Since takeover talks with Microsoft Corp fell apart last year, financial software house, Intuit Inc, has looked increasingly vulnerable, reports our sister magazine – Computer Business Review.
In the middle of 1995, Scott Cook, the chief executive of tax and home banking software supplier Intuit Inc, stepped up to the podium at Stanford University Graduate School of Business and collected his award for leading the Entrepreneurial Company of the Year. At the time, the award seemed a little ironic. Microsoft Corp had just abandoned a $2bn takeover of Intuit in the face of opposition of from the US Department of Justice, which was concerned about a potential monopoly in personal finance software. But Cook, nevertheless, had good reason to be pleased with himself; in spite of a patchy profit performance, mainly due to acquisitions, Intuit was enjoying revenue growth above 30% and was the runaway market leader in its sector. But almost since that date, Intuit’s future has become increasingly uncertain and its prospects appear somewhat confused.
Enraptured
During discussions about the Microsoft takeover, Cook had become enraptured with Bill Gates, and the two shared a vision of creating a new financial services giant operating wholly in ‘cyberspace’. Not only would Intuit provide all the frond-end software, but Intuit’s services unit, linked to the Microsoft Network, would be able to charge for handling transactions. Once the takeover broke down, both companies were forced to open hostilities again; and since then, Intuit’s competitive position has weakened while Microsoft’s has continued to strengthen. Last month, Intuit’s consistent revenue growth suddenly flattened out, causing its share price to fall and forcing analysts to ask if Intuit is really as well positioned as it has been saying. Even after its shares fell, four Intuit executives sold shares in the company. Although these were triggered because of the timing of the share options plan, company watchers noted that they did not hold on, waiting for a recovery. Co-incidentally, Cook was forced to issue a no comment to rumors that American Express Co wanted to buy Intuit as a springboard into home banking. Making sense of Intuit’s business is not easy. Most of its revenues come from two top selling software packages – Quicken for home financial management and banking, and TurboTax. Sales of both are seasonal – especially Turbo-Tax, which is hugely popular for people preparing their accounts in the first quarter of the calendar year, and barely sells at all during the rest of the year. This, along with recurring acquisition charges, accounts for the fact that Intuit always loses money in its quarters ending in July and October. To make matters more confusing, Intuit has bought two major companies in the last two years, Parsons Technology Inc and GALT Technologies Inc, and is currently in the process of selling its services business – which means the figures are being continually restated. For its quarter ending this October, it lost money as usual – $28.3m, up from $21m last year. But what worried analysts the most was its revenue figure, flat at $102m. Until now, Intuit has been forgiven its operating losses because it was growing so fast, and it has been viewed as a high-flying, fast growing stock with a foot in the Internet. Cook says the slowdown is largely due to one-off factors, such as an attempt by Intuit to re-organize its channels to provide a more even sales spread – an explanation that only partially placated Wall Street. But there are other, more strategic concerns. After the takeover with Microsoft was called off, Intuit focused on building up a services business based on processing online financial transactions – but this unit unsettled banks and other financial institutions for competitive reasons. Intuit, fearing a knock on effect on sales of Quicken, sold the business to Checkfree Corp during this Summer in return for just under 20% of its shares – which means Intuit does not have to take Checkfree’s losses onto its books.
Core business
With that strategy gone, Intuit is now focusing on its core business, and on providing information, services and software in specific niche markets, such as unit trusts and insurance. But analysts are starting to worry whether that will be sufficient. Intuit is staring down the barrel of a gun, and that gun is the Internet, said Forrester Research Inc analyst Karen Epper. She argues that the Internet is making financial management easier, and that many financial institutions will allow users to fill in forms and carry out transactions directly, using their Web pages. Although Intuit can point to the fact that only a tiny percentage of US citizens, and still fewer in the rest of the world, have yet to carry out any financial management on a personal computer, some analysts say that Intuit needs to develop and clarify its post-Internet strategy. Although Cook is on record as saying the company is absolutely not for sale, Intuit may need to be part of a larger group in order to fulfil its potential.
