Intuit’s Turbotax ‘is going to have a strong finish,’ analyst says

Oppenheimer Analyst Scott Schneeberger joins Yahoo Finance Live to discuss the 2022 tax season and the outlook for tax prep stocks.

Video Transcript

BRIAN SOZZI: Luckily for Intuit, though, it has used its massive cash pile to diversify away from just taxes, scooping up Credit Karma and Mailchimp most recently. Let’s zoom in on Intuit’s stock with Oppenheimer analyst Scott Schneeberger. Scott, good to see you here this morning. How do you think this quarter is shaping up for Intuit?

SCOTT SCHNEEBERGER: Yeah, well, we’re now in the April quarter, which is tax season. And this year, the last two seasons have been a little unique in their timing, beginning and end. But this one is back to normal, so mid-April end. And I do believe that Intuit is going to have a strong finish. It’s been a strange tax season, like you mentioned. It started– it has started very slow. And that’s not just for TurboTax, it’s overall for the entire industry.

Last quarter, a quarter we call, which was in late February, the company said that it actually felt it had taken share in the early season. It’s a little early to tell, but from the metrics they had seen. So we think there’s going to be a big surge in April on a lot of pent-up activity. And we think that Intuit will get its fair share and perhaps then some more.

JULIE HYMAN: Scott, it’s Julie here. We have seen reports that the IRS is understaffed, overwhelmed, that they’re sort of bracing for more chaos, as we’ve been talking about. Are there any implications for Intuit because of that? Does it cause it to have any deferred revenue, for example, when stuff like that happens?

SCOTT SCHNEEBERGER: Yeah, it’ll be interesting to see, just not certain why the season so weighed. Obviously, there’s been stimulus in past seasons. And maybe with that not as active, some people are waiting. It’s just not clear. But yes, I’ve read that it’s 24 million returns from last year are still backed up at the IRS. It is understaffed. That is a problem. Will that have any direct impact on TurboTax this year? I hope not. I don’t think so.

Story continues

It’s really, I think what’s most important is in this April surge, that, clearly, there will be, I just think that Intuit software has to be able to do its job getting it over to the IRS. And as long as the IRS can accept it in a timely manner, which hasn’t really been a problem historically, I think it should be OK. It’s just then the processing on the IRS side that may take longer.

And that would just– that would affect the consumers, the users of the product in preparing their taxes. It would just cause delays for them. Obviously, already, 24 million are enjoying that from last year. And that might be a reason this year started late, or maybe they’re waiting to file before that happens. So that could all push later. The fiscal year end for Intuit is July. Hopefully it all gets cleaned up and can be reflected within their fiscal year as far as how it affects their financials.

BRIAN SOZZI: There’s been some chatter, Scott, that Intuit has pushed through some pretty sizable price increases for its products. Have you been tracking their prices? And how much have those increases been?

SCOTT SCHNEEBERGER: Yeah, we do track their pricing very closely, as well as H&R Block and others in the industry. Yeah, it’s– they have a lot of tiered level offerings. And really, the big push this year on their basic do-it-yourself tax preparation software, that really hasn’t changed year over year. That pricing has largely remained the same. But in the last four years, they’ve offered TurboTax Live, which is where you’ve seen the TV commercials for this. You can get a human on your computer or your phone to help you with it. It’s a little bit higher price point. It’s very good for Intuit.

And what they’ve done is they’ve historically offered that with an early season discounted price and a late season price that’s higher. This year, it’s been the same price all year long, which is, in a way, a price increase. And they’ve also had a little bit of a rate increase on that offering. The offering has been very popular. It’s new, just in the last few years, like I mentioned. And it makes sense because it’s still– it’s their penetration into the assistant market using a tax professional. And they’re still at a very reasonable price point.

So they have room to do this. And it has grown very nicely in recent years. And I think it will grow again. And it has a favorable, obviously, revenue per tax return impact for the company. So that should help out. And then they’re running some discounts as well, some free discounts, as they always do. And that’s a little bit different in some of the tiers this year, which present an offsetting headwind.

But that’s a grab to get more users into the system. So it helps for the long-term. And I think net, they’ll come out favorably on revenue per return this year, like pricing. So I think it’ll be a good year. I think they’ll make their revenue guidance for the consumer segment where TurboTax is of 10% to 11% growth year over year.

BRIAN SOZZI: We just– Scott, we just talked to Intuit CEO, Sasan Goodarzi, about his acquisition strategy. Take a listen to this. I want to get your reaction on the other side.

SASAN GOODARZI: We are working to integrate the platforms. So Mailchimp and QuickBooks capabilities are really– serve as one for small businesses so we can fuel their success. And that’s really where the acceleration priorities that you mentioned come in. We have three of them. One, it’s to create a growth platform. Two, it’s actually to go up to mid-market to serve small businesses between 10 to 100 employees. And then international, 50% of Mailchimp’s customers and revenues outside of the US, they have a wonderful self-serve platform, but they’ve not actually invested a lot internationally.

BRIAN SOZZI: And Scott, I had asked Sasan about whether he has any desire to go out there and buy a trading platform. At least to me, that seems like a logical evolution of what this company is doing. They’ve been very aggressive in terms of acquisitions. Where else do you see them playing?

SCOTT SCHNEEBERGER: Yeah, they had not done large acquisitions for years and years. In fact, they had a somewhat negative reputation for acquisitions. I’d say these past two big ones that they’ve done, just in the last couple of years, in Credit Karma and then Mailchimp, very strong acquisitions, used their currency when it was strong in their stock price to do them.

And I think they added, combined, about $50 billion of targeted addressable market for the company. So I would say they might pause for now and just integrate these two because they were very sizable acquisitions. And they really are powerful. I think they can fuel what was already solid growth for the company for a long way to go.

As far as what’s next, as I mentioned, I’d like to see them hold off a little bit. There are a lot of directions in which they could go. They really want to build their consumer finance platform. And they’ve done that certainly with Credit Karma. Mailchimp really helps on the QuickBooks side, the small business side. There’s some padding they can do. I don’t see a large one that they need to do. It doesn’t mean they won’t do it, but I don’t expect anything in the near term.

JULIE HYMAN: And Scott, I also wanted to ask you– and this might be a minor issue or a non-issue for the company. But I am curious. There were some reporting by ProPublica over the past several years that TurboTax was not offering the free option that the IRS basically mandates that they offer, and that this was something that the company was doing wrong and maybe even knowingly doing wrong. And I’m just wondering if there is any regulatory risk when it comes to those types of practices.

SCOTT SCHNEEBERGER: Yeah, that’s water under the bridge, I would say, at this point. And the essence of what was happening there was there’s a free file alliance created by the IRS, partnering with the tax preparation companies, to make– to promote e-filing and make it very affordable for a large population of the country. And so it started out where everyone was doing the same. Over time, on the commercial website for TurboTax and H&R Block and others, they would offer free as well.

And so then the lines became blurred about what you could offer as well with that. And that’s how that whole issue came to be. And it really– it was everyone was honoring the spirit of trying to provide the customer with a reasonable price option and to promote e-filing. And it’s largely been accomplished, so we’re kind of on to a next chapter from that. And I don’t see a lot of– there’s been some behind the scenes activity, but that’s largely gone by the wayside at this point. I don’t think there’s a big financial risk lingering there any longer for Intuit or H&R Block for that matter.