Recently SaaS and enterprise software companies have pulled lower, especially after Salesforce’s earnings. One reason is the perception that enterprises are shifting spend to AI and hardware at the expense of software. Another reason I read is that AI will be able to generate software for cheaper, and thus enterprise software margins may decline.
Companies including ServiceNow, Adobe, Workday, and CRM been caught in this. Another name that drew down is Intuit.
Disclosure — I am long INTU, and the reasoning below is why, but I’m looking for weaknesses to this argument / opinions to the contrary before adding to the position.
My sense is the reasons for the drawdown do not apply well to Intuit and this may be a buying opportunity:
1) Intuit focuses on small business; these likely do not have the scale to make building their own software effective in the short run.
2) AI versions of tax and accounting software are opportunities that Intuit is well poised to capitalize on. An ultimate version of a tax professional or an accountant for a small business is a human that provides personal advice and takes care of tax/accounting for you. But an advanced AI at low cost is the next best thing.
3) Intuit went down after earnings but beat and raised guidance. The reason for the fall was the loss of 1 million free TurboTax subscribers and the expansion of the IRS’s tax filing service. On the call, management shared that free customers bounce between platforms and they’re fine with losing them as long as revenue is going up from adding services for paid customers. As per (2) above I think long term a private business can compete favorably vs the IRS in terms of creating an “AI tax assistant”
4) The primary negative is that the stock feels expensive, but has been this way for some time. However, I am wondering that in a beat and raise environment, whether they will quickly go back to the old PE
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