Intuit cuts outlook, cites cloud 'transition year'

Intuit cuts outlook, cites cloud 'transition year'

Summary: Intuit's cloud shift is going to hurt in the short term, but the company is betting on a recovery after the fiscal 2015 pain ahead.

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Intuit cut its outlook for the fiscal year ahead as the shift to subscriptions will ding license revenue as the company transitions to a cloud development and product model.

The company's fourth quarter revenue was stronger than expected, but earnings fell short. The company reported a fourth quarter loss of $73 million, or 14 cents a share, on revenue of $714 million, up 13 percent from a year ago. On a non-GAAP basis, Intuit reported a loss of a penny a share.

Wall Street was expecting non-GAAP earnings of 7 cents a share on revenue of $699.5 million.

Intuit's fourth quarter is historically one of its weakest coming off a third quarter driven by tax software revenue. Simply put, Intuit makes most of its profit in the third quarter as customers file taxes in April.

What's also happening at Intuit is that small businesses are shifting to the cloud en masse. Intuit said it had 30 million cloud customers. That shift affects software companies that depend on licensing for revenue because sales are spread out over time. Adobe was among the first to make the shift, but Oracle, SAP and a bevy of others are transitioning to a recurring revenue, but lower gross margin software businesses.

Intuit CEO Brad Smith said:

Our acceleration to subscription services and the changes to how we'll develop desktop products beginning in fiscal 2015 will result in recognizing desktop revenue over time instead of as up front license revenue, as we've historically done. This creates a transition year in fiscal 2015 for reported financial results. We fully expect fiscal 2016 results to return to double-digit top and bottom line growth.

For now, Intuit's subscription model will result in some short-term pain. For the first quarter, Intuit projected a non-GAAP loss of 20 cents a share to 21 cents a share on revenue of $620 million to $630 million. Wall Street was looking for a non-GAAP loss of 3 cents a share on revenue of $699.5 million.

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As for fiscal 2015, Intuit projected revenue of $4.27 billion to $4.37 billion, down 3 to 5 percent. Non-GAAP earnings will be $2.45 a share to $2.50 a share. Wall Street was looking for non-GAAP earnings of $3.97 a share on revenue of $4.85 billion.

The big fiscal year miss is largely due to Intuit's tax software cash cow moving to the cloud. Intuit said professional tax revenue will fall 34 percent to 37 percent. Consumer group revenue will grow 3 percent to 4 percent for the year and Intuit added that small business sales will fall 3 percent to 6 percent. Small business licensing revenue will fall, but QuickBooks Online subscription growth will be 35 percent to 39 percent.

Intuit is planning its 2015 cloud transition funk to be short-lived. The company said in fiscal 2017 it will hit revenue of about $5.8 billion, or 9 percent over the next three years. With non-GAAP earnings per share of $5. QuickBook Online subscriptions will total about 2 million in that time frame with a annual compound growth rate of 40 percent.

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Topics: SMBs, Cloud, Enterprise Software

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3 comments
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  • I avoid them

    Because of the massive lobbying they do to prevent the free online tax filing by individuals directly to the IRS.
    TehBlahb
  • Intuit and other need to be careful

    Intuit and other software vendors trying to push customers onto the cloud need to be very careful. We use separate instances of Intuit software (QuickBooks) to manage both out Aussie and UK accounts.
    It seems to me that many software vendors forget that they operate in the rarefied atmosphere of their corporate offices where access to good speed broadband service is taken for granted. Unfortunately we don't enjoy such luxury. Despite running our business only 45km away from Melbourne CBD, we don't have access to any form or fixed line broadband service such as ADSL. We are totally dependent upon a relatively low speed, unreliable and incredibly expensive wireless broadband service. There are many businesses in Australia still operating under such constraints.
    Moving to the cloud to manage our accounts is not a practical option for us even if we wanted to. They and other software vendors will lose us as a customer if that is the only option they offer in the future.
    Ellerton88
  • Salesforce for Quickbooks Axed - 1 QTR left to replace it

    Here's a consequence of SMB moving to the cloud - product evaporation. Intuit announced today the end of Salesforce for Quickbooks. Last day of service is December 3, 2014. Barely one quarter to source, vet, implement and debug a replacement product.

    As fast and easy as it is to sign up with a could service, it can evaporate just as quickly.
    Moejurray