Introducing ZipRecruiter ($ZIP)

ZipRecruiter https://www.ziprecruiter.com went public via a direct listing recently under the ticker ZIP. Current market cap around $3 billion. A direct listing is different than an IPO since no additional shares are added (existing shareholders simply sell theirs) hence no dilution takes place. This is usually done when companies don’t need or don’t want to raise additional funds. Put simply, when they have a healthy balance sheet. That is good.

The story

ZipRecruiter is a marketplace/platform that aggregates job posts from the internet that uses AI to match job applicants to job posters. Let’s say you want to find your next great opportunity (as the CEO puts it) and instead of going through every job board available searching and applying you simply go to ZipRecruiter, upload your resume and relevant job posts come directly to your inbox. This is very convenient for people looking for new opportunities.

But it’s also a lot more convenient if you are let’s say an agency. Instead of going to all these boards and posting your hiring requirements/roles you simply go to ZipRecruiter upload your posts and then ZipRecruiter will drive relevant job seekers to you based on their AI models that claim to make for a much more efficient way to land a job (from start to finish) and cut the time in half.

ZipRecruiter makes money in two ways. By having a subscription and performance-based revenue structure that favors the former than the latter makes this a somewhat SaaS model. The subscription revenue accounts for most of the total revenue.

The numbers


**Revenue**                     95 108 112 112 113 87 102 114 125 183 213
**Subscription Revenue as a %** 88% 87% 87% 86% 84% 85% 82% 80% 81% 83% 81%
**Gross Margin**                87% 88% 87% 87% 87% 86% 87% 87% 87% 88% 90% 
**QoQ Growth**                        13% 3% 0% 1% -23% 17% 11% 10% 46% 16% 
**Paid Employers for last 3 Qs**                      114.7K 169.2K 169.5K
**Revenue per Paid Employer for last 3 Qs**           $1,093 $1,081 $1,254
**S&M as a % for last 3 Qs**                                    51% 62% 53%
**Adjusted EBITDA margin for last 5 Qs**                26% 30% 16% -1% 20%

Growth strategies

  1. Increase paid employers by increasing Sales and Marketing (S&M)
  2. Increase job seekers by improving product, their AI-powered bot named Phil, and by integrating with Worthi by Citi which allows job seekers identify skills needed for their next role and hence try to improve on those.
  3. Improve their matching technology over time and enhance their users’ experience.

Thoughts

$730 million for FY21 guidance (vs $650 prior guidance) with recurring revenues and a 90% gross profit margin selling for $3.3 billion while being at the right place at the right time with an active CEO with skin in the game. Plenty to like.

My first concern is that they spend a great deal on S&M even though it slowly goes down over the Qs. When they had issues with covid and stepped back on S&M they became very profitable. Now they want to step it up to push growth. What happens after that? Is the platform sticky enough to hold all these added paid employers?

Also, what I’m not so sure about is that since there are plenty of places like LinkedIn, Indeed and Monster that people already use for this purpose, how fast can they keep taking market share and for how long. My take is that at least on the near term they’ll get plenty of tailwinds. Everyone is hiring and everyone is looking for a better experience while getting a better job.

Useful links:

IR: https://www.ziprecruiter-investors.com
S-1: https://www.sec.gov/Archives/edgar/data/1617553/000162828021…
Q3 letter: https://s28.q4cdn.com/472851079/files/doc_financials/2021/q3…
TMF podcast: https://www.fool.com/investing/2021/09/14/what-investors-nee…

PS: if you want to put a face to a name feel free to say hi https://twitter.com/Pavlos__21

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