RBC: Intuit Has Less Upside In Near-Term

In a report published Tuesday, RBC Capital analyst Ross MacMillan downgraded the rating on

from Outperform to Sector Perform, while lowering the price target from $120 to $115. The analyst expects the company to see less upside in the near term. According to the RBC Capital report, "Our change reflects our expectation of: (i) Less clear path to revenue upside in FY16 and FY17; (ii) Less clarity on customer lifetime value due to mix; and (iii) Higher expectations for Consumer Tax." The analyst believes that Intuit is moving into the middle stage of its transition to the SMB model, where ARPU/ARR trends will be more important than subscriber add trends. However, given the expectations of increased growth of lower ARPU customers, along with lower clarity on CLTV, the analyst expects to see less revenue upside in FY16 and FY17. Also RBC Capital's survey points to QuickBooks gaining market share, while Payroll and Payments have been witnessing slightly higher adoption. In addition, while more than 45 percent of survey respondents recommended QuickBooks Online, "payments adoption for QBO (QuickBooks Online) appears to lead QBDT (QuickBooks Desktop)," MacMillan said. On the negative side, however, MacMillan stated that there were "(i) Some concerns on the cost of QBO; (ii) QBO not as easy to use as QBDT (perhaps familiarity bias); (iii) QBO functionality viewed as a gating factor to adoption; (iv) Payroll adoption for QBO lagging QBDT; and (v) Xero shows well competitively." However, the analyst expects the company expects the company to report robust near-term QBO additions for F4Q15, while expecting lower chances of revenue upside, driven by the 30 percent decrease in QBO pricing on account of promotions, increase in international/self-employed edition in the mix and QBDT declines that are likely to be faster than expected.