The technology news website TechCrunch recently reported that the financial services provider, Intuit Inc. INTU, laid off 399 employees or approximately 5% of the total workforce of 8,000 as of Jul 31, 2014. Though the reason behind the retrenchment is not clear, we believe that it is a step toward shifting its business model from selling computer discs to a cloud-based software licensing model.

In the second half of 2014, the company terminated over 550 employees because of the shift in the business model.

Intuit provides business and financial management solutions to small and medium businesses (SMB), accounting professionals, and consumers in the United States. The company's objective is to expand the world of electronic finance.

Electronic finance encompasses three types of products and services — desktop software products that operate on customers' personal computers to automate financial tasks; products and services that are delivered via the Internet; and products and services that connect Internet-based services with desktop software to enable customers to integrate their financial activities.

We are positive on Intuit’s growing SMB exposure and believe that the strategic acquisitions will continue to support the segment. The increased adoption of its cloud-based services and products is another positive factor.

The company has also restructured its business to focus more on QuickBooks services and plans to invest more in the portfolio. Thus, higher investments will impact the company’s profitability in the near term.

Further, we believe that the rising competition from other payroll solution providers such as Paychex Inc. PAYX and Automatic Data Processing ADP is a concern, especially considering the seasonality of Intuit’s tax business and the ongoing economic uncertainty.

Currently, Intuit has a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is Advent Software Inc. ADVS sporting a Zacks Rank #1 (Strong Buy).

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