On Wednesday, KeyBanc reaffirmed its positive outlook on shares of Intuit (NASDAQ:INTU), maintaining an Overweight rating and a $700.00 price target. The firm's stance comes after the IRS introduced the Direct File pilot program across 12 states on March 12, 2024.
This initiative allows eligible taxpayers to file their federal tax returns online directly with the IRS at no cost. State tax returns are not included in this service and must be filed separately.
The Direct File program is distinct from the IRS Free File program and is designed for taxpayers with simpler tax situations. According to IRS estimates, around 19 million filers in the participating states are eligible for the program.
This figure represents approximately 12% of all filers and 29% of do-it-yourself (DIY) filers based on 2023 data. Despite the launch occurring more than halfway through the standard filing period, KeyBanc sees limited risk to Intuit's third fiscal quarter 2024 consumer revenue.
The timing of the launch suggests that over half of DIY filers may have already filed their taxes, and eligibility restrictions further limit the program's immediate impact.
KeyBanc also notes several reasons why the Direct File program might not significantly affect Intuit's TurboTax service in the medium to long term. Other free tax filing options are already available, and Direct File primarily targets filers with the lowest average revenue per user (ARPU)—a less strategic priority segment for TurboTax.
Moreover, the IRS program does not cover state tax returns, and TurboTax provides guarantees to filers that the IRS likely cannot match.
The firm believes it is improbable that the IRS will secure the necessary funding and resources to develop a product experience and ecosystem superior to Intuit's offerings, which include features like AI-assisted filing, Tax Pro access, and integration with Credit Karma.
The reliability and ease of repeat filing with TurboTax are also cited as key differentiators that could mitigate the potential impact of the IRS's Direct File program on Intuit's business.
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