Blucora’s stock fell as much as 18 percent in trading today after an obscure research firm claimed that a large chunk of the company’s search traffic comes from malware, click fraud and illicit traffic, like child pornography.
The research firm, called Gotham City Research, set a $5 price target on the stock — well below yesterday’s close of $23.70 a share.
Later in the day, the stock rebounded some after Blucora, the Bellevue-based company formerly known as InfoSpace, put out a statement saying the allegations were false. Near the end of the day, shares were still down 8 percent to close at $21.70.
“The Gotham City Research report contains gross inaccuracies and factual misrepresentations regarding Blucora’s InfoSpace search businesses,” a spokesperson said in a statement.
It’s important to note Gotham City’s financial interest in seeing Blucora’s stock fall. In a disclosure, the firm revealed: “You should assume that as of the publication date of this report, GOTHAM CITY RESEARCH LLC stands to profit in the event the issuer’s stock declines.”
Despite its profit potential, Gotham City does a pretty thorough job of outlining its concerns in an 81-page report. In summary, it argues that if Blucora’s Web traffic is deemed unfit, then its revenues will fall as partners, like Google, determine that “it is better off without” Blucora.
Specifically, the research paper alleges that three of top 10 search words from Blucora’s dogpile engine are child porn-related, and that Webcrawler aggressively purchased child porn search traffic in recent quarters. It also makes several other claims, including that a vast majority of Infospace.com visitors go to css.infospace.com, which is a known redirect for a virus and browser hijacker.
Blucora’s statement focused on disputing the claims around child pornography.
“While we will not address every inaccurate statement in the report at this time, we do want to specifically respond to the reprehensible allegation regarding keyword search terms,” the Blucora’s statement reads. “We strictly prohibit acquiring search terms related to child pornography, and we work with partners and have internal procedures to enforce this policy.”
In recent months, the Bellevue company, which operates an online tax preparation business and the InfoSpace search businesses, has seen its revenues increase. In the third quarter, revenues rose by 34 percent to $124.1 million. Its net loss widened to $6.5 million, from a net loss of $2.4 million for the same period in 2012. The company will release its fourth-quarter results on Thursday.