Disclosure
We are short shares of QuinStreet, Inc. Please click here to read full disclosures.
We are short shares of QuinStreet, a web-1.0 adtech firm that acts as a middleman between online advertisers and niche web sites. These niche sites attract visitors (leads) who are shopping for, say, a new credit card; QuinStreet acquires those visitors and delivers their data or eyeballs to advertisers, like credit-card companies, earning a fee along the way.
For much of QuinStreet’s eight-year history as a public company, its stock traded at less than half of its IPO price, as investors realized that QuinStreet’s outdated business model is unlikely to be a long-term survivor in the rapidly changing world of online advertising. But in the past eight months, QuinStreet’s share price has nearly quadrupled, fueled by a frothy market and a reversal of its longstanding trend of declining sales. QuinStreet now trades at a sky-high multiple of 60x operating profit.
In reality, few investors understand how QuinStreet actually does business, given the company’s bare-bones disclosures and scant research coverage. We believe the uptick in revenue is a sham: a mix of malware redirects, bogus leads from web surfers trying to score “swagbucks,” and a one-time lucky deal with Progressive that has already plateaued. QuinStreet isn’t a legitimate player in lead generation anymore; its proprietary web sites are nowhere to be found in top search results, and its click-monetization technology is routinely passed over in favor of its competitors’.
QuinStreet claims that it sources valuable “high-intent” leads for its advertiser clients. Then why is the largest source of traffic to QuinStreet’s main online hub over the past few months a fake site called Insurancebranch.com, which attracted users by simply paying them to click on its advertising links? Why is so much of QuinStreet’s other traffic coming from domain names associated with adware, paid surveys, and a mysterious individual in Hunan Province? How much of QuinStreet’s traffic – the very essence of its business – is genuine?
Drawing on extensive discussions with multiple former QuinStreet employees and other industry participants, we find that QuinStreet has little to differentiate it in a highly competitive market. Its technology is clunky, its sites commodity, its affiliate relationships fleeting. Unsavory business practices have subjected it to robocalling lawsuits and its inability to evolve at the pace of competitors has ruined internal morale. Unsurprisingly, key insiders, including QuinStreet’s CEO, CFO, and one of its earliest and largest institutional investors, have just recently begun to sell their shares. QuinStreet is not a road to riches; it’s a dead end.
