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M c I n t i r e I n v e s t m e n t I n s t i t u t e 1 M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA Prepared by Sean Yu| 1/31/2012.

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Presentation on theme: "M c I n t i r e I n v e s t m e n t I n s t i t u t e 1 M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA Prepared by Sean Yu| 1/31/2012."— Presentation transcript:

1 M c I n t i r e I n v e s t m e n t I n s t i t u t e 1 M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA Prepared by Sean Yu| 1/31/2012 Blucora, Inc. (BCOR) Long

2 M c I n t i r e I n v e s t m e n t I n s t i t u t e AGENDA Overview Thesis Valuation Misperception Risks 2

3 M c I n t i r e I n v e s t m e n t I n s t i t u t e B LUCORA B USINESS O VERVIEW 3 1996 Tax-Preparation software June 2012 InfoSpace: 70% TaxAct: 30%

4 M c I n t i r e I n v e s t m e n t I n s t i t u t e B LUCORA F INANCIALS Price: 15.13 Market Cap: 605.85 EV/EBITDA: 7.19 P/E: 14.71 EBITDA Margin: 25.41% FCF/NI Conversion: 116.05% 4

5 M c I n t i r e I n v e s t m e n t I n s t i t u t e T HESIS 1 Strong search segment ensures constant growth 2 Successful acquisition of TaxAct brings diversification and huge profitability 3 Stable business model results in healthy growth 4 Undervalued stock price provides room for long 5

6 M c I n t i r e I n v e s t m e n t I n s t i t u t e B USINESS M ODEL FOR S EARCH S EGMENT 6 Syndicate results Ad Cut Customized and combined result Value-added service

7 M c I n t i r e I n v e s t m e n t I n s t i t u t e S TRING F INANCIALS FOR S EARCH S EGMENT 7

8 M c I n t i r e I n v e s t m e n t I n s t i t u t e H UGE MARKET OPPORTUNITIES BRING B LUCORA NUMEROUS NEW CUSTOMERS Search Market: 15% to 20% annual growth Increasing need of customized search results & diverse assess to search-> % of Distribution revenue increase 8

9 M c I n t i r e I n v e s t m e n t I n s t i t u t e I NFO S PACE ’ S A BILITY TO ATTRACT NEW CUSTOMERS 4% CAGR for revenue form existing customers 13 % CAGR for revenue form new customers 9

10 M c I n t i r e I n v e s t m e n t I n s t i t u t e N EW AND POTENTIAL SEARCH RESULTS SUPPLIERS BRING PROMINENT OPPORTUNITIES Added Yandex in 2011 Largest Russian search engine with 62% market share Successful international case: 84% international revenue in 2010 because launching of auction search website in Europe 10 ?

11 M c I n t i r e I n v e s t m e n t I n s t i t u t e B LUCORA ALREADY PARTNERED WITH G OOGLE & Y AHOO FOR MORE THAN 10 YEARS 11 Partner for more than 10 years Just renew to 2014

12 M c I n t i r e I n v e s t m e n t I n s t i t u t e 12

13 M c I n t i r e I n v e s t m e n t I n s t i t u t e O NLINE F ILLING HAS HUGE POTENTIAL MARKET TaxAct focused on online tax preparation Tendency to use DIY software or services to fill tax Online filling is the fastest growths segment in DIY 13

14 M c I n t i r e I n v e s t m e n t I n s t i t u t e B IGGEST ADVANTAGE OF T AX A CT – L OW P RICE 14

15 M c I n t i r e I n v e s t m e n t I n s t i t u t e A MAZING EBITDA M ARGIN OF T AX A CT Constantly 50% Margin! 15

16 M c I n t i r e I n v e s t m e n t I n s t i t u t e E FFICIENT COST MANAGEMENT RESULTS IN HIGH MARGIN Online Filling: much less labor-intensive than other fillings 16

17 M c I n t i r e I n v e s t m e n t I n s t i t u t e S UCCESSFUL ACQUISITION OF T AX ACT 17 Tried to acquired in 2010 Failed at the end of 2011 because of monopoly regulation. InfoSpace took over immediately with SAME price. 3.7 x EV/EBITDA

18 M c I n t i r e I n v e s t m e n t I n s t i t u t e S TORIES OF T AX ACT OTHER THAN HIGH MARGIN 80% repeating business TaxACT is building up customer base Margin and profit will be even higher 18

19 M c I n t i r e I n v e s t m e n t I n s t i t u t e 19 Healthy Growth Path

20 M c I n t i r e I n v e s t m e n t I n s t i t u t e L OW CAPITAL REQUIREMENT Blucora’s businesses require minimal capital % of PPE decreased from 3% to 1.1% in 2012 20

21 M c I n t i r e I n v e s t m e n t I n s t i t u t e S TRONG F REE C ASH F LOW PROVIDES ABILITY TOINVESTMENT FCF/NI Conversion is approaching 180% The conversion is still 130% if we remove effect of loss 21

22 M c I n t i r e I n v e s t m e n t I n s t i t u t e L EADERS EXPERIENCES IN IB AND PE WILL HELP THE COMPANY CAPTURE GOOD DEALS LIKE T AX ACT Use the free cash wisely to capture next TaxACT 22

23 M c I n t i r e I n v e s t m e n t I n s t i t u t e 23 InfoSpace: Steady Cash Flow TaxACT: Seasonal but high margin Perfect Combination

24 M c I n t i r e I n v e s t m e n t I n s t i t u t e S TOCK PRICE IS UNDERVALUED Earning will grow at 25% CAGR over the next 5 year; industry average 18%. P/E ratio:14; EV/EBITDA: 7. Lower than both search company and Online tax Prep Companies. 24

25 M c I n t i r e I n v e s t m e n t I n s t i t u t e F UTURE T AX D EDUCTION Blucora has a lot of NOLs before that can deduct future 10 years’ tax 25

26 M c I n t i r e I n v e s t m e n t I n s t i t u t e V ALUATION 1: P/E NOLs’ effect on Stock price: 148 (M)/ 40.74 (M) = $3.6 Final target price: $23.84 + $3.6 = $27.44 26

27 M c I n t i r e I n v e s t m e n t I n s t i t u t e V ALUATION 2: E STIMATED M ARKET C AP 27 Final Price: 26.89

28 M c I n t i r e I n v e s t m e n t I n s t i t u t e 28 $27

29 M c I n t i r e I n v e s t m e n t I n s t i t u t e M ISPERCEPTION Q3 loss disprove Blucora’s ability to make profits –$4.3 million one-time loss on the warrant With competition from Google, Infospace’s future is not bright –Different business model Tax preparation business is unstable –Blucora has InfoSpace Decrease margin of TaxACT is not a good sign –Shifting from off-line software to online-service 29

30 M c I n t i r e I n v e s t m e n t I n s t i t u t e R ISKS If some companies can get contract with Google, it will be a bad sign for Infospace If earning does not recover in Q4, investors will further lose confidences and we should doubt if the loss in Q3 was only out of one- time loss It's hard to find a deal as attractive as TaxACT, so if leaders make a bad acquisition, stock price will suffer 30

31 M c I n t i r e I n v e s t m e n t I n s t i t u t e 31


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