Born out of desktop computer revolution of the 1980s, software maker Intuit (Nasdaq:INTU) recently crossed the quarter-century mark. In an industry where so many companies fly high only to crash and burn a few years or even quarters later, Intuit's longevity is definitely one for the record books.

The key to the company's success has been its ability to identify solid markets with high repeat business potential and then dominate them to the point of achieving a near monopoly position. And to date, that strategy has paid off handsomely.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Undisputed Market Leader
Intuit is now the undisputed leader in the individual tax preparation and small business software markets in the United States. Its market leading TurboTax software holds a 79% market share; well ahead of the 21% share held by TaxCut which is sold by tax preparer H&R Block (NYSE:HRB).

In the personal finance software market, Intuit's grip is even tighter with its Quicken product holding an amazing 95% market share. With such an overwhelming lead, it's no surprise that Microsoft (Nasdaq:MSFT) had to bow out of this market earlier this year after failing to get any sort of traction with its Microsoft Money product. Just last month, Microsoft also threw in the towel on its Office Accounting software package in the face of overwhelming market dominance by (yep, you guessed it) Intuit's QuickBooks.

With such a lock on its key markets, you'd think it's all beer and skittles for Intuit. But, there is some downside to being the top dog. When demand in those markets begins to dry up, a market leading position ensures that you bear the brunt of any down dip. And that apparently is the situation now shaping up for Intuit. With individuals and small businesses still taking a disproportionate measure of pain from the recession, Intuit's sales are now starting to show some real weakness.

Sales and Earnings Guidance Lowered
Following the release of slightly better than expected first-quarter results, the company scaled back earnings and sales guidance sharply for its second quarter, the period during which the company generates most of its tax software sales. Intuit now expects earnings per share next quarter to come in between 29 and 32 cents; well off from the Street's expectations of 37 cents.

Sales guidance was also lower, now in the $800 to $835 million range versus the average analyst forecast of $833 million. This could all be signs that Intuit's core software markets are now maturing, and the company needs to come up with a different strategy to ensure future growth.

Acquisition Signals New Growth Strategy
That new strategy could now be taking shape with the recent acquisition of personal budgeting and financial planning website The free web service allows clients to consolidate multiple bank, brokerage and credit card accounts to track and better manage their personal financial affairs. So far 1.7 million users have signed up and Intuit reckons it can quickly scale up to five to 10 million users. Those aren't bad numbers considering that decades of effort were required to get 25 million users onto Quicken.

The business generates revenues from finder's fees from financial institutions that get new clients from the service and it also acts as a platform from which to move users onto the more traditional software products Intuit sells. It's a bit like a social networking site for financial services.

The potential of the concept has not gone unnoticed by some big players keen to get something similar off the ground. In September, unconfirmed press reports surfaced suggesting Citigroup (NYSE:C) and Microsoft had teamed up to develop a comparable personal finance portal.

The Bottom Line
Intuit's recent move away from its legacy '80s desktop business is a positive development that opens up a whole new business model for the company beyond just selling software. If it takes off, expect analysts' current lukewarm "Hold" recommendations for the stock to quickly heat up to a convincing "Buy." (For more, see The Industry Handbook: The Banking Industry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Savings

    10 Ways To Budget When You’re Broke

    Budgets are some of the best financial tools around – when planned properly and followed faithfully.
  2. Savings

    7 Ways to Trim Fat from Your Spending

    Check out these seven ways to cut the fat from your spending.
  3. Savings

    7 Millionaire Myths

    Here are seven millionaire myths and realities that reveal they don’t quite have it all.
  4. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  5. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  6. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  7. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  8. Budgeting

    How To Save Money When Moving

    Moving doesn't have to be as expensive as you think. Here are some great ways to save money on moving costs.
  9. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  10. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  1. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!