As the adtech market matures and brands become more sensitive to transparency and brand safety, publishers and performance marketers are finding easy arbitrage dollars are drying up.

That’s a lesson that US lead aggregator QuinStreet might be about to learn the hard way after finding itself on the receiving end of a scathing report by Kerrisdale Capital Management, LLC. Which-50 reviewed the report overnight.

Kerrisdale Capital is a hedge fund investment manager based out of New York with about $US170 million in funds under management.

“It is best known for its short activism, which involves sharing research on companies that we short,” says its founder and chief investment officer Sahm Adrangi. “Our research seeks to correct broadly held misconceptions about these companies’ fundamental business prospects. We share our research on our website, third-party investing-related sites, and on Twitter.”

The company is shorting QuinStreet — that is, it is betting the price will fall — and today it decided to help that process along by publishing a lengthy report questioning QuinStreet’s business model, the quality of its management, the composition of its revenues, and its approach to generating leads for its clients.

The authors of the report, called “QuinStreet: Something doesn’t click”, go further, suggesting the company is benefiting from suspect traffic and outright fraud by other parties (in the form of referrals from malware) although the hedge fund is careful not to accuse QuinStreet itself of committing fraud.

Digital ad fraud is a growing problem in the advertising industry and will represent one of the world’s biggest criminal marketplaces by 2022, generating $44 billion annually according to Juniper Research.   A good portion of that money actually ends up in the coffers of legitimate adtech intermediaries. This includes publishers and platforms who often seem unable to mitigate easily identifiable fraud and who, it could be argued, have an economic incentive to look the other way.

Referral Revenues

QuinStreet makes its money by generating sales leads in niche verticals from consumers looking for information for things like comparison charts for insurance products and other offerings. It then refers the leads to businesses like insurance operators either from links on its sites or by selling the data it collects from consumers to operators.

An individual’s data is only meant to be sold a few times but the report suggests that’s a policy more honoured in the breach than in the observance.

QuinStreet also has something of a potted history, having been pinged by more than a dozen states at the start of the decade for its business practices.

As Wikipedia notes, “The company was accused of targeting military veterans with deceptive recruiting practices for its for-profit school clients. QuinStreet denied wrongdoing and no determination of guilt was made. The company cooperated with the attorneys general and entered into a voluntary agreement to update its web sites to ensure clarity around schools advertising.”

Much of the criticism of QuinStreet in the new report focuses on some fairly traditional business metrics. Too much growth comes from a single deal in the finance sector (with an insurance operator named Progressive). This deal seems to be a big part of the reason why the share price has spiked over the last year. Now though the impact of that deal appears to be lessening (See chart) — and Kerrisdale Capital is betting that the price will retreat once investors take note.

Impact of Progressive deal on QuinStreet revenues
Impact of Progressive deal on QuinStreet revenues

Likewise, Kerrisdale argues the business model is fundamentally flawed, with low barriers to entry and an exposed position in the market relative to its competitors.

However, from Which-50’s perspective, QuinStreet’s exposure to — and partial reliance upon — some highly suspicious web traffic is of most interest.

In an email interview with Kerrisdale’s Adrangi, he tells Which-50, “Based on what we’ve seen, there’s certainly some bogus traffic and leads, and I’m confident that it’s translating into revenue.”

In a chapter entitled, “QuinStreet-Affiliated Sites Benefit from Highly Suspicious Web Traffic” the report notes that, while its hard to unpack where a lot of the traffic comes from, one domain in particular seems especially important:

Nextinsure’s number-one source of traffic is a bare-bones web site called

The authors write, “We’d never heard of it before, yet in recent months it appears to have supplied ten per cent of the inbound traffic to QuinStreet’s main network hub. Visiting the site today shows almost nothing — just a background image of the sky, some legal boilerplate linking the site to a marketing firm called Global Wide Media, and the address of an unassuming building in a Los Angeles suburb also associated with two other low-quality sites, and However, shows that, as recently as September 29th, Insurance Branch presented itself as a wide-ranging financial-services portal, with links for auto, health, home, life, Medicare, and mortgage but no real content.”

QuinStreet also seems to be benefitting from the activity of users who are paid “swagbucks” to click links on its properties. Basically, these users are paid pennies for the clicks but those same link clicks are worth dollars to QuinStreet.

It’s not illegal, but it is also not the kind of approach to generating clicks that will appeal to sophisticated marketers chasing genuinely engaged leads. Indeed it’s a very “Web 1.0” way of earning a buck, and not one that is likely to be sustainable in an era of growing demands for transparency.

We asked Shailin Dhar, co-founder of Method Media Intelligence, a San Francisco based ad fraud consultancy, for his initial view.

“Re-brokering and arbitrage are the main pillars of affiliate and performance marketing. The main reasons are that if you can create an image palatable enough for actual advertisers, you can go out and find 100 individual parties that will provide small amounts of traffic that can be aggregated to look like an attractive level to advertisers.”

Dhar told Which-50, the insurance agents or telemarketers who typically receive these leads have an overwhelming misunderstanding that the lead lists they receive have been vetted and are current self-submitted names.

“Little do they know this is full of incentivised traffic, scraped directory pages, and even completely bogus information. Because the affiliate and performance marketing and lead-gen business is knowingly full of countless layers of re-brokering, it allows each party to have deniability to its buyers that the blame should fall on the supplier that is further downstream.”

He said, “Advertisers will slowly but surely get wind of the fact that the party they purchase leads from usually has zero idea how they were generated. Lead scrubbing is essential; it was my first encounter with ad fraud in 2011.”

UPDATE: In a statement accompanying the release of preliminary Q3 results, Doug Valenti, CEO of QuinStreet said, “We have reviewed the negative report published about QuinStreet by Kerrisdale Capital Management and feel compelled to respond given its invalid claims and conclusions, and its negative impact on our stock price. QuinStreet management has never been contacted by Kerrisdale. We are disappointed they would make such sweeping claims without contacting us. Kerrisdale claims are inaccurate, out-of-context and exaggerated, and their conclusions about our prospects are demonstrably wrong.”

According to Valenti, “QuinStreet’s business model and relationships with clients are based on the performance of our marketing and media programs for them. That means both consumers and our clients must be satisfied for us to sustain our business, let alone grow revenue. We believe that our financial results are evidence of the continuing success of our model and results in media and with clients,” concluded Valenti.

The company, however, did not address any of Kerrisdale Capital’s concerns specifically. The May 1 conference call might provide more detail.

QuinStreet shares fell 17 percent yesterday on the release of the Kerrisdale Capital report but rebounded today on the release of preliminary Q3 numbers.

In its statement to the market QuinStreet writes, “For the third quarter of fiscal 2018, the Company expects to report revenue of over $115 million, representing growth of more than 45 per cent year-over-year. Adjusted EBITDA is expected to be greater than 8 per cent.”

The merry dance between long and short continues.

*We have contacted QuinStreet for a comment and will publish its response once we receive it.

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