HRB: H&R Block Looks Like it’s Taking Tax Share from Intuit

By William Trent, CFA of Stock Market Beat

When Intuit (INTU) recently reported its interim sales figures for TurboTax, we said:

Sales since November are up 1%, but the company expects sales for the full season – ending in less than a month – to be up 3-5%? We know people procrastinate on their taxes, but didn’t they procrastinate last year as well? By sticking to the previous guidance, Intuit is saying people are significantly more likely to procrastinate this year than they were last year.

And even with the implausible guidance, consensus estimates were at the high end of management’s range. No wonder the shares are down after hours. For those procrastinators out there, however, it’s time to file your taxes. If you’re getting a refund it should arrive just as the stock is bottoming.

A commenter begged to differ, saying:

The guidance isn’t at all implausible. Intuit delivers TurboTax two basic ways: through software installed on desktop computers, and with a web version. With the desktop version, you pay up front; with the web version, you pay only when you file. Both products cost the same amount.

If the broad trend toward the web version continues, you would expect a higher percentage of turbotax purchases to occur when people finish their taxes, not when they start them. And it’s not completely a guessing game, either; Intuit can track activity on the web version, and they should have a pretty good idea of who is and isn’t likely to ultimately purchase and file through TurboTax.

We found that to be a solid argument. However, it appears to be at least partially refuted by H&R Block’s Interim Tax Season Results:

H&R Block Inc. (HRB – Annual Report) today reported tax season results for the interim period from Nov. 1, 2006, through March 15, 2007.

Total clients served (for both the company’s retail operations and digital tax solutions business) reached 14.6 million, an increase of 467,000, or 3.3 percent, over the prior year period. Digital tax clients served advanced 14.1 percent over 2006 while office-based clients increased 0.5 percent.

So H&R Block’s digital customers showed even more growth than its overall rate, which shoots a hole in the increased-web-migration argument (though Intuit could still have more web-based filers as opposed to software purchasers relative to H&R Block.)

Yet another possibility is that filers start out on Intuit’s software, then give up and hire a human. So regardless of Intuit’s customer awareness, we’re sticking with our Intuit-ion and repeat our thesis that their guidance sounds implausible.

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