Everquote (Nasdaq: EVER)

Everquote Inc. (NASDAQ: EVER) (“Everquote” or the “Company”) generates revenue primarily from the sale of online auto insurance quote requests to large insurance providers such as Progressive, Geico, eSurance, Nationwide, Allstate, etc. Calls with Everquote management and two former Everquote employees confirmed language from Everquote’s filings that web traffic to www.everquote.com remained the dominant source of Everquote’s quote requests which continue to be its largest driver of revenue and profitability. On its 3Q’19 earning call, Everquote CFO John Wagner attributed Everquote’s 2019 revenue growth to an increase in website traffic volume to www.everquote.com: “For the balance of 2019, it’s been driven by the progress we’ve made in the execution within our traffic teams in terms of driving more consumers to the website.”

In its 2019 10-Q’s Everquote disclosed that it had over 11+ million average monthly consumer visits to its website www.everquote.com. However, independent data from leading online analytics provider www.similarweb.com (“SimilarWeb”) showed that www.everquote.com only had 4 million visits in September 2019, ~64% less than the reported 11+ million monthly consumer visits Everquote told investors in its 3Q’19 10-Q! SimilarWeb showed website traffic to www.everquote.com was down 71% from January to September 2019 and was down 37% yr/yr in 3Q’19, its lowest web traffic levels since November 2016.

SimilarWeb website analytics data for the past 6 months suggests that the average consumer stayed on www.everquote.com for less than 90 seconds and did not visit 50% of the pages necessary to complete a 40+ field full-form quote request, casting further doubt on the credibility of Everquote’s reported quote request growth in 2019.

We believe SimilarWeb’s website traffic metric data is credible. Everquote’s own filings cited SimilarWeb as a credible source to support its claim as the “largest online marketplace for insurance shopping in the US”. SimilarWeb’s data was corroborated by two additional independent leading analytics providers (Alexa, the website analysis platform provided by Amazon, and Sitechecker) which also showed that Everquote generated significantly less web traffic and experienced weaker user analytics than suggested to investors in its promotional material and SEC filings.

We ask, how did Everquote’s reported 3Q’19 quote requests grow 81% yr/yr and 22% qtr/qtr if web traffic to www.everquote.com declined 71% from January to September 2019 and was down 37% yr/yr in 3Q’19?!?

We attempted a comprehensive review of possibilities how Everquote might have grown quote requests with web traffic to www.everquote.com in decline. These alternatives include an increased number of times a quote request was sold, increased web traffic conversion rate to completed full-form quote requests on www.everquote.com, increased purchase and resale activity of third party quote request leads, increased offline quote requests (calls, TV, radio), or that we failed to account for web traffic to Everquote’s other associated websites. Comments from Everquote management and data analytics from SimilarWeb suggest that Everquote’s reported 2019 revenue and quote request growth were not driven by any one of these alternatives and that web traffic to www.everquote.com remained the dominant driver of quote requests in 2019.

Insiders capitalized on Everquote’s increased stock price. Since July 2019, Everquote insiders cashed in and sold US$ 39 million worth of Everquote stock. In addition to salaries and stock bonuses, Everquote paid US$ 10+ million in the last 18 months to Everquote insider’s privately-held companies for “providing website traffic referrals.” Oddly, most of these privately-held insider marketing company websites displayed negligible website traffic which begs the question of whether the US$ 10+ million was a fair price for related party rendered services or whether the US$ 10+ million was just another way for insiders to benefit at the expense of Everquote’s minority shareholders.

To us, the substantially lower actual web traffic to www.everquote.com suggests Everquote inflated its 2019 reported quote request growth to investors. We would not be surprised if time reveals that Everquote either (a) used a lower profit margin type of revenue and purchased more third party quote request from its verified partner network than claimed, (b) resold each quote request more times than claimed, (c) overstated web traffic and quote requests which suggests overstated unaudited revenues and profits, or (d) other unknowns.

Without further information in the public domain, it is unclear to us where the truth ends and where the lies start from Everquote management about how it was able to achieve such incredible growth in quote requests and revenues in 2019 while web traffic declined significantly to its dominant revenue driver, www.everquote.com.

We are short Everquote and expect its stock to return to its pre-2019 price levels of ~US$ 5/share, a decline of ~75%+ from current prices.