THE DAY AHEAD: Need for profits hamper Intuit's Web profile

Are profits really all they're cracked up to be? For Intuit Inc. (Nasdaq: INTU) it just doesn't pay to make money when you're competing with well-funded Web upstarts that have no intention of bringing home profits.

Intuit, the company behind Quicken, QuickBooks and a complete Web e-finance portfolio, is one of the best hybrid companies out there. It uses software for customer acquisition and then migrates them to the Web for all their personal finance needs. The software business essentially funds investment on the Web.

Intuit: Underappreciated Web star?

And the Web businesses are becoming much more than mere investments (see interview). Intuit's Quicken.com had July page views of 160 million, up 78 percent from a year ago. The company said it closed more mortgages than E-Loan (Nasdaq: EELN) and is currently battling InsWeb Inc. (Nasdaq: INSW) in the insurance market. While Intuit has a lot of competition, it is one of the few Web players with a complete "e-finance" portfolio. Internet revenue for the year was $125.3 million and represents 15 percent of sales.

But you won't hear Intuit talk up its Web strategy much. Marketing? Maybe in fiscal 2000, but don't count on a lot -- none of these $100 million plus campaigns. Meanwhile, E-Loan and InsWeb, which aren't hampered by "earnings constraints," market with abandon to grab marketshare and mindshare.

"With all of Intuit's services they have a compelling message but it's been muted," said Lise Buyer, an analyst with CS First Boston. Buyer said she wouldn't mind if Intuit shaved a few cents a share off their earnings next year to raise their profile.

No such luck. Officials weren't about to cut earnings for marketing on Thursday. The company beat estimates for the fourth quarter, but reported an expected loss because its business is seasonal. For fiscal 2000, Intuit is projecting revenue growth of 15 percent with operating profit growth of 20 percent. Fiscal 2000 will see more competition from Microsoft Corp. (Nasdaq: MSFT) and the lack of a QuickBooks launch. Any surplus cash will be reinvested in the company, said Harris.

Judging by the number of analyst questions on a conference call Thursday night, this marketing thing is a big deal for Intuit. The company can have the best Web products on the planet, but if no one hears about them there could be big problems. Since e-finance businesses depend on economies of scale, the lack of promotion could hurt Intuit's bottom line down the road.

Intuit CEO Bill Harris said the marketing issue is one of the most challenging items facing the company. "It's a growing issue," he said. "There are well funded IPO and venture capital funded companies without earnings constraints. We have to step up promotion and manage expenses."

That's life as a hybrid where little things like profits matter.

Harris said the company invested "tens of millions" in its Web products in fiscal 1999 and will double it in 2000. Like most hybrid Web companies, Intuit doesn't break out its investments or losses for new businesses.

Harris, however, said marketing may not be a top priority for Intuit. Officials said they are working to build out their e-finance components -- small business services, insurance, mortgages et al. -- before focusing on marketing. But when the process is complete, Harris said the company "won't be shy" when it comes to marketing.

Intuit news and notes

We're not usually keen on PowerPoint presentations (download here), but interested investors should download Intuit's outline for analysts. The presentation is a good overview and drives home the key metrics.

QuickBooks fueled the quarter for Intuit. QuickBooks accounts for more than 85 percent of retail accounting software dollars at retail, according to PC Data. During fiscal 1999, QuickBooks added an average of 1,600 small businesses every day, growing its installed base to more than 2.7 million businesses.

Intuit said it originated $1.2 billion in mortgage loans in 1999. The company's next frontier is small business services. Intuit said it takes about two to three years for a new business to break even. Intuit's oldest Web businesses are about three years old.