ZipRecruiter Thriving in a Tight Labor Market

(Alex Millauer)
(Alex Millauer)
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ZipRecruiter went public via a direct listing in late May 2021. Shares opened at $20 per share and the price has increased to over $25 per share as the economy roars back from the pandemic.

Note: As this post was published, ZipRecruiter announced that it is looking to sell $500 million of junk bonds, tapping the high-yield market. According to Moody’s some of the proceeds are likely to finance acquisitions.


Company Overview

  • ZipRecruiter, Inc. (ZIP) is an online employment marketplace, providing technology-enabled services to connect job seekers and employers of all sizes.
    • The company is focused on reducing the time associated with making a new hire.
    • Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employees.
    • Jobs posted on ZipRecruiter are distributed to over 1,000 sites managed by its job distribution partners (job boards, newspaper classifieds, search engines, social networks, talent communities, and resume services).
  • The company was founded in 2010. Over 2.8 million businesses and 110 million job seekers have used ZipRecruiter.
  • According to the company’s S-1, online recruitment is $13 billion opportunity.
    • The online segment of the U.S. recruiting market is expected to growth at a 14% CAGR (from 2016 to 2025).
  • Substantially all of ZipRecruiter’s revenue is from fees paid by employers to post jobs and access other marketplace features.
    • The company offers flat rate pricing or performance-based pricing (like cost-per-click) depending on an employers needs.
    • The marketplace is free to use for job seekers.

For Employers


For Job Seekers


Q3 Earnings Highlights

Financials

  • Revenue | $212.7 million, up 107% YoY
    • Quarterly Paid Employers | 169,500, up 89% YoY
    • Revenue per Paid Employer | $1,254, up 10% YoY
    • KR: The pandemic materially impacted the business in Q3 2020, so the year-over-year comparisons have a base effect.
  • Gross profit | $190.4 million (89.5% margin)
  • Adjusted EBITDA | $42.5 million (20% margin)
  • GAAP Net Income | $22.0 million (10% margin)
  • Operating Expenses
    • Total operating expenses in Q3 | $172.4 million, up 158% YoY largely due ot a substantial increase in sales and marketing expenses.
    • Sales & Marketing | $112.2 million (53% of revenue)
    • Note: In Q2, ZIP incurred $31.9 million non-recurring direct listing costs and $41.7 million in stock-based comp for a large number of historical RSUs that vested in time for the direct listing.

Growth + Risks

Growth Strategy

  1. Increase the number of employers in the ZipRecruiter marketplace.
    • Dramatic increase in hiring activity started in Q2 2021 and momentum sustained in Q3 2021 with an all-time high number of Paid Employers.
    • Demand for workers still exceeeds supply.
    • ZipRecruiter increased sales and marketing headcount by nearly 30% over the last two quarters.
  2. Increase the number of job seekers in the ZipRecruiter marketplace.
    • Lower job seeking activity than pre-pandemic.
    • Using an AI-powered bot to help candidates throughout the hiring process.
  3. Make the matching technology smarter over time.
    • In the most recent quarter, ZipRecruiter enhanced a new experience to show job seekers why they are receiving a job recommendation.

Risks

  • Competition
    • There are many other well-established online job sites like CareerBuilder, Craiglist, Glassdoor, Indeeed, LinkedIn, and Monster.
    • Price competition for job marketplaces is likely to remain high.
  • Economic conditions
    • The business is affected by the pandemic and its effects (new variants, government guidelines, etc.).
    • Results are heavily dependent on changes in the job market.

Management Commentary

Ian Siegel, Co-Founder + CEO + Chairman

  • On job openings
    • “There are about 50% more job openings now than there were before the pandemic. However, millions of job seekers still have not come back to work.”
    • “We’ve seen record high numbers of workers who voluntarily quitting their jobs each month, finding new workers is critical for businesses to fill orders on time, expand production and grow.”
  • On increasing revenue per paid employer (last 2 quarters)
    • “It’s very much like an auction-based marketplace where you can pay more to get more, and there’s a variety of upsells that employers can opt into. And in this intensely competitive environment, certainly, there was a lot of self-selection and willingness to pay amongst employers who are willing to spend up because they were getting results and they wanted more results.”

David Travers, CFO

  • On heading back to a normalized environment
    • “We do see signs we’re headed back toward a more normalized environment. And embedded in our guidance is the assumption that next year, we will be back in some sort of new normal that looks more like the pre-COVID period.”

Guidance

  • The Q4 outlook reflects an expectation for a seasonal decline.
  • Full-year revenue guidance is adjusted up to a mid-point of $727 million.
  • The new guidance reflects the belief in a gradual return to a more traditional macroeconomic pattern by the end of the year.
  • There are almost 50% more job openings now than there were before the pandemic.
    • Remote work options open up opportunities for job seekers across the country.
    • A record-high number of workers are voluntarily quitting their jobs.

Valuation + Analysis

  • At $25.15 per share, ZIP is valued ~$2.7 billion in enterprise value.
  • ZIP expects to generate $727 million in revenue for the fiscal year with 13-14% adjusted EBITDA margins.
  • Analysts project revenue growth to slow in 2022 as the company laps strong post-Covid numbers with growth in the mid-teens.
    • Analysts project adjusted EBITDA margin staying relatively flat in the new year.
  • Using the analyst projections, ZIP is trading ~23x forward adjusted EBITDA.

KR: ZipRecruiter went public at a perfect time to capture the excitement behind a job market where the number of jobs outpaces the supply of workers. The snapback from the pandemic has created hypergrowth quarters for ZIP. Management believes there will be some normalization in 2022. In the short- to medium-term, the success of the company will be tied closely to the dynamics of the U.S. job market.

Long-term, ZipRecruiter has the opportunity to expand to other geographies, but it likely won’t rush in that expansion. According to Ian Siegel (co-founder + CEO) at the time of the direct listing, he said, “We intend to stay profitable. And we have more cash in the bank right now than we’ve ever raised in primary capital over the company’s entire history.” ZipRecruiter has leaned into the current market conditions as an opportunity to increase headcount in sales and marketing to capture more market share in the U.S.

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