In February, selling pressure accelerated for software stocks. Markets continued to price in the risk of artificial intelligence chatbots taking subscriptions from software firms.
Last week, Intuit (INTU) realized that fear. The stock lost 18.6% in that time after the TurboTax and QuickBooks software supplier posted revenue of $8.56 billion. Non-GAAP EPS was $12.80. Both figures beat expectations.
Markets were not impressed with Intuit mentioning AI 41 times on the conference call. Instead, the drastic 17% workforce cut sent red flag fears for shareholders. The firm said that in Q3, it faced headwinds with its most price-sensitive segment of the DIY tax filing for TurboTax. Those involved people who earned less than $50,000 a year.
CEO Sasan Goodarzi said that it cut its full-time workers by 17% to simplify its organizational structure. That would make Intuit a faster, leaner, and more focused company.
Valuation Compression
Intuit enjoyed a 30x to 40x price-to-earnings ratio for the last decade, compared to compounded annual growth rates of 20%. Today, the stock trades at a forward P/E of 13.5 times. Still, the stock does not have an attractive valuation. Its EV/sales and price/sales ratios are higher than those of the industry.
Investors bought low-valuation stocks with high growth instead. They accumulated Lumentum (LITE), Nebius (NBIS), Sandisk (SNDK), and Micron (MU). While buying AI-related suppliers continues, Intuit's stock will languish for a while longer.
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