Google Inc (GOOG) Partnership Eases Search Worries For Blucora


Wedbush analysts Gil Luria and Aaron Turner rate Blucora Inc (NASDAQ:BCOR) as an Outperform as the renewal of the partnership between Google Inc (NASDAQ:GOOG) and Blucora present an attractive opportunity.

We believe shares of Blucora Inc (NASDAQ:BCOR) attractively price in its growth rates and assets. We expect shares to continue to adjust as Monoprice ramps, TaxAct has another successful tax season and the renewal of the Google Inc (NASDAQ:GOOG) partnership quells Search segment worries.

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Q4 results top consensus as search extends strong growth trajectory

Q4 revenue of $167.3 million was up 30% organically YoY (ex Monoprice contribution of $40 mn) and topped consensus of $158 million. Non-GAAP EPS of $0.40 topped consensus of $0.39.

Google renewal to quell fears over viability of Search segment

Company announced a new three-year agreement with Google Inc (NASDAQ:GOOG) with terms similar to prior arrangements, with the exception of mobile search. We expect that once the impact of the carve-out is anniversaried Search can maintain the same high-single-digit trajectory we previously anticipated. In spite of this change, management guided to low-single-digit growth for Search in 2014. Importantly, we believe the renewal puts to rest some potentially libelous claims made this week, which the company has denied, as we believe it is inconceivable that Google would maintain a relationship with a company that did any of the things flung at BCOR.

TaxAct is on track to achieve guidance targets

We continue to see potential for TaxAct to achieve high-single to low double-digit growth this season given its pure exposure to online preparation, marketing campaign, and new product features. Company is maintaining tax season revenue guidance for TaxAct of $95-97 million with segment margin of 52% in 1H14.

We believe Q1 guidance sets achievable target. Company expects Q1 revenue between $213-222 million with non-GAAP EPS between $1.00-1.06.

Blucora’s valuation reflect change to Google relationship

Reducing our 2014 estimates to $2.36 from $2.68 to reflect change to Google Inc (NASDAQ:GOOG) relationship. Maintain outperform rating, but reducing price target to $30 from $35 to reflect lower estimates. Target represents a 13x multiple on 2014 EPS of $2.36, on the lower end of comparables, balancing upside from future acquisitions and eventual need to pay taxes.

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