Online Extra: Intuit: Fearing Not the Behemoths
By Jim Kerstetter
Intuit CEO Steve Bennett has a passion for excellence in management. While Larry Ellison of database giant Oracle (ORCL ) was launching a hostile bid for one of his largest rivals, and Microsoft (MSFT ) CEO Steve Ballmer was making waves with the sale of $1.5 billion of his company stock, Bennett was in Plano, Tex., recently talking Six Sigma (a continuous quality-improvement strategy) with 30 local employees. He even invited two business partners to the meeting because "we need to include the supply chain in order to get to process excellence."
It may be unglamorous, but it's classic Bennett. He would rather stay out of the headlines and spend his time making sure his company runs like a Swiss watch. Since Bennett, a 22-year veteran of General Electric (GE ), took over the corner office at Intuit (INTU ) three years ago, it has increasingly taken on his style -- conservative, focused, and determined to combine the technical innovation of Silicon Valley with GE's East Coast management approach. While founder Scott Cook is still serving on the board of directors and working on product strategy, when it comes to day-to-day operations, Bennett is clearly in charge.
So far, that has been a very good thing for Intuit investors. At a time when nearly every other software company was reporting sliding sales, revenues for Intuit's third fiscal quarter, which ended Apr. 30, were up 29% from a year earlier, to $643.7 million. Net income was $294 million, more than 103% higher. Analysts expect that revenues for the fiscal year ending in July will be $1.6 billion, up 22% from last year. And earnings are expected to rise more than 40% over last year.
WAITING FOR BARBARIANS.
Such returns helped squeak Intuit into BusinessWeek's 2003 Info Tech 100 list at No. 99. And its execs are sticking to what they know best. Intuit's hold on its primary markets -- tax and accounting software for consumers and small-business software -- has stayed rock-steady. Intuit's TurboTax owns nearly 70% of its market, while Quicken accounting software for consumers and QuickBooks for small-businesses control in the range of 80%, according to various analyst reports.
Remarkably, Intuit has more than held its own against giant Microsoft, which tried to buy the Mountain View (Calif.) company in 1995, only to be rebuffed by the U.S. Justice Dept. over antitrust concerns. Since then, the companies have constantly sparred.
At Intuit, execs wait for Microsoft's latest tax-software foray as if the next wave of barbarians are about to come through the mountain pass. "The threat from Microsoft is always going to be around," says Bennett. Yet, Microsoft's moves into tax services and consumer and small-business accounting have done little to erode Intuit's market share.
All that good news doesn't qualify Intuit's stock as a "must buy," however. True, of the 14 financial analysts who cover the company, eight rate it as a strong buy or buy. But six have it at hold. Why the mixed sentiment? At around $47.70 a share as of June 11's close, Intuit is hovering just below Wall Street's mean target price of $47.84 and in the middle of its 52-week range.
Analysts don't expect it to show much range in the foreseeable future, either. "If you look at their stock over the last two years, it hasn't moved up too much and it hasn't really moved down," says David Farina, an analyst at William Blair & Co. in Chicago. "I suppose that's a victory of sorts."
Just look at Intuit's share price over the past six months: On June 30, it was trading at $44.60, down 4.94% for the year. And with a price-earnings ratio of more than 29, an earnings upside seem to be already factored into the stock.
MOVING ON UP.
Ask Bennett, however, and he'll tell you he hasn't paid too much attention to the stock lately. He's more concerned about driving up-market. For nearly 10 years, Intuit has flat-out dominated small-business accounting software. But Bennett sees the next big growth coming in the market for companies with up to 250 employees, which at $4.8 billion is more than 10 times the size of Intuit's small-biz stronghold.
It's a big bet for the man from GE. But if he can capture just a slice of that market against rivals like Microsoft and Oracle, it's easy to intuit a bright future.
By Jim Kerstetter in San Mateo, Calif.