(Bloomberg) — Intuit Inc. reported tax season revenues that exceeded estimates as more customers opted for higher-priced features. Still, shares fell on investor concerns about a loss in the number of people using the company’s TurboTax service for free.
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Fiscal third-quarter revenue rose 12% to $6.74 billion, Intuit said in a statement Thursday. Analysts estimate an average of $6.64 billion, according to data compiled by Bloomberg. The period ending April 30 — including tax season — is the most critical for the maker of TurboTax and other financial software. Earnings, excluding some items, amounted to $9.88 per share, while analysts on average had expected $9.38.
Intuit recently focused its TurboTax software on people with more complicated tax situations who may need online help from experts. The company has also expanded artificial intelligence features in its products. These investments seemed to pay off, with the average TurboTax user spending 10% more on their filing this year compared to a year ago.
But Intuit saw a decline in lower-end customers. Ten million people used TurboTax for free this year to file their taxes, down from about 1 million a year ago, the company said. It also lost market share among low-paying customers.
During an earnings call after the results were released, company executives were asked about the cause and implications of this decline. Keith Weiss, an analyst at Morgan Stanley, asked why Intuit can’t use TurboTax to appeal to the upper and lower end of the market. The competition for lower-paying and free customers raises “questions that could be on the minds of investors,” wrote Raimo Lenschow, an analyst at Barclays.
Chief Executive Officer Sasan Goodarzi shrugged off the importance of the free customer base. Some people are “just really looking for free tax software — moving back and forth between platforms — and we’re not interested in pursuing those customers,” he said. Goodarzi also highlighted that TurboTax has been gaining market share among people who have traditionally hired an accountant to handle their tax returns.
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Some of those departing customers may have opted for an Internal Revenue Service pilot of free tax software, which was available in a limited number of states this tax season and used by about 140,000 people. Intuit has long lobbied against government efforts to offer software to help people file their tax returns online, calling it unnecessary because private companies already offer it for free.
Shares were down about 7% in extended trading after closing at $662.26. The stock was up 6% this year at the close.
Investors might also have wanted to see stronger results from business-focused products like QuickBooks Accounting, said Niraj Patel, an analyst at Bloomberg Intelligence. Revenue for the QuickBooks unit, which is aimed at small businesses and the self-employed, rose 18% to $2.4 billion, roughly in line with average estimates.
For the current quarter, total revenue will be about $3.1 billion, higher than analyst estimates. Earnings, excluding certain items, will be $1.80 to $1.85 per share in the period ending in July, compared with $1.93 expected by Wall Street.
The company separately announced that Credit Karma CEO Kenneth Lin will leave at the end of this year. That could indicate more disruption, Patel said.
Read more: Intuit’s closure of Mint went better than expected, says CEO
Credit Karma is a loan consolidation service acquired by Intuit in 2020. Joe Kauffman, the unit’s president, will take over from Lin effective Aug. 1, the company said. Intuit is currently working on steering customers of Mint, a financial management app acquired in 2009 and recently shuttered, toward Credit Karma. The company now expects Credit Karma’s full-year revenue to rise about 2% to $1.66 billion – up from previous expectations of roughly flat revenue.
(Updates with analyst commentary in fifth paragraph.)
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