BLUCORA INC BCOR
November 05, 2012 - 3:54pm EST by
madler934
2012 2013
Price: 15.09 EPS $0.00 $0.00
Shares Out. (in M): 43 P/E 0.0x 0.0x
Market Cap (in M): 649 P/FCF 0.0x 0.0x
Net Debt (in M): 75 EBIT 0 0
TEV: 572 TEV/EBIT 0.0x 0.0x

Sign up for free guest access to view investment idea with a 45 days delay.

  • Internet Software & Services
  • Software
  • Internet
  • NOLs
 

Description

Blucora, Inc. is a massively profitable business that will be its own catalyst for appreciation due to the combination of incredible cash flow, a low valuation, good growth and a conservative balance sheet.  When all of those factors are present at the same time, good things usually happen.  Few investors know what this Company is and are more familiar with the Company’s old name, InfoSpace Inc.  (InfoSpace changed its name to Blucora on June 7, 2012).  When I found out that this was the old InfoSpace, I initially lost interest in what I had always thought was a mediocre internet business sitting on a massive pile of cash awaiting to be deployed into value destroying acquisitions.  Nothing could be further from the truth:  in late 2011 BCOR completed a perfect acquisition of “2nd Story Software”, which is better known to the layman as TaxACT, the maverick of the online tax preparation world, which is taking market share from just about everyone in the tax prep business.  The acquisition of TaxACT was a beautiful deal for Blucora because well, first off – it’s just a great asset, but also because they bought it at a very compelling price and Blucora has a massive tax shield in the form of $700mm + of NOLs.  The Blucora investment thesis rests on the combination of 1) TaxACT, which I view as a clearly excellent business, 2) the legacy search business, which I refer to as “legacy”, yet it is firing on all cylinders and performing fantastically and is underappreciated and 3) tying all of these massive cash flow generating assets up under the umbrella of $700mm+ in NOLs.  As a side note, I’m not usually too big on ascribing value to NOLs, but this is a case where the value is clearly playing out and I think it’s justifiable to place a conservative value on that tax shield.

Let me walk through the three components of value in BCOR:

TaxACT

TaxACT is a wonderful business.  They are a fast growing provider of online tax preparation software, having completed over 5 million tax filings in the 2012 tax season (out of about 142mm total filings with the IRS in 2011).  The business model for TaxACT consists of offering a free federal filing and then upselling additional services such as state tax filings, data archive services, refund payment transfers, phone support and stored value card solutions.  TaxACT charges an average price of $13 per filing across its user base.

The overall tax preparation market consists of the following segments:

Paid Preparer:  60% of tax returns prepared in 2011; this segment is generally stable but slowly shrinking over time due to the increasingly easy to use DIY options.  This is the highest price part of the tax preparation market and is dominated by the tax store chains (H&R Block, Jackson Hewitt and Liberty Tax) as well as independent tax preparers.

Do it Yourself:  DIY makes up 40% of the tax prep market and consists of the following components: Paper & Pencil (a small part of the market and rapidly converting to digital), software based (TurboTax) and online.  The online segment of the industry is dominated by three players: TaxACT, H&R Block Online and TurboTax Online.

TaxACT is playing in the best part of the market, as DIY is taking share from Paid Preparer, and then online is the fastest growing part of the DIY segment.  The overall tax preparation market is a very stable one, and the trend towards online tax preparation is an obvious long term consistent trend.  TaxACT has the wind at their back in that regard.

From a pricing perspective, TaxACT is a highly disruptive player.  Everyone knows that consumers are highly price sensitive when it comes to tax preparation, so it’s good news that TaxACT is positioned as the lowest price option, offering a free federal return and then an upselling various services for an average price per filing of $13.  On the other end of the spectrum, the paid prep players like Block, Jackson Hewitt and Liberty typically charge in the $180 range while professional accounts will charge considerably more than that.  The other key digital players are TurboTax at $54 and H&R Block Online at $33.  TaxACT is clearly playing in the right part of the market – the fastest growing segment and the most competitively priced option.  While the tax stores (H&R Block, Hewitt etc.) are constantly struggling to hold pricing with a stingy consumer, TaxACT is already priced at $0 for a federal filing while they build their user base and figure out ways to upsell useful services to their customers, such as state tax filings.

Within the online tax prep space, a simple Google search will reveal dozens of competitors offering seemingly similar services.  None of these competitors is a meaningful challenger to TaxACT with the exception of TaxSlayer.com, but even TaxSlayer is a small fraction of TaxACT’s size.  One industry player who works for a competitor noted to me “TaxSlayer is just noise, the fly on the wall…it just doesn’t go beyond TaxACT in terms of the competitive set (in the online category)”.  The pricing landscape is less clear in the online tax preparation world, as some players will offer a “Free” federal filing, but it will be subject to certain restrictions and then the price levels for various upsell services will vary by competitor.  It is very clear however that TaxACT plays it straight up with its customers and offers the free federal filing without exception and has incredibly high customer satisfaction levels.  TaxACT has never played with its pricing model, and while some might see an opportunity for them to raise their prices to juice profitability, I think it is more likely that they choose to stick with the pricing model, grow their user base, and continue to add new services and ways to monetize their loyal customer base.

It is worth noting and intuitive by the way, that there is a lot of repeat business in the online tax preparation world: if you file your 2012 return on TaxACT, you are likely to file it on TaxACT in 2013 as well since you are familiar with the process, have your information stored with TaxACT already etc.  While the Company does not disclose the level of repeat business, my conversations with folks in the industry lead me to believe that customer retention from one year to the next is in excess of 80%.

Here are a few articles and online resources that discuss TaxACT and illustrate the favorable position they are in from a pricing and overall competitive standpoint:

http://tax-software-review.toptenreviews.com/taxact-review.html

http://www.nextadvisor.com/online_tax_preparation_services/compare.php

http://www.pcmag.com/article2/0,2817,2376880,00.asp

So with that background behind us, let’s take a look at the actual financial performance of this so-called “wonderful business”:

             

LTM

 

2006

2007

2008

2009

2010

2011

9/30/2012

               

Revenue

$31.5

$40.6

$51.2

$59.6

$70.0

$77.6

$86.0

EBITDA

16.4

22.3

28.2

30.1

35.5

37.6

41.3

EBITDA Margin

52.1%

54.9%

55.1%

50.5%

50.7%

48.5%

48.0%

 

Holy Cr&p!!  This looks like a 1st year analyst at Goldman Sachs got assigned to make a pitchbook for a sell side M&A deal …except these are actual historical results!!!  And recent guidance projects more of the same growth for the 2013 tax season as TaxACT continues to innovate and invest in incremental product enhancements and functionality.   In addition, while I don’t have the historical capex numbers, they are immaterial – this is a well-oiled growing cash flow machine.

It is interesting to note the background on the TaxACT acquisition as a historical point of reference.  H&R Block had initially tried to buy TaxACT in 2010, but the transaction was scuttled by the DoJ on antitrust grounds with the Justice Dept. noting that TaxACT “disrupted” the tax preparation market with “low prices and product innovation”.  The H&R Block acquisition of TaxACT was negotiated in 2010 based on TaxACT’s performance in the 2009 tax season; when the deal was finally blocked in late 2011, BCOR was there waiting for the rebound and managed to snap up TaxACT just before the 2011 tax season, but based on a price that was negotiated on the 2009 tax season.  Anecdotally, I have also heard that Intuit became concerned about TaxACT as well and was interested in acquiring them, but determined that they too would be prohibited from such an acquisition on antitrust grounds.

See the link below for an interesting article about the antitrust case findings, which I will print out a short exerpt from as well:

The [antitrust] complaint quotes internal communications showing that TaxACT views itself as a maverick and a “catalyst for change.” It also cites to H&R Block’s awareness of TaxACT’s aggressive competitive strategy and success in getting a competitive response from its rivals. For example, incumbents were forced to match competitive offerings and lower their own prices as a result of TaxACT’s disruptive presence in the market. Internal company documents cite to the need to “stem” online market share loss to TaxACT and preserve “at risk” sales. More important, communications reveal that the merger was motivated by H&R Block’s strategy to “…eliminate the [TaxACT] brand to regain control of industry pricing and avoid further price erosion.”

http://www.antitrustinstitute.org/~antitrust/content/aai-says-doj-complaint-hr-blocktaxact-merger-provides-transparency-maverick-firms

OK, so you’ve heard the business description, you’ve seen the financial results, so what would you pay for this asset light, high ROE, 50% margin business?  10x EBITDA, how about 15-20x, anyone?  Nope, you can buy it right here on Wall Street for a high 4’s multiple of EBITDA.  Or if you want you could go out and pay a higher multiple for a chemical company or a perpetually declining landline telecom business, or maybe pay twice as much for a radio stock…but I’ll stick with investing in Blucora. 

Hyperbole aside, I think it should be clear to anyone that this business has fantastic characteristics and deserves a high multiple, probably in the double digits of EBITDA.  Wait to see what happens when you pair up the financials shown above with $700mm+ of NOLs.  Really good things start to happen.

Search

This is the business that most people think of when they hear the name InfoSpace.  It’s a business that has produced solid profit and cash flow for years but doesn’t get the respect it deserves.  And, it happens to be flat out on fire right now in terms of growth.

The business model is simple: Blucora has agreements with Google and Yahoo to syndicate out search results to third party websites.  Let me explain that a little better:  BCOR goes out to a third party website like windstream.com as an example (BCOR would call this a “Search Distribution Partner”).  Windstream.com wants to be able to provide search results on its homepage but doesn’t have the technology to do so – BCOR has agreements with YHOO and GOOG to “syndicate” out their search results (BCOR refers to GOOG/YHOO as “Search Customers”).  BCOR has technology and services that combine YHOO and GOOG’s results and present those search results in a format that is determined by the customer (in many cases BCOR will build out entire portals for their Distribution Partners).  In essence, BCOR is a value added reseller of GOOG/YHOO search results…they add some value and customer service and tailor the offering to what the Search Distribution Partner needs (including building out portals).  When consumers click on a paid ad at windstream.com, GOOG gets a cut, windstream.com gets a cut and of course BCOR gets a cut of that revenue. 

“Distributed search”, as the Company calls this business has been growing rapidly in the past few years and has only accelerated its growth in recent quarters.  This growth is being driven by increasingly diverse ways that people are accessing search – through social platforms, mobile, apps on tablet devices and desktop utilities.  BCOR has executed on this opportunity very well, adding significant new distribution partners and participating in growth with existing partners.

BCOR’s relationships with GOOG and YHOO go back for over 10 years and are highly stable.  BCOR just recently renewed these agreements in 2011 and have visibility under the current terms that extend out to the end of 2013 in the case of YHOO and 3/31/2014 in the case of GOOG.  The business relationship is locked in through 2013 and there is no indication that it is likely to change in 2014.  It’s also worth noting that the Company recently added Yandex to its list of Search customers, sitting alongside GOOG/YHOO.  Yandex is the leading Russian search engine, is growing very quickly and serves to diversify the Company’s search offering.

You might be asking why this business exists and the answer is simply that Google does not want to be in the business of reselling its own search results, building portals and providing services to all of these little third party sites.  There are obviously bigger players who can go directly to Google, but everyone who is big enough to do so already does.  BCOR does a good job tailoring the offering on a distribution partner by distribution partner basis and has also built a good reputation over time of only dealing with high quality sites that deliver high quality traffic to GOOG’s advertisers.  All of this plays well with GOOG/YHOO and helps to reinforce the long term relationship with BCOR.

Interestingly one piece of color on the relationship with Google is that GOOG doesn’t want to be seen as a monopolist.  BCOR is technically a competitor to GOOG/YHOO in the search business (albeit one that they have some control over), and as such it is actually useful to GOOG from a regulatory standpoint to have a few competitors out there who are making a little (or ridiculously little compared to GOOG) money.

In addition, BCOR has a few O&O sites such as Dogpile.com and MetaCrawler.com and believe it or not, people still actually use these sites.  This was 12% of Search revenue in the most recent quarter and remarkably it grew slightly over the prior year, but safe to assume this is flat at best and more likely a slow decline.

Let’s take a look at the recent financial performance of this business:

 

FY 2011

FY 2012

 
 

Q1

Q2

Q3

Q4

Q1

Q2

Q3

LTM

                 

Revenue

$51.7

$54.3

$56.3

$66.6

$75.3

$81.8

$91.4

$315.1

EBITDA

11.1

11.5

10.8

12.8

13.4

15.1

16.4

57.6

EBITDA Margin

21.5%

21.2%

19.2%

19.2%

17.8%

18.4%

17.9%

18.3%

YoY Revenue Growth

--

--

--

--

45.8%

50.7%

62.5%

 

YoY EBITDA Growth

       

20.5%

30.7%

51.3%

 

 

Hmm, not so shabby.  In fact, pretty darn good.  Q4 is projected to look like Q3 and management sees continued opportunities in this business going into 2013. However, given the step function of growth in F2012, management sees things flattening out a little bit.  The margin decline that you see reflects a mix shift from O&O business that is stagnating to the lower margin but high growth distribution business. Like tax, search is also a business with minimal capital requirements.

Overall, this is a business that has performed really quite well over time – its been a consistent grower, earns high margins and requires little to no capital to grow.  They have been very successful recently in winning new Distribution Partners and they participate in a growing industry.  Actually, to be quite blunt, this business has been “en fuego” of late.  The trends that have driven growth over the past few years are continuing and have only recently accelerated.  The key relationships with YHOO/GOOG were just recently renewed, so all is fine from that perspective.  This business just doesn’t get the respect it deserves.  Id give it a 7x EBITDA multiple given the high margins, good growth prospects and minimal capital requirements.  I would actually argue that’s probably a bargain for a high growth, high margin, high ROE business.

NOL

As noted earlier, Im not one to bet on NOLs actually being realized in terms of valuation, but this is an outlier case given the extremely high level of profitability.  This business has minimal CapEx and also is not going to pay any taxes for 10 years -it’s going to free cash flow like crazy.

 

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

BOP Gross NOLs

$725.0

665.0

603.2

539.5

474.0

406.5

336.9

265.3

191.5

115.5

Usage

 

60.0

61.8

63.7

65.6

67.5

69.6

71.6

73.8

76.0

78.3

EOP NOLs

665.0

603.2

539.5

474.0

406.5

336.9

265.3

191.5

115.5

37.2

                       

Tax Saved

24.0

24.7

25.5

26.2

27.0

27.8

28.7

29.5

30.4

31.3

                       

DCF Value

                   

185.6

7.5%

22.3

21.4

20.5

19.6

18.8

18.0

17.3

16.6

15.9

15.2

148.1

12.5%

21.3

19.5

17.9

16.4

15.0

13.7

12.6

11.5

10.5

9.6

121.2

17.5%

20.4

17.9

15.7

13.8

12.1

10.6

9.3

8.1

7.1

6.2

 

In the analysis above I assume the current income stream grows a measly 3% per year off the current base, and pick your discount rate, but I’ll take a 12.5% return over the next decade.  This shows you’ve got $148.1mm of value here with a few NOLs to spare come 2022. 

I note that there is optionality in the NOL value in the event that 1) the business grows faster than 3% (very likely that will happen) or 2) they do another acquisition to speed up the realization of the tax benefits.  I note that the NOLs quickly approach $200mm in value to the extent that the Company acquires another cash flowing asset (which is the crux of their M&A strategy).

 

Valuation

To me, the valuation here passes the “idiot test”, so put away your TI-82s, put in your pocket protector and let’s just think like plain old bean counters.

Stock Price

     

$15.09

Basic Shares Outstanding

   

40.7

Options / RSUs

     

2.3

FD Shares

 

 

 

43.0

Equity Market Cap

     

$649.0

         

Debt

     

73.8

Cash & Equivalents

 

 

 

150.4

Enterprise Value

     

$572.4

         

NOL Value

 

 

 

148.1

PF Enterprise Value

     

$424.3

 

OK, so $645 market cap, $572mm EV…how much cash flow are they going to generate based on LTM EBITDA?  Hmm, probably a little more than $80mm or about a 14% free cash flow yield, unlevered.  Oh and by the way, mgmt. just gave guidance for TaxAct to keep growing 8-10% in 2013 off of the LTM number, so that $80mm estimate is probably a little bit low.    

That’s basically good enough for me from a valuation perspective, but for those of you who like their steak served sum’of’the’partes, lets run the numbers that way, just for “ha-ha’s”.

And at this juncture I will make the controversial yet totally valid assumption that all corporate expenses are allocated to search, which is totally justified.  Why?  Because TaxACT is a completely separate entity and was acquired and financed with debt that it non-recourse BCOR.  If the banks are OK with it, I am too.

2012 Est. EBITDA Breakdown

 

Multiple

Value

Tax

 

44.3

10.0x

$442.8

Search

 

61.6

7.0x

$431.0

Corporate

 

(11.6)

7.0x

($81.4)

Total

 

$94.2

8.4x

$792.4

         
         

NOL Value

     

$148.1

Plus: Cash

     

150.4

Plus: 1 Year of Cash Flow

   

80.0

Less: Debt

 

 

 

73.8

Market Cap

     

$1,097.1

FD Shares

 

 

 

43.0

1 Year Target Stock Price

   

$25.51

 

 

 

 

 

 

 

 

 

         

 

For those of you who prefer to play, “figure out the implied value of the Search segment”, I will offer up the analysis in that format as well:

Stock Price

     

$15.09

Basic Shares Outstanding

   

40.7

Options / RSUs

     

2.3

FD Shares

 

 

 

43.0

Equity Market Cap

     

$649.0

         

Debt

     

73.8

Cash & Equivalents

 

 

 

150.4

Enterprise Value

     

$572.4

         

NOL Value

 

 

 

148.1

PF Enterprise Value

     

$424.3

         

Value of TaxACT

 

 

 

$442.8

Implied Value of Search

   

($18.5)

 

I do take requests, and if you would like me to perform any other acts of valuation, please refer to the Q&A.

Management

The last CEO at InfoSpace made some pretty questionable acquisitions, but it seems that we’ve got the right crew in place this time around with Ruckelshaus and co.  Ruckelshaus and Andrew Snyder (who represents 7% holder Cambridge Information Group) both have backgrounds in investment banking, and these guys are discounting cash flows and monetizing NOLs in a no holds barred manner.  It’s Investment Bankers Gone Wild, so to speak, and spring break is approaching, so get your DVDs now.

 

Summary and Other Factors

The stock dropped about 17% on Friday for totally nonsensical reasons, but providing us with a great buying opportunity.  Apparently the guidance for Q4 was viewed as a miss, but that is complete “malarkey” as our vice president might say.  I would note that TaxACT due to seasonality is really not even in business in Q4 (they do about $2mm in rev. in Q4) and there is a $0.7mm write off of deferred revenue in Q4 (purchase accounting adjustment from the acquisition) that wasn’t in the analyst numbers, and I think that accounts for basically the entire “miss” – who cares.  Let’s think about this rationally for a second: the businesses are doing great, cash flowing like crazy and growing, and you’ve got a rock solid balance sheet on top of that.

Ive never been good at playing the guessing game of actual results vs. analyst expectations, I just think this is a situation where the businesses are flat out too cheap, are high quality and with every quarter that goes by cash continues to just pile up on the balance sheet.  There isn’t a whole lot of macro risk here, I think it’s just a great way to make some money.  The obvious catalyst is simple cash flow generation - if you agree that this stock looks cheap now, wait till there’s another $80mm of cash on the balance sheet in a few quarters – I encourage you to take a look at the valuation with that amount of additional cash, because it won’t be long until it finds its way onto the balance sheet.

Thanks for reading, and I look forward to discussion.

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

Cash flow...followed by even more.
    sort by   Expand   New

    Description

    Blucora, Inc. is a massively profitable business that will be its own catalyst for appreciation due to the combination of incredible cash flow, a low valuation, good growth and a conservative balance sheet.  When all of those factors are present at the same time, good things usually happen.  Few investors know what this Company is and are more familiar with the Company’s old name, InfoSpace Inc.  (InfoSpace changed its name to Blucora on June 7, 2012).  When I found out that this was the old InfoSpace, I initially lost interest in what I had always thought was a mediocre internet business sitting on a massive pile of cash awaiting to be deployed into value destroying acquisitions.  Nothing could be further from the truth:  in late 2011 BCOR completed a perfect acquisition of “2nd Story Software”, which is better known to the layman as TaxACT, the maverick of the online tax preparation world, which is taking market share from just about everyone in the tax prep business.  The acquisition of TaxACT was a beautiful deal for Blucora because well, first off – it’s just a great asset, but also because they bought it at a very compelling price and Blucora has a massive tax shield in the form of $700mm + of NOLs.  The Blucora investment thesis rests on the combination of 1) TaxACT, which I view as a clearly excellent business, 2) the legacy search business, which I refer to as “legacy”, yet it is firing on all cylinders and performing fantastically and is underappreciated and 3) tying all of these massive cash flow generating assets up under the umbrella of $700mm+ in NOLs.  As a side note, I’m not usually too big on ascribing value to NOLs, but this is a case where the value is clearly playing out and I think it’s justifiable to place a conservative value on that tax shield.

    Let me walk through the three components of value in BCOR:

    TaxACT

    TaxACT is a wonderful business.  They are a fast growing provider of online tax preparation software, having completed over 5 million tax filings in the 2012 tax season (out of about 142mm total filings with the IRS in 2011).  The business model for TaxACT consists of offering a free federal filing and then upselling additional services such as state tax filings, data archive services, refund payment transfers, phone support and stored value card solutions.  TaxACT charges an average price of $13 per filing across its user base.

    The overall tax preparation market consists of the following segments:

    Paid Preparer:  60% of tax returns prepared in 2011; this segment is generally stable but slowly shrinking over time due to the increasingly easy to use DIY options.  This is the highest price part of the tax preparation market and is dominated by the tax store chains (H&R Block, Jackson Hewitt and Liberty Tax) as well as independent tax preparers.

    Do it Yourself:  DIY makes up 40% of the tax prep market and consists of the following components: Paper & Pencil (a small part of the market and rapidly converting to digital), software based (TurboTax) and online.  The online segment of the industry is dominated by three players: TaxACT, H&R Block Online and TurboTax Online.

    TaxACT is playing in the best part of the market, as DIY is taking share from Paid Preparer, and then online is the fastest growing part of the DIY segment.  The overall tax preparation market is a very stable one, and the trend towards online tax preparation is an obvious long term consistent trend.  TaxACT has the wind at their back in that regard.

    From a pricing perspective, TaxACT is a highly disruptive player.  Everyone knows that consumers are highly price sensitive when it comes to tax preparation, so it’s good news that TaxACT is positioned as the lowest price option, offering a free federal return and then an upselling various services for an average price per filing of $13.  On the other end of the spectrum, the paid prep players like Block, Jackson Hewitt and Liberty typically charge in the $180 range while professional accounts will charge considerably more than that.  The other key digital players are TurboTax at $54 and H&R Block Online at $33.  TaxACT is clearly playing in the right part of the market – the fastest growing segment and the most competitively priced option.  While the tax stores (H&R Block, Hewitt etc.) are constantly struggling to hold pricing with a stingy consumer, TaxACT is already priced at $0 for a federal filing while they build their user base and figure out ways to upsell useful services to their customers, such as state tax filings.

    Within the online tax prep space, a simple Google search will reveal dozens of competitors offering seemingly similar services.  None of these competitors is a meaningful challenger to TaxACT with the exception of TaxSlayer.com, but even TaxSlayer is a small fraction of TaxACT’s size.  One industry player who works for a competitor noted to me “TaxSlayer is just noise, the fly on the wall…it just doesn’t go beyond TaxACT in terms of the competitive set (in the online category)”.  The pricing landscape is less clear in the online tax preparation world, as some players will offer a “Free” federal filing, but it will be subject to certain restrictions and then the price levels for various upsell services will vary by competitor.  It is very clear however that TaxACT plays it straight up with its customers and offers the free federal filing without exception and has incredibly high customer satisfaction levels.  TaxACT has never played with its pricing model, and while some might see an opportunity for them to raise their prices to juice profitability, I think it is more likely that they choose to stick with the pricing model, grow their user base, and continue to add new services and ways to monetize their loyal customer base.

    It is worth noting and intuitive by the way, that there is a lot of repeat business in the online tax preparation world: if you file your 2012 return on TaxACT, you are likely to file it on TaxACT in 2013 as well since you are familiar with the process, have your information stored with TaxACT already etc.  While the Company does not disclose the level of repeat business, my conversations with folks in the industry lead me to believe that customer retention from one year to the next is in excess of 80%.

    Here are a few articles and online resources that discuss TaxACT and illustrate the favorable position they are in from a pricing and overall competitive standpoint:

    http://tax-software-review.toptenreviews.com/taxact-review.html

    http://www.nextadvisor.com/online_tax_preparation_services/compare.php

    http://www.pcmag.com/article2/0,2817,2376880,00.asp

    So with that background behind us, let’s take a look at the actual financial performance of this so-called “wonderful business”:

                 

    LTM

     

    2006

    2007

    2008

    2009

    2010

    2011

    9/30/2012

                   

    Revenue

    $31.5

    $40.6

    $51.2

    $59.6

    $70.0

    $77.6

    $86.0

    EBITDA

    16.4

    22.3

    28.2

    30.1

    35.5

    37.6

    41.3

    EBITDA Margin

    52.1%

    54.9%

    55.1%

    50.5%

    50.7%

    48.5%

    48.0%

     

    Holy Cr&p!!  This looks like a 1st year analyst at Goldman Sachs got assigned to make a pitchbook for a sell side M&A deal …except these are actual historical results!!!  And recent guidance projects more of the same growth for the 2013 tax season as TaxACT continues to innovate and invest in incremental product enhancements and functionality.   In addition, while I don’t have the historical capex numbers, they are immaterial – this is a well-oiled growing cash flow machine.

    It is interesting to note the background on the TaxACT acquisition as a historical point of reference.  H&R Block had initially tried to buy TaxACT in 2010, but the transaction was scuttled by the DoJ on antitrust grounds with the Justice Dept. noting that TaxACT “disrupted” the tax preparation market with “low prices and product innovation”.  The H&R Block acquisition of TaxACT was negotiated in 2010 based on TaxACT’s performance in the 2009 tax season; when the deal was finally blocked in late 2011, BCOR was there waiting for the rebound and managed to snap up TaxACT just before the 2011 tax season, but based on a price that was negotiated on the 2009 tax season.  Anecdotally, I have also heard that Intuit became concerned about TaxACT as well and was interested in acquiring them, but determined that they too would be prohibited from such an acquisition on antitrust grounds.

    See the link below for an interesting article about the antitrust case findings, which I will print out a short exerpt from as well:

    The [antitrust] complaint quotes internal communications showing that TaxACT views itself as a maverick and a “catalyst for change.” It also cites to H&R Block’s awareness of TaxACT’s aggressive competitive strategy and success in getting a competitive response from its rivals. For example, incumbents were forced to match competitive offerings and lower their own prices as a result of TaxACT’s disruptive presence in the market. Internal company documents cite to the need to “stem” online market share loss to TaxACT and preserve “at risk” sales. More important, communications reveal that the merger was motivated by H&R Block’s strategy to “…eliminate the [TaxACT] brand to regain control of industry pricing and avoid further price erosion.”

    http://www.antitrustinstitute.org/~antitrust/content/aai-says-doj-complaint-hr-blocktaxact-merger-provides-transparency-maverick-firms

    OK, so you’ve heard the business description, you’ve seen the financial results, so what would you pay for this asset light, high ROE, 50% margin business?  10x EBITDA, how about 15-20x, anyone?  Nope, you can buy it right here on Wall Street for a high 4’s multiple of EBITDA.  Or if you want you could go out and pay a higher multiple for a chemical company or a perpetually declining landline telecom business, or maybe pay twice as much for a radio stock…but I’ll stick with investing in Blucora. 

    Hyperbole aside, I think it should be clear to anyone that this business has fantastic characteristics and deserves a high multiple, probably in the double digits of EBITDA.  Wait to see what happens when you pair up the financials shown above with $700mm+ of NOLs.  Really good things start to happen.

    Search

    This is the business that most people think of when they hear the name InfoSpace.  It’s a business that has produced solid profit and cash flow for years but doesn’t get the respect it deserves.  And, it happens to be flat out on fire right now in terms of growth.

    The business model is simple: Blucora has agreements with Google and Yahoo to syndicate out search results to third party websites.  Let me explain that a little better:  BCOR goes out to a third party website like windstream.com as an example (BCOR would call this a “Search Distribution Partner”).  Windstream.com wants to be able to provide search results on its homepage but doesn’t have the technology to do so – BCOR has agreements with YHOO and GOOG to “syndicate” out their search results (BCOR refers to GOOG/YHOO as “Search Customers”).  BCOR has technology and services that combine YHOO and GOOG’s results and present those search results in a format that is determined by the customer (in many cases BCOR will build out entire portals for their Distribution Partners).  In essence, BCOR is a value added reseller of GOOG/YHOO search results…they add some value and customer service and tailor the offering to what the Search Distribution Partner needs (including building out portals).  When consumers click on a paid ad at windstream.com, GOOG gets a cut, windstream.com gets a cut and of course BCOR gets a cut of that revenue. 

    “Distributed search”, as the Company calls this business has been growing rapidly in the past few years and has only accelerated its growth in recent quarters.  This growth is being driven by increasingly diverse ways that people are accessing search – through social platforms, mobile, apps on tablet devices and desktop utilities.  BCOR has executed on this opportunity very well, adding significant new distribution partners and participating in growth with existing partners.

    BCOR’s relationships with GOOG and YHOO go back for over 10 years and are highly stable.  BCOR just recently renewed these agreements in 2011 and have visibility under the current terms that extend out to the end of 2013 in the case of YHOO and 3/31/2014 in the case of GOOG.  The business relationship is locked in through 2013 and there is no indication that it is likely to change in 2014.  It’s also worth noting that the Company recently added Yandex to its list of Search customers, sitting alongside GOOG/YHOO.  Yandex is the leading Russian search engine, is growing very quickly and serves to diversify the Company’s search offering.

    You might be asking why this business exists and the answer is simply that Google does not want to be in the business of reselling its own search results, building portals and providing services to all of these little third party sites.  There are obviously bigger players who can go directly to Google, but everyone who is big enough to do so already does.  BCOR does a good job tailoring the offering on a distribution partner by distribution partner basis and has also built a good reputation over time of only dealing with high quality sites that deliver high quality traffic to GOOG’s advertisers.  All of this plays well with GOOG/YHOO and helps to reinforce the long term relationship with BCOR.

    Interestingly one piece of color on the relationship with Google is that GOOG doesn’t want to be seen as a monopolist.  BCOR is technically a competitor to GOOG/YHOO in the search business (albeit one that they have some control over), and as such it is actually useful to GOOG from a regulatory standpoint to have a few competitors out there who are making a little (or ridiculously little compared to GOOG) money.

    In addition, BCOR has a few O&O sites such as Dogpile.com and MetaCrawler.com and believe it or not, people still actually use these sites.  This was 12% of Search revenue in the most recent quarter and remarkably it grew slightly over the prior year, but safe to assume this is flat at best and more likely a slow decline.

    Let’s take a look at the recent financial performance of this business:

     

    FY 2011

    FY 2012

     
     

    Q1

    Q2

    Q3

    Q4

    Q1

    Q2

    Q3

    LTM

                     

    Revenue

    $51.7

    $54.3

    $56.3

    $66.6

    $75.3

    $81.8

    $91.4

    $315.1

    EBITDA

    11.1

    11.5

    10.8

    12.8

    13.4

    15.1

    16.4

    57.6

    EBITDA Margin

    21.5%

    21.2%

    19.2%

    19.2%

    17.8%

    18.4%

    17.9%

    18.3%

    YoY Revenue Growth

    --

    --

    --

    --

    45.8%

    50.7%

    62.5%

     

    YoY EBITDA Growth

           

    20.5%

    30.7%

    51.3%

     

     

    Hmm, not so shabby.  In fact, pretty darn good.  Q4 is projected to look like Q3 and management sees continued opportunities in this business going into 2013. However, given the step function of growth in F2012, management sees things flattening out a little bit.  The margin decline that you see reflects a mix shift from O&O business that is stagnating to the lower margin but high growth distribution business. Like tax, search is also a business with minimal capital requirements.

    Overall, this is a business that has performed really quite well over time – its been a consistent grower, earns high margins and requires little to no capital to grow.  They have been very successful recently in winning new Distribution Partners and they participate in a growing industry.  Actually, to be quite blunt, this business has been “en fuego” of late.  The trends that have driven growth over the past few years are continuing and have only recently accelerated.  The key relationships with YHOO/GOOG were just recently renewed, so all is fine from that perspective.  This business just doesn’t get the respect it deserves.  Id give it a 7x EBITDA multiple given the high margins, good growth prospects and minimal capital requirements.  I would actually argue that’s probably a bargain for a high growth, high margin, high ROE business.

    NOL

    As noted earlier, Im not one to bet on NOLs actually being realized in terms of valuation, but this is an outlier case given the extremely high level of profitability.  This business has minimal CapEx and also is not going to pay any taxes for 10 years -it’s going to free cash flow like crazy.

     

    2012

    2013

    2014

    2015

    2016

    2017

    2018

    2019

    2020

    2021

    2022

    BOP Gross NOLs

    $725.0

    665.0

    603.2

    539.5

    474.0

    406.5

    336.9

    265.3

    191.5

    115.5

    Usage

     

    60.0

    61.8

    63.7

    65.6

    67.5

    69.6

    71.6

    73.8

    76.0

    78.3

    EOP NOLs

    665.0

    603.2

    539.5

    474.0

    406.5

    336.9

    265.3

    191.5

    115.5

    37.2

                           

    Tax Saved

    24.0

    24.7

    25.5

    26.2

    27.0

    27.8

    28.7

    29.5

    30.4

    31.3

                           

    DCF Value

                       

    185.6

    7.5%

    22.3

    21.4

    20.5

    19.6

    18.8

    18.0

    17.3

    16.6

    15.9

    15.2

    148.1

    12.5%

    21.3

    19.5

    17.9

    16.4

    15.0

    13.7

    12.6

    11.5

    10.5

    9.6

    121.2

    17.5%

    20.4

    17.9

    15.7

    13.8

    12.1

    10.6

    9.3

    8.1

    7.1

    6.2

     

    In the analysis above I assume the current income stream grows a measly 3% per year off the current base, and pick your discount rate, but I’ll take a 12.5% return over the next decade.  This shows you’ve got $148.1mm of value here with a few NOLs to spare come 2022. 

    I note that there is optionality in the NOL value in the event that 1) the business grows faster than 3% (very likely that will happen) or 2) they do another acquisition to speed up the realization of the tax benefits.  I note that the NOLs quickly approach $200mm in value to the extent that the Company acquires another cash flowing asset (which is the crux of their M&A strategy).

     

    Valuation

    To me, the valuation here passes the “idiot test”, so put away your TI-82s, put in your pocket protector and let’s just think like plain old bean counters.

    Stock Price

         

    $15.09

    Basic Shares Outstanding

       

    40.7

    Options / RSUs

         

    2.3

    FD Shares

     

     

     

    43.0

    Equity Market Cap

         

    $649.0

             

    Debt

         

    73.8

    Cash & Equivalents

     

     

     

    150.4

    Enterprise Value

         

    $572.4

             

    NOL Value

     

     

     

    148.1

    PF Enterprise Value

         

    $424.3

     

    OK, so $645 market cap, $572mm EV…how much cash flow are they going to generate based on LTM EBITDA?  Hmm, probably a little more than $80mm or about a 14% free cash flow yield, unlevered.  Oh and by the way, mgmt. just gave guidance for TaxAct to keep growing 8-10% in 2013 off of the LTM number, so that $80mm estimate is probably a little bit low.    

    That’s basically good enough for me from a valuation perspective, but for those of you who like their steak served sum’of’the’partes, lets run the numbers that way, just for “ha-ha’s”.

    And at this juncture I will make the controversial yet totally valid assumption that all corporate expenses are allocated to search, which is totally justified.  Why?  Because TaxACT is a completely separate entity and was acquired and financed with debt that it non-recourse BCOR.  If the banks are OK with it, I am too.

    2012 Est. EBITDA Breakdown

     

    Multiple

    Value

    Tax

     

    44.3

    10.0x

    $442.8

    Search

     

    61.6

    7.0x

    $431.0

    Corporate

     

    (11.6)

    7.0x

    ($81.4)

    Total

     

    $94.2

    8.4x

    $792.4

             
             

    NOL Value

         

    $148.1

    Plus: Cash

         

    150.4

    Plus: 1 Year of Cash Flow

       

    80.0

    Less: Debt

     

     

     

    73.8

    Market Cap

         

    $1,097.1

    FD Shares

     

     

     

    43.0

    1 Year Target Stock Price

       

    $25.51

     

     

     

     

     

     

     

     

     

             

     

    For those of you who prefer to play, “figure out the implied value of the Search segment”, I will offer up the analysis in that format as well:

    Stock Price

         

    $15.09

    Basic Shares Outstanding

       

    40.7

    Options / RSUs

         

    2.3

    FD Shares

     

     

     

    43.0

    Equity Market Cap

         

    $649.0

             

    Debt

         

    73.8

    Cash & Equivalents

     

     

     

    150.4

    Enterprise Value

         

    $572.4

             

    NOL Value

     

     

     

    148.1

    PF Enterprise Value

         

    $424.3

             

    Value of TaxACT

     

     

     

    $442.8

    Implied Value of Search

       

    ($18.5)

     

    I do take requests, and if you would like me to perform any other acts of valuation, please refer to the Q&A.

    Management

    The last CEO at InfoSpace made some pretty questionable acquisitions, but it seems that we’ve got the right crew in place this time around with Ruckelshaus and co.  Ruckelshaus and Andrew Snyder (who represents 7% holder Cambridge Information Group) both have backgrounds in investment banking, and these guys are discounting cash flows and monetizing NOLs in a no holds barred manner.  It’s Investment Bankers Gone Wild, so to speak, and spring break is approaching, so get your DVDs now.

     

    Summary and Other Factors

    The stock dropped about 17% on Friday for totally nonsensical reasons, but providing us with a great buying opportunity.  Apparently the guidance for Q4 was viewed as a miss, but that is complete “malarkey” as our vice president might say.  I would note that TaxACT due to seasonality is really not even in business in Q4 (they do about $2mm in rev. in Q4) and there is a $0.7mm write off of deferred revenue in Q4 (purchase accounting adjustment from the acquisition) that wasn’t in the analyst numbers, and I think that accounts for basically the entire “miss” – who cares.  Let’s think about this rationally for a second: the businesses are doing great, cash flowing like crazy and growing, and you’ve got a rock solid balance sheet on top of that.

    Ive never been good at playing the guessing game of actual results vs. analyst expectations, I just think this is a situation where the businesses are flat out too cheap, are high quality and with every quarter that goes by cash continues to just pile up on the balance sheet.  There isn’t a whole lot of macro risk here, I think it’s just a great way to make some money.  The obvious catalyst is simple cash flow generation - if you agree that this stock looks cheap now, wait till there’s another $80mm of cash on the balance sheet in a few quarters – I encourage you to take a look at the valuation with that amount of additional cash, because it won’t be long until it finds its way onto the balance sheet.

    Thanks for reading, and I look forward to discussion.

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    Neither I nor others I advise hold a material investment in the issuer's securities.

    Catalyst

    Cash flow...followed by even more.

    Messages


    SubjectRE: question
    Entry11/05/2012 04:43 PM
    Membermadler934
    I do own the security; that disclaimer is new, and my read of materiality was whether or not I was an insider due to my security ownership, which I am not.  Point being, yes I hold shares in my fund, no I am not an insider due to my ownership.  Should probably get some more clarification from VIC about what they are trying to get at with that disclaimer, its the first time Ive seen it.

    SubjectRE: RE: RE: question
    Entry11/06/2012 08:53 AM
    Membermadler934
    The NOL is completely unrestrictied the section 382 limitations on NOLs apply to companies that have NOLs and then undergo a change in control.  Blucora had NOLs dating back to the infospace days.  The TaxACT acquisition had no impact on their ability to monetize those NOLs.  If BCOR itself were to have a change in control, NOL usage would be limited.
     

    SubjectRE: RE: RE: question
    Entry11/06/2012 08:58 AM
    Membermadler934
    the IRS has a public/private program where they partner with companies in the private sector (TaxACT is one of those partners), to offer free federal tax filings.  So as the market moves in this direction, TaxACT is part of the solution and the guys who really lose are those who are still trying to charge $150-200 for a federal filing like HRB and Jackson hewiit (and typically hiding that large fee behind the proceeds from their customers tax refunds).  i think the market will shift to online more quickly as the IRS makes it easier to get your refund online.

    SubjectRE: TaxAct Transaction
    Entry11/06/2012 07:35 PM
    Membermadler934
    the TaxACT deal was financed with debt that is non-recourse to blucora.  mgmt is out looking for deals with cash flow characteristics similar to TaxACT in order to futher monetize the extensive NOLs.  since the taxACT debt is non recourse, the Company can look at financing new deals with a debt free balance sheet at corporate, giving the company additional borrowing capacity.  these guys are really focused on making the capital structure efficient, and I think this was a smart move.  given the cash flow characteristics of TaxACT they also felt it was appopriate capital structure to have some debt on that asset.

    Subjectsearch business
    Entry11/06/2012 09:55 PM
    Memberyellowhouse
    thanks for the write up. could you talk a bit more about the search business? it looks like there is some customer concentration (48% of rev from five partners). do you know who those customers are? any insight into retention? at $30MM each i would think these are sought after customers. what is competition like? the windstream search says "powered by Google Custom Search". i'm assuming this is an InfoSpace customer. if so, what service is InfoSpace providing?

    SubjectRE: EBITDA
    Entry11/07/2012 01:34 PM
    Membermadler934
    the GAAP numbers are nonsense because of the timing of the TaxACT deal during their biggest quarter and the writeoff of deferred (purchase accounting adj.).  the company puts out some supplemental financial information showing the actual quarterly performance of the TaxACT business over the LTM period with out the noise of the deferred writeoff - I think thats obviously the more meaningful number as it represents the earnings power of the business.  the $94 represents the 2012 est.for search based on the guidance + the guidance for the Tax business in the upcoming tax season - corporate expenses.  Its also worth noting the the guidance for the tax business includes about $1mm of deferred writeoff as well in 2013, which I dont think was in the numbers.  if you look at the supplemental financials that the company puts out, you will basically get to my number.  

    SubjectRE: EBITDA
    Entry11/07/2012 01:39 PM
    Membermadler934
    Its pg. 7 of the financial supplement - that gets you pretty close + Q4 YoY growth, and the expectation for the upcoming tax season.  lmk if that makes sense

    SubjectRE: search business
    Entry11/07/2012 02:24 PM
    Membermadler934
    there are three general customer categories - one is ISP - I actually dont know if windstream is a big customer - one of the due diligence calls I did referenced that name, but I really dont know if they are a big customer or the exact services provided to windstream - they may not be an important customer at all.  another ISP example the company references is Telus.  a second category, and this is where the company has seen a lot of growth recently is in apps - downloadable mobile apps where the monetization is through search.  Iminent is a reference customer in this category.  the third category is just a grab bag of other small publishers who have a search box they monetize through but dont have the scale to go to GOOG. For a little more color on services/value provided, check out the link below
     
     
     

    SubjectRE: Devil's Advocate
    Entry11/08/2012 12:29 AM
    Membermadler934
    its a goood question...when that price was set it was the HRB deal in 2010 and based on the 2009 tax year results, so the multiple was obviously quite a bit higher when that price was negotiated as compared to the trailing multiple when the deal actually closed....the HRB deal fell apart and BCOR stepped in and closed.  why didn't TA renegotiate the price or run an auction to try to get a new price?  I dont have a great answer to that question.  Having studied the business what I can say is that Im quite comfortable that it is rock solid and well positioned.  there may not have been a natural strategic buyer for it as all the tax guys had the same antitrust issue - I know that Intuit wanted to buy it as well but couldnt.  maybe it was just deal fatigue at TA- they had already negotiated a deal to sell it, and when HRB couldnt perform they were happy to just have a different buyer step in on the same terms.  

    SubjectRE: capital deployment
    Entry11/08/2012 12:34 AM
    Membermadler934
    my understanding is that CIG was a catalyst for getting the taxact deal done.  when they joined the board, they made an investment in the company and also got a nice warrant struck at $8-9 (going on memory right now) - that warrant obviously is looking pretty good right now.  for anyone who has followed infospace over the years, theyve returned a bunch of money to shareholders over time, so that is obviously on the table.  i think the success with taxact also gives them some credibiltiy to do more acquisitions, and when you talk to them valuation and the tax advantage is clearly driving their thinking.  of course it would be great if they did more deals like taxact, that has been a huge catalyst for appreciation here.  

    Subject$80MM in fcf: how do you derive?
    Entry11/08/2012 01:44 AM
    Memberdr123
    How does $96MM in EBITDA translate into $80MM of free cash flow?

    SubjectRE: $80MM in fcf: how do you derive?
    Entry11/08/2012 02:24 AM
    Membermadler934
    take a look at page 8 of the financial supplement on the IR site.  $94mm of EBITDA will translate into actually quite a bit more than 80mm of fcf on an unlevered basis.  I was ballparking the fcf in my head when I wrote it up, but its actually quite a bit higher... 

    SubjectRE: RE: $80MM in fcf: how do you derive?
    Entry11/08/2012 09:37 AM
    Membergandalf
    I like the idea and writeup here, but I would quibble a bit with your EBITDA #, which backs out 12.5mm of TTM stock based compensation.  I suggest either using a 75mm EBITDA figure on a TTM basis, and adjusting out this expense going forward, or factoring in more shares on a go forward basis.  If you capitalize an EBITDA figure excluding stock based comp, then you have to bake in the PV of future shares issuance in your share count .  Interesting that their share count is up 9% just in 2 years (2009, 35.4mm shares), 2011 (38.6mm shares).  Or from Q3 to Q4, share count increased by 2.3% - which sounds small but would imply a 9.3% annualized growth rate in shares outstanding!  That is a lot of headwind to growth every year.  That is EBITDA growth of 9% would entirely be wiped out by additional shares.  Sure some employees may leave unvested stock on the table upon leaving but I would guess that in 2 years the shares outstanding will be near 48-50mm.  I like the case you presented but often find that ideas inappropriately ignore this reality.  Oh, and it's not just a few top execs getting shares either that would go away in a sale.  Its costs embedded throughout the organization - marketing peeps, designers, et al.  Without stock you are paying them in cash.  I submit that CF from ops, and FCF are generally overstated in cases like this too.  

    SubjectRE: RE: RE: $80MM in fcf: how do you derive?
    Entry11/08/2012 10:09 AM
    Membermadler934
    a fair point and more to come on this, but I think you have to think about the rear view mirror vs. going forward etc.  you had a full change in the mgmt team and the big warrant issuance to CIG when they joined the board. so the stock comp expense reflects those things that have happened in the past and are in my FD shares number.  of course, what really matters is how much stock they are issuing going forward.  for example, some commentary from the recent 10q as it relates to stock comp
     
     
    The stock based compensation expense for three and nine months ended September 30, 2011 includes $1.9 million fair value classified to general and administrative expenses for the Warrant issued in August 2011. The acquisition of the TaxACT business on January 31, 2012 fulfilled the Warrant agreement’s remaining performance condition and extended the Warrant’s expiration date. The extension of the Warrant’s term was a modification that resulted in a $4.3 million charge to stock-based compensation expense equal to the increase in the Warrant’s fair value and was recognized in general and administrative expenses in the first quarter of 2012.
     
     
    so, I think you are right, i should probably include some stock comp in my numbers, but I dont think the GAAP number is a fair representation at all in this case for the aforementioned reasons

    SubjectRE: RE: RE: search business
    Entry12/05/2012 05:26 PM
    Membermadler934
    The Windstream example isn't a very good one and probably shouldn't have used it as a good description of the business - the ISP business tends to be more focused on portal buildout/management than search distribution (but that can be part of it sometimes as well).    info.com would be a much better example of traiditonal distributed search:
     
    http://www.info.com/
     
    try typing in a search term such as "halloween" - you get a sense for how the resulting layout is a differentiated search experience from that of GOOG. 
     
    The downloadable app business has been a big growth driver - 
     
    http://apps.conduit.com/
     
    take a look at all of the apps available on the site referenced above.  these are are various apps that add some sort of functionality to your browser or email or other web experience.  Some of these apps, when you download them will make changes to your computer's settings, add a search box in a toolbar or even change your DNS settings (the are various ways these apps go about this), in order to generate search traffic or change you default search settings.
     
    Depending on the functionality of the app, GOOG might view these things in different ways.  They may be aboslute fine with it, or in the case of "Make the Web Better" (MTWB) they might shut down the app as it is not consistent with GOOG policy.  MTWB was an example of GOOG not being OK with an INSP distribution partner and in that case INSP worked  with GOOG to shut it down (actually INSP acquired MTWB in that case and managed the wind down of the business).  
     
    Part of what INSP does is they spend a lot of time vetting these partners and working with GOOG to make sure that they are complying with GOOG policy.  this is a role that INSP has played for years with GOOG and they have forged a good relationship with GOOG in that regard.
     
    With respect to customer churn etc., I think the dynamic is less around the distribution partner potentially firing INSP and going straight to GOOG, but is more around the health of the underlying distribution partner - so in the app example, an app may take off and have huge growth, but then stall out.  or a distribution partner may push the ethical limits (as defined by GOOG) of what is acceptable behavior and be shut down (as in the case of MTWB).  
     
    I think about the dynamics more in that way.  I think the main reason that the search distribution business has grown is that there are more and more ways that web participants are creating apps, sites or other ways of creating businesses that monietize through search.
     
    Sorry for the slow response and this was a bit long winded, and its not a really simple thing to explain.  Hopefully this made it more clear and not less clear!!

    SubjectRE: RE: RE: RE: RE: search business
    Entry12/05/2012 11:50 PM
    Membermadler934
    In a rare scenario (this was just an example is and is in no ways a material driver of the business) a distribution partner might alter browser settings via a downloadable app, so that when a user types a wrong web address into the address bar, instead of a 404 error coming back (there being no IP address associated with that domain name), the user would be redirected to a search page.  Im not sure if that fits the definition of "malware", but I dont find it to be too egregious in a rare scenario. unfortunately Ive probably opened a can of worms and people are likely to think this example represents a material part of the business, but that is not the case.  I think the long relationship with goog and financial history speaks for itself to a certain extent - Im just trying to provide a few concrete examples, but this one is a bit more on the "shady" side - its not at all a fair representation of how the search business works as a whole.  a big part of this business is managing the distribution partner relationships and ensuring that the shady players are weeded out and that is one of the answers to the "why this business exists" question, amongst others. 

    SubjectRE: RE: RE: RE: RE: RE: search business
    Entry12/06/2012 12:01 AM
    Membermadler934
    as a side note, I dont think you're paying anything for the search business at this stock price and you are probably getting it at a negative price.  I happen to think its a pretty valuable business; we may disagree on that, but I doubt anyone thinks it is worth less than zero.

    SubjectRE: RE: RE: RE: RE: RE: RE: search business
    Entry12/06/2012 12:11 AM
    Membermadler934
    as a further side note, i just tested out my home mac laptop that I am using right now and typed in a nonsense domain name....a time warner cable search page comes up with suggestions on which site I might have been looking for....big deal.  I never set my browser up that way, but I would say that functionality provides a reasonable value to the consumer, and its not an issue for GOOG, YHOO or anyone else.  again, this is not "the entire business", just trying to provide some examples...

    SubjectBCOR Update - Great opportunity
    Entry02/14/2013 03:14 PM
    Membermadler934

    Here are my thoughts – Im adding to the position and think this is an incredibly good long right now.  The valuation is silly cheap based on cash flow generation ($85mm of cash to be generated in 2013 on a $580mm EV).    Tax is doing great, with another year of good growth coming.  Between LegalACT and other growth initiatives in TaxACT, this is an incredible franchise with growth opportunities many years out into the future. I think its worth a double digits multiple of EBITDA and you are getting it for a sub 5x multiple.  Search is performing well too.  Management discussed the recent Google policy changes that are impacting the various players in this space and I think their tone and increased transparency about this business segment is a huge positive.  That business is going to have a few bumps this year, but ultimately management sees it growing in 2013 vs. 2012. 

    I like management a lot here as well – they are focused on shareholder value and are doing the right things.  Why this stock hasn’t worked already is a mystery to me – but I’ll take the opportunity to buy more.  Everyone is really scared about search, to a completely irrational level.  I think it is a much better long today than when I initially posted it.


    SubjectRE: RE: madler
    Entry02/15/2013 09:37 AM
    Membermadler934
    DMAN - i know.  I feel like Im taking crazy pills.  this is such an obvious oportunity i dont know how anyone could miss it.   i think we'll be rewarded soon enough...

    SubjectRE: RE: TaxAct
    Entry02/19/2013 12:00 PM
    Membermadler934
    Yeah, don't know how much it is worth reading into those numbers....I think mgmt had a pretty good view of how the tax season is shaping up by the time of the earnings call, so their guidance doesn't have too much guesswork in it at this point.  Sounds like the season is going fine, which means the cash flow will be as expected.

    SubjectGoogle Toolbar Policy Changes
    Entry03/01/2013 05:47 PM
    Membericarus76
    Madler - any thoughts on how Google's recent Adwords policy changes regarding Search Toolbars impacts BCOR?  It appears that much of BCOR's Search growth the last 5 quarters is related to growth in the toolbars market.  Thanks.

    SubjectRE: RE: Why the $150mm convertible note offering?
    Entry03/11/2013 10:58 AM
    Membermadler934
    a bit frustrating, but yes I think they are likely to be pretty discplined on the acquisition side and are likely to do good things there.  the NOLs make the math on acquisitions work pretty well.  the TaxACT acquisition for instance was obviously a very positive event for the equity. not a great headline this morning, but probably a good buying opp.

    SubjectRE: RE: RE: Why the $150mm convertible note
    Entry03/12/2013 12:31 PM
    Membernha855
    I think this mgmt is retarded. If they had something smart to do, why not do it and then issue the convert? I have a tough time believing that they couldn't get a bridge loan that could be taken out with a convert. If they do nothing all they do is dilute their shareholders with debt at an OIS of ~700 despite the net cash balance sheet. And for this to come on the back of them basically saying that they anticipate weak earnings this year just added insult to injury. 

    SubjectRE: RE: RE: RE: Why the $150mm convertible note
    Entry03/17/2013 08:28 PM
    Memberjoe661

    It’s always easier to do a deal when you have financing in hand. I agree that the dilution & costs of the convert aren’t ideal, but we don’t even know what they’re buying yet and we know that the minimum ROC they need is 15%. Also, they have 700 million+ in very usable NOLs and the faster they use them the more they’re worth.

    I wouldn’t go so far as to say that management is ‘retarded’. First off, the old Infospace team was completely replaced. Ruckelshaus took the top spot at the end of 2010. They brought in Synder, who worked at Goldman in principal investing, who has his family’s money invested in both the equity and warrants. They bought TaxACT, a good deal. They announced great search earnings, announced a 50 million stock buyback...and now they’ve issued this convert. That’s about it.

    In the meantime, the old guard, led by ex-CEO James Voelker, who ran the company from 2002 to 2009, is gone. Voelker quietly resigned from the board just a few weeks ago. If you look at BCOR’s history, most of the damage was done during his watch. So, I guess...apart from the dilution...any other reasons why you think Ruckelshaus/Snyder, et. al., are retarded?

    Finally, in terms of earnings – how do you figure that they’re weaker going forward? I wasn’t expecting much out of search, given that last year was pretty extraordinary. I would have been happy if they just maintained the FCF in this business and reinvested it elsewhere. But they came out and said on the 4Q call that in 1Q13 search is expected to grow top-line low-to-mid 20s and maintain margins vs. last year. They expect search to grow overall top and bottom line for all of 2013. This is with the Google policy changes. They said TaxACT is expected to grow earnings in 1H13 vs. last year. How do you figure they're adding insult to injury?

    We can debate the merits (or weaknesses, which IMO there are some for sure) of the search and tax businesses all day...but there are worse managements & forward-year outlooks out there, especially for this valuation.


    SubjectRE: RE: RE: RE: Why the $150mm convertible note
    Entry03/17/2013 09:14 PM
    Membernha855
    Reasonable people can disagree on whether actually having cash makes it easier to do a deal than committed financing. I think they're essentially interchangeable. The fact is that earnings guidance for the period beyond q1 was disappointing and there's a real risk the google changes cause search to shrink yoy. the mgmt says they have no acquisition close so while the dilution from the convert is a fact the "smart" deal is a hope. Also announcing a buyback and then issuing a convert a month later when your bs is net cash is IMO retarded. As regards Andy Snyder I knew him many years ago and i will refrain from commenting. I maintain that the convert was incredibly dumb. 

    SubjectRE:
    Entry03/18/2013 02:47 AM
    Memberjoe661
    Where did management say that they have no deal close? Was that publicly or to you personally? Can you paste the quote if it was public -- that would be helpful.
     
    I'm not sure how the guidance beyond 1Q was 'disappointing', as there aren't exactly a gaggle of sell-side analysts covering the name or any real 'consensus' numbers. Actually, immediately after 1Q was released, the stock went up 10%. So it seems like the market was expecting worse.
     
    I agree the convert is annoying...but again we don't know what the deal is yet. The most interesting thing in your response is the bit about Andy Snyder but I s'pose I can't get you to spill the beans there.
     
     

    SubjectRE: RE:
    Entry03/18/2013 08:22 AM
    Membernha855
    The comment re: deal was to me on the phone in 2 different conversations with IR and a sr mgmt team member. In fact, they pointed out that if anything was close they would need to disclose it.
     
    As regards guidance, my opinion is that it was disappointing - you can disagree - but I think it's pretty obvious that when a business (search) slows from 45% YOY growth in Q4 to flat/negative in Q2 2013 that it's disappointing.

    SubjectRE: Re. nha cfo comments
    Entry03/18/2013 09:58 AM
    Membernha855
    I don't believe Andy is the CFO. I think he's on the board and runs a private investment company funded by  his dad's money. 

    SubjectRE: RE: Excellent Results
    Entry05/03/2013 06:07 PM
    Membermadler934
    Well, my view of valuation here is radically different than the market and itis not likely to be taken seriously by anyone at this point, but I think TaxACT is worth 15-20x EBITDA.  this may sound absurd for something that everyone else seems to want to value at 6x.  I still find it very strange that nobody else sees that value in that franchise that I do - you have an extraordinarily high margin business, you have long term secular tailwinds, you have the leading player in the online ddiy space, you have competitive advantages, you have very clear long term growth opportunities to expand into ancillary product categories, no capital requirements for growth, network effects in the business model, a high degree of repeat customers and customer satisfaction, a disruptive business model, and now with this latest tax season yet another year of proof that they are seriously disrupting the major players in the tax space.  so, with Intuit trading at a mid teens EBITDA multiple and all of the SaaS companies out there trading at even more absurd levels, I don't think its crazy to think TaxACT is worth a high teens EBITDA multiple.  that line of thinking is obviously radically different than the sell side valuations, but I think it is the correct one.  obviously if you believe the foregoing, it becomes irrelevant what you think search is worth.  I think people are anchored to a lower multiple on taxact because the company bought it for a low multiple.  there is a long story behind the history there, which I wont get into here.  but I think the results are confirming that they stole TaxACT at that purchase price.

    SubjectMonoprice Overview
    Entry08/01/2013 11:44 AM
    Memberaviclara181
    Article from Feb 2013
     
     

    SubjectRE: Monoprice Overview
    Entry08/01/2013 12:03 PM
    MemberMason
    any idea how they are retaining the CEO of monoprice?  is there an earnout? 

    SubjectRE: RE: Questions
    Entry08/13/2013 01:19 AM
    Membermadler934
    i think this deal might be a surprisingly good one, but it doesnt look great at first glance.  Im going to give it some time before passing judgment on it.  Its actually a pretty good business when you dig into it a bit...very loyal customer base and great reputation (see reviews below).  long, open ended growth opportunity.  overall I still really like this company.  
     
     
    http://www.google.com/products/seller?cmi=67279373059686400&zmi=monoprice.com&sa=X&ei=U8EJUvbTGsLCyQGpuoGgDg&ved=0CKcBEMEG

    SubjectTaxACT
    Entry08/16/2013 05:18 PM
    Memberele2996
    I met with a person associated with H&R Block today. They tried to buy TaxAct but were blocked by the Department of Justice on anti-trust concerns. My friend said that TaxACT has great management which was what they really wanted to buy.
    I do not own BCOR yet, but I think that it is doing some very interesting things and maybe a real winner.

    SubjectRE: thanks....
    Entry11/06/2013 03:44 PM
    Membermadler934
    you're welcome.  I actually think Monoprice will prove to be a pretty good one.  maybe not as good as taxact, but still really good.  these guys have actually done a pretty good job allocating capital (aside from issuing the convert!)

    SubjectGotham City Short Thesis
    Entry02/18/2014 10:07 AM
    Memberstraw1023
    http://gothamcityresearch.com/
     
    madler, thoughts?
     

    SubjectRE: Gotham City Short Thesis
    Entry02/18/2014 10:44 AM
    Memberstraw1023
    My take . . .
     
    I accept their criticism of Infospace biz as true, if largely known. 
     
    Here is my problem:
     

    "TaxAct and Monoprice’s importance is diminished, in our view, because Infospace is large and
    important enough to bring the whole house of cards down. That being said, we think TaxAct and
    Monoprice provide $1-$2 per share in downside protection. NOLs are of negligible value, given
    the risks we’ve identified in this report. NOLs cannot fund fines and restitution."

     

    This is the only mention of TaxAct + Monoprice + NOLs in the 80 page write-up.

     

    This seems more than a little flip for such a serious report. Did anyone think that Infospace was worth more than TaxAct + Monoprice? I certainly did not. They wrote up an 80 page report on BCOR and this is the only mention of TaxAct and Monoprice.

     

    Further, there is a big difference from saying that Infospace could be worth zero in a hurry (largely already known) and saying it is going to be worth a big negative number. I think the big negative number argument is very complex and legally difficult and unlikely, and I do not see where they deal with the exact legal issues in play (other than a civil suit from Google -- not gonna happen).

    I've been on the sidelines here since $25, but I would be a buyer long before $5 based solely on the value of TA+MP+NOLs and the thesis that Infospace not a big negative number.

     

     


    SubjectRE: RE: RE: Gotham City Short Thesis
    Entry02/18/2014 11:46 AM
    Memberstraw1023
    werd,
     
    It's funny. I am usually on the same side (both in position and spirit) as the short specialists, including Gotham, but this report strikes me as weak and unfair. There is a lot of drama (a quote from Martin Luther King!-c'mon).
     
    It also reminds me of Herbalife short in three respects:
     
    - just because something is bad for society does not mean it is illegal. It does not even mean it should be illegal (see Prohibition).
     
    - shorts seem to confuse the role and methods-of-function of various government agencies. 
     
    - many companies and people rely on tacit collusion with illicit activity but maintain plausible deniability (see Mr Cohen at the firm fka SAC). and in this respect, Infospace is particularly protected as the government has tacitly and explicitly given broad immunity to the media . . . I listen to AM radio and I would estimate that half of the advertisers are various levels of fraudulent--investment schemes, debt consolidation, penis enlargement/functioning, gold coins (at twice the price of gold centent), etc.
     
    But my real complaint here is that they seem to have not even looked at the company other than Infospace.
     
     
     
     

    SubjectRE: RE: RE: Gotham City Short Thesis
    Entry02/18/2014 12:07 PM
    Memberaaron16
    Report seems to focus on their owned & operated which is 20% of the search business. As Straw said, I dont think its been any secret that these business are of questionable quality. 
     
    Beyond that, the report seems to be a real stretch --- 
     
    Using Edelman quotes from 2010 because he is in the news of late
     
    "3 of top 10 search terms are child pornography-related terms" --- i've read the report twice, im not sure what this means ---- the link goes to childporn? or this is a common-term, that people search for when looking for child porn and it re-directs to their owned & operated site? 
     
    if the latter, which I believe it is how does Gotham Research even know what are popular child pornography search terms? I can't find anything in the appendix that sorts this out
     
     
    Talks about going back to non-GAAP measures... well they now take a large amortization charge tied to the TaxAct acquisition, so that doesn't strike me as odd 
     
    Business is running negative free cash flow: these are the two acuisitions...
     
    Seems like a big hit job, while in black-out period, and maybe goal is to generate some headline risk so that GOOG doesnt want to renew contract --- would strike me as odd if this report forced that to happen, but who knows.
     
    the risk has always been that goog / yhoo doesnt renew, this is nothing new, i think the write-up here talks about how there is a reason this business exists, maybe it wont going forward, but argument has always been you are not really paying for Search at this price
     
    again if goog doesnt renew im sure the stock gets cut in half but at that point it would seem like a very intereting opportunity
     
     
     
     
     

    SubjectWe bought stock
    Entry02/18/2014 12:15 PM
    MemberYCOMBINATOR
    The two main tenets of the short thesis:
     
    1) Malware. This claim is facutally incorrect. The author can't even keep css.infospace.com and ccs.infospace.com in the report. The server ccs.infospace.com handles clicks, of course you route your clicks to you click handling infrastructure. css.infospace.com doesn't exist. When you seach "ccs.infospace" there is no mention of malware, expect for the css.infospace results that Google returns because ccs and css are close enough.
     
    When google "css.infospace" and see a page of malware removal results, it's one article that was spammed around the web in mid-August. Either Gotham is incredibly naive about how linkspam works or they spammed that article around the web.
     
    2) Kiddie porn. This is just sensationalistic. Come on. Google Trends tells you that people are searching for "candydoll tv" on google.com. Of course they are searching for it on other search sites.

    SubjectRE: RE: RE: RE: Gotham City Short Thesis
    Entry02/18/2014 12:47 PM
    MemberYCOMBINATOR
    "3 of top 10 search terms are child pornography-related terms" --- i've read the report twice, im not sure what this means ---- the link goes to childporn? or this is a common-term, that people search for when looking for child porn and it re-directs to their owned & operated site?"
     
    I'm sort of convinced the Gotham City author doesn't know how the internet works, but to answer your question is referral is as it sounds. If I search on Google for "tires" and an Autozone ads appears and I click on that, Autozone will see Google.com as the referral.
     
    So this means that people are searching for "candydoll tv" on Google, and ASK and BCOR are algorithmically buying AdWords on that term (try it, you'll see an ask.com AdWords ad pop up), so the user clicks on the ad and goes to ask.com or infospace.com/dogpile.com/etc... That's the referral.
     
    Should ASK and BCOR be buying this AdWord? No. But they are doing it algorithmically and it's easy to shut off and as the Alexa rankings show, it's a miniscule part of the their referrals which is then a miniscule part of their overall traffic.
     
    Kiddie porn aside, there are libel-level inaccuracies in the short report re: malware. I hope Gotham City has some good lawyers.

    SubjectRE:Gotham City Short Thesis
    Entry02/18/2014 12:58 PM
    MemberYCOMBINATOR
    The factual claim is that BCOR installs malware and the supporting evidence is:
     
    A page of Google results of the same clickspam article on "css.infospace". They claim css.infospace.com is a site that installs this malware because almost all traffic is routed there. css.infospace.com is a server that doesn't exist on the internet. ccs.infospace.com is BCOR's clickhandler, of course they route traffic there and there is no evidence either in Google searches or on the server itself that it installs malware.
     
    Occam's Razor this. What is the easiest and best evidence that BCOR installs malware?
     
    This would be if they visited a BCOR site and then showed screenshots of the malware existing on their computer.

    SubjectRE: RE:Gotham City Short Thesis
    Entry02/18/2014 01:33 PM
    MemberYCOMBINATOR
    I really still can't believe someone would publish something like this, especially with the potential of a libel lawsuit.
     
    Gotham City's very first claim:
    • 94.81% of Infospace.com visitors go to css.infospace.com, a known redirect virus/browser hijacker.

    1) css.infospace.com doesn't exist. Was this was a typo? But the author keeps interchangably using css and ccs in the report.

    2) Where is the evidence that css or ccs installs a redirect virus?

    3) Where is the evidence that css or ccs hijacks your browser?

    4) "known"? To who? Your evidence is Google clickspam results, one article plastered all over the internet that doesn't even make any sense.

    5) 94.81% of Infospace.com visitors of course go through ccs.infospace.com. It's their clickhandler. All clicks go through there for analytics. What is insidious about this?

    Seriously, I don't mean to be disrepectful, but I really don't think Gotham City knows how computers/the internet works. 


    SubjectRE: RE: RE:Gotham City Short Thesis
    Entry02/18/2014 01:50 PM
    Memberstraw1023
    ycombinator,
     
    great work. I never would have caught this. There appears to be lots of flagrant flaws:
     
    - complete disregard for value of taxact + monoprice + NOLs
    - their free cash flow number is obviously bogus . . . it includes an acquisition of a completely independent company!
    - their over-statement about infospace's relationship (relative to other search engines) to child porn (implying it is part of company strategy) 
    - their statement about malware
     
    it seems to me that these mistakes are too flagrant to be simple mis-judgment. call me cynical but they are trying to stir the pot to cause Google to terminate the relationship . . . in much the same way as Ackman tried to stir the pot to cause government to investigate.
     
    I do not think this strategy makes much sense for short sellers because government/Google do not want to be seen as doing the bidding of short sellers. But we shall see.
     
    I think the company will be able to have a firm and clear response to all these issues on Thursday, and I expect shares to rebound.
     
    If Infospace goes to zero (but not negative) as of 12/31/2013, I am getting a valuation of about mid-to-high teens . . . let's say $17. Are others in the same ballpark?

    SubjectRE: RE: RE: RE:Gotham City Short Thesis
    Entry02/18/2014 03:33 PM
    MemberYCOMBINATOR
    straw,
     
    All excellent points about the rest of the report.
     
    I don't mean to harp on the malware point, but that is pretty much the thesis. Aside from short-term fear, which I'm sure Gotham City is profiting from today (I'm guessing they hold the synthetic short in the Feb 25/20 calls/puts given the 2200+ contact open interest at those strikes), the ONLY way the short thesis works is if Google shuts BCOR down.
     
    We have Babylon, which all the shorts point to, as a recent example. So what do you have to do for GOOG to nuke you? You essentially have to balantly distribute malware that harms user's systems. That's Babylon in a nutshell. You have to drive 100mph in a 55mph zone.
     
    BCOR has to be balantly distributing malware to risk a non-renewal w/ GOOG and in 80 pages of that report, the author could not marshall any factual evidence that BCOR does that.
     
    Partner sites are like 30% of GOOG revenue. Is GOOG really going to start turning that off? They can make an example of an egregious offender like Babylon, but are they going to start turning off AOL, ASK, BCOR? Come on.

    SubjectRE: RE: RE: RE: RE: RE:Gotham City Short Thesis
    Entry02/18/2014 03:50 PM
    MemberYCOMBINATOR
    The kiddie porn thing is... I don't even know what to call it...
     
    I went to Google and searched for one of the terms mentioned in the report, "vladmodels". It looks like someone bought the AdWords for the search term on Google and it redirects to some partner search engine.
     
     
    I'll bet the buyer of that ad doesn't even know they are buying "vladmodels". It's all done algorithmically.
     
    Now flip the question around: why is Google allowing anyone to buy ads on a term supposedly associated with kiddie porn? Google gets 100% of the revenue when someone clicks on that ad. Google is clearly making money off kiddie porn.

    SubjectRE:Gotham City Short Thesis
    Entry02/18/2014 04:01 PM
    MemberYCOMBINATOR
    I went through that exercise of searching on Google because that is what Gotham City is accusing BCOR of.
     
    They are saying BCOR is buying ads on Google for the "candydoll" and "vladmodels" and then getting referral clicks from Google searches.
     
    That is it. That is the kiddie porn allegation. ASK came up once when I searched "candydoll" too. I'm sure if I ran the search enough, AOL would as well.
     
    How to solve this? Google adds those two terms to their "you can't buy AdWords on this" list. Done.

    SubjectRE: RE: its the kiddie porn
    Entry02/18/2014 06:00 PM
    MemberYCOMBINATOR
    bowd, I like you. I hope we can have a beer together one day.
     
    I ran the Google searches, but did not click any links. As a human being, the thought of kiddie porn is replusive. No idea what those sites are about.
     
    Kiddie porn is a great smear for all the obvious reasons. I mean feel queasy having a fact-based discussion on whether BCOR/GOOG is involved in kiddie porn. And yes, perhaps it snowballs into something no facts can overcome. That's a risk.
     
    I'm surprised other short reports haven't tried the kiddie porn angle yet.

    SubjectQuarter and Forecast
    Entry02/20/2014 08:48 PM
    Memberstraw1023
    Two significant negatives:
     
    - loss of Google mobile
    - Monoprice results and forecast
     
    In after hours, stock trading at $20.
     
    I have cash + investments = $333mm
    debt = $121mm
    convert ($21.66 conversion) (will use 110% of face price) = $222mm
    shrs = 43mm * $20 = $860mm
     
    Rather than subtract PV of NOLs from the TEV, I will simply assume de minimis taxes henceforth -- the numbers are similar. They have $680mm of NOLs left as of yearend.
     
    So, TEV = $870mm
     
    For 2013,
     
    PF EBITDA (including stock comp) = $116mm
    PF Capex = $6mm
     
    So, unlevered FCF = $110mm (7.9x)
     
    For 2014,
     
    TaxAct looks solid; forecasting 10% top-line growth and margin expansion. When I subtract out proportional stock comp and overhead and minimal capex, I have TaxAct producing $42mm in FCF in 2014. And it is conservative to say that this is worth 16x, or $672mm. I think it is worth the entire TEV itself (21x).
     
    Monoprice has had a tough Q1 and is going to be down q-o-q. They are predicting 3-4% growth in 2014. I am not sure what to make of it. The unit is producing $11mm FCF (after proportional stock comp, overhead, and capex). We may need to reduce our valuation, but still worth $100-200mm.
     
    This means that we are getting Search for 1x FCF. Even with the Google renewal and margin compression, this unit is still going to produce $65mm of FCF in 2014. 
     
    Search is going to lose Google on mobile but did renew 3 year agreement (cancellable any time) for desktop, which is 85% of business. Search revenue going to be flat on year after bottoming out in Q2. And going to see margin compression. I have segment EBITDA dropping $5mm.
     
    In short, we are back to the same basic attractive point of the original write-up. I like the risk-reward again, and I bought some in AH.
     
    I think the largest negative is that perhaps Google pulling the mobile is intended as a signal that they will be pulling everything in the next few years. But I would pay 6x for this business. 
     
     

    SubjectRE: Quarter and Forecast
    Entry02/21/2014 09:55 AM
    Membercuyler1903
    I'm a buyer at 19.20 though I don't love this business....  Basically you can attach a 3x multiple to 85% of search EBITDA based on the revised contract, it appears....
     
    Cuyler

    SubjectBCOR
    Entry02/23/2014 10:23 PM
    Membermadler934
    Apologies for my silence, but Im back.  I dont have a ton to say.  I think the short report doesnt even merit any discussion.  It took about 8 seconds to assess that the report was written for a single purpose - to drive down the share price (which it was very successful at).  nothing more to say.  
     
    As far as the business goes, TaxACT - totally fine; Monoprice - pretty good I think (I actually like this deal).  search - deserves a low multiple - I think 3x is too low, I use 6x in my valuation.  people dont give that business any respect - look how much cash flow it has generated over time.  People constantly say Google is going to terminate them, but they aren't - the recent extension should give anyone pretty good comfort on that point.
     
    Ive been a buyer recently.
     

    SubjectRE: Brookstone to be sold...
    Entry04/28/2014 04:54 PM
    Memberaaron16
    Panther -
     
    Is this more or less a re-post of the seeking alpha announcement that just went out, or from another source? Jet in the recent write-up mentioned he spoke to BCOR mgmt and they had no intention of bidding. 
     
    Jet if you are reading, any change here?
     
    Thanks,
     

    SubjectRE: RE: RE: RE: RE: RE: Brookstone to be sold...
    Entry05/02/2014 09:24 AM
    Memberstraw1023
    Werd,
     
    We agree. In terms of cheapness, at $17.50, it is about back to where it was when madler wrote it up 18 months ago at $15. But that says a lot . . . namely, that the market simply has not idea how to price. Imagine that someone was buying this at $30/shr . . . more than double current TEV. I have read several articles on seeking alpha that insist on viewing as exclusively a search company. 
     
    So there is no catalyst and that is the problem. They should produce cash flow and that should drive the stock higher but gotta get lucky that it falls into favor as it did when it rose to $30 to get the juicy returns . . .
     

    SubjectRE: RE: RE: stock buyback?
    Entry05/02/2014 01:04 PM
    Membernha855
    Be careful. I doubt either happens. Read 382 of the code and you will probably agree with me.
      Back to top