Quinstreet Weighed Down by For-Profit Education Concerns
Quinstreet Inc. (QNST), which operates in lead generation industry alongside companies like Accelerize NewMedia, Inc. (ACLZ), saw a rather lackluster initial public offering as for-profit education comes under regulatory pressure.
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Quinstreet Inc. (QNST), a full-service online marketing services and technology company, is trading below its initial public offering price of $15 after a rather lackluster debut on Wall Street. Many analysts attribute the weakness to a widespread concern about potential reform in for-profit education, which represents a sizable portion of the company’s client base.
The initial public offering raised approximately $140 million for the company, although it priced below the anticipated $17-19 per share estimates, according to the company’s S-1 filing with the SEC. The result isn’t all that surprising either as risk adverse investors seem reluctant to place their money in many of the new issues that hit the market so far in 2010.
The problems facing the for-profit education industry are also somewhat troubling. The biggest issues related to Title IV, which is a federal financial aid program, and rules surrounding it. There are also some concerns surrounding the very strict rules under which for-profit salesmen (or admissions representatives) are allowed to promote the universities.
The so-called 90/10 rule, one of the biggest concerns for the sector, is a financial aid rule designed to keep for-profit educational institutions from recruiting only low income students or those who aren’t likely to do well but qualify for financial aid. The rule requires schools to show that 10% of their income comes from sources other than federal financial aid.
Of course, Quinstreet is well aware of these problems as well. According to its IPO filing:
“To date, we have generated a majority of our revenue from clients in our education vertical. We expect that a majority of our revenue in fiscal year 2010 will be generated from clients in our education and financial services verticals … Over the past year, education marketing spending has remained relatively stable, but this stability may not continue. Marketing budgets for clients in our education vertical are impacted by a number of factors, including the availability of student financial aid, the regulation of for-profit financial institutions and economic conditions.” View SEC Filing
In the end, the future of the for-profit education sector ultimately dictates the success of Quinstreet.
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