Indaba WebTech Research: Online Recruitment (LNKD, MWW, DHX)
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Transcript of Indaba WebTech Research: Online Recruitment (LNKD, MWW, DHX)
Talent Acquisition Investing in Online Recruitment
-‐ March 23, 2012 -‐
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WebTech Research Overview
-‐ 3 -‐
WebTech Research produces a research product tailored specifically for investors searching for an investment edge in emerging web-‐based technology companies. We are distributed exclusively through Indaba Global Research. We enable clients to:
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Buy Side Experience: Our ideas are generated by investors who cut their teeth with hedge fund investment teams and remain active investors
Investment Universe + Report Focus
Online Recruitment Value Chain
Our Universe of Web Technology
-‐ 4 -‐ Worldwide labor force = 3.3B;
Professionals = 640mm
Online Networking: LinkedIn, Viadeo, Xing, Chatter
Traditional: Monster, Dice, Career-‐builder, etc.
200,000 enterprise level companies
Focus of this Report
Online Recruitment / Networking Companies
Consumers Enterprises
Content Sharing
Recruitment
Blogging
Platforms
Gaming
Networking
E-COMMERCEADVERTISING
INFRASTRUCTURESOCIAL
MEASUREMENT
AGENCY /DIVERSIFIED
SEARCH
IDENTITY
LOCATIONSERVICES
PLATFORMS
MERCHANTS
CONTENT
TRAVEL
CONTENTDELIVERY
SOFTWARE &SERVICES
DATACENTERS
GOVERNMENTPOLICY
-‐ 5 -‐ _____ 1. Passive recruitment refers to the recruitment of candidates who are satisfied in their current positions and are not actively seeking new opportunities
Global Talent Acquisition Opportunity
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The growth of the talent acquisition market will be largely contingent on a continued recovery in the global economy.
_____ Source: IDC, April 2011
85.5% 86.0% 86.5% 87.0% 88.0%
28.0% 30.0% 32.0% 35.0%
38.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2010 2011E 2012E 2013E 2014E
PenetrationUSD B
EMEA AmericaAsia/Pacific Internet Penetration -‐ USInternet Penetration -‐ International
CAGR -‐ 9.4%
CAGR -‐ 4.6%
CAGR -‐ 4.8%
Internet Penetration
Talent Acquisition Opportunity ($B)
Underpenetrated Asian economies will grow faster than their developed peers
US Recruitment: Spending by Channel
-‐ 7 -‐
US businesses will continue to use multiple channels to recruit talent a winner-‐takes-‐all scenario is unlikely.
Recruitment spending to remain fragmented
_____ Source: IDC, April 2011
43%
23%
15%
10%
7% 3% 2015F
42%
21%
15%
10%
9% 3%
2010
Total Spending: $42B Total Spending: $55B
42%
21%
15%
10% 9% 3%
2010
Staffing Services Executive Search Services
Online Recruiting Classfied Ads
Outplacement Services Others
2015E 2010
~5.5% CAGR
US Recruitment: Positions Filled by Channel
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Passive recruitment even in its nascent stage is the source for 10% of all positions filled in the US.
_____ For 2011. Source: Bersin & Associates, 2011 Passive candidates are those who are satisfied in their current positions and are not actively seeking new opportunities
Active Candidates
Passive Candidates
Internal Candidates; 19%
Job Portals; 19%
Employee Referrals; 16%
Company Website; 13%
Professional Networking Sites;
10%
Agencies; 9%
University; 7%
Print/Newspapers; 3%
Other Sources; 3%
Social Media; 1% We expect active
candidates to increasingly
profiles on professional networking sites, driving professional network
share gains.
US Recruitment: Macro Analysis
-‐ 9 -‐
_____ Source: Bloomberg, U.S. Bureau of Labor Statistics 1) Revenue of top 10 companies (by market capitalization) in recruitment industry operating in the US: MWW, MAN, KELYA, KFRC, HSII, HHGP, CRRS, CTP, LNKD and DHX
Revenues of the top 10 US recruitment companies(1) typically lag changes in GDP and lead changes in unemployment.
Global Credit Crisis
3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%11.0%
0.01.02.03.04.05.06.07.08.09.0
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
USD B Revenue vs. Unemployment Rate
Revenues of Top 10 US Recruiting Companies US Unemployment Rate -‐%
(10.0%)(8.0%)(6.0%)(4.0%)(2.0%)0.0%2.0%4.0%6.0%8.0%
0.01.02.03.04.05.06.07.08.09.0
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Q4 09
Q1 10
Q2 10
Q3 10
Q4 10
Q1 11
Q2 11
Q3 11
Q4 11
USD B Revenue vs. Real GDP Rate
Revenues of Top 10 US Recruiting Companies Real GDP -‐ %
Global Credit Crisis
Consumer Media Consumption
-‐ 10 -‐
Increased time spent online provides a significant opportunity for social recruitment firms to drive both increased usership and engagement.
_____ Growth rates are absolute (not compounded) Source: North American Technographics Benchmark Surveys, 2005 to 2010
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Newspapers Magazines Radio TV Internet
Hours/Week
2005 2006 2007 2008 2009 2010
(26.0%)(18.0%)
(15.0%)
5.0% 121.0%
Competitive Analysis
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_____ Source: Company websites, Annual Reports, comScore, Google
Brand Description Pricing Page Views / Unique User
Unique Users (mm)
Subscribers (mm)
Social professional network targeting both active and
passive job seekers
LNKD Recruiter: $8,200.00/ year/seat Talent Finder: $99.95/ month LNKD Jobs: $1,200.00 /year Job Seeker: $19.95 -‐ $49.95/month
27.53 92.0 >150.0
Traditional online job posting sites with presence in 55 countries for over a
decade
Power Resume Search: $13,000.00/year Standard Search Product: $10,000.00/ year Career Ad Network: ~$135.00 $250.00/Job posting
NA 46.0 Job Posting: >1.0
Resumes: >150 (2008)
Provides niche sites targeting highly skilled
employment
Dice Job Posting Express: 495.00/month Resume Access Express: $995.00/month
NA 5.4 Job Posting: ~0.13
Private horizontal job site like Monster. Based in
Chicago, USA
Resume database: $6000.00/year Single job posting: $419.00/month
NA 24.0 Job Postings: 1.0 Resumes: 40.0
Listed in Germany, 2nd largest professional
network with 88.0% of users in Europe
Premium Membership: starting @ 5.55 ($7.50)/month
33.60 7.0 >11.4
Competitive Analysis [CONTINUED]
-‐ 12 -‐
Brand Description Pricing Page Views / Unique User
Unique Users (mm)
Subscribers (mm)
Based in Paris, a private professional networking
website
Most Expensive Plan: $3.95 (3 months subscription)
NA 5.0 40.0
Private company with platform to form a
professional community
Basic collaboration plus added customization and CRM features for $15.00
/user/month NA 2.0
Access of 0.07 (June 2010)
Operates as a private online search engine for jobs in US,
Canada and UK NA NA 50.0 NA
A startup company using Facebook Apps to build professional network
25 Job Postings: $250.00/ month 14.40 1.0 3.0
_____ Source: Company websites, Annual Reports, comScore, Google
-‐ 13 -‐
Online Recruitment Comps Key Statistics Takeaways
Comps Selection
o Considering the changing business dynamics in recruitment, we have focused on both emerging professional networking (LNKD) and traditional online portals (MWW, DHX)
Key Metric(s)
o Subscribers + Corporate Customers/Bookings:
Can company further penetrate addressable relevant vertical/segments to attract incremental corporate clients?
Can company attract additional subs / users to generate incremental revenue from advertising?
Market Valuation
o Based on 2013E P/E, we believe LNKD trades at a premium to its peers due to a) focus on social relevancy in a professional medium; and b) high growth opportunity. Premium of MWW over DHX is primarily on account of recent acquisition rumors
-‐ 14 -‐
_____ Source: Company Filings, Company Press Releases, Bloomberg Estimates and WebTech Research Estimates (1) Key Growth Metrics: a) corporate subscribers for LNKD; b) bookings for MWW; and C) customer packages for DHX
Company LinkedIn Monster Dice HoldingsTicker LNKD MWW DHXShare Price $100.57 $9.49 $9.53Market Cap $9,946.4 $1,168.2 $621.6Less: Cash $577.5 $250.3 $55.2Plus: Debt -‐ $188.8 $15.0Enterprise Value $9,368.9 $1,106.7 $581.3
Revenue2013E $1,209.0 $1,028.0 $219.4Y/Y Growth 38.3% 4.9% 11.5%2012E $874.2 $979.9 $196.7Y/Y Growth 67.4% (5.8%) 9.8%LTM $522.2 $1,040.1 $179.12013 EV/Sales 7.75x 1.08x 2.65x2012 EV/Sales 10.72x 1.13x 2.96xLTM EV/Sales 17.94x 1.06x 3.25x
Key Growth Metrics (1) Corporate Subs Bookings Customer Pckgs2013E 74.8% (1.9%) 8.6%2012E 39.3% 5.3% 3.5%
EBITDA2013E $293.4 $180.1 $90.7Y/Y Growth 72.5% 16.2% 15.7%2012E $170.1 $155.0 $78.4Y/Y Growth 146.7% 11.6% 7.6%LTM $68.9 $138.9 $72.92013 EV/EBITDA 31.9x 6.1x 6.4x2012 EV/EBITDA 55.1x 7.1x 7.4xLTM EV/EBITDA 135.9x 8.0x 8.0x
EPS2013E $0.58 $0.45 $0.69Y/Y Growth 248.8% 94.8% 20.0%2012E $0.17 $0.23 $0.57Y/Y Growth 50.9% (46.0%) 17.1%LTM $0.11 $0.43 $0.492013 P/E 173.7x 21.0x 13.8x2012 P/E 605.8x 40.9x 16.6xLTM P/E 914.3x 22.1x 19.4x
Oct-‐10 Dec-‐10 Feb-‐11 Apr-‐11 Jun-‐11 Aug-‐11 Oct-‐11 Dec-‐11 Feb-‐121.00
3.00
5.00
7.00
9.00
11.00
13.00
MWW UN Equity DHX US Equity LNKD US Equity
Stock Price Analysis
-‐ 15 -‐
_____ Source: Bloomberg Note: Stock prices have been benchmarked in multiples of $5.00 for comparison purposes
Stock performance follows trends in customer acquisition and bookings. 11/02/10: DHX Q3 10 beat, guidance for Q4 exceeds expectations
12/10/10: DHX increased stock sale to 12mm (19.5% of float) from 10mm @ $10.75/share
2/02/12: DHX Q1 12 weak guidance. Bookings from eFC to fall by 6-‐
10/28/11: MWW Q3 11 beat, and authorizes $250mm buyback
5/19/11: Listing of LNKD, +109.4% from IPO price of $45.00
1/28/11: MWW Q4 10 miss, guidance for Q1 11 below expectations
2/10/12: LNKD
expectations
2/01/11: DHX Q4 10 beat, guidance for Q1 11 exceeds expectations
8/30/11: top 3 executives reported buying a combined 87K shares
01/26/12: MWW Q4 11 miss, guidance for Q1 12 below expectations
10/29/10: MWW Q3 10 beat, guidance for Q4 10 exceeds expectations
6/28/11: MWW announced the launch of BeKnown
3/6/12: MWW hired Stone Key Partners and BOAML in pursuit of strategic alternatives
LinkedIn [NASDAQ: LNKD]
KEY SEGMENTS
Hiring Solutions: Recruitment products for enterprises (corporate solutions, LinkedIn Jobs, subscriptions for recruiters/hirers & job seekers). ~50% of revenues ($261mm in FY 11; +156% Y/Y). 9,200+ corporate customers
Marketing Solutions: Targeting solutions for direct marketers and advertisers (self-‐serve ads, display ads, social ads, and lead generation). ~30% of revenues ($156mm in FY 11; +97% Y/Y)
Premium Subscriptions: For general professional identify management (enhanced search/communication capabilities, à la carte premium features). ~20% of revenues ($105mm in FY 11; +70% Y/Y)
CONSENSUS CONCERNS
Lower User Engagement vs. Facebook [FB] will Impact Revenue from Marketing Solutions: Based on average time spent/month (6.25 hours for FB vs. 0.25 hours for LNKD) and page views/user (655 for FB vs. 28 for LNKD)
Our view: We do not share this concern. Time spent and page views are not comparable given the differing nature of each platform. For LNKD, we are more focused on user engagement momentum, evidenced by page view growth (+63% Y/Y) outpacing unique visitor growth (+61% Y/Y) following the launch of LinkedIn Today, Signal and Platforms
Ability to Expand EBITDA Margins: Questions persist around ability to expand EBITDA margin from ~19% in FY 11
Our view: We do not share the concern. Favorable gross margin trends, combined with successful sales & marketing investment, gives LNKD management increasing control over margin trends. That said, we believe SG&A and product development investment is justified given the addressable market opportunity (penetration at ~4.6% out of ~200K corporates)
-‐ 16 -‐
LNKD, with its disruptive recruitment model and focus on innovation/product development, has seen shares rise over 100% from
LinkedIn [CONTINUED]
WHAT WE LIKE
Market Leader: 13x larger than the closest pure professional network Xing. Used by 82 of Fortune 100 companies
Growth Potential Recruitment: Low penetration rate (<1% for hiring and ~3% for premium subscriptions) offers room for substantial growth in addressable market of ~$27B global recruitment and talent acquisition
User Engagement Upside Advertisement: Social element to platform gives it a significant opportunity to penetrate ~$25B addressable advertising compared to other traditional online recruitment companies
WEBTECH RESEARCH RECOMMENDATION = BUY under $89.76, aggressively under $85.73
Price Target: We arrive at a price target of $134.03 based on an average of our DCF and subscriber growth models. For our DCF we assume corporate client market share grows to 40% (from 4.6%) and EBITDA margin grow to 32.5% (from ~19%) by FY 20, with a terminal year growth rate of 2.5%. In our subscriber growth model, we assume LNKD exits 2013E with 276mm subscribers (up from 145mm; adding 2 subs every second, per mgmt comments in the last conference call) and an ARPU of $6.90 (up from LTM ARPU of $4.19), and a 65x P/E multiple (consistent with our view on subscribers and EPS growth rates)
Price Support: We recommend closely watching $75-‐76 for downside support (just below 100 DMA)
Short: The risk reward ratio for a short trade becomes favorable (at >4.5x) above $118.96. We would consider a fundamental short position if the long-‐thesis is -‐ (if shares rise above $147.43)
Stock a) positive employment numbers; b) Q1 earnings (5/9/12); c) comScore data releases; d) sale of any part of ~48mm shares owned by CEO, Greylock or Sequoia
Price Target = $134.03 (33.3% appreciation). Accumulate under $89.76.
-‐ 17 -‐
Monster Worldwide [NASDAQ: MWW]
KEY SEGMENTS
Careers: Connects employers with job seekers online through searchable job postings and career management resources. Over 200,000 clients
o North America: ~47% of revenues ($485mm in FY 11; +15% Y/Y). Operating margin of ~15%
o International: ~43% of revenues ($445mm in FY 11; +23% Y/Y). Operating margin of~8%
Internet Advertising & Fees: Provides employers, educators, and marketers with media driven solutions. ~10% of revenues ($110mm in FY 11; -‐16% Y/Y). Operating margin ~5%
CONSENSUS CONCERNS
Volatility in International Bookings + Soft Bookings Outlook:
Our view: We share this concern, as bookings in Germany (9% of revenue) grew 53% in 9M 11, but then dropped to 6% in Q4 11 (making comps tougher). Additionally, management guided Q1 12 bookings to decline of 6 10%, after flat bookings growth in Q4 11. We do not see a similar trend with competition
Competitive Threats: MWW has been unable to combat share gains from professional networking platforms (LNKD) and or vertically focused job posting sites (DHX)
Our view: We share this concern, as networking elements and pricing advantage (LNKD recruiter product ~$8K/user vs. MWW at ~$13K/user) will fuel share gains. Additionally, DHX continues to build its presence in technology, energy and financial services verticles, at the expense of MWW and Careerbuilder
-‐ 18 -‐
MWW, a traditional online recruitment model has been impacted by sluggish job recovery and the emergence of LNKD and other forms of social recruitment.
Monster Worldwide [CONTINUED]
WHAT WE LIKE
Leadership in International Markets: Maintains a #1 or #2 position in most of key international regions (~55 total)
New Product Developments: MWW invested in new products such as Power Resume Search, BeKnown, Career Ad Network and SeeMore through the down cycle, ensuring the participation in the next up cycle. These products should improve the EPS quality by driving stickier and more predictable annuity like earnings
Incremental Margins: revenue leverage to an improved job environment will be complimented by 50% incremental margins. Every 10% swing in bookings is worth ~$0.06 to EPS
WEBTECH RESEARCH RECOMMENDATION = BUY under $9.00, aggressively under $8.78
Price Target: We arrive at a price target of $11.50 based on average of a) 2013E EBITDA exit multiple of 5x (vs. 5.8x LTM multiple) and b) average of acquisition rumors at $11.00 15.00. We assume bookings will grow conservatively at ~2.4% in 2012E (based on management estimates for a decline of -‐6 to -‐10% in Q1 12 and our estimate of a bookings pickup going forward) and ~10.0% in 2013E. We also estimate that incremental revenue in 2012/13 flows to EBITDA at a 40% margin (vs. management estimates of 50%)
Price Support: Four insiders increased their stake in August 11 accumulating stock around $8.17
Short: The risk reward ratio for a short trade becomes favorable (at >4.5x) above $10.89. We would consider a fundamental short position if the long-‐thesis is -‐ (if shares rise above $12.65)
Stock a) incremental information regarding strategic discussions; b) Q1 earnings (4/27/12); c) share repurchase program; d) positive US employment numbers; e) negative EMEA employment numbers
Price Target = $11.50 (21.2% appreciation). Accumulate under $9.00.
-‐ 19 -‐
Dice Holdings [NASDAQ: DHX]
KEY SEGMENTS
Technology & Clearance: Operates Dice.com & ClearanceJobs.com. ~64% of revenues ($115mm in FY 11; +30% Y/Y). Unique visitors: >2.7mm. 90K job postings
Finance: Operates eFinancialCareers.com. ~25% of revenues ($45mm in FY 11; +33% Y/Y). Unique visitors: 1.5mm. 8.5K job postings
Energy: Operates RigZone and WorldwideWorker. ~9% of revenues ($15mm in FY 11; +252% Y/Y). Unique visitors: 0.8mm. 8.1K job postings
CONSENSUS CONCERNS
Weak EBITDA Guidance: Expected EBITDA margin of 41% in FY 12 (43% in FY 11) as project development costs increased by 50%
Our view: We do not share this concern, as DHX has been conservative with respect to EBITDA guidance historically (exceeding by ~200-‐400 bps over the last three years)
Soft Bookings in Finance: Higher-‐than-‐expected slowdown in finance segment (management guidance of -‐12% in FY 12)
Our view: We partially share this concern. That said, note that this guidance was given during a period of heightened concern regarding passage of Greece austerity measures. Additionally, we have seen improving hiring trends in the finance vertical
-‐ 20 -‐
DHX, a vertically focused and niche recruitment service provider has been impacted by uncertainty in the financial sector. We believe these concerns are overblown.
Dice Holdings [CONTINUED]
WHAT WE LIKE
Vertically Focused, Niche Player: Sector focus, via distinct web properties, provides a unique business proposition to enterprises relative to other generalist players and also drives brand awareness.
Strong Cash Flows: Consistent FCF generation (avg of 27.5% from 09-‐ 11) facilitated by a) high client retention and b) nimble business model (subscription-‐based revenue model enables management to quickly identify business trend reversals via deferred revenue trends, allowing for the adjustments to variable cost structure)
Productivity/Efficiency: $0.5mm of revenue/employee compared to ~$0.2mm for MWW
WEBTECH RESEARCH RECOMMENDATION = BUY under $9.84, aggressively under $9.51
Price Target: We arrive at a price target of $13.42 based on our DCF model (given the stable FCF generation). We assume revenue growth of 15-‐20% for tech and clearance (customer growth of 10-‐15% and ARPU growth of 3-‐5%) and conservative growth of 5% for finance and energy from 2013E-‐ 16E. We also conservatively estimate EBITDA margins to contract to ~37% (vs. 12 month rolling margin of ~43%)
Price Support: Average price of $8.64 based on the existing repurchase program of $30mm
Short: The risk reward ratio for a short trade becomes favorable (at >4.5x) above $12.55. We would consider a fundamental short position if the long-‐thesis is -‐ (if shares rise above $14.77)
a) Q1 earnings (4/27/11); b) positive US employment numbers; and c) increase in share repurchase program
Price Target = $13.42 (40.9% appreciation). Accumulate under $9.84.
-‐ 21 -‐
-‐ 22 -‐
DISTRIBUTED BY
For questions and comments, please contact: Brian Murphy Indaba Global Research 617-‐571-‐1550 [email protected] www.indabaglobalresearch.com