Zack Buckley and Tech Value

Special Value Investing Congress Notes for the Irregulars

Zack Buckley, who last year talked up a short in the tech space, today argued that there’s a small tech company that’s very undervalued.

The company used to be called InfoSpace and (since investors hated Infospace), it’s been renamed Blucora (BCOR) and owns two businesses, the old search distributor Infospace and their recently acquired third-place tax prep software company, TaxACT. Buckley says that we can buy TaxACT and get the search business for free.

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The market cap 764 million, share price 17.76.

The company is cheap because of its infamous history — Infospace was a dot com blowup and lost investors a lot of money. The two business segments, he says, obfuscate the value of TaxACT.

He also thinks it’s not recognized by investors because it screens as having a PE of 22 but the cash generation is much better, he says it trades at a free cash flow of 7X.

TaxAct is the third place provider, and the low cost provider in online tax preparation. He says it’s a high quality, online tax prep, growing 8-10% annually. They’re benefitting from shift to e-file. Blucora bought them last year and are already getting ROI of 20%, so it was a remarkable acquisition. They’re the smallest in the oligopoly — but there’s no incentive for the others to take their business because they are the low cost and disruptive provider and the overall business for everyone is growing.

This is a service business, not a tech company — moat is marketing scale, tough to replicate without spending a lot. Sticky product, because people come back with mid-70% retention rate that’s rising.

It’s a large and growing market, the category is stable, they are trying to steal market share and they’re cheaper than H&R BLock and TurboTax. They will either raise prices or steal market share. He thinks it should be worth 10X EBITDA, a substantial discount to the other two.

And they’re gradually trying to diversify — they have a new product called LegalAct to make money outside of tax season, it sounds like this is similar to the other firms that help with cheap wills and incorporations, etc., like the heavily marketed LegalZoom.

So you get Infospace for free at today’s prices, according to Buckley. They’re mostly in search distribution — they install search bars on websites. Their customers are ...

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