Intuit Inc. (NASDAQ:INTU) shares saw their largest drop in over 18 months following the announcement that the company lost 1 million customers who used its free TurboTax service, raising concerns about the software’s demand.
This year, 10 million people filed their taxes for free using TurboTax, a decrease of about 1 million from the previous year, reported the Mountain View, California-based software developer. Additionally, Intuit lost market share among low-paying customers.
On Friday, Intuit shares fell as much as 9.3% to $600.49 in New York, marking the biggest intraday decline since November 2022. Despite this drop, the stock had gained 6% for the year up to Thursday’s close.
Intuit has been targeting its TurboTax software to individuals with more complex tax situations, betting that these customers might seek online assistance from experts. The company has also emphasized incorporating more artificial intelligence features into its products.
Despite the decline in free users, there are positive indicators that Intuit’s investments are yielding results. The average TurboTax user spent 10% more on their filing this year compared to the previous year. Fiscal third-quarter revenue increased by 12% to $6.74 billion, surpassing analysts’ estimates of $6.64 billion.
The period ending April 30, which includes tax season, is crucial for Intuit, the maker of TurboTax and other financial software. Profit, excluding some items, was $9.88 per share, exceeding Wall Street’s expectations.
During an earnings call, company executives addressed questions regarding the user decline. Keith Weiss, an analyst at Morgan Stanley (NYSE:MS), inquired why Intuit couldn’t appeal to both high-end and low-end market segments with TurboTax.
Raimo Lenschow, an analyst at Barclays (NYSE:BCS), noted that competition for lower-paying and free customers raises “questions that could concern investors.”
CEO Sasan Goodarzi downplayed the significance of the free customer base, stating that some users are “just really looking for free tax software — bouncing between platforms — and we are not interested in pursuing those customers.” Goodarzi also mentioned that TurboTax gained market share among people who traditionally hired accountants.
Some of the departing customers may have chosen an IRS-run pilot for free tax software, available in a limited number of states this tax season and used by about 140,000 people. Intuit has long opposed government efforts to offer free online tax filing software, arguing that private companies already provide such services.
A spokesperson for Intuit stated that the company does not view the government’s free tax filing pilot as a significant factor in the user decline.
Analyst Niraj Patel from Bloomberg Intelligence suggested that investors might have expected stronger results from Intuit’s business-oriented products, such as QuickBooks Accounting. Sales from the unit containing QuickBooks, aimed at small businesses and self-employed users, increased by 18% to $2.4 billion, aligning with average estimates.
For the current quarter, total revenue is expected to be about $3.1 billion, surpassing analyst estimates. Profit, excluding some items, is forecasted to be between $1.80 and $1.85 per share for the period ending in July, also exceeding Wall Street’s outlook.
Separately, Intuit announced that Credit Karma CEO Kenneth Lin will depart at the end of the year, potentially signaling more disruption, according to Patel.
Credit Karma, a loan-aggregating service acquired by Intuit in 2020, will see Joe Kauffman, the unit’s president, take over as CEO on August 1. Intuit is directing customers of Mint, a finance management app acquired in 2009 and recently shuttered, toward Credit Karma. The company now expects Credit Karma sales to increase by about 2% to $1.66 billion for the full year, up from a previous outlook of flat revenue.
Featured Image:Freepik
