O ctober 14th, 2011

Technology

T icker : I N T U

Recommendation: Buy

C ur rent Price: $52.00

Implied Price: $60.00

Investment T hesis

Key Statistics
52 Week Price Range
50-Day Moving Average
Estimated Beta
Market Capitalization

WILL BE MORE ENTH U S IAS TIC ABO UT AC Q UIRING S O F TWARE TO INCREAS E

PRO D U CITIVITY AND E F F ICIENCY, MANAG E S UPPLY C HAIN AND D E S IGN NEW
PRO D U CTS

$39.87 - $56.46
$XX$XX.XX
$47.54
.87

Diluted Shares
Outstanding
Average Volume (3-Month)
Institutional Ownership
Insider Ownership

S T R O N G I N T E R N A T I O N A L E X P A NSI O N S T R A T E G Y
I NTUIT PLANS TO EXPAND ITS OPERATIONS TO MORE C O UNTRIE S TO G ET
LOWER LABOR C O S TS , MORE F AVORABLE RE G ULATION S, AND DIVERS E
WORK F ORC E ENVIRONMENT

14,826 M

Trading Statistics

G R O W I N G T R E N D F O R T H E S O F T W A R E P U B L ISH I N G I N D UST R Y
S O F TWARE P UBLIS HING I ND U STRY EXPE CTS STRONG GROWTH IN TH E NEXT
YEARS . D EMAND F OR S O F TWARE PRO GRAMS WILL INCREAS E . B U S INE SS E S

R & D I N V EST M E N T
I NTUIT PLANS TO INVE S T MORE F UND S IN ITS R&D D EPARTMENT TO D E SIGN
BETTER PRO D U CTS AND ENHANC E TH E E F F ICIE CNY F OR C URRENT ONE S .

3-Y ear Stock C hart

304
3,963,920
90.20%
6.15%

Margins and Ratios

Gross Margin

83.02%

EBITDA Margin

53.73%

Net Margin

16.46%

Covering Analyst: Aia Tulepbergenova

University of O regon Investment G roup

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University of O regon Investment G roup

Business O verview
Intuit is a leading provider of financial management, tax and online banking
solutions for consumers, small and mid-sized businesses, accountants and
financial institutions. Intuit was founded by Scott Cook and Tom Proulx in
1983. It went public in 1993.
IQWXLWVKHDGTXDUWHUVDUHORFDWHGLQ0RXQWDLQ9LHZ&$,WDOVRRSHUDWHV
across the United States and in such countries as Canada, United Kingdom,
India, Singapore, Japan, Hong Kong and Australia.

Intuit consists of such segments as Small Business Group that includes

Financial Management, Employee Management, and Payment Solutions;
Consumer Tax, Accounting Professionals, Financial Services and other
Businesses.

F inancial Management Solutions segment includes QuickBooks financial

and business management software and services; technical support; financial
supplies; and Intuit Websites (that provides website design and hosting
services for small and medium-sized businesses). Financial Management
Solutions segment revenue increased 6% due to strength in Intuit Websites
and higher average selling prices for QuickBooks.
E mployee Management Solutions segment provides payroll products and
services for small businesses.

Payment Solutions segment includes small business payroll products and

services. It also encompasses merchant services, such as credit and debit card
processing, provided by Innovative Merchant Solutions business. Payment
Solutions segment revenue increased 8% due to growth in the merchant
customer base, partially offset by lower transaction volume per merchant.
Consumer Tax segment includes TurboTax consumer and small business tax
return preparation products and services. Consumer Tax segment revenue
increased 15% due to 19% growth in TurboTax Online units.
Accounting Professionals segment includes Lacerte, ProSeries and ProLine
Tax Online professional tax products and services. This segment also
includes QuickBooks Premier Accountant Edition and the QuickBooks
ProAdvisor Program for accounting professionals.

F inancial Services segment consists primarily of outsourced online banking

applications and services for banks and credit unions provided by the Digital
Insight business. This segment was formed in the third quarter of fiscal 2007
after February 2007 acquisition of Digital Insight. Financial Services
segment revenue increased 7% due to growth in bill-pay end users and
transaction volumes and higher FinanceWorks revenue.
Other Businesses segment includes Quicken personal finance products and
services, Intuit Real Estate Solutions. It also incorporates businesses in
Canada and the United Kingdom. Other Businesses segment revenue
increased 22% due to higher Quicken revenue and a favorable currency

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impact in the Canadian business.

According to the official website for Intuit, QuickBooks, Consumer Tax and
Accounting Professionals offerings are highly seasonal. Revenue from the
QuickBooks software products tends to be highest during the second and the
third fiscal quarters. Sales of income tax preparation products and services
are heavily concentrated in the period from November through April.
As for the Consumer Tax business, a greater proportion of revenue tends to
occur later in the seasonal period due to the growth in sales of TurboTax
Online. As a result, the total net revenue is usually the highest during the
second and third quarters. Intuit typically experiences some losses in the first
quarter ending October 31 and the fourth quarter ending July 31. According
WR,QWXLWVZHEVLWHLWLVH[SHFWHGWKDWthe seasonality of the revenue and
profitability is likely to continue in the future.

Business G rowth Strategies

Intuit plans to accelerate the entry into new businesses. Intuit has a threepoint growth strategy such as:

Growth in the core business

Intuit is going to continue grow through its core business offerings such as
TurboTax, Quicken, QuickBooks, ProSeries and Lacerte. Intuit also plans to
offer relevant products that will encourage existing customers to further
XSJUDGH PRUH IHDWXUH-rich versions that meet their personal and business
QHHGV
Building adjacent businesses and entering new geographies
Intuit plans to pursue new partnerships and acquire more companies. The
Intuit Payment Network, for example, increases the value of QuickBooks by
giving businesses an electronic alternative to accepting checks for payment.
Intuit Health provides clinical, administrative and financial services that also
connect providers and patients.

Accelerating the transition to connected services

Intuit maintains the Connected Services strategy. This way, the company
assures to provide new ways for people and businesses to connect with each
other and use their data to full advantage (it can be on desktop, the Web or
mobile devices). Intuit ProLine Tax Online lets accounting professionals
prepare and file tax returns for consumer and small business clients online
rather than on the desktop. Through this strategy, the company intends to
delight customers by offering easy-to-use connected services that can solve
many problems.
These growth strategies recognize the emergence and influence of the digital
JHQHUDWLRQ WKH LQFUHDVLQJ UHOHYDQFH RI VRFLDO QHWZRUNV DQG FXVWRPHUV
growing reliance on the Web, mobile devices and information-based
technology to manage important tasks. It also acknowledges the potential of
new market opportunities in rapidly developing economies. The end result is
a global market that is shifting from traditional services that are paper-based,
human-produced to the one where people embrace the benefits of connected
services.

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Industry
O verview
The Software Publishing industry experienced dynamic growth in the five
years to 2011, and is expected to achieve annual revenue growth of 2.3% to
$156.3 billion. According to the official website of IBISWorld, it is expected
that the revenue will grow as businesses and consumers step up their
investments in software, computers and smartphones. Businesses will
continue to use information technology to increase efficiency. A major
IHDWXUHIRU2EDPDVDGPLQLVWUDWLRQKHDOWKFDUHUHIRUPSODQSDVVHGLQLV
tax incentives for health insurers to switch from paper based record systems
to digital records. In 2012, this industry is expected to grow by 4.8% to
$163.8 billion.

Despite the long-term growth potential, recent economic conditions affected

growth in 2009. These conditions led to a 3.6% decline in industry revenue
in 2009. Experts are predicting the industry revenue to increase by 2.4% in
the next couple of years beginning 2011.
Overall, the industry continues to be successful. Its lifecycle is identified to
be growing in the future. More powerful and less expensive computers have
a positive impact on software publishing market.
During the past five years, large software publishers eagerly bought smaller
publishers with specialties in growing software niches. In 2006, Oracle Corp.
bought Siebel Systems, a maker of customer relationship management
(CRM) software, for $5.9 billion. Microsoft Corp. was similarly aggressive,
acquiring a number of companies that developed software relevant to search
engines and web-based software platforms. As continued technological
development drives innovation during the next five years, acquisition activity
within this industry will grow more robust.
The main key external drivers for industry growth are corporate profit,
percentage of households with at least one computer, video games console
sales, and per capita disposable income.

Corporate Profit
Businesses account for the majority of spending on software. Various
organizations are driven to invest in new software and take some time to
transition to make the profit strong. This driver is expected to increase during
2011.

Video Ga me Console Sales

Increased sales of video game console systems implies for higher video game
sales that will directly affect the software publishers. This driver is expected
to decrease during 2011-2012 period.
Per capita disposable income
The more income the consumers have, the higher demand for software is.
This driver is expected to increase at an average rate.
Percentage of households with at least one computer
A lot of software is designed to run on PCs. The higher the rate of computer
ownership, the larger the demand for particular software is. This driver is
expected to grow during 2011-2012.

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Successful software companies earn profit margins of about 20.2% after tax,
income tax accounts for additional 10% of industry revenue. Software
publishers that release successful software can enjoy strong cash flow for a
long time.
The industry is also highly labor-intensive. It operates in a market that
emphasizes innovation, ease of use, and technological capability. These
companies spend large shares of their budgets on advertising. Industry top
performers spend about 20% of their budget on marketing and further
promotion. The largest software companies often buy ads during the Super
Bowl Season. Different companies tend to integrate advertising from
multiple media sources including TV, search engine ads, print ads, online
banner ads, radio an other types of promotions.
Product innovation also plays a key role in the industry development.
Software publishers invest more than 12% of revenue on Research and
development and patent acquisition.

M acro factors
Faster computers and strong Internet connections resulted in more powerful
Software. They are also allowing large scale outsourcing of software
development. $OORIWKHLQGXVWU\VPDMRUFRPSDQLHVRSHUDWHDEURDGLQPDQ\
cases, a software development team in another country collaborates with the
team in the United States.
Globalization in this industry in on its rise. Most of the times, sales to
customers outside of the Unites States represent about half of their total
sales. Many industry players made acquisitions and formed alliances to
achieve great economies of scale. It is important to note that international
trade regulations do not directly affect the industry trends as software is
generally transferred electronically instead of physical shipments via media.
Growth in developing countries and improving technologies, particularly
those related to semiconductors and telecommunications, is creating
expanded markets for software publishers. The technological growth will
continue through the five years to 2016, contributing to a projected 2.5%
annual growth in industry revenue to $176.8 billion.
Most of the major US software publishers have operations in such countries
as India, China, Brazil, Finland, Russia, and others. Some of the reasons
include lower labor costs, more favorable regulations, and diverse workforce.

Competition

Competition in this Industry is High and the trend in Increasing. The initial
price and long-term cost of ownership of software can be a major
competitive factor in this industry. To remain competitive, companies must
constantly innovate through the introduction of new products and
enhancement of existing ones.

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Product performance, reliability, and many security features are crucial for
the success in this industry. Brand names and reputation can also play a big
UROHLQWKHFRPSDQ\VVXFFHVV
Among the top competitors in the industry are Microsoft, Oracle, IBM,
Symantec, SAP, H&R Block, Intuit, Adobe and many others.
The barriers to entry are medium and steady. Patents on intellectual property
are widely used to limit competition. Software companies should be aware of
antitrust regulations. Scarcity of highly skilled and creative programmers
may become a limiting factor for software publishers, resulting in high wages
and big compensation packets for employees.
Open standards are particularly important product feature in modern software
publishing. Most customers use software produced by several different
publishers; open standards encourage compatibility with software from other
publishers and any software developed internally by a customer.
To remain competitive in this high-technology industry, companies must
constantly innovate through the introduction of new products or through the
enhancement of existing products. This requires high levels of expenditure
for research and development and skilled employees. Patents can protect
intellectual property and provide barriers to competitors. Software has a
relatively short product life cycle.

M anagement and E mployee Relations

B rad Smith
President and Chief Executive Officer
Brad Smith became Intuit's president and chief executive officer in January
2008, culminating a five-year rise through the company where he
successfully led several of its major businesses.
Before being named CEO, Smith served as a senior vice president and
general manager of Intuit's Small Business Division. At this position, Smith
was responsible for the company's small business division that included the
portfolio of QuickBooks, Quicken and Payroll products, serving 7 million
small businesses. Before moving to the small business division, he led the
company's Consumer Tax Group in San Diego from March 2004 through
May 2005. The group produces TurboTax, the nation's leading consumer tax
preparation software.
Smith joined the company in February 2003 as the vice president and general
manager of Intuit's Accountant Central and Developer Network in Plano,
Texas. Previously, he was senior vice president of marketing and business
development at ADP. Smith also held various sales, marketing and general
management positions with Pepsi, Seven-Up and Advo, Inc.

Smith earned his master's degree in management from Aquinas College in

Michigan and a bachelor's degree in business administration from Marshall
University in West Virginia.

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Scott Cook
Founder and Chairman of the Executive Committee
Scott Cook co-founded Intuit Inc. in 1983 and currently serves as the
chairman of the Executive Committee.
Before founding Intuit, Cook managed consulting assignments in banking
and technology for Bain & Company, a corporate strategy consulting firm.
He previously worked for Procter & Gamble, the household products giant,
in various marketing positions, including brand manager, for four years.

Cook is a member of the board of directors of eBay; Procter & Gamble; the
Asia Foundation; the Harvard Business School Dean's Advisory Board; the
Center for Brand and Product Management at the University of Wisconsin;
and the Intuit Scholarship Foundation.
Cook earned an MBA from Harvard University and received a bachelor's
degree from the University of Southern California.

Bill C ampbell
Chairman of the Board
Bill Campbell assumed his role as chairman of the board of directors in
August 1998. He previously served as Intuit's president and chief executive
officer from 1994 to 1998 and as chief executive officer from September
1999 until January 2000.
For the three years before joining Intuit, Campbell was the president and
chief executive officer of GO Corp., a pen-based computing software
company. Previously, he founded and served as president and chief executive
officer of Claris Corp., which was purchased by Apple Computer Inc. in
1990.

Before starting Claris, Campbell was Apple's executive vice president, group
executive of the United States. He joined Apple in July 1983 as vice
president of marketing and added the title of vice president of sales in
January 1984.
Before entering the technology industry, Campbell was the head football
coach at Columbia University for six years, and has been chairman of the
university's Board of Trustees since 2005. He is also a director of the
National Football Foundation and Hall of Fame.
Campbell holds a bachelor's degree in economics and a master's degree from
Columbia University.

M anagement G uidance
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especially looking into expanding the business in developing economies. The
management believes that currency fluctuations will not be significant in the
future; thus, this factor will not prevent them from expanding further.
Intuit is also going to heavily emphasize its Research and Development
Department. Enhancing existing products and services and developing new

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products and services will offer increased ease of use, ZLOO be customized
for specific customer categories, be Web-based or mobile, and feature
improved integration with other Intuit and third party products and services
and other internal information systems. Management Team also expects to
continue to focus significant research and development efforts on ongoing
projects to update the technology platforms.

Management team predicts the current seasonality and profitability trend to

continue in the future. Intuit typically reports losses in the first quarter
ending October 31 and fourth quarter ending July 31, when revenue from the
tax businesses is minimal and operating expenses continue to perform at
consistent levels.
Intuit has recently joined the Free File Alliance. This organization serves as
a coalition of industry-leading tax software companies partnered with the
IRS to help millions of Americans prepare and e-file their federal tax returns
for free. Approximately 20 states have also adopted Free File Alliance
public-private agreements while approximately 20 other states offer some
form of direct government tax preparation and filing services free to
TXDOLILHGWD[SD\HUV,WLVD JUHDWRSSRUWXQLW\WRH[SDQG,QWXLWVEXVLQHVVDQG
expand its recognition; however, future administrative, regulatory or
legislative activity in this area could harm the Consumer Tax business.
As Intuit is looking forward to delivering more online products, its
infrastructure will become more critical in the future. It is also important to
note that IntuLWVLQFUHDVLQJSUHVHQFHRQOLQH will make the company a subject
to many laws and regulations that apply to the Internet, behavioral tracking,
telemarketing, email activities, data hosting and retention, financial and
health information, and credit reporting. Management expects that
additional laws are likely to be passed in the future, which could result in
significant limitations on or changes to the ways in which the company will
be allowed to collect, use, host, store or transmit the personal data.

Recent News
September 26, 2011
Intuit released the 2012 versions of QuickBooks
New features in the QuickBooks 2012 Pro, Premier and Mac editions help
entrepreneurs save time managing their finances so they can focus on
running their businesses.
September 12, 2011
Intuit Health Patient Portal Strea mlines Patient F low Through Forms
Integration with NextGen EMR
Doctors can easily and quickly view patients' complete and accurate online
medical history before their appointment. The Intuit Health patient portal
currently enables 4.2 million patients and 47,000 providers nationwide to
easily and securely communicate and accomplish important tasks online.
Patient demand, provider need and government incentives have driven 1.5
million new patients and 18,250 providers to start using the portal to in just
the last 12 months.

July 20, 2011

Intuit has been included in the top 100 innovative companies across the
world, according to Forbes magazine. It has been ranked as 84 before

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Microsoft (86) and Boston Scientific (91). The first in the list was
Salesfrorce.com. ConAgra Foods concluded the list of 100.

C atalysts
Upside

Increasing growth trend for the software publishing industry

As the economy recovers from the recession, more people are going to
purchase PCs. As a result, the demand for software programs is going to
increase.
Future Acquisitions Strategy
Intuit plans to acquire more companies that fit with strategy and provide
strong growth opportunities
International Expansion
,QWXLWVFXUUHQWDQGIXWXUHRSHUDWLRQVDEURDG will open up more opportunities
for business expansion, generating more revenue, attracting more diverse and
bigger target market.
Investment in R&D
Intuit plans to spend more funds on its research and development strategies.
Improving current processes and developing more advanced software will
provide the means for Intuit to stay ahead of competition.

Downside

Intense Competition
,QWXLWV FRPSHWLWRUV LQFOXGH ODUJH FRUSRUDWLRQV DQG HPHUJLQJ VWDUW-ups. The
SRVVLEOH ULVNV DVVRFLDWHG ZLWK WKLV IDFWRU LV WKDW ,QWXLWV competitors may
introduce superior products and services, reduce prices, have greater technical,
marketing and other resources.
Increased government regulations
0DQ\ RI ,QWXLWV RSHUDWLRQV are in highly regulated areas, including the tax,
payroll, payments, financial services, prepaid debit card and healthcare
businesses. With increasing presence online and international expansion,
Intuit will be required to follow more strict rules and regulations for import
and export, tax specifics, and geopolitical events.
Seasonality of the business
,QWXLWVEXVLQHVVLVhighly seasonal which puts a lot of risk on its performance
during that period; as a result, the quarterly results may fluctuate significantly.
Intuit usually reports losses in the first quarter ending October 31 and fourth
quarter ending July 31.

Comparable A nalysis
For my comparable analysis, I used such companies as SAP, H&R Block, and
Advent Software.

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SAP

SAP is headquartered in Walldorf, Germany. Founded in 1972, SAP became

the market leader in enterprise application software. SAP stands for "Systems,
Applications, and Products in Data Processing". SAP has been an industry
leader for several years.
Since its founding, SAP applications and services enable more than 172,000
customers worldwide to operate profitably, adapt continuously, and grow
sustainably. SAP has more than 54,000 employees and sales and development
locations in more than 50 countries worldwide. It primarily operates in Asia
Pacific Japan, Europe, Middle East, Africa, and Americas.

SAP is listed on several exchanges, including the Frankfurt stock exchange

and NYSE, under the symbol "SAP."

H &R Block
H&R Block is one of the world's largest tax services providers, which utilizes
more than 100,000 highly trained tax professionals and prepares more than
550 million tax returns worldwide since 1955.
Brothers Henry W. Bloch and Richard A. Bloch founded the company in 1955

The company provides tax return preparation services in-person, through

+ 5 %ORFN $W +RPH RQOLQH DQG GHVNWRS VRIWZDUH SURGXFWV DQG WKURXJK
other channels. H&R Block is considered as one of the leading providers of
business services and offers financial products to support its tax business
through the H&R Block Bank.
$PRQJ WKH NH\ IDFWRUV IRU WKH FRPSDQ\V VXFFHVV LV VXSHULRU FXVWRPHU
service. According to the official website of H&5 %ORFN WKH FRPSDQ\ is
dedicated to being the most trusted, state-of-the-art tax preparation firm at the
best value.

Advent Software
Advent Software was founded in 1983 by Stephanie DiMarco. Advent
contains products that are based on the client relationship management and
partnership accounting. Advent has gained a significant market share by
providing trusted, quality solutions to investment management firms, wealth
managers, broker-dealers, registered investment advisors, and family offices.

In 1995 Advent introduced Geneva, its first solution for the global
investment accounting industry, providing a comprehensive solution that
meets the complex needs of investment managers worldwide. Geneva helps
firms account for high volume, traditional, derivative, domestic, and global
investment strategies.
In 1998 Advent Software was established in Europe, serving new markets in
Europe, the Middle East, and Asia and putting Advent on the map as a global

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solution provider. Nowadays, Advent continues to operate all over the world.
In 2005 Advent introduced the next-generation portfolio management
solution, Advent Portfolio Exchange. APX was the first solution to integrate
portfolio accounting, reporting, performance analytics, and client relationship
management, effectively linking portfolio managers, operations, and client
service staff on a single database platform.

Discounted Cash Flow A nalysis

Beta

I used multiple criteria to calculate Intuit Beta. First, I regressed it against the
S&P 500. I calculated Vasicek Beta 5 year monthly and 1 year weekly which
gave me .80 and .91 respectively. Then, I decided to perform the calculation
of Hamada Beta 5 year monthly and 1 year weekly which resulted in .91 and
1.07. To get the closest calculation and best representation for Intuit, I decided
to use the average of all betas, which has been calculated as .87.
Revenue Model
I created my revenue model based on business segments that Intuit has, such
as small business group (financial management, employee management, and
payment solutions), consumer tax, accounting professionals, financial
services, and other businesses.
$FFRUGLQJWRPDQDJHPHQWVJXLGDQFHWKHfollowing growth will be present:
Small Business Group: 10-12%
Consumer Tax: 10-13%
Accounting Professionals: 6-8%
Financial Services: 6-10%
Other Businesses: 10-15%
I projected my revenue model based on these assumptions. I also took into
consideration industry data and future growth opportunities.
I used a percent of revenue model to project the items in DCF.
COGS
As Intuit plans to expand further internationally, I projected Cost of
Goods Sold to increase as a percentage of revenue at an average of 1314%.
Research and Development
Management is going to heavily invest in R&D department to keep up
with increasing competition and develop more products and services.

SG&A

Management projected SG&A to grow in the future due to upcoming

acquisitions and international expansion. I projected SG&A as a
percentage of revenue for approximately 52-53%.

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Net Working Capital

I projected Net Working Capital to increase around 21.01% in 2013 as a

percentage of revenue, then continue at a slower rate. Intuit will need the
excess of capital as it expands further after 2011.
Acquisitions
As I have mentioned earlier, Intuit is going to acquire more companies at an
average rate of 2% for the next 10 years. Intuit plans to acquire more
companies internationally as well as domestically.

Recommendation
Intuit is the company that has a strong growth strategy and future performance. Consumers are and will be willing to purchase
more VRIWZDUHSURJUDPV:LWKLQFUHDVLQJSUHVHQFHRIHOHFWURQLFGDWDWUDQVPLVVLRQDQGVWRUDJH,QWXLWVSURJUDPVZLOOILWWKHQHHGV
of every consumer both in the USA and abroaG,QWXLWVLQYHVWPHQWLQ5 ''HSDUWPHQWDVVXUHVWKDWWKHEHWWHUDQGPRUHGHYHORSHG
products will be designed, produced, and distributed around the world. I highly recommend a BUY for all portfolios.

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A ppendix 1 Comparables A nalysis

Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
50 Day Moving Average
200 Day Moving Average
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Valuation
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/Net Income

INTU

$52.00
47.15
50.05
0.87

SAP
45.00%
$52.59
51.10
58.28
1.13

H&R Block, Inc.

35.00%
$13.76
13.80
15.46
0.59

ADVS
Advent Software,
Inc.
20.00%
$21.10
21.67
25.25
0.90

0.00
40.00
1,677.00
0.00
0.00
305.70
4,206.43
3,606.83

500.00
498.00
722.00
0.00
0.00
304.00
15,808.02
16,084.02

0.00
40.00
4,720.00
23.00
0.00
1,190.00
62,582.10
57,925.10

28.40
1,049.00
1,677.00
0.00
0.00
305.70
4,206.43
3,606.83

0.00
0.00
81.95
0.00
0.00
52.28
1,103.11
1,021.16

72.04%
19.61%
22.81%
9.97%

83.02%
53.28%
53.73%
16.46%

72.04%
28.74%
33.49%
14.32%

40.01%
19.61%
22.81%
7.44%

73.11%
11.70%
17.84%
9.97%

$7,402.39 $3,767.30
4,967.04 1,507.31
1,996.85
738.88
2,328.86
859.14
966.73
280.12

$3,851.00
3,197.00
2,052.00
2,069.00
634.00

$13,385.00
9,766.00
3,847.00
4,483.00
1,917.00

$3,767.30
1,507.31
738.88
859.14
280.12

$302.94
223.90
35.45
54.05
30.20

4.18x
5.03x
7.84x
7.77x
25.37x

4.33x
5.93x
15.06x
12.92x
30.22x

0.96x
2.39x
4.88x
4.20x
12.88x

3.37x
4.56x
28.80x
18.89x
33.81x

Intuit
Max
$52.59
51.10
58.28
1.13

Min
Weight Avg.
$13.76
$32.70
13.80
32.16
15.46
36.69
0.59
0.90

Median
$21.10
21.67
25.25
0.90

500.00
1,049.00
4,720.00
23.00
0.00
1,190.00
62,582.10
57,925.10

0.00
0.00
81.95
0.00
0.00
52.28
1,103.11
1,021.16

9.94
385.15
2,727.34
10.35
0.00
652.95
29,854.82
27,532.92

83.02%
53.28%
53.73%
16.46%

40.01%
11.70%
17.84%
7.44%

61.05%
22.14%
26.62%
11.04%

$13,385.00
9,766.00
3,847.00
4,483.00
1,917.00

$302.94
223.90
35.45
54.05
30.20

4.33x
5.93x
28.80x
18.89x
33.81x

0.96x
2.39x
4.88x
4.20x
12.88x

2.96x
4.42x
14.25x
11.06x
24.87x

3.37x
4.56x
15.06x
12.92x
30.22x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBITDA
Price Target
Current Price
Undervalued

SAP

HRB

Implied Price
36.55
45.56
74.38

Weight
30.00%
30.00%
40.00%

$54.38
52.00
4.59%

O ctober 14th, 2011

University of O regon Investment G roup

A ppendix 2 Discounted C ash F lows A nalysis

Discounted Cash Flow Analysis
($ in millions)
Total Revenue
% YoY Growth
Cost of Goods Sold
% Revenue
Gross Profit
Gross Margin
Selling General and Administrative Expense
% Revenue
Depreciation and Amortization
% Revenue
Other Expense
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest Expense
% Revenue
Net Interest (Income)
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)Income tax provision
Tax Rate
Net Income
Net Margin
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Change in Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow

EBITDA
EBITDA Margin

2008A
$2,993.00

NA

NA

351.78
11.75%
$2,641.22
88.25%
1,760.40
58.82%
216.46
7.23%
56.00
1.87%
$608.36
20.33%
52.29
1.75%
99.50
3.32%
655.57
21.90%
245.50
37.45%
$410.07
13.70%
216.46
32.71
$659.24
22.03%
1,773.50
59.25%
1,467.20
49.02%
$306.30
10.23%
694.3
306.10
10.23%
264.53
8.84%
($605.69)

824.8
27.56%

2009A
$3,109.00
3.88%
402.18
12.94%
$2,706.82
87.06%
1,781.50
57.30%
274.67
8.83%
0.00
0.00%
$650.65
20.93%
51.00
1.64%
22.60
.73%
622.25
20.01%
206.00
33.11%
$416.25
13.39%
274.67
34.12
$725.04
23.32%
1,967.80
63.29%
1,083.80
34.86%
$884.00
28.43%
577.7
182.00
5.85%
161.00
5.18%
($195.66)

925.3
29.76%

2010A
$3,455.00
11.13%
439.00
12.71%
$3,016.00
87.29%
1,897.00
54.91%
256.00
7.41%
0.00
0.00%
$863.00
24.98%
61.00
1.77%
13.00
.38%
815.00
23.59%
276.00
33.87%
$539.00
15.60%
256.00
40.34
$835.34
24.18%
2,295.00
66.43%
1,221.00
35.34%
$1,074.00
31.09%
190
130.00
3.76%
218.00
6.31%
$297.34

1119.0
32.39%

2011A
$3,822.10
10.63%
530.00
13.87%
$3,292.10
86.13%
2,020.00
52.85%
241.00
6.31%
23.00
0.60%
$1,008.10
26.38%
60.00
1.57%
30.00
.78%
978.10
25.59%
332.00
33.94%
$646.10
16.90%
241.00
39.63
$926.73
24.25%
2,254.00
58.97%
1,804.03
47.20%
$449.97
11.77%
$0.97
213.00
5.57%
0.00
0.00%
$712.77

1249.1
32.68%

2012E
$4,239.96
10.93%
585.12
13.80%
$3,654.85
86.20%
2,232.34
52.65%
269.66
6.36%
33.92
0.80%
$1,118.93
26.39%
67.84
1.60%
33.92
.80%
1,085.01
25.59%
367.71
33.89%
$717.30
16.92%
269.66
44.85
$1,031.81
24.34%
2,590.62
61.10%
1,717.19
40.50%
$873.43
20.60%
423.46
233.20
5.50%
84.80
2.00%
$290.35
269.35

2013E
$4,710.87
11.11%
654.81
13.90%
$4,056.06
86.10%
2,489.69
52.85%
304.32
6.46%
40.04
0.85%
$1,222.00
25.94%
77.73
1.65%
40.04
.85%
1,184.31
25.14%
396.09
33.44%
$788.22
16.73%
304.32
51.73
$1,144.27
24.29%
2,930.16
62.20%
1,940.41
41.19%
$989.75
21.01%
116.32
259.10
5.50%
94.22
2.00%
$674.64
580.57

2014E
$5,182.06
10.00%
725.49
14.00%
$4,456.57
86.00%
2,741.31
52.90%
345.13
6.66%
46.64
0.90%
$1,323.50
25.54%
88.10
1.70%
46.64
.90%
1,282.04
24.74%
429.32
33.49%
$852.72
16.46%
345.13
58.59
$1,256.44
24.25%
3,199.92
61.75%
2,167.66
41.83%
$1,032.27
19.92%
42.51
285.01
5.50%
103.64
2.00%
$825.27
658.83

2015E
$5,661.14
9.24%
793.13
14.01%
$4,868.02
85.99%
2,997.57
52.95%
388.35
6.86%
53.78
0.95%
$1,428.31
25.23%
99.07
1.75%
53.78
.95%
1,383.02
24.43%
462.48
33.44%
$920.53
16.26%
388.35
65.94
$1,374.83
24.29%
3,526.89
62.30%
2,404.29
42.47%
$1,122.60
19.83%
90.34
311.36
5.50%
113.22
2.00%
$859.91
636.82

2016E
$6,139.83
8.46%
860.80
14.02%
$5,279.03
85.98%
3,254.11
53.00%
411.37
6.70%
61.40
1.00%
$1,552.15
25.28%
110.52
1.80%
61.40
1.00%
1,503.03
24.48%
496.05
33.00%
$1,006.98
16.40%
411.37
74.04
$1,492.40
24.31%
3,858.88
62.85%
2,646.88
43.11%
$1,212.00
19.74%
89.40
337.69
5.50%
122.80
2.00%
$942.51
647.51

2017E
$6,614.20
7.73%
927.97
14.03%
$5,686.23
85.97%
3,506.19
53.01%
444.47
6.72%
69.45
1.05%
$1,666.12
25.19%
122.36
1.85%
69.45
1.05%
1,613.20
24.39%
541.63
33.57%
$1,071.58
16.20%
444.47
81.28
$1,597.33
24.15%
4,193.40
63.40%
2,893.71
43.75%
$1,299.69
19.65%
87.69
363.78
5.50%
132.28
2.00%
$1,013.58
645.97

2018E
$7,071.58
6.92%
992.85
14.04%
$6,078.73
85.96%
3,750.06
53.03%
476.62
6.74%
77.79
1.10%
$1,774.26
25.09%
134.36
1.90%
77.79
1.10%
1,717.69
24.29%
574.50
33.45%
$1,143.18
16.17%
476.62
89.42
$1,709.23
24.17%
4,522.27
63.95%
3,139.07
44.39%
$1,383.20
19.56%
83.51
388.94
5.50%
141.43
2.00%
$1,095.35
647.59

2019E
$7,516.97
6.30%
1,055.38
14.04%
$6,461.59
85.96%
3,987.75
53.05%
508.15
6.76%
86.45
1.15%
$1,879.24
25.00%
146.58
1.95%
86.45
1.15%
1,819.11
24.20%
609.92
33.53%
$1,209.18
16.09%
508.15
97.43
$1,814.77
24.14%
4,841.68
64.41%
3,460.06
46.03%
$1,381.62
18.38%
-1.58
413.43
5.50%
150.34
2.00%
$1,252.57
686.98

2020E
$7,934.54
5.56%
1,114.80
14.05%
$6,819.74
85.95%
4,210.86
53.07%
537.96
6.78%
95.21
1.20%
$1,975.70
24.90%
158.69
2.00%
95.21
1.20%
1,912.23
24.10%
640.15
33.48%
$1,272.07
16.03%
537.96
105.57
$1,915.60
24.14%
5,130.48
64.66%
3,703.05
46.67%
$1,427.42
17.99%
45.81
436.40
5.50%
158.69
2.00%
$1,274.70
648.55

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1388.6
32.75%

1526.3
32.40%

1668.6
32.20%

1816.7
32.09%

1963.5
31.98%

2110.6
31.91%

2250.9
31.83%

2387.4
31.76%

2513.7
31.68%

O ctober 14th, 2011

University of O regon Investment G roup

A ppendix 3 Revenue Model

Revenue Model
($ in millions)
Financial Management Solutions
% Growth
Employee Management Solutions
% Growth
Payment Solutions
% Growth
Consumer Tax
% Growth
Accounting Professionals
% Growth
Financial Services
% Growth
Other Businesses
% Growth
Total Revenue
% Growth

2008A

2009A
592
337
254
929
327
298
256

2993

579
(2.20%)
365
8.31%
291
14.57%
996
7.21%
352
7.65%
311
4.36%
215
(16.02%)
3109
3.88%

2010A
611
5.53%
418
14.52%
313
7.56%
1146
15.06%
373
5.97%
332
6.75%
262
21.86%
3455
11.13%

2011A
672
10.00%
457
9.33%
348
11.18%
1298
13.26%
399
6.97%
346
4.22%
302
15.27%
3822
10.63%

2012E
741
10.20%
502.7
10.00%
387.0
11.20%
1470.4
13.28%
426.9
7.00%
365.0
5.50%
347.3
15.00%
4240
10.93%

2013E

2014E

817
10.30%
554.0
10.20%
430.3
11.20%
1665.6
13.28%
457.7
7.20%
386.9
6.00%
399.4
15.00%
4711
11.11%

890
9.00%
603.8
9.00%
473.3
10.00%
1857.2
11.50%
489.7
7.00%
408.2
5.50%
459.3
15.00%
5182
10.00%

2015E
962
8.00%
652.1
8.00%
516.0
9.00%
2052.2
10.50%
526.9
7.60%
428.6
5.00%
523.6
14.00%
5661
9.24%

2016E
1029
7.00%
697.8
7.00%
557.2
8.00%
2247.2
9.50%
564.9
7.20%
447.9
4.50%
595.9
13.80%
6140
8.46%

U O I G 15

2017E
1091
6.00%
739.7
6.00%
599.0
7.50%
2438.2
8.50%
603.3
6.80%
465.8
4.00%
677.5
13.70%
6614
7.73%

2018E
1145
5.00%
776.6
5.00%
635.0
6.00%
2621.0
7.50%
641.9
6.40%
482.1
3.50%
769.6
13.60%
7072
6.92%

2019E
1191
4.00%
807.7
4.00%
676.2
6.50%
2791.4
6.50%
680.4
6.00%
496.6
3.00%
873.5
13.50%
7517
6.30%

2020E
1227
3.00%
831.9
3.00%
713.4
5.50%
2944.9
5.50%
717.8
5.50%
509.0
2.50%
990.6
13.40%
7935
5.56%

O ctober 14th, 2011

University of O regon Investment G roup

A ppendix 4 Wor king C apital Model

Working Capital Model
($ in millions)
Total Revenue

2008A
$2,993.00

2009A
$3,109.00

2010A
$3,455.00

Current Assets
Cash & Cash Equivalents
$827.80 $1,347.00 $1,622.00
% of Revenue
27.66%
43.33%
46.95%
Accounts Receivable(includes accts receivables, net and other receivables)
$187.80
$213.30
$162.00
Days A/R Outstanding
% of Revenue
6.27%
6.86%
4.69%
Prepaid Expenses and Other Current Assets
757.90
407.50
511.00
% of Revenue
25.32%
13.11%
14.79%
Other Assets (investments, income tax receivables, deferred income taxes,
0.00 funds held from
0.00customers) 0.00
% of Revenue
0.00%
0.00%
0.00%
Total Current Assets
1773.5
1967.8
2295.0
% of Revenue
59.25%
63.29%
66.43%
Current Liabilities
Accounts Payable
115.20
105.00
143.00
% of Revenue
3.85%
3.38%
4.14%
Accrued Charges (Accrued compensation and related liabilities) 268.10
211.70
249.00
% of Revenue
8.96%
6.81%
7.21%
Income Taxes Payable
16.20
0.40
14.00
% of Revenue
0.54%
0.01%
0.41%
Deferred Revenue
359.94
378.15
387.00
% of Revenue
12.03%
12.16%
11.20%
Current Portion of Long Term Debt
0.40
0.00
0.00
% of Revenue
0.01%
0.00%
0.00%
Other Liabilities
707.36
388.55
428.00
% of Revenue
23.63%
12.50%
12.39%
Total Current Liabilities
1467.20
1083.80
1221.00
% of Revenue
49.02%
34.86%
35.34%

2011A
$3,822.10

2012E
$4,239.96

2013E
$4,710.87

2014E
$5,182.06

2015E
$5,661.14

2016E
$6,139.83

2017E
$6,614.20

2018E
$7,071.58

2019E
$7,516.97

2020E
$7,934.54

$1,421.00
37.18%
$243.00
6.36%
590.00
15.44%
0.00
0.00%
2254.0
58.97%

$1,568.79
37.00%
$279.84
24.09
6.60%
$678.39
16.00%
$63.60
1.50%
2590.6
61.10%

$1,747.73
37.10%
$325.05
25.19
6.90%
$763.16
16.20%
$94.22
2.00%
2930.2
62.20%

$1,927.73
37.20%
$316.11
22.27
6.10%
$849.86
16.40%
$106.23
2.05%
3199.9
61.75%

$2,111.61
37.30%
$356.65
23.06
6.30%
$939.75
16.60%
$118.88
2.10%
3526.9
62.30%

$2,296.30
37.40%
$399.09
23.73
6.50%
$1,031.49
16.80%
$132.01
2.15%
3858.9
62.85%

$2,480.32
37.50%
$443.15
24.46
6.70%
$1,124.41
17.00%
$145.51
2.20%
4193.4
63.40%

$2,658.91
37.60%
$487.94
25.19
6.90%
$1,216.31
17.20%
$159.11
2.25%
4522.3
63.95%

$2,833.90
37.70%
$526.94
25.66
7.01%
$1,307.95
17.40%
$172.89
2.30%
4841.7
64.41%

$2,991.32
37.70%
$556.21
25.59
7.01%
$1,396.48
17.60%
$186.46
2.35%
5130.5
64.66%

128.03
3.35%
215.00
5.58%
0.00
0.00%
406.00
10.54%
500.00
13.08%
555.00
14.41%
1804.03
47.20%

144.16
3.40%
237.44
5.60%
233.20
5.50%
466.40
11.00%
0
0.00%
635.99
15.00%
1717.19
40.50%

161.11
3.42%
264.75
5.62%
263.81
5.60%
520.55
11.05%
0
0.00%
730.18
15.50%
1940.41
41.19%

178.26
3.44%
292.27
5.64%
295.38
5.70%
572.62
11.05%
0
0.00%
829.13
16.00%
2167.66
41.83%

195.88
3.46%
320.42
5.66%
328.35
5.80%
625.56
11.05%
0
0.00%
934.09
16.50%
2404.29
42.47%

213.67
3.48%
348.74
5.68%
362.25
5.90%
678.45
11.05%
0
0.00%
1043.77
17.00%
2646.88
43.11%

231.50
3.50%
377.01
5.70%
396.85
6.00%
730.87
11.05%
0
0.00%
1157.48
17.50%
2893.71
43.75%

248.92
3.52%
404.49
5.72%
431.37
6.10%
781.41
11.05%
0
0.00%
1272.88
18.00%
3139.07
44.39%

266.10
3.54%
431.47
5.74%
466.05
6.20%
830.63
11.05%
$75.17
1.00%
1390.64
18.50%
3460.06
46.03%

282.47
3.56%
457.03
5.76%
499.88
6.30%
876.77
11.05%
$79.35
1.00%
1507.56
19.00%
3703.05
46.67%

U O I G 16

O ctober 14th, 2011

University of O regon Investment G roup

A ppendix 5 Discounted C ash F lows A nalysis Assumptions

Tax Rate
Risk Free Rate
Beta
Market Risk Premium
% Equity
% Debt
Cost of Debt
CAPM
WACC

Discounted Free Cash Flow Assumptions

33.48% Terminal Growth Rate
2% Terminal Value
0.87 PV of Terminal Value
7.00% Sum of PV Free Cash Flows
93.67% Firm Value
6.33% Total Debt
5.58% Cash & Cash Equivalents
8.07% Market Capitalization
7.80% Fully Diluted Shares
Implied Price
Current Price
Undervalued

U O I G 17

3.00%
27,369
13,925
5,422
19,347
998
722
18349
304
60
52
16.07%

O ctober 14th, 2011

University of O regon Investment G roup

A ppendix 6

Significant Company Acquisitions

Year
1993
1998
1999
1999
1999
1999
1999
1999
1999
2000
2000
2001
2002
2002
2002
2003
2003
2005
2006
2007
2007
2008
2009
2010

Company's Name
ChipSoft, Inc. (TurboTax product line)
Lacerte Software Corporation and Lacerte Educational Services Corporation (Professional tax)
TaxByte, Inc. (Professional tax)
Computing Resources, Inc. (Payroll services)
Compucraft Tax Services, LLC (Professional tax)
Boston Light Software Corporation (Small business services)
SecureTax, Inc. (Professional tax)
Turning Mill Software, Inc. (Small business services)
Rock Financial Corporation (Quicken Loans)
Greenpoint Software Ltd. (Professional tax - Canada)
EmployeeMatters, Inc. (Employee administration services)
Tax and Accounting Software Corporation (Professional tax)
CBS Employer Services (Payroll services)
Management Reports Inc. (Property manager solutions)
Eclipse, Inc. (Wholesale durable goods distributors management software)
Income Dynamics, Inc (Consumer tax)
Innovative Merchant Solutions (Small business services)
MyCorporation.com (Online business incorporation services)
StepUp Commerce Inc. (Online shopping services)
Digital Insight Corp. (On-demand banking services)
Homestead Technologies Inc. (Web site and Web store solutions)
Electronic Clearing House Inc. (Electronic payment processing solutions)
PayCycle, Inc. (online payroll for small business)
Medfusion (Online patient-to-provider healthcare communications)

U O I G 18

O ctober 14th, 2011

University of O regon Investment G roup

A ppendix 7
Sources
SEC Filings
Intuit Investor Relations page (http://investors.intuit.com/)
Intuit presentations
Earnings call transcripts
IBIS World
Lexis Nexis
S&P Net Advantage
Factset

U O I G 19