Wide-Moat Intuit Shares Are Cheap Despite Bad Karma in the Near Term

Wide-moat Intuit’s INTU second-quarter results beat our expectations all around, as its core business held up well despite Credit Karma macro-related weakness. With reiterated fiscal 2023 guidance, we’re retaining our fair value estimate of $503, which leaves Intuit stock significantly undervalued, in our view. We believe that the market is not fully baking in the long-term potential of Intuit expanding its software ecosystem for small business owners and year-round personal finance offerings. We continue to be impressed with Intuit’s level of internal innovation and ability to make smart, synergistic acquisitions. In the short term, we trust that the outlook for the year is de-risked, as a result of levers the firm has to pull—such as cutting back on marketing expenses. As a result, we think that upside for the year isn’t out of the picture.

Intuit reported second-quarter revenue of $3 billion, a 14% year-over-year increase. The small business and self-employed group’s revenue for the quarter was $1.9 billion, marking an increase of 20% year over year. While the consumer group also posted the most year-over-year growth at 26%, Credit Karma decreased by 16% year over year, as the business was the most macro-affected segment under Intuit’s wing. Personal, home and auto loans depressed Credit Karma sales even with growth from Credit Karma money and credit cards. On profitability in the quarter, Intuit reported non-GAAP EPS of $2.20.

Intuit reiterated guidance for fiscal 2023, which assumes revenue of $14.04 billion to $14.25 billion. Management guided for fiscal 2023 non-GAAP operating income of $5.26 billion to $5.36 billion, and non-GAAP diluted earnings per share of $13.59 to $13.89. We think these targets are achievable, especially with opportunity on the horizon in QuickBooks’ new B2B digitized payment capabilities that were launched in the quarter. In addition, we’re confident about solid international growth underway, as Intuit focuses on globalizing Mailchimp.