In keeping with its long-standing tradition, Intuit (NAS: INTU) has made yet another acquisition. The target for the tax and payroll services company this time is Demandforce, essentially an online marketing agency operating in the small and mid-sized enterprise niche. Shares of Intuit traded slightly up on the news, as well they should -- the company has a history of making smart buys that grow its business.
By Intuit's recent standards, Demandforce was a pricey buy at $423.5 million, which equates to a little more than $12,000 per Demandforce client. The latter part of the previous decade, in particular, saw Intuit make a flurry of acquisitions at the sub-$200 million level. It bought website creation and hosting service Homestead Technologies in 2007, for example, and personal-finance site mint.com two years later.
Both of these now guide users toward Intuit's core products and services, such as its flagship QuickBooks accounting software or its personal-finance cousin, Quicken. The same will happen with Demandforce; the small enterprises that use the site's services will be able to quickly and easily connect to QuickBooks and its ilk, thereby providing Intuit with another revenue stream or several.
Intuit's smart in the way it expands vertically through its acquisitions. Its 2009 buy of online player PayCycle greatly boosted its suite of payroll services, allowing it to better compete with top dogs in the sector like big incumbent Automatic Data Processing (NYS: ADP) and nimble challenger Paychex (NAS: PAYX) .
It's early days, but Intuit is growing faster than those two and could someday give them a run for their money; its revenue from payroll services amounted to $193 million over its past six months, a nice 17% year-on-year increase. ADP posted only a 10% rise over the same time frame, while Paychex had a lower year-on-year gain (8%) in its preceding nine-month period.
Tax me, baby
Intuit's honed its buyout expertise over the years, and true to form, it's timed the Demandforce one right. We're in the hangover period of tax season, which is a hot one for the company thanks to its other flagship software program -- the durable and popular TurboTax. Over time, more and more returns have been prepared through the online version of TurboTax, a service the company has aggressively promoted.
This effort is paying off. Thanks in no small part to the convenience of filling out a return online, TurboTax was used in the preparation of 24.5 million returns this past season. This represented a nice boost of 6% from last year. And the bulk of that growth came from the Web version of the program.
As a result, tax returns are returning more sales for Intuit. The complete tally for tax season revenue won't be released until the next earnings announcement, but judging by the company's most recent quarter and the above figures, it'll be healthy. This past quarter the firm saw a rise of 44% in its consumer tax unit (essentially the take from the various iterations of TurboTax). In contrast, the Big Daddy of publicly traded tax specialists, H&R Block (NYS: HBR) , grew its service revenues only 2% over that same period.
Intuit has a long history of widening its client base through acquisitions. So look for quite a few of Demandforce's 35,000 or so users to switch to TurboTax and/or QuickBooks. Intuit's modest about the effect this will have on its finances in the near future, but don't be surprised if these additions snowball into nice revenue and profit gains before long. The company's done it before.
Intuit also happens to pay a steady dividend, a habit many Fools like. So much so that we've compiled a list of nine companies that pay out reliably and well in our report "Secure Your Future With 9 Rock-Solid Dividend Stocks". Download your free copy.
At the time thisarticle was published Fool contributorEric Volkmanowns no stocks mentioned in the story above.Motley Fool newsletter serviceshave recommended buying shares of Paychex and Automatic Data Processing and creating a write covered straddle position in Paychex. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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