On a cursory level, circumstances don’t seem too auspicious for Intuit (INTU), the software firm known for its TurboTax program. Primarily, the company released mixed results for its latest earnings disclosure, which soured investor sentiment. As well, the IRS inked a deal with Accenture (ACN) to upgrade its system, which might contribute to a direct free filing program that essentially competes with TurboTax.
On the other hand, bullish investors might not want to panic just yet on INTU stock. Arguably more elements about the aforementioned financial disclosure augur well for Intuit than impedes it. In addition, competition from the government regarding tax preparation is largely consequential on the surface. Deeper down, the matter is more complicated but shouldn’t stifle the tax-prep specialist.
INTU Stock Absorbs Excessive Heat
As StockStory mentioned on Tuesday afternoon, Intuit fell short against analyst expectations for certain key metrics. During the fiscal third quarter of 2023, the TurboTax maker posted revenue of $6.02 billion, representing a year-over-year lift of 6.85%. Unfortunately, Wall Street’s consensus target for the top line was $6.09 billion, a 1.23% miss.
Adding to the red ink, gross margin (on a GAAP basis) came out to 84.4%, down from 86.1% in the year-ago quarter. Combined, these metrics – along with consumer economy fears – were enough to send investors running for the exits. When the midweek session opened, INTU stock had already gapped down sharply, debuting at $421 per share. On May 23, INTU closed at $449.80.
However, many other key metrics boded well for Intuit. For example, the company posted non-GAAP earnings per share of $8.92, beating the Street’s consensus estimate of $8.49 (or a 5% beat). Further, free cash flow stood at $3.16 billion, up from the $229 million printed in the previous (sequential) quarter.
Most importantly, management lifted its revenue guidance for the full year. At the midpoint, the company believes it will ring up $14.3 billion, up from the prior midpoint estimate of $14.1 billion.
Still, the good news unfortunately wasn’t good enough for options traders. According to Barchart’s screener for unusual stock options volume, following the close of the May 24 session, total volume reached 34,296 contracts against an open interest reading of 82,823. Moreover, the delta between the Wednesday session volume and the trailing one-month average metric came out to 368.33%.
Drilling into the details, put volume hit 22,918 contracts while call volume mustered 11,378. This pairing yielded a put/call volume ratio of 2.01, favoring the bears. Still, forward-looking investors may want to give INTU stock another look before calling it a day.
Intuit Looks to the Gig Economy for Help
After the closing bell rang out for the midweek session, INTU stock dropped 7.53% of market value. Over the past five sessions, shareholders are now looking at a 5.37% loss. Since the January opener, INTU is still up a bit over 6%. While some investors might view this scenario as a warning sign, there could be bigger and better things in store for Intuit.
For one thing, it’s doubtful that management would deliberately raise pressure on itself with a revenue guidance lift without justification. Second, the burgeoning gig economy may provide a massive catalyst for INTU stock.
According to Business Research Insights, the global gig economy reached a valuation of $355 billion in 2021. By 2028, experts project that the segment could hit $873 billion, exhibiting a compound annual growth rate (CAGR) of 16.18%.
Fundamentally, this framework is critical because of the underlying tax implications. While employers file Form W-2 for their employees regarding disclosures of wages, tips and other compensation, independent contractors (i.e. gig workers) file their taxes based on Form 1099. Long story short, the IRS views freelancers as business entities, dramatically changing the tax filing process.
Generally speaking, if a W2 employee lacks any unusual taxable events – such as day trading cryptocurrencies – the filing process is straightforward. Taxpayers have several choices regarding free tax prep software and guidance.
However, so-called 1099 taxes are a different animal. Here, myriad questions may arise, such as what’s deductible and what’s not. In those cases, expert guidance – not just a mechanism for digitally filing paperwork – may be necessary. That’s Intuit’s forte.
Background Noise Is Just That…Noise
On Wednesday morning, Accenture announced that it secured an up to $2.6 billion deal with the IRS to modernize the agency’s systems, according to Reuters. Earlier this month, the IRS stated it would launch a free, government-provided direct tax filing option next year. However, Intuit declared that it doesn’t view the matter as a threat.
Obviously, corporate executives put a positive spin on news that impacts their business. However, in this case, Intuit arguably does not need to fret. When it comes to the more complex tax challenges, consultancy – with real human experts – becomes vital. Hence, H&R Block (HRB) popped up nearly 3% on Wednesday.
Still, Intuit offers a range of consultancy and guidance options that can help navigate the “real” problems that taxpayers face. Therefore, I’m more inclined to believe that the red ink in INTU stock is an excessive reaction to background noise. Deep down, the fundamentals appear solid.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
