3 Reasons Intuit Will Continue To Dominate The Tax Business

Wells Fargo Securities believes Intuit Inc. INTU is well positioned to drive double-digit revenue and earnings growth over the coming years. The belief was predicated on share gains in the stable and highly profitable consumer tax business and large greenfield opportunity in the QuickBooks online business from expansion into self-employed and international markets.

Accordingly, the firm upgraded its rating on the shares of Intuit to Outperform and also raised its price target from $110 to $163.

Analyst Siti Panigrahi noted that Intuit has dominated the small business and consumer tax markets, with its two flagship products, namely QuickBooks and TurboTax.

1. High-Margin Consumer Business

The analyst believes increases in the DIY category share, where Intuit has a 65 percent share, and TurboTax market share are two major levers for the company achieving sustainable mid-to-high single digit revenue growth and expanding segment margins above 63 percent.

Such a high-margin consumer business, according to the analyst, remains defensive during a recessionary environment.

See also: 8-Step Guide To Doing Your Taxes

2. QuickBooks Online Growth

Wells Fargo noted that Intuit took advantage of the increasing cloud adoption and rapid rise of smartphones by reinventing itself as an online platform. Thus, the firm noted that the company capitalized on the adoption of cloud solutions by previously non-consuming users.

The firm also noted that Intuit's QuickBooks Online user base has swelled to 80 percent of the total QuickBooks users in 2017 from a mere 24 percent in 2012.

"The two secular trends — the rise of the gig economy and the workforce demographic shift to millennials — have emerged as major drivers behind subscriber growth for both QuickBooks and TurboTax," the firm said.

The firm also indicated that international expansion has further contributed to subscriber growth.

3. Conservative QBO Subscriber Estimate

Wells Fargo Securities estimates QBO subscribers of 3.359 million in 2018, up 14 percent year over year. This compares to the guidance of 37–45-percent growth in 2018 and the 2017 actual growth of 57.5 percent. The firm said its QBO estimate implied a QBO self-employed subscriber growth of 64.8 percent in 2018, a notable deceleration from 358.8 percent in 2017.

Therefore, the firm views the current guidance and estimates for QBO subscribers as conservative. The estimate for market penetration in 2018 is also conservative, the firm added.

Related Link: Here's What Happened Last Time The U.S. Implemented Major Corporate Tax Reform _________ Image Credit: By Coolcaesar - Own work, CC BY-SA 4.0, via Wikimedia Commons