Intuit Inc. (NASDAQ:INTU) experienced a significant setback as it reported a loss of 1 million customers who utilized its TurboTax service for free during this tax season. The news triggered concerns about the demand for the software, leading to a notable drop in Intuit’s shares.
According to the Mountain View, California-based software developer, 10 million individuals used TurboTax for free this year to file their taxes, marking a decline of approximately 1 million users compared to the previous year. Additionally, the company observed a loss in market share among low-paying customers.
Following this announcement, Intuit’s shares plummeted as much as 9.3% to $600.49 in New York, marking the largest intraday decline in over 18 months. Despite a 6% gain in the stock earlier in the year, the news of customer loss prompted a significant market reaction.
Intuit has been actively adapting its TurboTax software to cater to individuals with more complex tax situations, betting on the idea that these customers would benefit from online assistance provided by experts. The company has also emphasized the integration of more artificial intelligence features into its products.
Despite the decline in free users, there are indications that Intuit’s investments are yielding positive results. The average TurboTax user spent 10% more on their filing this year compared to the previous year. Additionally, fiscal third-quarter revenue surged by 12% to $6.74 billion, surpassing analysts’ estimates.
During an earnings call, company executives addressed concerns about the decline in users. CEO Sasan Goodarzi downplayed the significance of the loss of free customers, emphasizing that TurboTax has gained market share among individuals who traditionally relied on accountants for their tax returns.
Some departing customers may have opted for an Internal Revenue Service-run pilot for free tax software, which was available in a limited number of states this tax season. Intuit has long opposed government efforts to offer free tax software online, arguing that private companies already provide such services for free.
Investors may have also been disappointed with Intuit’s performance in its business-oriented products, such as QuickBooks Accounting. However, the company remains optimistic about its outlook for the current quarter, with total revenue projected to be approximately $3.1 billion, and profit expected to exceed Wall Street’s estimates.
In addition to the decline in free TurboTax users, Intuit announced the departure of Credit Karma CEO Kenneth Lin, signaling potential disruption within the company. Credit Karma, acquired by Intuit in 2020, is a loan-aggregating service, and its sales are expected to increase by about 2% to $1.66 billion for the full year.
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