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Could the Intuit stock benefit from side hustle growth post-earnings?

The Intuit [INTU] stock has gained a hefty 43% since the start of the year, as of 20 August. While there was some choppiness in the first few months of 2021, since mid-May the Intuit stock has enjoyed a near-continuous upward trend, climbing from $392.54 on 10 May to $545.3 on 20 August – a 39% gain.

Over the past month, Intuit has continued its strong run, gaining 6% (through 20 August). The Inuit stock has outperformed the wider Nasdaq and the Global X FinTech ETF’s [FINK] 3.9% gain in the same period, with the stock accounting for 6.48% of the fund, according to data from ETF.com.

 

 

Driving the gains has been more people starting their own businesses and looking for software to manage the onerous – but necessary – accounting side for them. But will this trend continue in upcoming fourth-quarter earnings?

 

Why should investors care about the Intuit stock?

Even before the coronavirus pandemic hit, Intuit’s business was booming. More people were becoming self-employed or starting their own businesses choose the easy-to-use accountancy software to complete tax returns and keep on top of finances. Between 2018 and 2019, 672,890 new companies were registered, according to data from Companies House, an 8.5% year-on-year increase. The pandemic has only accelerated this trend.

In December 2020, the Financial Times pointed out that the number of new businesses being registered that month had grown 30% compared to the same period the previous year, with the annual growth rate being in double digits since June 2020. And it’s not just people going it alone, many people have used the pandemic as an opportunity to start a side business on top of their day-to-day work, with the term side hustle entering the workplace lexicon.

$4.2billion

Intuit's Q3 revenue

  

All these new businesses will either need an accountant to do their taxes or the type of software that Intuit provides.

The growth in new business seen in the pandemic has played out in Intuit’s earnings. In the set of quarterly numbers, Intuit posted revenue of $4.2bn, up from $3bn the prior year. Intuit’s Consumer Group revenue grew 34% to $2.4bn, while its small Business and Self-Employed Group revenue increased 20% to $1.2bn.

During that earnings result, Intuit upped its full-year guidance across the board. GAAP diluted earnings per share is now expected to come in at $6.96 to $7.01 for the year, an increase of approximately 1%. Revenue is now pegged at $9.362bn to $9.4bn, up circa 22% year-on-year, and an increase from the previously guided 15% to 17% worth of growth.

“We had a strong quarter across the company, and as a result, we are raising our full-year guidance,” Sasan Goodarzi (pictured), Intuit’s chief executive officer, said. “We had a great tax season growing our share of total tax returns and executing our strategy of expanding our lead in the DIY category and transforming the assisted category. Small Business and Self-Employed Group delivered strong double-digit revenue growth, and Credit Karma revenue reached an all-time high in the quarter,” said Goodarzi.

“We had a great tax season growing our share of total tax returns and executing our strategy of expanding our lead in the DIY category and transforming the assisted category. Small Business and Self-Employed Group delivered strong double-digit revenue growth, and Credit Karma revenue reached an all-time high in the quarter” - Sasan Goodarzi, Intuit’s CEO

 

When is Intuit reporting fourth-quarter results?

24 August.

 

What is Wall Street expecting?

Wall Street is expecting Intuit to post earnings of $1.68 a share, down from $1.81 a share in the same period last year. Revenue is expected to come in at $2.23bn, up 27.6% from the $1.82bn seen last year. For the full year, Wall Street is forecasting a record-breaking $9.39bn in sales, up 22.3% year-on-year, while in 2022, revenue is pegged at $10.94bn, a 16.5% year-on-year gain.

On Zacks Equity Research, Intuit has a consensus estimate of earnings to be at $1.58 for the upcoming quarter. This indicates that analysts have not been revising their forecasts ahead of the earnings. Whether an earnings beat is on the cards is difficult to call. Intuit has beaten expectations twice in the last four earnings updates, however, its last two outings missed Wall Street expectations.

$9.39billion

Intuit's forecasted full-year sales - a 22.3% YoY rise

Despite the upwards trend in Intuit’s stock, it is now trading around or above analyst targets and just shy of its 52-week high of $548.68. In August, Mizuho maintained its Buy rating on Intuit, upping its price target from $500 to $550. The previous month, Exane BNP Paribas upgraded Intuit’s stock from underperform to neutral with a $470 price target.

Among analysts polled on Yahoo Finance, the Intuit stock has an average $500.79 price target, which would see an 8.1% downside on 20 August close. Of the analysts offering recommendations in August, six rated the stock a strong buy, while three rated it a buy. The majority rated Intuit’s stock a hold.

Investors will have to decide for themselves if the growth of the side hustle is enough to maintain the stock’s upward trajectory this year or whether it’s worth waiting for the rally to cool off.

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