Showing posts with label INTU. Show all posts
Showing posts with label INTU. Show all posts

Friday, January 21, 2011

Intuit's Annual Shareholder Meeting (2011)

(Image above was added and taken on July 12, 2012)

I attended Intuit's annual shareholder meeting on January 19, 2011. CEO Brad Smith was his usual effervescent, charismatic self and handled the informal presentation. Shareholders were treated to Peet's coffee, Odwalla juice, slices of cake, scones, and fruit as well as a complimentary Quicken 2011 or TurboTax Investments and Rental Property CD. (Unfortunately, I can't use either one because I use TurboTax and Quicken's business versions.)

Among CEO Smith's Powerpoint slides, several stood out:

1. Intuit sees the market shifting from DIY to "Do It for Me." For example, look at Quicken. It automatically downloads information for you and renders much of the accounting process automatic.

2. CEO Smith drew laughs when he said that these days, when someone asks whether you can type 60 words a minute, the answer is still yes--and he then proceeded to mimic the motion of cell phone texting. His point was that Americans are using mobile phones to replace older technology, and Intuit was ahead of the curve.

3. CEO Smith is focusing on growth in Southeast Asia and India, although Intuit does not offer tax prep services in India. Intuit's businesses in India revolve around helping small businesses advertise and acquire paying customers, especially through the use of mobile phone services.

4. One of the coolest new products is Snaptax. Taxpayers filing 1040EZ forms pay only $14.99 when filing their tax returns, which is a good return on investment if you receive any kind of substantial IRS refund. More here.

The Q&A session was interesting. One shareholder, a Mac user, explained his experience buying a Mac and Intuit's Quicken software. He patiently and intelligently explained that Intuit's latest version of Quicken for Mac was terrible--because it was a barebones version of the PC version--causing him to go back to the Apple store and demand a refund. Then, when he arrived back home, he uploaded his much older Quicken program, which had more features than the new version made specifically for Apple.

He said he was "pissed off" with the experience and wondered why Intuit was able to offer TurboTax to Apple users but not Quicken. (In a deliciously sardonic aside, he pointed to his complimentary TurboTax and Quicken CDs and referred to them as a local shareholder's "dividend." Intuit, despite its large cash reserves, does not pay a dividend.)

Mr. Smith explained that his team had chosen to focus on the PC version of Quicken after Apple's woes many years ago. Recently, however, Intuit developed a Quicken for Mac version from scratch called Quicken Essentials. This new software is only a few months old, and Mr. Smith said he hoped customers would understand the difference between Quicken for PC--which has decades' worth of improvements--and Quicken Essentials for Mac, which is a work in progress.

I asked how the government was helping Intuit and how it was hindering Intuit. Obviously, Intuit's tax software business relies on a reasonably good relationship with the government. (Page 20 of Intuit's 10K states, "[T]here have been significant new regulations and heightened focus by the government on these [tax, payroll, payments, financial services and healthcare] areas.")

Mr. Smith said that he hoped for a mutually beneficial partnership with the government. At the same time, the government can be a hindrance when it seeks to provide tax preparation directly to consumers, which is not the government's core competency. Each side should stick with what they do best, said Mr. Smith.

I also asked about improving Quicken with respect to uploading pictures of receipts and invoices. Many businesses keep their receipts and copies of invoices in shoeboxes or envelopes. Why not allow a user to take a picture of a receipt or invoice with his/her camera and upload it or email it to Quicken, which will automatically match the invoice/receipt with the appropriate line item?

One key issue would be whether the IRS will accept e-versions of receipts and invoices as sufficient evidence in case of an audit; however, even without full IRS acceptance, adding an e-receipts feature to Quicken would help small businesses stay organized. Mr. Smith said the company was working on a product called QuickReceipts.

On another note, I was really happy to get the opportunity to briefly chat with Intuit co-founder Scott Cook after the meeting. Mr. Cook, lest we forget, helped Intuit beat Microsoft during its heyday years when it tried to foist Microsoft Money on the public. In an ironic twist, Microsoft's software ventures outside of its dominant operating system software have been failures, primarily because it keeps trying to compete with other natural quasi-natural-monopolies like Intuit and Sony/Nintendo.

I mentioned to Mr. Cook that I wasn't so keen on the idea of looking for growth and profitability in India. India has a very fragmented consumer marketplace, making it very difficult for any company to establish a dominant foothold (which harms a company's ability to increase its margins; it also has poor infrastructure; and most analysts who focus on India use financial projections based on overly optimistic macro factors (i.e., multiply anything by a billion and it looks like you can make lots of money). Mr. Cook politely explained that the first step was to generate revenue, and then profits.

I always enjoy Intuit's annual meetings and encourage shareholders to attend.

Disclosure: I own an insignificant number of Intuit (INTU) shares. I participated in one paid Intuit survey in 2010.

Thursday, December 17, 2009

Intuit Shareholder Meeting (2009)

I attended Intuit's (INTU) annual shareholder meeting in Mountain View, California on December 15, 2009. Upon entering Intuit’s building, shareholders were offered complimentary copies of either Quicken Premier or an Investments and Rental Property tracking software. Intuit also offered shareholders Peet’s coffee, Odwalla juices, mineral/bottled water, and various pastries.

I won’t hide my fondness for Intuit. I’ve been using Intuit’s products for years, and I think the company is a godsend for small businesses. CEO Brad Smith--who looks similar to Matt Damon--handled most of the meeting, which included a thirty-minute presentation. Below are the highlights of his presentation:

Although Americans have experienced high unemployment, small business formation has not trended upward, possibly because small businesses lack access to bank capital.

Intuit has acquired Mint.com and PayCycle, an online payroll service.

80% of Intuit’s sales come from word-of-mouth, i.e. personal recommendations.

1/3 of U.S. tax returns are filed using some Intuit software.

Intuit's major competition is the pen-and-paper (people don't use computers to do their taxes).

1/12 Americans are paid with Intuit’s payroll services.

Intuit is trying to improve first use and first year user retention. [Intuit users tend to remain loyal customers, but the difficulty is getting them to break old habits and learn new how to navigate a new piece of software.]

Intuit is focusing on emerging markets, such as India, and healthcare. The CEO mentioned that the average patient gets three medical bills before returning a payment, but Intuit’s software reduced turnaround time significantly. Cigna and other select healthcare providers use Intuit’s software, so it is not yet available to all patients or medical offices.

The Q&A session began with a shareholder questioning Intuit’s stock price. The shareholder compared Intuit’s stock price to Adobe’s (ADBE) over the past ten years. During that time period, Adobe shares have increased over 100% in value (10% annually), while Intuit shares have returned about 15%, or just 1.5% a year. The shareholder implied that R&D expenditures–which he cited at between 16 and 17% of revenue–were too high.

CEO Smith responded that Intuit’s R&D expenditures were in line with competitors’ R&D expenditures, and the reason Intuit’s stock price hasn’t performed better is because of a disconnect between the company’s expectations of growth and Wall Street’s expectations of growth. While Wall Street believes Intuit will likely grow only in the single digits, Intuit believes it will achieve double-digit growth, which should justify a higher multiple. Since Intuit already has a high share of the American market relative to competitors who offer similar products, there doesn't seem to be much room for domestic growth, and significant growth in international markets will take time.

I suggested that Intuit create an Audit-Defense software that would provide consumers with peace of mind in case of an audit. Right now, there are many consumers who have envelopes and/or folders filled with business expense receipts, as well as separate envelopes for canceled checks. Many consumers would appreciate a product that allowed them to ensure their receipts matched expense data entered in Quicken and/or TurboTax. Intuit could easily create a software program that reconciled consumers’ physical receipts and canceled checks with their expense entries on Quicken and/or TurboTax. This proposed product should include a mini-scanner to allow users to scan and upload jpegs of their business-related receipts so all of their data would be in one convenient place in case of an IRS audit. CEO Smith responded that Intuit was already working on something similar to my idea called QuickReceipts.

I also asked how Intuit planned on making money from its Mint.com acquisition. I sometimes read Mint.com's blog, but I don’t usually click on any ads on the website, and I don’t pay any money to use Mint.com. CEO Smith said that Intuit planned on making money through referral fees from Mint.com’s “ways to save” engine, which is similar to the way Google makes money from its AdWords program.

I mentioned that Intuit's biggest threat probably wouldn’t be another competitor, but its own potential mis-steps. Perhaps Intuit should make a more tangible assurance of its security capabilities. Why not advertise that if anyone actually gains access to a user's personal data, Intuit will pay the affected user $100,000? Why not put its money where its mouth is, and win over the remaining online skeptics? For example, LifeLock has a $1 million guarantee against identity theft. If Intuit had a similar policy, wouldn't more consumers trust the company and feel more comfortable rejecting the old pen-and-paper method? Intuit would probably argue that it would be foolish to issue a worldwide challenge to hackers, and there is no such thing as an "unhackable" database. Intuit's cautious approach is probably the right one, but without a guarantee, how will it convince the pen-and-paper holdouts to use its software?

I respect and admire Intuit, but I can also understand why Wall Street is hesitant to bid up its shares. Intuit runs its company like engineers who happen to have MBAs–conservative and focused on consistent growth without unnecessary risk. Wall Street must imagine Intuit to be a leaner Microsoft (MSFT), if Microsoft owned only its Office software suite–a highly profitable company with low maintenance products, but nothing revolutionary or indicative of a major paradigm shift like an iPod or a Google. If Intuit wants Wall Street’s respect, it needs to spend its ample cash and roll out riskier initiatives.

In conclusion, Intuit may believe it is growing adequately each year, and therefore has no need to make radical moves, but New York money managers probably view Intuit as a stodgy company that refuses to take risks. Indeed, one has to wonder why Intuit couldn’t invent something similar to Mint.com instead of having to buy it. Isn’t it a little strange when a software company’s most touted new product (Mint.com) was made by another software company?

Intuit needs to make up its mind: either be like Microsoft and pay a decent dividend and focus on consistent growth, or act like a growth company and use its cash to invest in new ventures or riskier acquisitions. Taking the middle ground–safe and steady–won’t gain Wall Street’s respect, even if Intuit is clearly an amazing company with good management.

Disclosure: I own an insignificant number of Intuit shares. I am also a user of its software.