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THE DAY AHEAD: Intuit&#039&#039s diversity pays

COMMENTARY -- Once upon a time there was a software company named Intuit. This company was seen as a potential giant that missed its best hope when a potential merger with Microsoft unraveled in 1994. This company wasn't dot-com enough. Its revenue didn't grow enough. And the company was just too diversified to be truly appreciated by the daytrading set.

How times change. Intuit (Nasdaq: INTU) reported a second-quarter profit of 48 cents a share, on sales of $457.6 million. The bottom line easily topped estimates by 3 cents a share, but revenue was a bit below projections at $462.6 million.

Are analysts going to sweat a few million in sales? Nope. They almost sounded relieved during the company's conference call. Analysts congratulated CEO Steve Bennett and noted that positive earnings surprises were hard to come by.

Intuit's sales miss would have been reason to panic just a year ago. A couple of years ago, the consensus view was that Intuit missed its big chance to leverage the Web.

Bennett said management's main responsibility was to "deliver on profitability." Officials also noted that earnings growth may outpace revenue growth. A statement like that would have been good for a 15 percent dip just a few months ago. Under the previous rules a company had to grow sales or go home.

Intuit has something that only a select few tech companies have--a diversified business. Oh sure, you can't pigeon-hole Intuit as a dot-com, but it does have the largest financial portal around. You can't really call Intuit just a tax software company anymore either. The goal here is to integrate the Web and the desktop and Intuit has succeeded.

You can nit-pick over Intuit's odds and ends, but why bother? Sales of Intuit's QuickBooks software for small- to mid-sized businesses lagged in the second quarter because customers weren't upgrading like they used to. These Intuit users upgraded last year to prep for the Year 2000 problem. Bennett said the company has adjusted to the lower upgrade levels.

Intuit can adjust because it is diversified. The company's tax software sales, which got off to a slower-than-expected start in the January quarter, can pick up the slack next quarter. Perhaps the Quicken.com portal brings home the extra sales a quarter from now.

Analysts asked Bennett whether Intuit's online tax preparation business was cannibalizing the company's software sales. Bennett said the Web is expanding the market and there are still a bunch of folks (including me) still using paper. Bennett's point? Intuit will get paid whether customers go online or use the software. And there's a big market to tackle.

Intuit isn't immune to a slowing economy, but in recent quarters it has shown some resilience. Intuit left its fiscal 2001 sales and earnings targets unchanged, but hinted that the low end of expectations was where the company would land. For the third quarter, Intuit is projecting operating income of $165 million to $170 million on sales of $455 million to $470 million. Sales for the fiscal year are expected to total $1.32 billion to $1.34 billion.

Once upon a time, Wall Street would have creamed Intuit for merely reiterating its previous outlook. Today, investors will breathe easy.

Wall Street was already cheering before the sun came up in New York. James Marks, an analyst at CS First Boston, noted that Intuit quelled fears about the quarter.

Other analysts reiterated "strong buy" ratings even though they slightly tweaked their projections. "We believe that the April quarter will be very strong and that Intuit posted extraordinarily strong results in a difficult environment," said Caren Mayer, an analyst at Banc of America Securities.

Justin Post, an analyst at Deutsche Banc Alex Brown, summed up the consensus view Wednesday morning. "We believe the company should be a core holding for new media investors who want less exposure to advertising uncertainty and slowing software sales to enterprises in the Internet sector," said Post in a research note.

For folks watching Intuit in recent years, the view that the company could be seen as an oasis is pretty interesting. How times have changed.TDAIN


• Intuit tops estimates, sticks to 2001 targets
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