QuinStreet (QNST)

Performance marketing company QuinStreet (NASDAQ:QNST) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 60.1% year on year to $269.8 million. Its non-GAAP profit of $0.21 per share was in line with analysts’ consensus estimates.

Company Overview

Founded during the dot-com era in 1999 and specializing in high-intent consumer traffic, QuinStreet (NASDAQ:QNST) operates digital performance marketplaces that connect clients in financial and home services with consumers actively searching for their products.

The sector is on the precipice of both disruption and growth as AI, programmatic advertising, and data-driven marketing reshape how things are done. For example, the advent of the Internet broadly and programmatic advertising specifically means that brand building is not a relationship business anymore but instead one based on data and technology, which could hurt traditional ad agencies. On the other hand, the companies in the sector that beef up their tech chops by automating the buying of ad inventory or facilitating omnichannel marketing, for example, stand to benefit. With or without advances in digitization and AI, the sector is still highly levered to the macro, and economic uncertainty may lead to fluctuating ad spend, particularly in cyclical industries.

QuinStreet competes with digital marketing agencies, lead generation companies like EverQuote (NASDAQ:EVER) and MediaAlpha (NYSE:MAX), as well as larger tech platforms where clients can advertise directly, including Google (NASDAQ:GOOGL), Meta (NASDAQ:META), and Microsoft (NASDAQ:MSFT).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $1.03 billion in revenue over the past 12 months, QuinStreet is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, QuinStreet’s 15.8% annualized revenue growth over the last five years was incredible. This is a great starting point for our analysis because it shows QuinStreet’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. QuinStreet’s annualized revenue growth of 31.4% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, QuinStreet’s year-on-year revenue growth of 60.1% was magnificent, and its $269.8 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 11.8% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is commendable and indicates the market is baking in success for its products and services.

Although QuinStreet was profitable this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 1.2% over the last five years. Unprofitable business services companies require extra attention because they could get caught swimming naked when the tide goes out.

Analyzing the trend in its profitability, QuinStreet’s operating margin decreased by 1.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. QuinStreet’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, QuinStreet generated an operating profit margin of 1.8%, up 5 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

QuinStreet’s EPS grew at a decent 8% compounded annual growth rate over the last five years. However, this performance was lower than its 15.8% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into QuinStreet’s earnings to better understand the drivers of its performance. As we mentioned earlier, QuinStreet’s operating margin improved this quarter but declined by 1.4 percentage points over the last five years. Its share count also grew by 9.8%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, QuinStreet reported EPS at $0.21, up from $0.06 in the same quarter last year. This print beat analysts’ estimates by 3.3%. Over the next 12 months, Wall Street expects QuinStreet’s full-year EPS of $0.76 to grow 43.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

QuinStreet has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, subpar for a business services business.

Taking a step back, we can see that QuinStreet’s margin dropped by 2.3 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it’s in the middle of an investment cycle.

QuinStreet’s free cash flow clocked in at $27.1 million in Q1, equivalent to a 10% margin. This result was good as its margin was 9.8 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although QuinStreet has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 10.6%, meaning management lost money while trying to expand the business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, QuinStreet’s ROIC has unfortunately decreased significantly. If its returns keep falling, it could suggest its profitable growth opportunities are drying up. We’ll keep a close eye.

Companies with more cash than debt have lower bankruptcy risk.

QuinStreet is a profitable, well-capitalized company with $81.82 million of cash and $7.99 million of debt on its balance sheet. This $73.82 million net cash position is 7.2% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

The quarterly results were fine, but the company's comments about increasing uncertainty around the macro and tariffs seems to be spooking the markets. The stock traded down 9.6% to $16.55 immediately following the results.

Updated: July 8, 2025 at 12:31 AM EDT

Before deciding whether to buy QuinStreet or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

QuinStreet is a high-quality business worth owning. First of all, the company’s revenue growth was exceptional over the last five years. And while its diminishing returns show management's recent bets still have yet to bear fruit, its projected EPS for the next year implies the company’s fundamentals will improve. On top of that, QuinStreet’s remarkable EPS growth over the last five years shows its profits are trickling down to shareholders.

QuinStreet’s P/E ratio based on the next 12 months is 14.6x. Scanning the business services space today, QuinStreet’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $25.25 on the company (compared to the current share price of $16), implying they see 57.8% upside in buying QuinStreet in the short term.