Violeta Stoimenova

Thesis

ZipRecruiter (NYSE: ZIP) is a company that provides a software system that helps streamline the recruitment process. This process is a notoriously long and arduous process for candidates and recruiters. This saw recruiters and candidates adopt the ZIP system which allows for a smoother process. The strength of the economic environment is essential for ZIP, as this equates to more job openings and therefore increased use of the software. However, an impending economic downturn could drive the price of ZIP further down, providing an opportunity for the long-term investor.

Business background

ZipRecruiter, Inc. offers digital recruiting services to businesses of all sizes. With reseller plans, integrations with applicant tracking systems, and an email alert system, it dramatically improves accessibility for recruiting. Using its advanced technology, ZipRecruiter is able to compile results from over a hundred different job boards in one place. Additionally, ZipRecruiter uses machine learning algorithms to choose which candidates and jobs to match. Examples of these signals include how often a profile is viewed, how often a candidate is encouraged to submit an application, how long a recruiter spends browsing a profile, etc.

J

Company presentation

ZipRecruiter’s value proposition as a mediator is conditioned by the network effects it generates between the employer and candidate bases it serves. These effects motivate the firm’s choice to expand, in order to capitalize on economies of scale and establish new barriers to entry.

We remain confident in our strategic priorities and focus on the long-term opportunity. With over 4 million workers quitting their jobs every month for the past 13 months. It’s clear that job seekers demand more from their workplace and need the right tools to help them find the right job. Employers, in turn, need the best technology to find the right job seekers in the market. ZipRecruiter helps both sides of the market achieve their goals.

Ian Siegel, CEO

As employment nodes become denser due to the inclusion of marginal businesses, job seekers will benefit from a reduction in the time spent searching for acceptable opportunities. This is because ZipRecruiter actively promotes candidates to employers, job seekers are more likely to find a position that suits them, and as a result, they can find a job faster. When marginal employees are integrated into the network, both businesses and the unemployed benefit. According to data from ZipRecruiter, the first twenty-four hours after a job posting is the most productive for identifying qualified candidates.

you

Company presentation

This means that as node density increases, the rate and quality of opportunities on both sides of the market will increase. In a nutshell, the number of people joining the platform increases with the number of jobs and local businesses placed there. The larger the pool of applicants for vacancies, the greater the number of companies interested in filling those positions. This results in the formation of a positive feedback loop that benefits both employees and companies. As a result, ZipRecruiter’s data pool is growing and improving, which not only makes the platform more efficient in meeting the needs of companies and job seekers, but also accelerates the overall development of the network. .

We see the likelihood that the bulk of job postings and applications will come from LinkedIn, the largest employment website, as the biggest threat to this business model.

Macro environment

The tight labor market and the ripple effects it creates, such as inflation, are two sides of the same coin. Inflation is not a good growth indicator for ZIP, but a tight labor market is a good growth indicator. Indeed, there must be a significant reduction in costs at all levels in order to support the stability of corporate margin levels within the economy. As a result, several companies have instituted hiring freezes in order to fight inflation.

The labor market also remained tight with around one jobless for every two job openings in Q2 2022. However, despite the strength of the quarter as a whole and the talent shortage for currently open job openings, we started to see employers withdraw. back on job offers during the last weeks of June.

Ian Siegel, CEO

When looking at the macro economy in more detail, an important statistic to watch is the number of people working in non-farm employment. According to the following data from Bloomberg, there has been a sharp decline in the number of job openings in both the private and public sectors during the second and third quarters of 2022. As the big shift in monetary policy begins to unfold making itself felt in the data (as finally admitted by the FOMC), I think we are going to see a continuation of the slowdown in hiring. This is something that we believe will continue until 2023.

you

Bloomberg, work of the author

Financial statement of the company

Given the resilient nature of the labor market in 2022 and exuberant shortages evidenced by decades-low unemployment rates, ZIP’s margins have held up exceptionally well. Provide a source of profitability within their bottom line. The disconnect is also attributed to the declining multiple paid, halving in 2022. This multiple discount fell along with the market, but also shows that investors fear that 2023 will be partially bad for unemployment. ZIP has significant operating leverage through its balance sheet, which allows it to be well positioned in the event of a potential downturn in the economy.

you

FactSet, work of the author

While many of the companies below are recruiters or have business segments that can compete with ZIP (Microsoft’s LinkedIn), they are a great indicator for a mixed group of recruiters facing similar economic trends and software that drive these trends.

you

FactSet, work of the author

The company offers two very different pricing models. The most popular is the subscription model where employers are billed monthly or annually, and the second being a performance-based model.

you

Company presentation

As shown below, the growth of the performance-based software model will continue to be the next growth stage for software vendors. This is due to recency bias. Software subscription models were the winners of the last bull run, as companies rarely sought to cut costs given benign inflation and easy borrowing. We are now entering a different regime, and adaptive software companies will continue to see growth and adoption in the next era of economic policy.

J

FactSet, work of the author

Risks

The main exogenous factors that threaten the validity of the premise and, therefore, ZIP, are a prolonged economic recession or a sharp change in the level of industry competition. Although there are internal management and capital allocation considerations that must be taken into account, management has demonstrated its ability to anticipate and prepare for difficult economic circumstances. Additionally, the adoption risks associated with the idea that ZIP could continue to take market share from industry titans like LinkedIn could be troublesome for the thesis.

Final Thoughts

While I believe ZIP has significant long-term development potential, I believe it will be difficult for ZIP to navigate the economy in 2023. The stock’s performance in 2023 may partly depend on whether the hiring slows further. However, I think ZIP will thrive in its niche market in the long term and may eventually get enough traction to be purchased by Microsoft as a LinkedIn inclusion.