Intuit Buys Demandforce, Boosts SMB
Well recognized for its products such as TurboTax and Quicken, financial and tax preparation software provider Intuit Inc. (INTU) has opted to buy a San Francisco-based company called Demandforce. The $423.5 million deal is expected to close this month.
Founded in 2003, Demandforce provides software-as-a-service (SaaS) applications for marketing and customer relationship management. Its products are primarily tailored for small and medium businesses (SMBs). The company’s products are generally used in dental offices, auto repair shops, spas and salons, and optometry. The software also helps the SMBs have real-time interactions with customers through Facebook and Twitter.
The acquisition will be a perfect fit for Intuit’s SMB business segment. Upon closure, Demandforce will be included as a new sub-segment in Intuit’s SMB Group. The new division will be headed by Demandforce’s current president and founder, Rick Berry. As of now, the group consists of three sub-segments namely Financial Management Solutions, Employee Management Solutions and Payment Solutions.
The new unit will help Intuit in cross-selling and up-selling its products to existing customers, leading to faster product adoption. With its capabilities, Demandforce is expected to add 1–2% to revenue growth in FY13 and have a neutral to slightly dilutive effect on non-GAAP earnings for fiscal 2012 and 2013.
We believe that there is ample scope for the increase of Intuit’s SMB exposure. Intuit recorded 9.0% year-over-year revenue growth in its SMB group in its second quarter 2012 results, and expects to witness healthy year-over-year growth of 10.0–12.0% in fiscal 2012.
But we remain somewhat concerned about the prevailing macro uncertainty in the U.S., which could be a drag on SMB revenue.
Intuit is a leading provider of business and financial management solutions to small and medium-sized businesses, consumers, accounting professionals and financial institutions. The company delivered impressive second quarter results, beating the Zacks Consensus Estimates on both the top and bottom lines. Though revenue expectation for the upcoming quarter was kept unchanged, the company raised its operating margin and EPS guidance.
But we think that Intuit is going to face stiff competition from the leading payroll solution provider Paychex Inc. (PAYX), which introduced certain tools that aim to solve certain tax-credit-related problems for SMBs.
Currently, Intuit has a Zacks #4 Rank, which translates into a short-term Sell rating.
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