Summary
Intuit's fiscal 2021 second quarter was a tax season story. Total revenue fell 7.1% to $1.58 billion. The IRS began accepting and processing returns on February 12, 2021, versus January 27, 2020 a year earlier, and the later start pushed Consumer segment revenue down 56% for the first six months. For the six months ended January 31, 2021, total revenue rose 1.3% to $2.90 billion. The quarter swung to an operating loss of $25 million, and operating margin fell 17.5 percentage points to -1.6%. Net income dropped 91.7% to $20 million. Diluted EPS fell 92.3% to $0.07. Year to date, operating income fell 34.3% to $184 million, net income fell 26.6% to $218 million, diluted EPS fell 28.3% to $0.81, and operating margin was 6.3%, down 3.4 percentage points.
Small Business & Self-Employed carried the quarter. Segment revenue rose 11% in the quarter and 12% year to date, led by Online Ecosystem revenue, which grew 22% and 23%. QuickBooks Online Accounting revenue climbed 22% in the quarter and 25% year to date. Online Services revenue rose 20% and 19%, helped by payments and payroll. Desktop Ecosystem revenue slipped 2% in the quarter as desktop unit sales and desktop payroll declined. The Consumer segment posted a segment operating loss, and ProConnect revenue fell 5% for the first six months because of delayed form availability and the later tax season. Credit Karma, acquired on December 3, 2020, added $144 million of revenue in the quarter, mostly from cost-per-action credit card and personal loan transactions.
Costs climbed faster than revenue. Total operating expenses rose 14% in the quarter and 7% year to date. Share-based compensation, staffing, amortization of other acquired intangible assets, and professional fees and transaction costs related to Credit Karma all increased. Marketing expense fell. Cost of revenue also grew, and Credit Karma contributed $41 million to cost of service and other revenue. Cost of service and other revenue as a percentage of related revenue rose in the quarter largely because Consumer revenue was lower. Interest and other income of $54 million in the quarter included a $30 million gain from collecting a note receivable that had been written off and a $9 million gain on other long-term investments.
Cash flow was mixed. Operating cash flow fell 12% to $279 million in the quarter but rose 70.5% to $324 million for the first six months. Capital expenditures rose 10% to $33 million in the quarter and 4.4% to $71 million year to date. Deferred revenue, current portion, rose 12.1% to $752 million. Cash, cash equivalents, and investments were $2.7 billion at January 31, 2021, down $4.3 billion from July 31, 2020, mostly because of the Credit Karma deal. Management said those resources, plus cash from operations, should cover working capital, capital spending, contractual obligations, debt service, and other needs for at least the next 12 months.
Risks are concentrated in the tax calendar and the Credit Karma integration. Management warned that Consumer and ProConnect results for the first six months are not indicative of the full year and that substantially complete results for the 2020 tax season will not arrive until the third quarter. COVID-19 continues to cloud demand, customers, partners, and government action. Credit Karma is the biggest balance sheet question. The fair value of that reporting unit approximated its carrying value of $7.2 billion at acquisition, so a prolonged credit market downturn, fewer card and loan offers, reduced lender marketing, or weaker member credit could force a goodwill impairment charge. The company also flagged platform availability, data privacy and security, competition, and reliance on third-party relationships. Intuit had $2.2 billion left under its repurchase authorization at January 31, 2021 and expects to keep paying comparable quarterly dividends.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.58B | $1.32B | +19.1% | $1.70B | -7.1% |
| Research & development | $368.0M | $325.0M | +13.2% | $333.0M | +10.5% |
| Sales & marketing | $580.0M | $362.0M | +60.2% | $593.0M | -2.2% |
| General & administrative | $250.0M | $169.0M | +47.9% | $159.0M | +57.2% |
| Total operating expenses | $1.60B | $1.11B | +43.7% | $1.43B | +12.3% |
| Operating income (loss) | -$25.0M | $209.0M | -112.0% | $270.0M | -109.3% |
| Operating margin | -1.6% | 15.8% | -17.4 pp | 15.9% | -17.5 pp |
| Net income (loss) | $20.0M | $198.0M | -89.9% | $240.0M | -91.7% |
| Net margin | 1.3% | 15.0% | -13.7 pp | 14.2% | -12.9 pp |
| Diluted EPS | $0.07 | $0.75 | -$0.68 | $0.91 | -$0.84 |
Risks
The COVID-19 pandemic has caused global economic instability and negatively impacted small business results as many small businesses closed or scaled back, and it has reduced financial institution partner participation on Credit Karma's platform. Continued uncertainty could decrease consumer spending, small business payment volumes, and tax returns filed, materially harming results.
The December 2020 Credit Karma acquisition carries integration, synergy, and dilution risks; if integration is not completed within the expected timeframe, the anticipated benefits may be materially and adversely affected and the deal may be dilutive to operating EPS beyond the first fiscal year after close. MD&A also discloses the Credit Karma reporting unit's estimated fair value approximated its $7.2 billion carrying value, and a prolonged credit market downturn could require future goodwill impairment charges.
The IRS Free File Program agreement was amended in December 2019 to eliminate the IRS pledge not to offer a duplicative service and is scheduled to expire in October 2021. Intuit is subject to legal proceedings and regulatory inquiries relating to the product it offers under the program, and if the program is terminated or the IRS enters tax software, the federal government could become a publicly funded direct competitor.
Intuit's tax business is highly seasonal and quarterly results fluctuate significantly. In FY2021 Q2 the IRS began accepting returns on February 12, 2021 versus January 27, 2020, contributing to a 7% decrease in total net revenue, a 71% decrease in Consumer segment revenue, and operating income swinging to a loss of $25 million compared with operating income of $270 million in the prior-year quarter; management states the first six months are not indicative of full fiscal year trends.
The online tax preparation, payroll, payments, and lending industries face increasing and increasingly sophisticated fraudulent activity, heightened by COVID-19 work-from-home measures. A loss of confidence by customers or governmental agencies could lead tax authorities to refuse to allow Intuit to process customers' tax returns electronically, significantly harming revenue and earnings.
Growth depends on third-party business relationships, including financial institution partners that generate Credit Karma revenue. COVID-19 has led credit card companies and lenders to offer fewer credit cards and loans, reduce marketing activities, and decrease or suspend activity on Credit Karma's platform, and some third-party relationships are sole source or limited source and difficult to replace.
Intuit faces intense competition in all businesses, including from large established consumer platforms and providers of free offerings in tax, accounting, payments, and personal finance. MD&A notes AI is transforming financial technology and disruptive start-ups, emerging ecosystems, and mega-platforms are creating a more dynamic and highly competitive environment.
As of January 31, 2021, Intuit had $2.4 billion of aggregate indebtedness outstanding under credit facilities and senior unsecured notes, and interest expense was $15 million for the first six months of fiscal 2021 versus $5 million in the prior-year period. Covenants restrict subsidiary indebtedness, require specified financial ratios, and limit liens and sale-leaseback transactions.
Proposed changes to U.S. tax laws, including President Biden's proposals to raise rates on domestic and foreign income and impose a new alternative minimum tax on book income, could negatively impact Intuit's effective tax rate if enacted. The annual effective tax rate increased from 25% at October 31, 2020 to 26% at January 31, 2021 primarily due to non-deductible share-based compensation and Credit Karma transaction costs.
Intuit hosts large amounts of sensitive customer and workforce data and has experienced actual or perceived vulnerabilities and fraudulent activity; remote work during COVID-19 increases security risks. Credit Karma is subject to a 2014 FTC order requiring a comprehensive security program and biannual independent security assessments for 20 years, and failure to fulfill the order could result in fines, penalties, and regulatory inquiries.
Summary, forecast, risks and KPIs are extracted from INTUIT INC.'s SEC filings for Q2 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.