Intuit Inc. (NTU), H&R Block, Inc. (HRB): A Leader in 2 Markets Makes for a Good Investment

Page 1 of 2

Some of my favorite companies to follow are those that not only lead, but dominate their field. These types of businesses are interesting because they have positive catalysts such as pricing power and cost efficiencies working for them, but disadvantages such as difficulty in growing sales. Intuit Inc. (NASDAQ:INTU) is one of these companies, and is the clear leader in do-it-yourself tax preparation software (TurboTax), as well as small business software (QuickBooks). Can you tell me, off the top of your head, who is the number two in tax-prep software? Small business accounting software? Me either.

First the good…

Intuit Inc. (NASDAQ:INTU) derives about 45% of its revenue from TurboTax, 40% from its small business software products, and the other 15% from products that serve financial services and international clients.

Intuit Inc. (NASDAQ:INTU)In my opinion, the bright spot in terms of future growth potential is the small business software. During periods of economic recovery and growth, the number of new small businesses skyrockets, as well as the need for accounting and payroll software. As of the last available data, QuickBooks has a market share of well over 90% in this field. The company also has a lot of potential to expand its cloud-based and software-as-a-service small business offerings, which is the direction the market is heading and is potentially a very lucrative way to sell software.

Another area of growth potential is the “other” 15% that I referred to earlier. The company has been a leader in software for do-it-yourself for some time, and has recently begun to expand its focus on offering solutions to professionals such as accountants, financial institutions, and health care providers.

Tax software challenges and how Intuit will prevail

One of the challenges in the coming years will involve the tax software business and how to produce growth. For years Intuit Inc. (NASDAQ:INTU)’s revenues grew tremendously, as more and more taxpayers transitioned to online filing of their tax returns, and revenues have almost tripled in the last decade as a result. However, the latest available data from the U.S. Treasury shows that more than 80% of U.S. taxpayers now file their returns online, and that the growth rate of this percentage is slowing down, meaning that any revenue growth will need to come some other way.

On a positive note, there has been somewhat of a transition away from retail-based tax services such as H&R Block, Inc. (NYSE:HRB), which provides significant opportunity for TurboTax to capture additional market share. H&R Block has claimed that about 60% of taxpayers hire someone to help with their returns – either an accountant or a retail tax-prep company.  The company has a dominant market share in the “assisted tax return” segment, and dominates the space, processing about one-sixth of all tax returns filed in the U.S–about 25.6 million returns.  To further emphasize H&R Block’s absolute dominance in the space, consider that they assist with over 10 times the amount of returns as their nearest competitor.

One way that Intuit Inc. (NASDAQ:INTU) is trying to improve their TurboTax franchise is by making the online experience more personal for its users, and allowing them to plan for taxes in the future by analyzing their life events, such as marriage. The company hopes that this will lead to greater customer retention, and hopes to optimize the experience to try to lure away some of the tax professionals’ customers.

Threats and competition

One threat that needs to be taken seriously is that retail tax services like H&R Block, Inc. (NYSE:HRB) could start taking more of the market share by offering some type of incentive. I don’t see this happening anytime soon, the primary reason being the considerably higher cost of retail tax preparation (about 4 times that of using software)–but it is certainly something to keep an eye on.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!