Guru Focus writes: As the cloud market is maturing with time, more and more software companies are introducing the SaaS (Software as a Service) business model to leverage their top and bottom lines. Intuit (INTU) is one such company that has embraced cloud technology by providing its software solutions on SaaS model.
Intuit’s “QuickBooks” is an established brand for accounting software solution for small and midsized businesses that is not also available as SaaS. The company has a strong foothold in the U.S., and is now further establishing its footprint in the global market. The company is also rated as one of the most innovative companies by Forbes. Gartner has also endorsed Intuit as the fastest growing financial software solutions company. The company might be recording losses but the SaaS model can stimulate its growth in the future.
The company’s recently declared quarterly results might have not impressed investors, but this is not the end of the journey. Revenue was down by 11.5% on a year over year basis to $782 million. The decline was mainly due to delays.
Intuits paradigm shift to SaaS has started revealing positive results. It witnessed subscriber growth for QuickBooks that was up by 30% year over year. This subscriber growth will always add on to sustained revenue for Intuit in the future in terms of licensing from SaaS applications. It also recorded a growth in its online payroll services which was up by 20%.
Intuit’ Demandforce is also recording subscriber growth. This is good news for investors. Demandforce targets the fast growing messaging and mailing solutions market and intuit recorded revenue growth of 32% year over year while its subscriber base grew 33%
Targeting the right markets
The company’s focus on its cloud-enabled applications offered as SaaS did offset its declining revenue. The success with Online QuickBooks is exemplified by it recent results which show growth in subscribers across small businesses.
Intuit has been also relying on it global operations, and to endorse its global expansion policy, it launched the Spanish version of QuickBooks for a wider footprint. Spanish is the official language in 14 countries, mainly in South America. The multi lingual feature will certainly be beneficial for Intuit to acquire a wider client base.
The company has been recording higher overseas growth than in the U.S. Recently, Intuit started operations in India, which is one of the fastest growing markets for Intuit. Some hindrances like software piracy might be an obstacle to its growth, but Intuit’s QuickBooks on cloud is offered as SaaS, and this enables it to overcome this obstacle.
Businesses of all dimensions in India, mainly small and medium-sized, are embracing accounting software in their day to day business operations. The accounting software market size in India is anticipated to grow at a CAGR of 19.2% from 2010 to 2106. Software spending in India is likely to scale up from $1,989.9 million in 2009 to $4,673.5 million in 2014, posting a CAGR of 23%.
Intuit is now an established name in India, although it does face stringent competition from various privately-held software companies such as Tally, which is an established name among various individuals and businesses in India. As QuickBooks is available as SaaS on cloud, this offers Intuit an upper hand as compared to Tally.
Another market that Intuit should look to tap is China. China is already leading the financial accounting market and by 2014, this market will reach $600.9 million due to strong demand from SMBs. The biggest issue in China is that there is no law for piracy control that resists many companies to market their services in China.
Despite excessive piracy of software, Intuit can always explore the big market of China with its cloud-enabled accounting software solution with SaaS model, which overrides piracy possibilities. Intuit can certainly have a positive impact on its balance sheet if it starts tapping the business accounting market in China.
Conclusion
Although the company’s quarterly results might have not been as per the consensus expectations, but Intuit still can be a safe bet. The revenue might have dropped from the year ago quarter, but it is recording constant growth from its cloud applications and in the future, this will have a positive impact on its growth.