QuinStreet Analysts Highlight Sharp Re-Ramp Of Auto Insurance Client Spend And Home Services As Major Revenue Driver Post Q2

Stephens & Co analyst John Campbell maintained QuinStreet Inc QNST with an Overweight and a $14 price target.

QNST delivered an across-the-board FY2Q23 beat highlighted by a 7% top-line beat with outperformance across all segments. 

QNST noted a "sharp re-ramp of Auto Insurance client spending" in January. 

The results helped fuel an optimistic near-term outlook, with next quarter's revenue guidance and full-year revenue guidance coming in nicely ahead of consensus, with the range for each period bracketing the analyst's Street-high revenue estimates. 

However, QNST did provide EBITDA guidance for both periods that missed expectations. At the midpoint, QNST's FY23 implied EBITDA margin of 4.4% would equate to ~90bps of Y/Y margin compression despite an implied ~7% Y/Y revenue growth rate.

Barrington Research analyst James Goss reiterated an Outperform and a $17 price target.

Home services constituted the main driver, as auto insurance headwinds weighed on the quarter. 

However, the company provided updated guidance above the analyst's current revenue estimate, highlighting the beginnings of a recovery in auto insurance advertising spending that management had been pointing to for several quarters.

The company expects softer profit trends in the near term with EBITDA of $25-30 million, suggesting a heavier Q4 weight with the company leveraging further growth in carrier spend and being able to present more options to consumers looking to compare rates.

Financial services revenue fell modestly in the quarter as the auto insurer carrier clients continued to hold back spending as they adjusted to elevated loss ratios. 

Management has noted that Auto insurance is generally insulated from recessions as it is an area where consumers will look to save money and be supportive of attracting carrier budgets. 

Rising rates are prodding consumers to explore other options, boosting QuinStreet. Still, in addition to the return to seeking more attractive policy alternatives, consumers are also doing an increasing share of this activity online, suggesting the next revenue peak should top the last cycle peak.

QuinStreet is targeting multiple service areas for the expanded effort combined with Modernize. Total home services revenues were $43.0 million, which continues to be an area in which the company sees multiple avenues to drive growth. 

Adding additional service offerings to the platforms provides further opportunities to grow efforts in this vertical.

Price Action: QNST shares traded higher by 17.12% at $17.10 on the last check Thursday.