Intuit has introduced QuickBooks Online Self-Employed, an easy-to-use, cloud-based accounting and tax solution for freelancers.
A recent survey indicates that 53 million Americans, or 34% of the workforce, are involved in freelance work.
The freelance workforce contributes around $715 billion a year to the U.S. economy.
QuickBooks Online Self-Employed is a subscription-based cloud solution that could generate a lot of float for Intuit.
The continued growth of the freelance, on-demand, or “gig economy” is very good news for Intuit (INTU). Each new freelancer that joins the gig economy is a potential customer for QuickBooks, TurboTax, and other Intuit finance and accounting solutions.
The number of Americans working on an independent or freelance basis is huge and growing according to Freelancing in America, a survey of the gig economy made by research firm Edelman Berland for the Freelancers Union and the freelance website operator Elance-Odesk Inc. The highlights of the study include:
- Around 53 million Americans, or 34% of the workforce, are involved in some sort of gig or freelance employment.
- Around 21.1 million Americans are working as independent contractors or full-time freelancers.
- Around 14.3 million Americans supplement the income from their jobs with freelance work.
- Around 2.8 million Americans are freelance business owners.
- The money paid to the freelance workforce totals around $715 billion a year.
- Around 38% of Americans under age 35 are freelancing.
- The number of freelancers has grown substantially in the last decade. In 2004 the General Accountability Officer found that there were around 42.6 million contingent workers—freelancers.
If that was not enough, observers expect the gig economy to grow substantially in the next few years. Emergent Research and Intuit itself estimate that 43% of the U.S. workforce will be self employed by 2020.
Each of these people is a potential customer for Intuit because taxes for freelancers can be complex. From personal experience, I know that freelancers have to keep track of all their business expenses and income. That can be a real headache if you are getting income from several different sources.
Intuit Tries to Give Itself More Float in the Cloud
Now Intuit has basically solved this problem with solutions like TurboTax, QuickBooks, and its new cloud-based QuickBooks Online Self-Employed. This solution in particular works great; it allows me to track all of my income and my spending, and it even does my taxes for me. One big advantage to these solutions is that they require little or no accounting knowledge. This also saves time, which is something that freelancers are usually short of.
Intuit has also been very good at identifying new markets for its products. It is distributing a free version of QuickBooks Online Self-Employed to drivers for the ride sharing service Uber.
This could generate a lot of float or available reserve for Intuit because the company charges individuals $7.99 a month for QuickBooks Self-Employed. The subscription money gives Intuit an additional stream of revenue it can tap or borrow against. Value investing fans know that float is at the basis of Warren Buffett’s investment strategy.
Intuit is trying to generate more float with a freemium model letting people use QuickBooks Online Self-Employed for free to get them hooked on the product. The strategy is similar to that used by cloud-based video game companies such as King Digital Entertainment (NYSE: KING). Such a strategy has been effective for other companies; World Wrestling Entertainment (NYSE: WWE) was able to attract one million subscribers to its streaming video channel with a giveaway of a month’s free service.
Can Intuit Keep Growing
Now for the most important question of all: Can Intuit really grow its business and increase its cash flow with such a freemium business model? It’s too early to see how successful QuickBooks Online Self-Employed will be, but Intuit has already demonstrated an impressive amount of revenue growth.
Intuit reported a TTM revenue figure of $3.68 billion in January 2013 that grew to $4.129 billion in January 2014 and $4.582 billion on Jan. 31, 2015. Intuit also reported a quarterly year to year TTM revenue growth rate of 3.32% on Jan. 31, 2015. The company had a net income of $805 million and a free cash flow of $304 million on Jan. 31, 2015, indicating that it can generate float from its products.
This translated into some good numbers for investors, including a dividend yield of 1.06%, a payout ratio of 31.3%, a diluted EPS of 2.768%, and a return on equity of 29.10%. That’s not bad, and tax season has not even reached its height yet.
If Intuit can avoid more security problems with its software and marketing stumbles, it could be a good long-term software play. I say this because it looks like Intuit has a winner and a potential huge moneymaker with QuickBooks Online Self-Employed. That cloud-based solution could generate a lot of float if it becomes widely accepted in the gig economy and could drive more business to other Intuit solutions, such as TurboTax.