained flat year over year at 22.6%.

Balance Sheet and Cash Flow

Intuit exited the quarter with cash and cash equivalents of $1.64 billion compared with $1.63 billion sequentially. Long-term debt was $373 million.

Cash provided by operational activities was $190 million as of Jan 31, 2020.

Outlook

The company reiterated guidance for fiscal 2020. Revenues are projected in the range of $7.44-$7.54 billion. Non-GAAP earnings per share are anticipated between $7.5 and $7.6.

Non-GAAP operating income for the full fiscal is expected in the band of $2.52-$2.57 billion.

For the full fiscal, Small Business and Self-Employed group is expected in the range of 12-14% year over year, while the Consumer Group is anticipated to increase 9-10%. Also, Strategic Partner Group is predicted to improve 1-2%.

For third-quarter fiscal 2020, the company envisions revenue growth of 10-11%.

It expects non-GAAP earnings in the $5.9-$5.95 per share bracket.

Intuit expects Online Ecosystem revenues to surge more than 30% in the forthcoming quarters.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Intuit has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Intuit has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.