Intuit Needs Good Karma -- Heard on the Street

By Dan Gallagher

Once again, an extension of tax season will tweak Intuit's business flow. But the more important question facing the financial software provider is who needs help -- and how much.

The Internal Revenue Service said Wednesday this year's tax filing deadline for individuals has been extended to May 17. That is a month later than normal and will likely push a big chunk of revenue from TurboTax and the company's other tax-related services into the fiscal fourth quarter that ends in July. Last year's even-longer extension of the filing deadline to July 15 resulted in 24% of Intuit's full-fiscal-year revenue coming in the final quarter, compared with an average of about 15% over the previous six years.

A timing shift doesn't necessarily mean a loss of business. Intuit actually raised its fiscal 2021 projection in its latest earnings report on Feb. 23, when speculation was already swirling about another filing deadline extension. Intuit's stock -- which slipped initially on news of the IRS extension -- recovered and is now up nearly 77% for the past 12 months. That has put the shares at a historically high multiple of around 41 times forward earnings.

That means investors still expect a lot from Intuit, regardless of when taxes come due. The company projected full-year revenue would grow in a range of 15% to 17% -- an acceleration relative to the 13% growth posted for the previous two years. But much of that acceleration appears to be due to Credit Karma, which Intuit acquired in December. Intuit expects Credit Karma to add between $545 million and $580 million in revenue this year. Without that addition, the company's growth for the year would be in the range of 8% to 10%, its slowest since fiscal 2015.

The Credit Karma deal was more than six times Intuit's next-largest acquisition and was driven by the company's desire to expand its financial service offerings to consumers. It also absorbed a competitor that was providing free tax-preparation services. Free remains a competitive threat to Intuit -- particularly if the federal government ever gets into the business of allowing taxpayers to prepare and file directly without use of middleman software.

But the bigger near-term question is whether Intuit can expand its nontax business while also growing TurboTax beyond the do-it-yourself crowd. A new "full-service" version of the TurboTax Live service launched in December that allows users to connect online with a tax professional for assistance with their filings. The explosion of retail investing could give it a surprising lift; Keith Weiss of Morgan Stanley says the creation of 8 million new brokerage trading accounts in 2020 should give a boost to Intuit's revenue per return "as filers with investment portfolios get pushed to higher-priced [products]." Someone has to add up all those capital gains on GameStop.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

March 20, 2021 10:14 ET (14:14 GMT)

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