Remember that flap over Intuit's decision to charge fees for multiple tax returns (and its call to rescind them)? We now know what the tab was.
In an otherwise fine third quarter, Intuit revealed that the fee issues did put a dent in results. Intuit's consumer tax return business is expected to grow 5 percent to 7 percent for fiscal 2009 instead of the previous estimate of 8 percent to 12 percent.
CFO R. Neil Williams said on Intuit's conference call:
Consumer tax third quarter revenue was $777 million. Year-to-date revenue was up 7% from last year and year-to-date total consumer tax units were up 11%. Revenue per return was in line with last year, but total revenue did not come in where we expected.
The shortfall was primarily due to our decision partway through the tax season to eliminate charges for multiple returns prepared with the TurboTax desktop product. While we anticipated an adverse impact from the change, we expected to make up the shortfall with higher unit volume. Though the season-end peak was higher than last year, it wasn’t as high as we had expected.
Overall, Intuit's decision to rescind fees for multiple returns was the right one. And it's not like Intuit is hurting financially. Intuit reported third quarter earnings of $1.68 a share compared to Wall Street estimates of $1.60 a share. Third quarter revenue was $1.43 billion compared to estimates of $1.41 billion. Meanwhile, Intuit maintained that it is taking share from low-end tax preparers and free products.
Our free offering performed as expected and brought in lots of new profitable customers and we gained share versus low-priced competitors and tax stores. We are still analyzing the season and will have more information at investor day.
Intuit CEO Brad Smith said Intuit was expecting a rush toward the tax deadline and it never came.
Revenue was disappointing for us in total but here is what we feel good about. We grew customers 11% year-over-year and we grew them 36% on line which you know that is the game to be played in the future. We were able to take share this year from tax stores and from the low end competitors on the web. In doing that we were able to hold revenue per return and margin in the segment year-over-year. You put all that together and what we have boiled it down to on our side is the fact we made the decision as we entered the season to do the right thing for the customer and that was to bundle our e-file price into our desktop product and that created a revenue divot. We thought we could offset that with incremental units and we were able to offset some of it but not all of it.
Jeffries analyst Ross MacMillan called the tax revenue disappointing, but added that Intuit's pricing held up. He said Intuit performed well in its third quarter and has proven adept at managing costs. But Intuit is still waiting for the economy to improve for its SMB customers.
And that improvement may take awhile. Smith said:
I think small businesses are the last ones to become pessimistic about the economy and I am not expecting we are going to be the first ones to see the optimism coming out. That is simply because on a day to day basis they find ways to fight through whatever the current environment is. I would say that what we actually look at is their behavior. Are they making purchasing decisions? Are they able to get customers when we talk to them? Are they able to actually keep the customers they have? Are they able to collect the bills from their customers? Right now I would say that it is still a dog eat dog world for small businesses but again they are finding ways to make it happen.