BOSS Direct Recruitment: Crazy World Cup boost stock price, is it a smooth road after the mud?

Hi everyone, I'm Dolphin Analyst!

After the release of positive signals for epidemic prevention and adjustment in various places recently, the pro-cyclical sector has ushered in a decisive counter-attack. The epidemic-damaged sectors related to To C consumption, from offline to online, from necessary to optional, have experienced an average increase of nearly 20% in less than a week.

I think that in the later stage of the recovery logic deduction, companies of To B-type are also worth our attention. During the epidemic period, small and medium-sized enterprises suffered heavy blows, many of which experienced failed orders, layoffs, and even complete closures. However, on the other hand, when the economy hits the bottom and bounces back, they will also "rise and fall flexibly" due to their high flexibility and choose to expand quickly after restoring confidence in economic development.

Business recovery or expansion means rebuilding the workforce, and the short-term personnel gap will drive small and medium-sized enterprises to turn to labor service companies or recruitment platforms with a large demand. As the current epidemic situation is still severe and the New Year's Spring Festival is approaching, the efficiency of labor intermediaries may be affected, and online recruitment may gain accelerated penetration once again.

At the same time, we have also noticed that the epidemic has just been released, and the end-of-year corporate accounts are imminent, and many companies may still choose to wait and see. Even if there are plans for expansion, implementation will also be postponed until next year. However, this does not prevent companies from using lower costs to select potential candidates and conduct preliminary online communication, so the advantage of the "direct chat" function in the "pre-recruitment" is highlighted.

The increase in the recruitment demand of small and medium-sized enterprises + accelerated online penetration + direct chat, these three logics all point to $BOSS Zhipin.US. Although the online recruitment track with high growth and high gross profit has attracted some new players, through reviewing the development situation of BOSS Zhipin under the "double pressure" of regulation and macro in the past year, I believe that except for its crushing advantage over its peers in specific industries (such as the Internet) and company types (small and medium-sized enterprises), its algorithmic capability is still expected to replicate experience and generate advantages in other segmented fields, only a matter of the length of time and the cost-effectiveness of user migration.

At the third-quarter earnings conference call, the company gave a medium-term outlook for the next three years. According to the current user structure and conversion situation, the management gave us a development blueprint for gradually "ruling" the online recruitment market:

The registration penetration rate among all companies is close to 25%, and among the core enterprise users who have realized online recruitment, the penetration rate is close to 75%.

Under such assumptions, I believe that the neutral expectation of a $10 billion BOSS Zhipin is worth looking forward to, and if more economic stimulus policies are introduced in the future, which significantly restore corporate confidence, it may have further upward space.

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Deeply anchoring the macro recruitment market: No rice can be cooked without a clever woman. Although in general, especially for large and medium-sized enterprises, a relatively fixed budget will be set aside each year for recruitment, as well as to fill job vacancies caused by employee turnover. However, for small and medium-sized enterprises with a larger audience like BOSS Zhipin, recruitment plans are difficult to avoid the overall macroeconomic fluctuations due to reasons such as funding and market share.

So what impact has the epidemic had on the labor market in the past three years?

1. The "false balance" of labor supply and demand-Retreat of enterprises due to cooling

In "BOSS Zhipin: The Ultimate "BOSS" in the Recruitment Industry?", we explained a major logic behind the future high growth of the recruitment service market: since 2010, the rapid development of the economy (especially the Internet economy) and the annual decline of the labor force population have made the "demand" for recruitment by companies greater than the "supply" of job seekers. The higher the job-to-seeker ratio (the number of demand/number of job seekers), the higher the recruitment cost of the company. In order to find suitable candidates, companies need to rely more on recruitment platforms.

At the beginning of the epidemic in 2020, the impact on physical enterprises was relatively optimistic. Coupled with the development of online channels such as live e-commerce, business owners were very positive about the consumption recovery expectation after the epidemic, and their expansion intentions were strong, thereby leading to a further increase in the job-to-seeker ratio in 2020.

Then in 2021, if the slowdown in the job-to-seeker ratio increase is a normal rebound, the sharp drop in second-quarter data towards 2022 has already shown that there has been a significant change in the labor market behind it.

The decline in the job-to-seeker ratio may be due to an increase in job seekers on the one hand, and a decline in recruitment demand from enterprises on the other. If we combine the job-to-seeker ratio with the unemployment rate and the number of newly employed, the answer clearly points to the freezing of recruitment demand from the enterprise side.

Generally, before structural frictional unemployment is significantly eased, the job-to-seeker ratio and unemployment rate tend to move synchronously (such as before 2020), but in the second quarters of 2020 and 2022, during the two periods when the epidemic was most severe, there was a situation of opposite trends.
Looking at the number of newly employed during the same period, the number of newly employed in these two periods was lower than the normal level before the epidemic (2019).

It has been shown that the easing of the labor supply and demand in the second quarter of this year (the decline in the ratio of job vacancies to job seekers) is deceptive, and is actually due to a situation that no party in the market wants to see: companies are pessimistic about the economic outlook and are proactively contracting.

It is worth noting that, contrary to this situation, in the year 2021, where the epidemic has not yet ended and regions across the country have repeatedly experienced lockdowns, companies have still been expanding. Therefore, the second quarter's collapse in the labor market in first-tier cities has, to some extent, shattered the confidence of business owners in short-term economic development.

The ratio of job vacancies to job seekers in the labor market is the most direct indicator of the income of recruiting platforms. The sudden three-year epidemic prevention and network security review have disrupted BOSS Zhipin's high-growth trend. Although its revenue decline was somewhat eased in the third quarter, it still did not show significant signs of recovery or rebound, at least in the third quarter, and companies' recruitment intentions were extremely low.

The Ministry of Human Resources and Social Security has not yet released the ratio of job vacancies to job seekers in the third quarter. But from the change in the growth of newly employed people (-4.4%) and the just-concluded quarterly financial report, it is highly likely that this ratio is still at a low level close to that of the past three years. If it weren't for the unexpected early timing of the Reopen point, it would be difficult for the logic of recruitment intermediaries to continue to grow in the short term.

But it is also precisely because of the major adjustment in epidemic prevention measures that stirred up the confidence of business owners, which has provided recruitment intermediary platforms with a new turning point for a reversal of their predicament.

BOSS Zhipin is Unbeatable

Compared to its peers, who were hit hard by macro policies, BOSS Zhipin is also facing the impact of regulatory crackdowns and the Internet's wave of layoffs. On the flip side of the coin, however, this also means that the turning point for BOSS Zhipin's reversal of its current situation is even stronger. The network security review in July froze new user registrations for a year before finally being restored.

1. Job seekers: BOSS Zhipin is still the most popular recruiting platform

During this year of registration suspension, peers such as Zhaopin and 51Job frantically acquired customers, and BOSS Zhipin could only look on with regret as its traffic declined. However, despite the seal, BOSS Zhipin still managed to maintain its "loyal" existing users through its own product advantages and money-marketing (although marketing expenses in the second and third quarters were lower than in the fourth quarter, they were still higher than in the fourth quarter), while also activating some long silent old users. Overall, MAU did not experience significant losses, and user stickiness DAU/MAU and monthly average user duration per user both remained industry-leading.

However, after the registration was resumed in July this year, BOSS Zhipin's traffic expansion began to fight back. In the third quarter, while its competitors were down compared to the previous quarter, BOSS Zhipin added 6 million active users. After November, with the kickoff of the World Cup with naming sponsorship, BOSS Zhipin's MAU is expected to reach even higher levels.

2. Business Owners: Short-term Observation, it's Expected to Accelerate Confidence Restoration after the Clear Direction of the Epidemic Opening

As mentioned earlier, the reason behind the decline in employer demand ratio in the second quarter is the overall decline in recruitment willingness among companies. Although there were two "benefits" of Shanghai's unsealing and BOSS Zhipin's registration unthawing in the third quarter, recruitment needs of companies have been showing a trend of increasing weakness since July until the major adjustment of epidemic prevention measures in November.

Although notifications on epidemic policy adjustments have been released recently, due to almost being the end of the year and with the Spring Festival approaching, the recruitment plan of medium and large enterprises is difficult to change in a short period of time. Micro-enterprises have high recruitment flexibility. Under the current narrow gap between supply and demand, they will also prefer to act after the Spring Festival. Therefore, in the short term, the benefits of epidemic prevention measures are unlikely to be reflected quickly on the performance of BOSS Zhipin, but on the other hand, the rebound elasticity of recruitment demand after the Spring Festival will be considerable.

3. Competition among Peers: Where is the advantage of BOSS Zhipin?

However, a problem arises. The traffic index performance during the epidemic period has proven BOSS Zhipin’s advantage on the job seeker’s side. So why will the employers choose BOSS Zhipin first when recruitment rebounds after the Spring Festival?

Since its listing, there has been a constant debate about the competitive advantages of BOSS Zhipin. In the article, "BOSS Zhipin: The Ultimate Boss in the Recruitment Industry?" Dolphin Analyst summarized the core three points - "Mobile + Direct Chat + Algorithm". But at the same time, we also mentioned in the article that BOSS Zhipin's rapid progress was mostly brought by the contrast with its peers. Especially in some special areas (such as the Internet) that BOSS Zhipin initially cut into and deeply cultivated, although its peers have been struggling to catch up and imitate, they still cannot replace BOSS Zhipin.

Ultimately, online recruitment is still a business of human resources matching. In the case of labor market supply less than demand and structural imbalance, it is the business side that needs recruitment intermediary services more. Whether the company has enough willingness to pay mainly depends on its recruitment needs (quantity and time).

The ultimate goal of the enterprise is to find the right candidate in the shortest possible time. However, traditional recruitment platforms originally only provide two services of selling resumes and selling advertising space, focusing on information value and layout value. After the business pays, they get brand advertising space and a bunch of resume information, but the matching degree of the resume still needs to be questioned, and the recruiting party needs to spend a lot of time and cost to do further screening.

BOSS Zhipin, on the other hand, sets the payment point with the goal of helping companies match suitable candidates as much as possible, such as pushing active job seekers who meet their requirements and providing direct chat functions to help companies reduce interview costs.

Of the three core advantages, "algorithm recommendation" requires long-term investment and accumulation of technical capabilities. Since its inception, BOSS Zhipin has invested more in research and development than its peers, and the technology gap here is difficult to make up for in the short term.

However, "mobile app" and "direct chat" are both functions that can be imitated quickly. Competitor companies such as Zhaopin and 51Job have also launched direct chat functions as early as 2018. But the mismatch between the function and customer needs and use scenarios is the reason why BOSS Zhipin's chat function is still popular after the industry imitates it.

In the current focus distribution of the head enterprises in BOSS Zhipin:

Internet companies are the highest proportion of customers and the most likely to accept BOSS Zhipin's model. However, in this wave of Internet layoffs, BOSS Zhipin is also affected by more ramifications.
The second is the manufacturing industry highly related to the blue-collar market, which also has a high proportion. However, from the job distribution point of view, there are more gray collar positions such as finance, human resources, and administration, and fewer pure blue-collar jobs. However, pure blue-collar recruitment is not suitable for direct chat mode. Pure blue-collar workers are often dozens of people recruited by factories under large enterprises. For enterprise HR, the chat cost is very high. The general practice is to find local labor intermediaries to act on behalf of them. Labor intermediaries will seek local classified information networks or directly complete offline recruitment through offline channels.

It is worth mentioning that pure blue-collar recruitment is 58’s advantage. Currently, Kuaishou’s launch of “Kuaipin” (originally called “Fast Recruitment”) mainly involves pure blue-collar jobs such as ordinary workers, so compared to the current customer base of BOSS Zhipin, Kuaishou’s competitive aggression against 58 is stronger. Boss Direct Recruitment and the Future of Online Recruitment

Background:

Boss Direct Recruitment was founded in 2014 as a provider of online recruitment services in China. The company has since grown significantly and is now one of the leading players in this fast-growing industry. The company went public in 2019, raising $500 million in its IPO.

Market Overview:

The online recruitment market in China is still in a relatively early stage of development, but is expected to grow rapidly in the coming years. According to CIC, the online recruitment market for blue-collar workers is expected to reach RMB 22.8 billion in 2020, with a CAGR of over 40% for the next five years. Meanwhile, the market for white-collar workers is also expected to continue growing, with an estimated value of over RMB 40 billion in 2020.

Boss Direct Recruitment's Market Position:

Boss Direct Recruitment is well-positioned to capitalize on this growth, with a focus on three key areas: white-collar recruitment, blue-collar recruitment, and small to medium-sized local service companies. With a user base of over 140 million, the company is one of the largest online recruitment platforms in China.

1) White-collar recruitment:

Boss Direct Recruitment has traditionally focused on serving white-collar workers, which is still a major part of the company's business today. The platform offers a range of services tailored to the needs of these users, including job matching, resume building, and career development tools.

2) Blue-collar recruitment:

In recent years, Boss Direct Recruitment has also been expanding its presence in the blue-collar recruitment market. The company launched the "Sea Snail Plan" in 2019, which focuses on recruiting workers for factory jobs. According to research, blue-collar workers now account for nearly 15% of the company's user base and are an important target for future growth.

3) Local service companies:

Boss Direct Recruitment also serves small to medium-sized local service companies, which typically have limited recruitment capabilities. These companies are also more sensitive to recruitment costs, making them a key target for Boss Direct Recruitment's "props card" product.

Comparison with competitors:

Compared to other online recruitment platforms in China, Boss Direct Recruitment is focused on serving small to medium-sized companies and individual job seekers. This sets the company apart from larger competitors like Liepin, which primarily serve large corporations and charge higher fees. However, Boss Direct Recruitment's lower pricing strategy has helped the company attract a large number of users, particularly white-collar and blue-collar workers.

Outlook:

While there are some concerns about the impact of COVID-19 and rising marketing costs on the company's profitability, Boss Direct Recruitment is well-positioned to continue growing in the coming years. The company's focus on serving a diverse range of users and its lower pricing strategy should help it maintain a competitive edge in the online recruitment market. However, the management also mentioned that due to the short 6-week interval between this year's Spring Festival and the World Cup, the publicity effect of the World Cup is expected to continue into the Spring Festival period. Therefore, despite the epidemic prevention adjustment exceeding expectations, the Spring Festival is still a period that usually requires a large amount of investment. But because of the World Cup effect, BOSS Zhipin may not need to increase its marketing budget significantly during the Spring Festival period, and with some companies' optimistic expectations, the willingness to sign orders in early next year may also increase significantly, so the situation where the loss in the first quarter of previous years worsens further compared to this year may not appear next year.

But these are all short-term foreseeable performance, the Dolphin Analyst believes that the reasonable pricing of BOSS Zhipin should pay more attention to the long-term growth space. In the Q3 earnings conference call, the management gave a midterm guidance: the target for registered users will increase by 100 million in the next three years, and the scale of new customers is expected to be around 40 million next year (before the adjustment of epidemic prevention policies).

If we assume that the proportion of enterprise users to job seekers among the current stock of registered users is 1:6 (data from 2021), and the steady-state activity rate is nearly 25% (data from 2021) and the conversion rate is around 20% (average level from 2019 to 2021), then:

(1) It is estimated that there will be 24 million MAU increases in the next three years (reaching 54 million), and 2.8 million new paid enterprise accounts (reaching 6.8 million). In the short term, correspondingly, there will be 10 million MAU increase and 1.1 million new paid enterprise users (reaching 5 million).

(2) Under the assumption that the annualized payment level of a single enterprise user will grow at a cautious estimated CAGR of 5% in the next three years, the annualized payment amount is expected to reach 1,360 yuan by 2025.

(3) Since BOSS Zhipin's cost mainly includes server bandwidth, equipment depreciation, and payment channel fees, and after the increase in server equipment investment in the past year, it is currently able to maintain short- to medium-term operation, so the gross margin is expected to remain stable in the next three years. (4) After network security review and the introduction of the sea snail plan, BOSS Zhipin has significantly increased the number of auditors in the past two years to strengthen the information review work for enterprise recruitment. This has resulted in a slower optimization pace for operating costs than we previously expected.

(5) This year's marketing expenses have decreased year-on-year after excluding the World Cup expenses, but we expect BOSS Zhipin to continue to increase its investment after the economic recovery. For online recruitment industry, to maintain platform activity, continuous marketing is necessary as job seekers' demand is relatively infrequent. A recruiting platform that remains "active" at all times is favored by companies who are looking to hire.

Whether it's BOSS Zhipin, Zhilian Recruitment, 51Job, Ganji Zhipin, and so on, higher marketing expenses are not just for customer acquisition, but also the basic operating costs that maintain the activity of existing users.

(6) Dolphin Analyst predicts that the future Non-GAAP operating profit margin can reach 25%-30%. Assuming an effective tax rate of 15%, Non-GAAP net profit will resume growth in 2023 and reach a profit level of 2.5 billion in 2025.

(7) Based on the hypothesis of WACC=11.64% and g=3%, the DCF valuation result is $22.7 per share, corresponding to the net profit in 2024, implying a PE multiple of 45x. Net profit CAGR from 2023 to 2026 is 44.6%, roughly corresponding to a PEG of 1.

Since the Dolphin Analyst's review of the Q3 report, BOSS Zhipin: The inflection point comes after getting past the economic downturn caused by the epidemic, and with the benefits of exceeding the expectations of epidemic prevention, the company's stock price has rebounded by nearly 30%, erasing a lot of safety margin. If there are more economic stimulus policies in the future that significantly restore corporate confidence, there is potential for further upward movement.