SMARTER ANALYST: QuinStreet Inc (QNST): A Wreck Is Right Around The Corner

Career College Central Summary:

  • One minute, QuinStreet Inc (NASDAQ:QNST) was merrily redirecting traffic from Google searches and picking up millions along the way in exchange for generating leads.
  • The next minute, two trucks flew around the corner, with President Obama at the wheel of one and Google at the other. Wham!
  • Once investors understand the true impact of that double-whammy, we think they’ll agree that QuinStreet’s business model looks like a beat-up, old jalopy. We’ll explain why below but investors should also take a look at opposing viewpoints here.
  • Losing customers: A flick of President Obama’s pen and shuttered colleges
  • QuinStreet gets paid for gathering information when people type in something like “online college degree,” or “credit cards,” or “cheap car insurance,” and then generating online sales leads for for-profit schools, credit card companies and auto insurance companies.
  • But QuinStreet’s Education division is clearly taking several huge hits – hits that promise to thwart future revenue in this area.
  • For example, President Obama veered into QuinStreet’s business with his plan for free community college.
  • This plan would damage QuinStreet’s for-profit education customer base going forward because many of the people who might appreciate the flexibility of a for-profit college would enroll in community college if it became free.
  • Just as ominously, federal and state regulators are cracking down on QuinStreet’s for-profit higher education customer. A US Senate committee revealed a disturbing investigation into for-profit education. And attorney generals across the country have been investigating these colleges’ “dubious practices.”
  • Corinthian Colleges Inc filed for bankruptcy last week amid federal allegations it deceived students.
  • The US Department of Education forced Corinthian – already slapped with a $30 million fine – to close the last of its campuses just a few weeks ago.
  • With $6 billion in federal student loans and grants, Corinthian was a significant client for QuinStreet. Its loss was not reflected in QuinStreet’s last earnings.
  • Corinthian proved to be the canary in the for-profit college mine, signaling the intensifying implosion of the industry. Along with Corinthian, Career Education Corp. and Education Management Corp. fell beneath federal regulators’ crackdown against colleges allegedly taking advantage of low income students and hitting them with debt. Regulators have left behind massive campuses closings, Education Management’s delisting itself from Nasdaq and a loss of nearly $8 billion in market valuation.

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