ZipRecruiter(ZIP) SaaS stock analysis
We dive into a SaaS Recruiting Marketplace leader with a platform with network effects and a strong brand among employers.
Disclaimer: The information provided is not financial, investment, tax or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement or offer to buy or sell any securities or any other financial instruments. For more information read the disclaimer.
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Industry Overview
More than 20% of working Americans, or over 40 million individuals, change jobs every year. Additionally, more than half of those currently working employees are either actively searching for new jobs or passively exploring new career opportunities.
Employees are changing jobs faster. The median tenure of Millennials at a single organization is now only 2.8 years, down from a median of 10 years for the Baby Boomer generation of employees.
The online segment of the recruiting market in the U.S. was only 6% of the total U.S. recruiting and staffing agency market in 2020 but is expected to grow by 33% over the next four years.
Companies have been searching for candidates on the internet for decades, but unlike the vast majority of other internet-enabled services, such as shopping, entertainment, or booking travel, the task of finding the right candidate remains complicated. Employers face a series of challenges that make the process of selecting the best candidate frustrating and inefficient.
Access to all job seekers.
Surfacing highly qualified applicants.
Quickly engaging potential Great Match candidates.
Searching for a job is hard and time-consuming. Technology designed for job seekers can uncover more great opportunities with less effort and rejection.
Access to all jobs - There is no single place to find all jobs.
Surfacing those jobs that could be a Great Match - Amidst the millions of jobs that are searchable, finding those that fit best is cumbersome.
Providing feedback on where a job application stands - Most job seekers who apply for a job never hear anything back from the employer.
This has led to a situation where the hiring marketplace needs a great technology company at its heart.
Mission
To actively connect people to their next great opportunity.
I love this mission statement as it’s very simple and gives a guide as to what exactly ZipRecruiter stands for, Making it easy for job seekers to get jobs.
People and Culture
ZipRecruiter had 772 individuals across the United States, primarily in California and Arizona and internationally, 68 employees in the United Kingdom, Canada, and Israel. ZipRecruiter views the team at ZipRecruiter as their greatest asset. ZipRecruiter’s culture revolves around:
Utilizing the power of the ZipRecruiter marketplace to connect to their next great employees.
ZipRecruiter fosters a professional environment that empowers people to take risks and be their best selves. Their employees are encouraged to champion great ideas, embrace innovative approaches, and use data to advocate for their point of view.
ZipRecruiter embraces diversity & inclusion.
ZipRecruiter rewards high performance.
ZipRecruiter is committed to their employee’s career development.
Business Overview
ZipRecruiter is a two-sided marketplace for work. ZipRecruiter was created to simplify the job market for both job seekers and employers. Unlike traditional online job sites, ZipRecruiter works like a matchmaker curating job opportunities for job seekers, and candidates for employers.
Creating Value for Job Seekers - For job seekers across all industries and levels of seniority, ZipRecruiter operates like a dedicated recruiter. That means presenting strong-fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their applications. This makes job seekers feel supported while searching for work.
Creating Value for Employers - For employers, ZipRecruiter focuses on building technology to rapidly deliver quality candidates to companies of all sizes and across all industries. ZipRecruiter’s algorithms alert the best job seekers in their marketplace when a job goes live. Employers posting jobs often get their first quality candidate before they can get up from their chair. 80% of employers posting in ZipRecruiter’s marketplace receive a quality candidate within the first 24 hours.
Unique Data and Artificial Intelligence Provide Better Outcomes for Employers and Job Seekers - With a relevant data pipeline created from billions of interactions between job seekers and employers, ZipRecruiter is uniquely positioned to harness that data to fuel the advanced artificial intelligence behind their matching, recommendation, and marketplace optimization capabilities. Through their deep learning-based natural language processing, they understand job seekers’ and employers’ nuanced needs. ZipRecruiter models and analyzes clicks, applications, hiring signals, and numerous other interactions to improve outcomes for all participants in their marketplace.
Accelerating Network Effects - Increasing the number of jobs in their marketplace attracts more job seekers. A greater number of job seekers attracts more employers who in turn post more job opportunities in ZipRecruiter’s marketplace. These natural, self-perpetuating network effects increase their data and thereby accelerate the rate at which their matching technology gets smarter over time.
ZipRecruiter Platform
ZipRecruiter for Employers
ZipRecruiter is focused on meaningfully reducing the time associated with making a new hire. Their technology delivers high-quality matches immediately after a job goes live and provides tools to streamline the vetting process.
Quality Candidates Fast
Job distribution -. Jobs posted on ZipRecruiter are distributed to well over 1,000 sites managed by ZipRecruiter’s Job Distribution Partners. This includes job boards, newspaper classifieds, search engines, social networks, talent communities, and resume services. The diversity and depth of ZipRecruiter’s partner network enable employers to reach an especially broad job seeker audience.
Instant alerts to qualified potential candidates - When employers post a job, ZipRecruiter’s matching technology immediately identifies and sends an alert to the best job seekers in their marketplace.
Direct recruitment messages from the employer - Immediately after a job is posted, ZipRecruiter’s matching technology presents the employer with a list of the best potential candidates in the market. The employer can then, with a single click, personally invite the most qualified potential candidates to apply. These recruitment messages directly from the employer drive the highest quality candidates ever delivered through ZipRecruiter.
Access to an expansive database of job seekers - ZipRecruiter provides employers with access to 14 million monthly Active Job Seekers with broad skill sets and a range of experiences.
Efficient Candidate Vetting
All the applicants in one place - For employers who do not already have an established process to manage hiring, job applicants from all these different sites are captured inside the ZipRecruiter ATS. ATS centralizes and simplifies the decision-making process. Inside this system, hiring teams can review, rate, and ultimately decide which candidate to hire.
Great Match filtering - ZipRecruiter technology filters for applicants identified as a Great Match to help hiring managers avoid missing high-quality candidates.
In-demand candidate alerts - ZipRecruiter applies an “Act Fast!” label to notify employers when their candidates have received interest from other employers, encouraging them to reach out quickly. In a tight, competitive market for top-quality talent, these notifications prompt hiring managers to move quickly to avoid losing out on a potentially great hire.
Flexible Pricing
Flexible pricing based on customer needs - ZipRecruiter provides a variety of pricing plans to best suit an employer’s specific needs, including flat-rate pricing on terms ranging from a day to a year, as well as performance-based pricing for employers that run sophisticated recruitment marketing campaigns.
ZipRecruiter for Job Seekers
Process Efficiency
Search millions of jobs in one place - ZipRecruiter provides job seekers with access to millions of jobs from all over the internet. Job seekers can filter this vast array of opportunities by using numerous criteria to find the handful of best potential matches.
Simple, one-click applications - On ZipRecruiter, job seekers create a profile and can then apply for opportunities with a single click. ZipRecruiter’s one-click application works across both their marketplace and their Job Distribution Partners to remove barriers between a job seeker and their next opportunity. This is particularly useful for job seekers on mobile devices where a resume can’t be easily created or uploaded.
Job application tracking - Job seekers apply to numerous opportunities throughout the course of their search. ZipRecruiter’s simple, user-friendly dashboard aggregates their application history so job seekers can track opportunities.
Personalized Recruiter Assistance
Pitched to employers as a potential candidate - After a new job is posted, ZipRecruiter matching technology immediately presents strong-fit in-market job seekers to the employer for consideration. Employers can then directly invite the job seekers they like best to apply. This allows candidates to passively gain interest from employers without needing to directly apply and results in increased attention from prospective employers.
“Phil,” your personal (automated) recruiter - ZipRecruiter’s automated recruiter “Phil” curates and presents opportunities to job seekers for which they are a Great Match. Phil engages in positive, personalized dialogue with candidates, inviting them to apply for new open positions.
Job alerts - ZipRecruiter delivers a digest of relevant new opportunities from across the web on a daily basis, enabling job seekers to monitor the full breadth of their marketplace offerings.
ZipRecruiter Business Model
ZipRecruiter generates revenue from subscription fees paid by employers to post jobs and access other features in their marketplace. They offer employers flat rate pricing on terms ranging from a day to a year, or performance-based pricing, such as cost-per-click, to align with the employer’s hiring needs.
Subscription Revenue
Subscription revenue consists of time-based job posting plans, upsells that complement or expand visibility and prominence to job posting plans, and resume database plans. Plans are priced at a flat rate based on plan size and depending on the length of the term. Customer contracts are typically subject to renewal at the end of the subscription term and are nonrefundable.
Time-based job posting plans: Job posting plans provide customers access to cloud-based software services, where they may create job postings that are posted to ZipRecruiter’s marketplace in addition to numerous other job sites or partner networks with job seeker communities. Customers also access ZipRecruiter to review job applications and manage job postings. ZipRecruiter recognizes revenue from job posting plans ratably over the term of the agreement beginning on the date the subscription service is made available to the customer.
Upsell services: Additional features to complement or expand visibility to job posting plans may be purchased as an upsell service. For these services, ZipRecruiter bills the customers in advance and recognizes revenue ratably over the term of the agreement beginning on the date the upsell services are made available to the customer, which typically ranges from one to twelve months.
Resume database plans: Access to ZipRecruiter’s resume database is purchased on a subscription basis and allows a customer to search for and view resumes. Resume database plans are priced based on how many resumes the customer would like to view in a month and maybe purchased independent of, or in addition to, a job posting plan. Resume database plans are billed in advance of the subscription period, which typically ranges from one to twelve months. Revenue is recognized ratably over the subscription period.
Performance-based Revenue
Performance-based revenue consists of customers who pay on a per-click by a job applicant or per job application basis for the job postings customers wish to distribute through ZipRecruiter. Customers pay an amount per click or per application that is usually capped at a contractual maximum per recruitment campaign, with campaigns typically lasting from one to three months. Customers on this pricing model do not have access to ZipRecruiter’s applicant tracking software for subscription customers though they may purchase resume database subscription plans separately. Customers that use a performance-based revenue plan are typically companies with consistent hiring needs and sophisticated recruitment campaigns where they manage incoming applications and job postings on their own applicant tracking systems.
ZipRecruiter is free to use for job seekers
Job seekers come to ZipRecruiter in search of their next opportunity. After establishing a profile, job seekers are able to apply for jobs with a single click. Their automated recruiter curates jobs and proactively sends alerts for new opportunities where they are a Great Match. As their matching technology learns more about job seekers’ preferences and attributes, their technology offers increasingly higher quality matches.
Quarterly Paid Employers
ZipRecruiter quantifies the revenue-generating customer base as the number of Paid Employers in their marketplace. The Paid Employer metric includes all actively recruiting employers (or entities acting on behalf of employers), on a paying subscription plan or performance marketing campaign for at least one day in a given calendar quarter. The following table shows the number of Quarterly Paid Employers in their marketplace for the first quarter of 2018 through the first quarter of 2021:
Revenue per Paid Employer
ZipRecruiter defines Revenue per Paid Employer as total company revenue in a given period divided by Quarterly Paid Employers in the same period. The following table shows the Revenue per Paid Employer in their marketplace for the first quarter of 2018 through the first quarter of 2021:
ZipRecruiter Growth Strategies
ZipRecruiter’s core growth strategy is to use technology to consistently grow their marketplace in three key areas: more jobs, more job seekers, and better matching. These three growth vectors will both directly grow their business and also strengthen the network effects that serve as a competitive advantage.
Increasing the number of employers in their marketplace - There are over 7.5 million employers in the United States alone, of which only approximately 114,000 are active Paid Employers in ZipRecruiter’s marketplace.
Increasing the number of job seekers in their marketplace - For job seekers across all industries and levels of seniority, ZipRecruiter operates like a dedicated recruiter. That means presenting strong-fit job opportunities, proactively pitching potential candidates to employers, and providing job seekers with updates on the status of their applications. This makes job seekers feel supported while searching for work.“Insights,” a new feature that proactively shows a job seeker how closely their training and experience match up with an employer’s job. Job seekers will see a match score on job ads—Great Match, Good Match, Fair Match, or Not a Match. This encourages job seekers to apply to jobs where they are more likely to get a positive response, creating a more satisfying job search experience.
Strengthening artificial intelligence-powered technology - ZipRecruiter’s artificial intelligence and matching algorithms continually improve as they ingest incremental data. The signals across their marketplace train their recommendations, increasing utility for both job seekers and employers. ZipRecruiter recently launched a way for employers with urgent hiring needs to attract more job seeker traffic to their jobs by letting job seekers know that they intend to move quickly toward a hiring decision. This allows job seekers with similarly urgent job search goals to prioritize those jobs.
Continuing to optimize performance-based pricing - Employers’ willingness to pay for recruitment varies by company and by each job opening. ZipRecruiter has multiple pricing optimization opportunities that will provide more flexibility to employers of different sizes.
Expanding global footprint - ZipRecruiter is currently available in the US, UK, and Canada and they have the desire to expand more geographically.
Building an enduring brand - ZipRecruiter plans to increase its brand investment to ensure ZipRecruiter further develops as a category-defining, enduring brand for employers and job seekers alike.
Insider Ownership
Zip recruiter has high insider ownership at 44.7%. The management is highly invested in their own business, so we can see that they have a long-term vision and focus.
Competition
Zip recruiter competes in varying degrees with other online job sites including CareerBuilder, Craigslist, Glassdoor, Indeed, LinkedIn, Monster, and hundreds of others in the vast, competitive, and highly fragmented market of hiring.
Competitive Advantage
Powerful network effects - The scale of matching activity in zip recruiter’s marketplace provides them with a unique and growing data set consisting of billions of signals which help drive superior matching. More jobs, more job seekers, and better matching technology over time create more high-velocity hiring activity in ZipRecruiter’s marketplace, fueling a self-perpetuating cycle of network effects.
Brand - Zip recruiter has 82% aided brand awareness among U.S. employers.
A large and unique set of jobs - Zip recruiter had over 90 million job postings available for matching in 2020 which means a job seeker’s search is incomplete unless they access ZipRecruiter’s marketplace.
Engaged job seeker community - Zip recruiter had over 36 million Active Job Seekers engaged in the ZipRecruiter marketplace in 2020.
Designed for simplicity and speed - ZipRecruiter focuses on making its platform faster and simpler for employers and job seekers to use.
Metrics-driven culture - Zip recruiter is a metrics and data-driven company and they are disciplined about setting quantitative operating goals and then finding innovative ways to achieve those goals.
Key SaaS/Financial Metrics
Revenue 2020 - $418M
Revenue Growth - (-2%) for 2020, 39% yoy guidance for 2021
TAM - Online Recruiting $13B
Gross Margin - 87%
Free Cash Flow as part of Total revenues - 21%(2020)
Rule of 40 - 50%+ (39% growth + 21% FCF)
Total customers - 114K+
EV/Revenue 2020 - 5x
EV/Revenue NTM(Assuming 39%growth/Guidance) - 3.53x (Tell me if this looks crazy?)
Final Thoughts
ZipRecruiter is a SaaS Recruiting Marketplace leader with a platform with network effects and a strong brand among employers. They align with their vision and make finding jobs easy for job seekers and save a lot of time and money for employers. ZipRecruiter is a high-growth, profitable business with a large runaway for further growth.
Note: A lot of information in this article is compiled from ZipRecruiter’s website, SEC filings, and recent presentations/conferences.
any thoughts on the quarterly paid employer growth before the pandemic kicked in? looked flat/down LSDs all throughout '19
Brand - Zip recruiter has 82% aided brand awareness among U.S. employers.
There are over 7.5 million employers in the United States alone, of which only approximately 114,000 are active Paid Employers in ZipRecruiter’s marketplace
I see there is odd here right???