On the one hand INTU appears a screaming buy, and a better bet on
the Internet than any pure play, certainly risk-adjusted. OTOH,
its valuation relative to such as AOL's gives pause re. the market
psychology at work.
In short, INTU has real earnings and a business rooted in more mature
models (software/retail), and the market tends to focus on them. AOL
by contrast still has only promise, which incents imagination and
expectation. In fact, IMO the world will change for AOL stock when it
reports real earnings -- just as happened with INTU and NSCP. The
market will have tangible familiar yardstick of valuation. Same thing
will happen with the likes of YHOO, LCOS, XCIT and SEEK.
Certainly INTU is in better competitive position. Quicken has 80%
market share and has soundly fended off challenges from Microsoft
and Computer Associates. There's no equivalent to telcos in the
wings; nor legions of Lilliputians taking shots at various parts.
And though MSFT continues to try with Money, it is puting far more
resource into MSN.
Arguably INTU's customers are more locked in than are AOL's.
(Just try changing home or small business accounting software!)
It has incredibly profitable income stream from sale of supplies
like check blanks that still is growing 15-20% PER QUARTER.
Since the 1996 version, Quicken has had seamless links (via special
version of Netscape) to its website (www.qfn.com), telecom access to
the basic features of which is FREE. The site is among the top 20-30
in terms of access, despite that relatively small percentage of Quicken owners have yet upgraded to the latest versions. Users can also upgrade to full Internet access at competitive rates. Concentric Networks is the provider.
Focus of INTU's Internet efforts is enabling customer to "save money"
-- a pretty powerful draw. INTU is positioning as middleman. The
marketing equation should enable continued free access to its web
sites that sell stuff and draw users with lots of useful information
and utilities -- stand alone as well as Quicken and QuickBooks-integrated. IOW, INTU is positioned to make money off of even AOL's eyeballs.
MSFT failed in merger attempt. But INTU could be good fit with
many other companies. CU comes to top of mind.
INTU also has been building significant overseas presence, notably in
Germany and Japan.
And, despite the Internet, it's deep roots in the retail store and
direct mail channels are a huge plus.
On the downside it has had problems finding the right online niches.
It divested its home banking stuff to Checkfree after banks balked at
possible submission of their own brand identities to Quicken. Also it
has forecast slower growth of software sales in the second half; and
tax software remains hotly price competitive. Though TurboTax has this
year garnered the review laurels, HRB is pricing Tax Cut up to 50% less-- as little as $6 via `money back guarantee/pay only shipping' offer. Nonetheless, TT outsells TaxCut 2.5-1 on unit basis and 4:1 on dollars. HRB's strategy of cannibalizing $50 per shot tax prep business with $6 product is a bit puzzling. Clearly it is out to build market share, but to what end? |
