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Intuit Sells Data Center for Faster Public Cloud Transition

Zacks Equity Research
Updated

Intuit INTU recently announced that it is selling its largest data center based in Quincy, WA to H5 Data Centers, a privately-owned data center operator in the country.

The move resonates with the company’s strategy to shift all services to public cloud instead of investing in owning hosting platforms.

By the end of tax season, all its TurboTax online users were served from Amazon AMZN Web Services, per management. Presently, given the transition strategy, it expects to shift all QuickBooks Online customers to the public cloud as well.

To give you an idea, QuickBooks and TurboTax are Intuit’s flagship products that aid more than 42 million customers to run their small businesses, pay employees and bills, separate business and personal expenses, track money, as well as file income taxes.

Why the Shift?

Intuit has been trying to shift its business model by selling software to cloud-based subscription providers since the last two years.

Cloud-based solutions, as against software-based ones, have gained popularity as they offer anywhere, anytime access.This revolutionary idea lowers IT costs of companies by cutting down the need for servers and staff.

Intuit, which is already a market leader in this segment, is benefiting from increased adoption that is helping it gain new customers and in turn, boosting overall performance.

Per Gartner, Software-as-a-Service (SaaS) is the largest segment of the cloud market, with revenues expected to reach $73.6 billion in 2018, indicating 22.2% growth. Moreover, Gartner expects SaaS to generate 45% of total application software spending by 2021.

Intuit’s strategy of shifting to a cloud-based subscription model is therefore expected to help the company generate more stable revenues in the long run. We believe that Intuit, with its SaaS offerings, is well-positioned to lead the market.

Intuit Inc. Revenue (TTM)

Intuit Inc. Revenue (TTM) | Intuit Inc. Quote

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Impact of the Deal on Financials

The company anticipates the sale of data center to result in a GAAP operating loss of $75-$85 million.

However, GAAP Earnings Per Share is expected to remain unaffected owing to tax benefits related to the sale, share-based compensation and reorganization of a subsidiary during the quarter.

For the fourth quarter of fiscal 2018, the company now expects GAAP operating loss within $100-$110 million compared with earlier guided range of $20-$30 million.

For full fiscal 2018, GAAP operating income is expected in the range of $1.465-$1.475 billion, representing an increase of 5-6%versus earlier expectation of 11% growth.

Nonetheless, earnings and revenue outlook for the fourth quarter and fiscal 2018 has been reiterated.

Zacks Rank and Other Key Picks

Intuit currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the same space include Adobe Systems Incorporated ADBE and Verint Systems Inc. VRNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Adobe and Verint is projected to be 16.2% and 10%, respectively.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Intuit Inc. (INTU) : Free Stock Analysis Report
 
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
 
Verint Systems Inc. (VRNT) : Free Stock Analysis Report
 
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