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MCINTIRE INVESTMENT INSTITUTEAT THE UNIVERSITY OF VIRGINIA

Prepared by Sean Yu| 1/31/2012

Blucora, Inc. (BCOR)Long

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AGENDA

• Overview• Thesis• Valuation • Misperception• Risks

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BLUCORA BUSINESS OVERVIEW

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1996

Tax-Preparation software

June 2012InfoSpace: 70%

TaxAct: 30%

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BLUCORA FINANCIALS

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

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THESIS

1 • Strong search segment ensures constant growth

2• Successful acquisition of TaxAct brings diversification

and huge profitability

3 • Stable business model results in healthy growth

4 • Undervalued stock price provides room for long

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BUSINESS MODEL FOR SEARCH SEGMENT

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Syndicate results

Ad Cut

Customized and combined result

Value-added service

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STRING FINANCIALS FOR SEARCH SEGMENT

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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

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INFOSPACE’S ABILITY TO ATTRACT NEW CUSTOMERS

• 4% CAGR for revenue form existing customers • 13 % CAGR for revenue form new customers

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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

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BLUCORA ALREADY PARTNERED WITH GOOGLE & YAHOO FOR MORE THAN 10 YEARS

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Partner for more than 10 years Just renew to

2014

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ONLINE FILLING HAS HUGE POTENTIAL MARKET

• TaxAct focused on online tax preparation• Tendency to use DIY software or services to fill tax • Online filling is the fastest growths segment in DIY

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BIGGEST ADVANTAGE OF TAXACT – LOW PRICE

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AMAZING EBITDA MARGIN OF TAXACT

• Constantly 50% Margin!

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EFFICIENT COST MANAGEMENT RESULTS IN HIGH MARGIN

• Online Filling: much less labor-intensive than other fillings

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SUCCESSFUL ACQUISITION OF TAXACT

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• 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

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STORIES OF TAXACT OTHER THAN HIGH MARGIN

• 80% repeating business • TaxACT is building up customer base • Margin and profit will be even higher

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Healthy Growth Path

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LOW CAPITAL REQUIREMENT

• Blucora’s businesses require minimal capital

• % of PPE decreased from 3% to 1.1% in 2012

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STRONG FREE CASH FLOW PROVIDES ABILITY TOINVESTMENT

• FCF/NI Conversion is approaching 180%• The conversion is still 130% if we remove effect of loss

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LEADERS EXPERIENCES IN IB AND PE WILL HELP THE COMPANY CAPTURE GOOD DEALS LIKE

TAXACT

• Use the free cash wisely to capture next TaxACT

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InfoSpace: Steady Cash Flow

TaxACT: Seasonal but high margin

Perfect Combination

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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.

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FUTURE TAX DEDUCTION

• Blucora has a lot of NOLs before that can deduct future 10 years’ tax

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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

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VALUATION 2: ESTIMATED MARKET CAP

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Final Price: 26.89

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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 TaxACT is not a good sign– Shifting from off-line software to online-service

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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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