InfoSpace Suddenly Gets More Profitable

Its deal for moneymaker TaxACT could keep its rebound going

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

A few weeks ago, Trader’s Advantage editor Jon Markman alerted InvestorPlace readers to InfoSpace (NASDAQ:INSP). A former 1990s dot-com darling, the company for a long time had a rough ride getting its groove back. Then again, that’s also been a problem with other holdovers from the early days, like Yahoo (NASDAQ:YHOO). Is it really possible to have a second life?

Well, in the case of InfoSpace, the answer may be “yes” — and a new deal it just made to buy TaxACT could underline that answer. Consider that InfoSpace still has a top-notch online search technology, called Metasearch, which essentially scours many other search engines to come up with relevant results that get integrated on the sites of InfoSpace’s corporate customers.

It’s smart approach and has turned into a nice growth business. Over the past three years, revenues have clocked an average increase of 20%.

But InfoSpace’s online footprint could be valuable in monetizing other assets. So why not buy other companies? After all, this is what Google has done over the years.

So, today InfoSpace agreed to shell out $287.5 million for TaxACT, which is a competitor to Intuit’s (NASDAQ:INTU) TurboTax.

On its face, the deal seems a bit strange.  But the fact is that as more people do their taxes digitally, they’ll be searching online for tools. InfoSpace could leverage its traffic to get cost-effective leads for TaxACT

In fact, TaxACT’s business is already wildly profitable. For the year ended Sept. 30, revenues came to $78.1 million and adjusted pretax earnings were $37.8 million. This compares to InfoSpace’s revenues of $211.8 million and adjusted pretax earnings of $34.7 million. As a result, the TaxACT deal will be immediately accretive on an earnings per share basis.

TaxACT was actually the target of an acquisition of H&R Block (NYSE:HRB) last year, but it had to abandon the deal because of antitrust issues. TaxACT is the No. 2 player in the market.

True, InfoSpace is getting into a specialized business — which can be risky. Yet TaxACT has a proven management team, which will stay on board. Besides, the next few months will see a spurt in business because of  tax season. So all in all, investors may see continued strength in InfoSpace’s shares.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.

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