Blucora (NASDAQ:BCOR) has been in the news over the last week, for more wrong reasons than right. Following a report by Gotham city questioning the quality of the searches and visitors to Blucora’s search business, Blucora reported a quarter strong on topline growth and comfortably beating analyst estimates on the bottom line. The management clearly refuted the claims of the Gotham city research report in order to soothe investor fears. We today look into the company’s quarterly performance, our take on the search segment, our outlook on Blucora stock, which has been one of our top stock picks for over 9 months now, and why we believe the stock is an attractive investment at its current price levels.
Q4 2013 revenue growth and profitability analysis
Blucora continued to see topline growth driven by organic growth in search segment and inorganic growth through the inclusion of the Monoprice numbers. Monoprice (Product) revenues were a significant addition to the topline, making up 24% of the Q4 2013 revenues. The chart below displays Blucora’s Q4 2013 revenue by segment.
The product segment, consisting of Monoprice generated quarterly revenue of $39.7 million, a substantial addition to the $127.7 million revenue from the services segment (consisting of tax and search segments). Let’s take a look at the topline growth, with and without the impact of the Monoprice segment.
|2012 Q4||2013 Q4||YoY Growth|
The company registered a healthy 31% Y/Y topline growth in the services segment largely driven by a 30% growth in the search segment revenue. The product segment (read as Monoprice) was also up 21% Y/Y, on a pro forma basis, representing a substantial addition to the topline at Blucora. It will be interesting to see the performance of the product segment and its role as a key revenue driver for Blucora over the coming year.
Let’s move on to the operating efficiency and profit margins of Blucora for Q4 2013. The table below reflects the same.
|2012 Q4||2013 Q4||YoY Growth|
|Adjusted EBITDA Margin||12.44%||13.49%||1.05%|
The operating margin saw an expansion of 252 basis points over Q4 2012, mainly on account of better leverage in the cost of goods sold (associated with the E-commerce segment), and ‘Engineering and technology’ expenses. However, the operating margin expansion did not lead to any expansion in the Net Income margin, which was negatively impacted by a one-time non-cash expense of $5.7 million, associated with a warrant exercised during the quarter. It is important to note the 1.05% expansion in the EBITDA margin, which adjusts for the one-time gains and therefore presents a more accurate picture of the operating efficiency of the company.
Blucora Cash flow analysis
The company’s cash flows during the quarter and cash position at the end of the quarter remained healthy, with substantial increase in cash flow from operations, free cash flow and cash balance at the end of the quarter. Let’s take a look at the cash flow during the quarter and cash position at end of FY 2013 in comparison to FY 2012 end.
|FY 2012||FY 2013||YoY Growth|
|Cashflow from operations||48.83||95.06||94.7%|
|Free cash flow (FCF)||45.08||90.31||100.3%|
The FCF margin was healthy at 15.7% of the FY 2013 revenues, a 4.7% margin expansion over 2012. The company exited the year with $330.7 million in cash and cash equivalents, throwing open the possibility of acquisitions in 2014, considering the inorganic route to growth they have chosen over the last two years. Share repurchases is another possible and likely use of cash over the coming years, considering that the company has close to $40 million authorization to further repurchase shares under its current plan.
Q1 2014 Outlook
The company guided Q4 2014 revenues in the range of $213 - $222 million, representing a Y/Y growth of close to 31.5%. Based on the management’s segment outlook guidance, the expected revenues from the various segments is as shown below.
|2013 Q1||2014 Q1 Expected||YoY Growth|
The topline growth will be largely driven by the inorganic growth from the E-commerce segment and it will be interesting to see how the segment pans out on a Y/Y basis as we move on in the year ahead.
In conclusion, we would like to add that we view the management’s move into E-commerce and Tax as a positive step, reducing its dependence on the volatile search segment, which is subject to a number of external factors beyond the control of the Blucora management. We expect the E-commerce segment to see better margins with better scales of operation even as the product portfolio broadens. We will keenly be watching the performance of the E-commerce segment over the year and update our valuations and outlook as we head deeper into FY 2014. We think the latest drop in price was a short term pullback, and looking ahead at FY 2014 we believe the stock is attractive at its current price levels and we reiterate our strong long term positive outlook on the stock. Keep reading for further updates on the technology stocks.
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