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Intuit’s TurboTax Lost 1 Million Free Users This Tax Season

In Technology
May 24, 2024

(Bloomberg) — Intuit Inc. reported tax season revenue that exceeded estimates as more customers opted for higher-priced features. Still, the shares fell on investor concerns about a loss in the number of people who use the company’s TurboTax service for free.

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Fiscal third-quarter revenue increased 12% to $6.74 billion, Intuit said Thursday in a statement. Analysts, on average, estimated $6.64 billion, according to data compiled by Bloomberg. The period that ended April 30 — including tax season — is the most critical for the maker of TurboTax and other financial software. Profit, excluding some items, was $9.88 a share, while analysts, on average, projected $9.38.

Intuit has recently targeted its TurboTax software to those with more complicated tax situations who might need online assistance from experts. The company also has increased the artificial intelligence features included in its products. These investments appeared to be paying off, with the average user of TurboTax spending 10% more on their filing this year compared with 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, a drop of about 1 million a year ago, the company said. It also lost market share with 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 high end and the low end of the market. Competition for those lower-paying and free customers raises “questions that could concern 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 a free tax software — bouncing between platforms — and we are not interested in pursuing those customers,” he said. Goodarzi also highlighted that TurboTax gained share among people who traditionally have hired an accountant to handle their tax returns.

Read More: Free IRS TurboTax Competitor Is Closer After Biden Funding

Some of those departing customers may have opted for an Internal Revenue Service-run pilot for free tax software that was available in a limited number of states this tax season and used by about 140,000 people. Intuit has long lobbied against efforts by the government to offer software for people to complete their tax returns online, calling it unnecessary because private companies already offer it for free.

The shares fell about 7% in extended trading after closing at $662.26. The stock had gained 6% this year through the close.

Investors also may have also wanted to see stronger results from business-oriented products like QuickBooks Accounting, said Niraj Patel, an analyst at Bloomberg Intelligence. Sales from the unit containing QuickBooks, which is aimed at small businesses and self-employed users, increased 18% to $2.4 billion, roughly in line with average estimates.

For the current quarter, total revenue will be about $3.1 billion, ahead of analyst estimates. Profit, excluding some items, will be $1.80 to $1.85 a 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 depart at the end of this year. That could signal more disruption, Patel said.

Read More: Intuit’s Shutdown of Mint Has Gone Better Than Thought, CEO Says

Credit Karma is a loan-aggregating service acquired by Intuit in 2020. Joe Kauffman, the unit’s president, will take over for Lin effective Aug. 1, the company said. Intuit is currently working to steer customers of Mint, a finance management app acquired in 2009 and recently shuttered, toward Credit Karma. The company now expects Credit Karma sales to increase about 2% to $1.66 billion for the full year — up from a previous outlook of about flat revenue.

(Updates with comments from analysts in the fifth paragraph.)

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