TurboTax crushes H & R Block in tax preparation

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According to Internal Revenue Service figures, in early April, the total number of self-assessed returns filed during the current tax season is up 3.3% from the previous year. last year. At the same time, the number of returns filed by accountants and other tax professionals decreased by 1% over the same period.

The growth of DIY tax returns is "encouraging" for Intuit, said Sterling Auty, an analyst at JP Morgan Securities, in a report released this month. This is a trend that has accelerated in recent years.

It is therefore not surprising that the actions of Intuit (INTU) have increased by almost 250% in the last five years, H & R Block (HRB) fell by more than 6% over the same period. Intuit also dominated the broader market: the S & P 500 has gained about 56% since April 2014.

The growing popularity of tax software such as TurboTax has clearly hurt H & R Block and its network of more than 10,000 tax preparation professionals. Of course, H & R Block also offers DIY software. But this activity represents only a tiny fraction of sales.

DIY tax preparation in the US accounted for less than 5% of H & R Block's total revenues in the first nine months of this year. Assisted tax preparation for US customers generated more than 40% of the company's sales.

The benefits of Intuit

Intuit, on the other hand, generates about 30% of its overall revenue with consumer software such as TurboTax. (The company also owns QuickBooks, a range of software aimed at small businesses, as well as Mint, the personal finance management application.)

"The DIY tax industry has grown much faster than assisted tax preparation," said Michael Millman, an analyst who follows Intuit and H & R Block for Millman Research Associates. "H & R Block will struggle to grab Intuit and TurboTax."

Tax reform has not helped H & R Block either.

Jeffrey Jones, CEO of H & R Block, said in March that the company hoped that more Americans would now be able to take the standard deduction.

Simplified tax preparation is not necessarily good news for H & R Block and its network of professionals. But Jones said the changes made to the way taxes are produced are why the company is trying to showcase the software that it provides for personal purposes.

"I never want to pretend that we have our head in the sand and that there is no migration going on, which is why we are investing as we do to expand our DIY business. ", he told analysts at a call to discuss the results of the company.

Intuit CEO Sasan Goodarzi recently described tax simplification as "very beneficial for consumers" at a profit conference call in February.

Further intensifying the situation for H & R Block, Intuit has launched new products for people who still want tax assistance. The company launched TurboTax Live, which allows users to chat online with certified public accountants in November 2017.

Analysts are also supportive of Intuit's outlook. The company's profits are expected to increase by 15% per year over the next few years. The growth rate forecast by H & R Block is 10%.

Lack of competition from the US government

A competitor, neither of the two companies should probably worry soon: the US government.

Indeed, Congress enjoys bipartisan support for a new bill dubbed "The Taxpayer Law First," which would ban the IRS from creating its own software online tax preparation.
The bill is controversial. The nonprofit journalism site ProPublica pointed out that Intuit and H & R Block had been doing a lot of lobbying to Congress to prevent the IRS from setting up its own free tax return system.

When asked about the bill, a spokesman for H & R Block told CNN Business that the company had "committed" to "providing assistance and inspiring confidence to our customers and to communities around the world. "

"We regularly discuss with policy makers on issues that would benefit taxpayers, including the law" The Taxpayer First, "which would improve and modernize the IRS service," the spokesman said in an email.

Intuit declined to comment specifically on the bill. But the company referred CNN Business to two blog posts on taxpayer empowerment and tax reform at Intuit's Tax and Financial Center.

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