Intuit is the latest software company to change its business focus to an online subscription model from traditional software sales. The company announced much lower-than-expected FY 2015 guidance on its earnings report on Thursday afternoon as a result of the change in its revenue recognition. Here is the Goldman analyst’s revised guidance:
INTU guided to revenue in FY15 of $4.275-$4.375 bn, below our prior estimate of $4.77 bn and consensus of $4.85 bn given the ~$400 mn headwind resulting from restructuring changes. We lower our FY15/FY16/ FY17 non-GAAP EPS estimates to $2.50 / $3.76 / $4.38 from $3.92 / $4.29 / $4.72 on the revised outlook and growth assumptions.
Management emphasized the long-term revenue and EPS projections that are still close to in line with prior projections, but the stock ended lower on Friday, and is lower again today. Barron’s pointed out on Friday the comparison to the other SaaS stories in the market:
The real eye-popper was Intuit’s full-year fiscal 2015 financial guidance. The company sees revenue falling 3% to 5% to a range of $4.275 billion to $4.375 billion, yielding per share profit of $2.45 to $2.50. That misses the per share profit of $3.97 on revenue of $4.85 billion expected by the Street.
But CFO Neil Williams says Intuit faces a unique year ahead as the company accelerates its shift to cloud-based services, which will pull $400 million out of desk-top revenue. This decision as not factored into the Street’s forecasts for fiscal 2015, he added. He told Barrons.com
This is something the street did not have in their estimates. But they have seen other companies, including Adobe and Microsoft go through similar transformations as they see them transition to an online model….It is a bit of surprise to the Street but they will sort through it carefully.
Intuit expects a big rebound in the 2016 and 2017 fiscal years with sales growth returning to double-digit growth and margin expansion. By fiscal 2016, Intuit expects revenue of $6 billion, per share profit of $5 and margins back in the high 30s.
I did a Deep Dive on INTU 6 months ago, and concluded that the valuation did not offer much upside:
While potential competition is a concern, history is on Intuit’s side. Their products are the best recognized in the industry, with a large entrenched user base and marketing power on their side.So the overall business is humming along, and the stock is hitting a new all-time high today. But is the stock a good investment? I don’t think so. My main concern with INTU is that the trailing 12 month P/E is now near 10 year highs:
On the 2 prior instances when INTU’s trailing 12 month P/E got over 30 in the past 10 years (late 2006 / early 2007, and late 2010 / early 2011), INTU stock made little progress over the next 6-12 months (and actually market a multi-year top for the stock in late 2006).
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Regardless, Intuit is an admirable company, with very consistent profit growth. This could be a good addition to an investment portfolio at the right price.
My personal expectation is that INTU remains rangebound in the coming months between its intraday high on Friday of $86.80, and the $77.50 support level.