As investors look> for signs of the market s direction amid uncertainties about the recovery, initial public offerings that make it to market are being closely watched. Investors got a new data point Thursday with the arrival of QuinStreet, a lead aggregator of customer data focused on education. The company began trading following an IPO priced at $15 below the $17 to $19 range the company had expected earlier.
QuinStreet finished at $15 in Thursday trading, unchanged from the offering price. Analysts say that the offer was priced lower than previous expectations in part because of fears about potential obstacles to QuinStreet s business of recruiting students for for-profit education companies such as online universities for a price. Calls to QuinStreet were not returned.
The company's success could be hindered by new government regulation. The Department of Education, consumer advocates and representatives from nonprofit and for-profit colleges have been meeting during the past few months to discuss an overhaul of the for-profit college sector. The changes they re considering could wipe out most of the revenue-generating business with the education sector that data aggregators like QuinStreet now enjoy.
QuinStreet is aware of the stakes. In a Feb. 2 filing with the Securities and Exchange Commission, the company said that if the proposed regulatory changes come to fruition, they could create uncertainty for our education clients and impact the way in which we are paid by our clients and, accordingly, could reduce the amount of net revenue we generate.
The most recent language in the education groups' proposals which are expected to be unveiled in the spring mandates that an educational institution will not provide any commission, bonus, or other incentive payment based directly or indirectly upon success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admissions activities
If that language remains in the proposal and becomes law, incentive compensation for recruiting could be eliminated, says Robert MacArthur, president of Alternative Research Services, which conducts research for hedge funds and has been studying QuinStreet.
Others, meanwhile, say QuinStreet has strong potential. For-profit colleges have experienced a boom during the past decade, particularly during the last five years, says Deanne Loonin, a director at the National Consumer Law Center. As of August 2009, the for-profit education space held about a 9% market share of the total college market roughly 1.5 million students, according to a report by Sterne Agee, a private brokerage. Enrollment at for-profit colleges is growing at an estimated rate of 5% to 10% a year and for-profit colleges are expected to hold about a 14% market share in fewer than 10 years, according to the report. Still, QuinStreet has diverse operations; roughly half the company s business comes from financial services that include mortgage underwriting in 25 states, says MacArthur.
The company also comes with star power. Its IPO was led by Frank Quattrone, the former Credit Suisse First Boston banker who took Cisco Systems and Amazon.com public in the 1990s. Most recently, he won a legal battle with the National Association of Securities Dealers and federal prosecutors over allegations in 2003 that he gave IPO shares to favored executives in exchange for investment banking business.
QuinStreet was first incorporated in California in April 1999, but the company reincorporated in Delaware at the end of 2009. In its most recent fiscal year ended June 30, 2009, the company reported revenues of $261 million and earnings of $57 million, year-over-year gains of 36% and 57%, respectively. Education accounted for $151 million of the company s 2009 revenue.
QuinStreet went public during a chilly environment for IPOs. Since 2007, the number of IPOs has dropped as investor confidence drifted away from equities. IPOs started to pick up in the fourth quarter of 2009, but the recent market correction suggests IPOs still face a rough road. For example, on Wednesday, Feb. 10, Graham Packaging, a plastic bottle maker, lowered its projected price for its debut, and Travelport, a travel reservations company, postponed its IPO in London, citing market conditions.