Intuit

Intuit Inc. is a global technology platform that makes business and financial management software for consumers, small businesses, and accounting professionals. You almost certainly know them by their superstar products: QuickBooks, the go-to accounting software for small businesses; TurboTax, the dominant force in do-it-yourself tax preparation; Credit Karma, a personal finance portal offering free credit scores; and Mint, a popular budgeting app. Founded in 1983 by Scott Cook and Tom Proulx, Intuit’s mission has always been to simplify the business of life. The company operates on a powerful and “sticky” business model, creating an ecosystem of essential financial tools. Once a customer, especially a small business, is integrated into the Intuit world, it becomes increasingly difficult to leave. This creates a predictable and recurring revenue stream, a characteristic highly prized by value investing practitioners. Intuit doesn't just sell software; it sells a solution to the often-dreaded tasks of accounting, tax filing, and personal finance management, making it a cornerstone of the financial lives of millions.

• Small Business & Self-Employed: This is the kingdom of QuickBooks. It's more than just bookkeeping software; it’s an operating system for small businesses. Intuit masterfully builds services on top of this platform, such as payroll processing, payment acceptance, and time tracking. Each added service deepens the company's relationship with the customer and increases the switching costs. The acquisition of Mailchimp further extends this ecosystem into marketing, aiming to be the all-in-one platform for entrepreneurs.
• Consumer & Credit Karma: This segment is dominated by TurboTax, which has a commanding market share in the U.S. consumer tax-filing market. It’s a highly seasonal but incredibly profitable business. The acquisition of Credit Karma was a strategic masterstroke. While TurboTax helps you on the tax compliance side, Credit Karma helps you on the financial health side, using your data to offer personalized recommendations for credit cards and loans, earning a fee from financial institutions for successful referrals. This creates a powerful flywheel of user data and financial product offerings.

Intuit is a classic example of a company with a wide and durable economic moat, a term popularized by Warren Buffett to describe a sustainable competitive advantage.

1. Insanely High Switching Costs: Imagine you run a small business. Your entire financial history for years is inside QuickBooks. All your employees are trained on it, and your accountant is an expert in it. The thought of migrating all that data to a new system (like Xero), retraining everyone, and risking major errors is a nightmare. Most owners would rather pay the annual subscription fee than endure that pain. This inertia is a powerful source of recurring revenue.
2. Powerful Brand and Network Effects: “TurboTax” is almost synonymous with filing taxes online. This brand recognition is a huge advantage. Furthermore, there's a subtle network effect at play. As more accountants use and recommend QuickBooks to their clients, more small businesses adopt it, which in turn solidifies its status as the industry standard for accountants. It's a self-reinforcing loop.

No investment is without risk, not even a high-quality business like Intuit.

• Competition and Disruption: While Intuit is the giant, competitors are always chipping away. In accounting, companies like Xero are gaining traction, particularly outside the U.S. In tax, the U.S. government periodically discusses creating its own free, direct-filing system, which would be a major threat to TurboTax's business model.
• Regulatory and Reputational Risk: Intuit has faced significant public and legal scrutiny over its marketing practices, particularly concerning its “free” tax filing products, which often steer users toward paid versions. This creates reputational risk and could lead to fines or changes in business practices.
• The Price of Quality: The market knows Intuit is a fantastic business. As a result, its stock often trades at a high valuation (e.g., a high price-to-earnings ratio). For a value investor, the key challenge is not identifying the quality of the business but waiting for an opportunity to buy it at a reasonable price, ensuring a proper margin of safety. A wonderful company can be a terrible investment if you overpay for it.

Intuit's founder, Scott Cook, was a pioneer of customer-driven innovation. In the early days, to understand how people really used financial software (or struggled with it), he would literally stand in software stores and ask customers who bought rival products if he could “follow them home” to watch them install and use it. This hands-on, almost anthropological research revealed the pain points that existing products failed to solve, directly leading to the user-friendly design that made Intuit's first product, Quicken, a runaway success.