Compuserve Is Piling Up The Profits H&R; Block’s On-Line Subsidiary Sparkles While Tax Business Shows Little Growth

H&R Block Inc., the company that built its reputation and fortune by curing tax-season headaches, is no longer making that fortune solely on tax returns.

Block’s CompuServe Inc. subsidiary has grown relentlessly in recent years and is closing in on tax services as Block’s most profitable unit. Within two years, Block expects CompuServe to be the biggest contributor to the company’s bottom line.

Amazing stuff for a company that started out in Columbus, Ohio, in 1969 as a computer timesharing operation and didn’t launch its on-line information service - “a wild but neat idea with some potential,” one executive recalled - until 1979.

That was the year Block bought the company. Since then, CompuServe has become a money maker that helps Block cope with the cyclical tax business and fuels Block’s growth ambitions.

“Certainly, when they bought CompuServe nobody thought it was going to blossom into what it has,” said Jonathan Braatz, an analyst for B.C. Christopher Securities Co. in Kansas City.

“I don’t think anybody felt they would take a $20 million company and grow it to where this non-tax business would be greater than tax business.”

CompuServe revenues were almost $430 million in fiscal 1994 - up 36 percent from 1993 and 53 percent from 1992.

Meanwhile, H&R Block Tax Services Inc.’s performance was relatively flat. Fiscal 1994 revenue was about $755.5 million - up just 3 percent from 1993 and 8 percent higher than 1992.

Block officials regard tax services as a mature industry, one with limited growth potential. For CompuServe, though, the future appears bright.

“It seems that CompuServe has really taken over the spotlight in many respects,” says Tom Bloch, Block’s president and chief executive. “It certainly is the growth engine of H&R Block today.”

CompuServe’s president and chief executive, Maury Cox, had just joined the company as a salesman in 1979 when Block bought it.

“We’d started this little information service I thought was kind of a wild but neat idea with some potential,” Cox said.

The company also had started an electronic mail service and, more importantly, was opening its network so customer corporations could access their own information, not just CompuServe’s.

Braatz, the analyst, said Block’s best move was giving CompuServe its freedom.

“I think clearly the people at CompuServe saw this on-line services business being something very strong,” Braatz said. “Obviously, they were given the wherewithal to attack that market.”

By 1982, CompuServe had decided to concentrate on information services instead of computer timesharing, said Cox.

Thirteen years later, CompuServe has 2.5 million subscribers, and is signing up 120,000 new subscribers per month, Cox said.