(Bloomberg) — Shares of Intuit Inc. fell the most in more than a year after the company reported losing 1 million customers who use its TurboTax service for free, fueling concerns about demand for the software.
Ten million people used TurboTax for free this year to file their taxes, down about 1 million from the previous year, the Mountain View, Calif.-based software developer said. It also lost market share with low-wage customers. Shares fell as much as 9.3% on Friday to $600.49, the biggest drop since November 2022.
Intuit has been working to cater its TurboTax software to those with more complicated tax situations, banking on the idea that these specific customers could rely on online assistance from experts. The company also marketed more artificial intelligence features in its products.
Despite the loss of free customers, there are signs that Intuit’s investments are paying off. The average TurboTax user is spending 10% more on their filing this year compared to last year, according to the company. Fiscal third-quarter revenue rose 12% to $6.74 billion, beating the $6.64 billion average of analyst estimates.
The period ending April 30 — including tax season — is the most critical for the maker of TurboTax and other financial software. Earnings, excluding some items, were $9.88 per share, exceeding Wall Street expectations.
During an earnings call following the earnings release, company executives were asked about the cause and implications of the user decline. Morgan Stanley analyst Keith Weiss asked why Intuit can’t use TurboTax to appeal to the higher end and lower end of the market.
Competition for free, lower-paying customers raises “questions that may concern investors,” Barclays analyst Raimo Lenschow wrote.
CEO Sasan Goodarzi downplayed the importance of the free customer base. Some people are “just looking for free tax software – switching between platforms – and we’re not interested in chasing those customers,” he said. Goodarzi also highlighted that TurboTax has gained share among people who traditionally hire an accountant to handle their tax returns.
Read More: Free IRS Competitor TurboTax Moves Closer After Biden Funding
Some of those departing customers may have opted for an IRS-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 government efforts to offer software for people to file their tax returns online, deeming it unnecessary because private companies already offer it for free.
Intuit shares are up 6% this year through Thursday’s close.
Investors may also want to see stronger results from Intuit’s business-oriented products such as QuickBooks Accounting, said Niraj Patel, an analyst at Bloomberg Intelligence. Sales of the unit containing QuickBooks, aimed at small businesses and self-employed users, rose 18% to $2.4 billion, roughly in line with average estimates.
For the current quarter, total revenue will be about $3.1 billion, above analyst estimates. Earnings, excluding some items, will be $1.80 to $1.85 per share for the period ending in July, also beating Wall Street’s outlook.
The company separately announced that Credit Karma CEO Kenneth Lin will depart at the end of this year. That could signal further disruption, Patel said.
Read more: Intuit’s closure of Mint was better than anyone thought, says CEO
Credit Karma is a loan aggregation service acquired by Intuit in 2020. Joe Kauffman, the unit’s president, will replace Lin starting Aug. 1, the company said. Intuit is currently working to guide customers of Mint, a financial management app acquired in 2009 and recently closed, to Credit Karma. The company now expects Credit Karma sales to rise about 2% to $1.66 billion for the full year — up from its previous outlook of roughly flat revenue.
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