(Bloomberg) — Intuit Inc. shares fell the most in two years after the company said it had lost 1 million customers who used its free TurboTax service, raising concerns about demand for the software.
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Ten million people used TurboTax for free to file their taxes this year, down about 1 million from a year ago, according to the Mountain View, Calif.-based software developer. The company also lost market share among low-income taxpayers.
The company’s shares fell 8.3% to $606.99 at the close of trading in New York on Friday, their biggest one-day percentage drop since May 5, 2022. The company’s shares are down 2.9% so far this year.
Intuit is working to make its TurboTax software available to customers with more complicated tax situations, betting that those customers will have access to expert online help. The company is also touting the addition of more artificial intelligence features to its product.
Despite the loss of free customers, there are signs that Intuit’s investments are paying off: The average TurboTax user spent 10% more on their tax return this year than last year, the company said. Third-quarter revenue rose 12% to $6.74 billion, beating analysts’ average estimate of $6.64 billion.
The period that ended April 30 is the most critical period for the maker of TurboTax and other financial software, including tax season. Profit, excluding certain items, came to $9.88 per share, beating Wall Street expectations.
During the company’s post-earnings conference call, executives were asked about the causes and impacts of the decline in users, with Morgan Stanley analyst Keith Weiss asking why Intuit can’t appeal to both the high and low ends of the market with TurboTax.
Competition for low-cost and free customers raises “uneasy questions for investors,” Barclays analyst Raimo Renshaw wrote.
CEO Sasan Goodarji downplayed the importance of the free customer base. “There are people who are bouncing between platforms and just looking for free tax software. We’re not going to win those customers,” he said. Goodarji also highlighted TurboTax’s growing share among people who would traditionally have hired accountants to file their taxes for them.
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Some of those customers may have opted to try out free tax software run by the Internal Revenue Service, which was offered in a limited number of states this tax season and used by about 140,000 people. Intuit has long opposed government efforts to provide software for people to fill out tax returns online, arguing the software is unnecessary because private companies already provide it for free.
An Intuit spokesman said the company did not believe the government’s free tax preparation exam contributed to the decline.
Investors also may have been hoping for better results from Intuit’s business products, such as QuickBooks Accounting, said Niraj Patel, an analyst at Bloomberg Intelligence. Revenue from that division, which includes QuickBooks, which targets small businesses and the self-employed, rose 18 percent to $2.4 billion, roughly in line with average estimates.
Total revenue for the quarter was about $3.1 billion, beating analyst expectations, and profit for the July period, excluding some items, was $1.80 to $1.85 a share, also above Wall Street expectations.
The company also announced that Credit Karma CEO Kenneth Lin will step down at the end of the year, a move Patel said could signal further turmoil.
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Credit Karma is a loan aggregator that Intuit acquired in 2020. Joe Kaufman, president of the Credit Karma division, will succeed Lin on Aug. 1, the company said. Intuit is currently working to steer customers of Mint, a financial management app it acquired in 2009 and recently shut down, to Credit Karma. The company now expects Credit Karma’s full-year revenue to grow about 2% to $1.66 billion, up from its previous forecast of roughly flat revenue.
(Updates stock transfers in first and third paragraphs.)
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