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McIntire Investment Institute At the University of Virginia

McIntire Investment Institute At the University of Virginia. Blucora, Inc. (BCOR ) Long. Prepared by Sean Yu| 1/31/2012. AGENDA. Overview Thesis Valuation Misperception Risks. Blucora Business Overview . Tax - Preparation software. June 2012. InfoSpace : 70% TaxAct : 30%. 1996.

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McIntire Investment Institute At the University of Virginia

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  1. McIntire Investment Institute At the University of Virginia Blucora, Inc. (BCOR) Long Prepared by Sean Yu| 1/31/2012

  2. AGENDA • Overview • Thesis • Valuation • Misperception • Risks

  3. Blucora Business Overview Tax-Preparationsoftware June 2012 InfoSpace: 70% TaxAct: 30% 1996

  4. Blucora Financials Price: 15.13 Market Cap: 605.85 EV/EBITDA: 7.19 P/E: 14.71 EBITDA Margin: 25.41% FCF/NI Conversion: 116.05%

  5. Thesis

  6. Business Model for Search Segment Customized and combined result Syndicate results Ad Cut Value-added service

  7. String Financials for Search Segment

  8. Huge market opportunities bring Blucora numerous new customers • Search Market: 15% to 20% annual growth • Increasing need of customized search results & diverse assess to search-> % of Distribution revenue increase

  9. InfoSpace’s Ability to attract new customers • 4% CAGR for revenue form existing customers • 13 % CAGR for revenue form new customers

  10. New 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 ?

  11. Blucora already partnered with Google & Yahoo for more than 10 years Partner for more than 10 years Just renew to 2014

  12. Online Filling has huge potential market • TaxActfocused on online tax preparation • Tendency to use DIY software or services to fill tax • Online filling is the fastest growths segment in DIY

  13. Biggest advantage of TaxAct– Low Price

  14. Amazing EBITDA Margin of TaxAct • Constantly 50% Margin!

  15. Efficient cost management results in high margin • Online Filling: much less labor-intensive than other fillings

  16. Successful acquisition of TaxACT • 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

  17. Stories of TaxACT other than high margin • 80% repeating business • TaxACT is building up customer base • Margin and profit will be even higher

  18. Healthy Growth Path

  19. Low capital requirement • Blucora’s businesses require minimal capital • % of PPE decreased from 3% to 1.1% in 2012

  20. Strong Free Cash Flow provides ability toinvestment • FCF/NI Conversion is approaching 180% • The conversion is still 130% if we remove effect of loss

  21. Leaders experiences in IB and PE will help the company capture good deals like TaxACT • Use the free cash wisely to capture next TaxACT

  22. InfoSpace: Steady Cash Flow TaxACT: Seasonal but high margin Perfect Combination

  23. Stock 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. Future Tax Deduction • Blucora has a lot of NOLs before that can deduct future 10 years’ tax

  25. Valuation 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. Valuation 2: Estimated Market Cap Final Price: 26.89

  27. $27

  28. Misperception • 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 TaxACTis not a good sign • Shifting from off-line software to online-service

  29. Risks • 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

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