Last month, cloud-based accounting and tax giant Intuit (NASDAQ: INTU) reported a strong second quarter that beat analyst estimates. However, its soft outlook is causing analysts to ponder the growth rate question.

Intuit’s Financials

Founded in 1983, California-based Intuit reported revenue of $5.2 billion in fiscal 2017, growth of 10.3%. It serves 46 million customers and has about 8,200 employees in major offices in the United States, Canada, India, the United Kingdom, Israel, Australia, and other locations.

Its flagship products and services include QuickBooks®, TurboTax®, which make it easier to manage small businesses and tax preparation and filing. QuickBooks Self-Employed provides freelancers and independent contractors with an easy and affordable way to manage their finances and save money at tax time, while Mint delivers financial tools and insights to help people make smart choices about their money. ProSeries and Lacerte are its tax preparation offerings for professional accountants.

Its second quarter revenue grew 15% to $1.16 billion, within Intuit’s guidance range for revenue of $1.160 billion to $1.180 billion. Non GAAP operating income increased 13% over the year to $120 million or $0.35 per share, from income of $106 million or $0.26 per share a year ago. Analysts had estimated earnings of $0.34 per share on revenue of $1.16 billion.

Revenue growth was driven by 19% growth from Small Business and Self-Employed Group and 12% growth from the Consumer Group. QuickBooks subscribers grew by 51% with US subscribers growing 47%to 2.2 million and international subscribers growing 69% to 630,000.

Intuit repurchased $83 million of its shares in the quarter and has $1.3 billion left in its share purchase authorization. It has received board approval for a $0.39 per share dividend for Q2 2018, an increase of 15% over the year. It ended the quarter with cash, equivalents, and investments of $726 million.

For the third quarter, Intuit expects revenue of $2.785 billion to $2.835 billion or moderate growth of 10% to 12%, GAAP operating income of $1.535 billion to $1.555 billion or $4.32 to $4.37 per share, and non GAAP operating income of 1.635 billion to $1.655 billion or $4.57 to $4.62 per share. Analysts expect adjusted earnings of $4.68 on revenue of $2.75 billion.

For full fiscal year 2018, Intuit expects revenue of $5.640 billion to $5.740 billion or growth of 9% to 11%, GAAP operating income of $1.485 billion to $1.535 billion or growth of 6% to 10%, non-GAAP operating income of $1.885 billion to $1.935 billion or growth of 9% to 12%, and QuickBooks Online subscribers of 3.275 million to 3.375 million.

Intuit’s Acquisitions and New Offerings

During the second quarter, Intuit launched TurboTax Live, which leverages one-way video technology to give customers access to an expert. It also built an end-to-end expert platform that enables about 2,000 certified public accountants and enrolled agents to serve customers.

Intuit also launched Turbo, which provides customers a full view of their overall financial health by combining a credit score, verified income data, and a debt-to-income ratio.

During the quarter, Intuit announced its plans to acquire automated time tracking and scheduling platform TSheets for $340 million. TSheets has raised $15 million in Series A funding. Already integrated with Intuit’s small business offering, TSheets has over 35,000 customers and manages over 500,000 workers through its platform. Intuit will use TSheets to provide customers a simplified way to quickly and accurately track their time, send invoices, run payroll, and understand profitability by project. This acquisition is an acknowledgement of the growth in freelancers in the economy and the forecast. The Gig economy is expected to grow from 34% of the workforce in 2017 to 43% by 2020. It’s a smart move.

Intuit’s Competition

Intuit’s competitors include The Sage Group for desktop products; Xero and FreshBooks for online accounting products; ADP, Paychex, and Gusto for payroll products; First Data Corporation, Elavon, Global Payments, FIS, PayPal, Square, and large financial institutions for merchant services; H&R Block, Blucora’s TaxAct, and Credit Karma in the Consumer Tax segment; and CCH, Thomson Reuters, and DRake in professional tax offerings.

Another concern for Intuit is the price pressure from free and low-priced online tax and accounting offerings.

And a final concern is the United States government’s intention to streamline tax filing. Apparently in 2016, Intuit and H&R Block spent $2 million and $3 million, respectively, on lobbying against it. Intuit had provided about 1.2 million free federal returns in 2016 as a member of the Free File Alliance.

Questions for the Intuit Board

One area that is gaining in popularity is online lending. Intuit last year launched an offering in this realm called QuickBooks Capital to provide faster access to lower-rate small business loans of upto $35,000 with rates ranging from 2.6% to 6.8%. In 2015, it had partnered with OnDeck to launch the QuickBooks Financing Line of Credit backed by a $100 million fund. I see this as a high potential growth area.

According to a recent SBA Loan Performance Report, overall volume of small business loans recorded 20% growth in Q1 2018 and is expected to grow even higher. There is no reason to limit the lending to small ticket sizes. For credible companies, Intuit could very well lend $500k or $1M, and that skill could turn the QuickBooks Financing business to an exciting component in the startup eco-system. Whereas many small businesses that grow at a linear pace may not qualify for equity financing, they surely could qualify for debt financing. It’s a domain well worth exploring at greater depth.

Following the strong results, its stock is trading at $172.65 with a market cap of $44.2 billion. It hit a 52-week low of $114.8 a year ago. It hit a 52-week high of $179.3 this month.

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