QuinStreet Inc. (QNST, Financial) is an internet marketing company that specializes in performance marketplace products and technologies. The company serves clients in high-value, high-consideration market verticals, primarily in financial services and home services. Clients include some of the world's largest companies and brands.
The company's media management technology platform, QuinStreet Media Platform (QMP), allows clients to access high-intent digital traffic from any visitor device precisely, cost effectively and at scale. This is the result of the company’s proprietary technologies and broad client and media footprints. QuinStreet segments, qualifies and matches visitors who are researching and comparing products and services in its market verticals with the right client at the right price, to create industry-leading media buying efficiency.
QMP enables clients to access thousands of targeted media sources (including search engine marketing, search engine optimization, social, mobile, email and call center) in any form (clicks, inquiries, leads, calls, appointments or customers) through a single platform. QuinStreet integrates QMP with any client technology to deliver results in any form or format. The technology enables clients to vary marketing spend, as well as track and report experience and performance, by segment and media source. Clients have as many as 10,000 active prices changing multiple times per day on the platform.
Clients can engage with QuinStreet by buying performance marketing products variably and purely based on results, by licensing or utilizing company technology or by appointing the company as an agency of record.
With a history dating back to 1999, QuinStreet was one of original innovators in large-scale performance marketing on the internet and has almost 20 years of experience in digital performance marketing. The company's propriety data and insights are derived from extensive optimization within and across multiple industries throughout its history. Company management believes this is a key competitive advantage.
Financial review
The company released results for its second fiscal quarter ending Dec. 31, 2021 on Feb. 8. Revenue declined 7% to $125.3 million, primarily due to clients in the insurance sector, which experienced unusually high claim costs in the quarter. The company stated insurance client spending did bounce back in January 2022, but they still expect insurance-related market volatility to continue for the next three to six months.
The GAAP net loss for the quarter was $5.6 million, or a loss of 10 cents per diluted share. Adjusted net income, which eliminates stock compensation and other items, was $3.2 million, or 6 cents per diluted share.
The company announced it was reducing its guidance for fiscal 2022, which ends June 30, due to volatility in the insurance market. The company expects revenue to be between $600 million and $620 million, while adjusted Ebitda is forecasted to be between $40 million and $45 million.
Balance sheet
QuinStreet maintains a relatively safe balance sheet with cash and equivalents of $115 million and no short-term or long-term debt. The company has low capital expenditure needs and typically generates solid free cash flow. Operating cash flow for the second quarter came in at $13.9 million and capital expenditures and software development costs totaled only $1.6 million.
Valuation
Based on the midpoint of Ebitda guidance for 2022 of $42.5 million and an enterprise value of $462 million, QuinStreet sells at an EV/Ebitda ratio of approximately 10. Analysts' earnings per share estimates are 50 cents for fiscal 2022 and 69 cents for 2023. If 2023 is considered a normalized growth year without the insurance client volatility, then the price-earnings multiple seems reasonable at only 15, which is not out of line for an internet marketing growth company.
Guru trades
Gurus who have added to their positions recently include First Eagle Investment (Trades, Portfolio) and Private Capital (Trades, Portfolio).
Conclusion
The recent price decline for QuinStreet's stock has likely created an attractive entry point for investment. The company appears to be undervalued relative to its expected long-term growth rates and the very large addressable market in which it operates.
