Morgan Stanley Reviews Intuit Earnings

In a report published Friday, Morgan Stanley analysts maintained an Underweight rating on

, with a price target of $72, even after the company reported robust 3Q results. The company reported healthy quarterly results, with revenue of $2,194M and EPS of $2.85, both ahead of expectations. The results were driven by Consumer Tax. Intuit reiterated its target of an EPS of $5 in FY17. However, the analysts believe there is "risk to this number," since net growth in the US QB base appears modest, LTV for QBO customers was flat and International QBO customers offer limited opportunities. In the report Morgan Stanley noted, "INTU exited Q3 with 965K QBO subs, well ahead of guidance for 925K, and the company raised its FY15 subscriber target from 975K-1M to 1.0-1.025M. However, QBO revenue at $57M was a shade below our $58M estimate as revenue/sub declined 11% YoY on mix and promo activity." With more than 60 percent of the new QB customers now opting for QBO, there is a continuous decline in QBDT. This is "largely mirroring" the 100K sequential increase in US-based QBO subs and suggests only about 15K in net growth for the US QB installed base of ~4M. Although the growth in International QBO is healthy, at 140 percent y/y, monetization of these users could be "more limited in view of the company's meager presence in Payroll and Payments outside the US. Despite risks to the company's target EPS for FY17, the target already appears to be reflected in Intuit's share price.