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 Mint.com 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. Economics

    Industries That Thrive On Recession

    Recessions are not equally hard on everyone. In fact, there are some industries that even flourish amid the adversity.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Fundamental Analysis

    Is a U.S. Industrial Recession on the Horizon in 2016?

    Find out why the industrial economy may be teetering on an industrial recession and what could prevent it from going over the cliff.
  4. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  5. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  6. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  7. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  8. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
COMPANIES IN THIS ARTICLE
Trading Center