took some nice profits today. still may get the momo crowd backwind,
but 12 month targets out this am are in the 30 to 40 range, so IMO
time to print the trade.
from BBRS's Steven Birer:
Key Points:
· Rapidly growing market driven by compelling economics and access. The online
recruiting market is expected to grow at a compound annual growth rate of approximately
75% over the next 4 years, reaching $1.7 billion in 2003. This compares to the $105 million
spent in online recruiting in 1998, and $14 billion spent on recruiting through other channels
such as professional recruiters and print media. We believe that the online recruiting market
will continue to steal market share away from tradition recruiting methods due to
overwhelming economic efficiencies as well as superior access to jobs and recruits.
· Strong brand recognition bodes well for future growth, in our view. Hotjobs is one of the
leading providers of online recruiting services. The company was recently rated the 5 th most
used online job site (and we would note that only 30,000 unique visits per month separate 3 rd
and 5 th place). Additionally HotJobs was rated as having the highest name brand recognition
of the online job boards, and the 6 th highest name recognition of all eCommerce sites on the
Internet. In our opinion, name brand recognition is extremely important in the creation of a
marketspace as employer and job-seeker traffic is often determined by this factor.
· High recurring revenue combined with diversified revenue streams. HotJobs charges
employers a monthly fee to post jobs onto HotJobs.com. These fees run from $600 per
recruiter to $300, depending on the number of recruiters a company signs up, as well as
contract length. This supplies HotJobs with a steady stream of recurring revenues. In
addition, the company generates revenues from the sale of its proprietary software package,
Softshoe, which enables companies to have much greater internal control over the recruiting
process. Even with the sale of software there is a recurring revenue piece as HotJobs hosts, updates and
maintains the software.
· We expect revenues should grow at above average growth rates over the foreseeable future. HotJobs is
one of the top 5 providers of online recruiting services in a marketplace that is expected to grow at a
compound annual growth rate of 75% over the next 4 years. Assuming that the company remains in the top
10 online recruiters and garners 10-20% of the 80% of the market that we believe that will be captured by the
top 10, HotJobs could post revenues in 2003 in the range of $139 million to $278 million.
· We initiate coverage of HotJobs with a Buy recommendation. While shares of HotJobs have nearly
quadrupled since the company's IPO, we believe that the company's long-term outlook should provide above
average returns for investors. If the company is able to attain the market share targets that we have estimated
for it, investors have the chance to get in on the ground floor of what has the potential to be an enduring
Internet franchise.
SUMMARY AND RECOMMENDATION
HotJobs is one of the largest and best known Internet-based recruiting solutions companies. The
company is creating a rapidly expanding marketspace for employers and job seekers through its online
job listings and ancillary services. To facilitate the hiring process for each party, HotJobs has created
complementary tool sets. For employers, these tools include Web-enabled browsers and sophisticated
resume screening and tracking systems. For job seekers, these include proactive job search tools,
online resume advice, and user communities that enhance the job seeking process. HotJobs serves more
than 2,700 recruiters from 1,650 companies, including Amazon.com, America Online, eBay, Home
Depot, IBM, Merk, Microsoft, Nike, and Disney.
We believe HotJobs is at the forefront of a structural change whereby traditional companies are using
the Internet to create a highly leveragable and scalable business model. By utilizing the Internet,
HotJobs is able to create a better process than the one it replaces, and at a significant discount. As
companies recognize the cost and time efficiencies in the online recruiting market, we expect an
increasing portion of recruiting budgets to shift to this new medium. In 1998, U.S. businesses spent
about $105 million to recruit employees online, compared to over $14 billion spent through more
traditional methods that include professional recruiters and print media. We expect the online job
search market will grow to $1.7 billion in 2003, representing a compound annual growth rate of 75%.
In the fast growing online recruiting space, HotJobs is rapidly building mind share and market share. In
our opinion, this is extremely important as over time we believe that the majority of the market will
consolidate around the top 5 to 10 online recruiting sites. While there are currently numerous online
job boards and companies are posting at multiple sites, we expect both employers and job seekers will
gravitate to the largest, and thus most successful, organizations over time. We believe several clear
leaders will emerge, and it is our belief that HotJobs will be one of them. With its complementary
service offerings, including software to help firms manage recruiting, HotJobs is able to ingrain itself in
the hiring process of its clients. Meanwhile, the mass of job seekers visiting the HotJobs site attracts
new employers who are then introduced to the additional services. In a cycle that feeds upon itself, the
breadth and depth of employers posting openings and related job search tips and tools attracts repeat
visits and new job seekers.
Since coming public in mid August at $8.00, shares of HotJobs have appreciated nearly fourfold to
$30.00. At this price, shares of HotJobs are trading around 21x our 2000 revenue estimate of $38
million and 12x our 2001 revenue estimate of $69.7 million. While not inexpensive, we believe
HotJobs remains an attractive investment opportunity given the company's potential for upside to our
estimates and the rapid growth of the overall market. Furthermore, the company's subscription-based
core business should provide a high degree of revenue visibility and stability over the long term. We
believe HotJobs has the opportunity to become a dominant player in the online recruiting space and will
be able to grow into its valuation. Accordingly, we initiate coverage with a Buy recommendation.
INVESTMENT HIGHLIGHTS
· Large and rapidly growing marketspace for Internet-based recruiting solutions. The market
for Internet based recruiting solutions for 1999 is estimated to be close to $184 million and growing
at an annual clip of about 75%. In this same period, US business are expected to spend more than
$15.4 billion hiring employees through professional recruiters or through traditional advertising
venues such as newspapers and other print media. Over time, we expect a significant portion of
recruiting budgets to shift to the Internet as companies look to capitalize on the cost and time
efficiencies available through the Internet. We believe this shift in spending will continue to drive
the rapid growth of the online recruiting market.
· Compelling value proposition compared to more traditional recruiting methods. By
leveraging the Internet, HotJobs is able to create a better process than the one that it replaces.
Compared to traditional recruiting venues including headhunters and print media, HotJobs is able to
offer clients lower recruiting costs, a shorter recruiting cycle, and access to more high quality
candidates. The cost of posting jobs on a single job board can run several hundred dollars, while at
the other end of the spectrum, a professional head hunter can charge as much as one third of a
recruit's salary. As far as time savings and a larger pool of candidates, employers can disseminate
job openings across the Internet, rapidly informing potential candidates of an opening. Traditional
media and search methods tend to be more localized, and there is a larger lag between the job
opening and the company's ability to make it known to a sizable applicant pool. A recent industry
study places the average time cut from job searches by online recruiting efforts at 20 days.
· Ancillary offerings diversify revenue base and entrench HotJobs in client's recruiting process.
In addition to revenue sources available to traditional recruiting firms by leveraging the Internet,
HotJobs has access to multiple revenue sources such as advertising, software sales, and
complementary services. HotJobs has created tools to facilitate the recruiting process for both
employers and job seekers. For employers, HotJobs offers sophisticated resume screening and
tracking systems and Web-enabled browsers. For job seekers, the company offers proactive job
search tools, online resume advice, and user communities to enhance the job seeking process. By
going beyond simple job listings and serving the additional recruiting needs of its users, HotJobs is
able to differentiate itself from many competitors and become an integral part of a firm or
individual's hiring experience, and thus encourage repeat users and expanding relationships.
· Gaining the market share and mind share to become a giant in the online recruiting space.
We believe HotJobs is rapidly building mind share and market share in the fast growing online
recruiting space. In our opinion, size is perceived as an advantage by both job seekers and
employers. HotJobs was ranked as the fifth most visited job site in July by Media Metrix,
additionally a recent poll named HotJobs as the job site with the greatest name recognition, and
sixth most recognized eCommerce brand overall. With the proceeds of its recent offering, we
believe the firm is well positioned to expand its marketing efforts to attract additional users and
build additional mind share. We believe most companies will continue to find it cost effective to
use multiple job boards, and thus there is room for several players to eventually dominate the space.
With its strong name recognition and already sizable user client base, we believe HotJobs has the
opportunity to become one of the dominant players in the rapidly growing industry.
BUSINESS OVERVIEW
Formed in 1997, HotJobs has grown rapidly to become one of the leading Internet-based recruiting
solutions companies. The company's highly scalable Web-based platform directly links corporate
recruiters with job seekers. Complementary services facilitate the hiring process for each party. By
leveraging the Internet, HotJobs is able to eliminate intermediaries and provide job seekers with up to
date, detailed information on real job openings directly from employers. Furthermore, the company
helps job seekers plan, execute, monitor, and control their job searches. Job seekers can restrict certain
employers (including their current employers) from reviewing their resumes, and the site excludes
headhunters to ensure clear communication between job seekers and potential employers to provide
clear and unbiased search results. For employers, the www.HotJobs.com employment exchange
provides access to real job candidates, while Softshoe recruiting software and WorkWorld job fairs
offer additional channels to reach and contact job seekers. Workflow management tools help to further
streamline the recruiting process. The end result is forum through which employers have access to a
larger pool of candidates, a significantly reduced cost per hire, and a much shorter hiring cycle. As
shown below, the Internet is able to significantly reduce costs per hire, and a recent industry study
estimates 20 days are cut from the average job search.
Figure 1: TOTAL RECRUITMENT COSTS PER EMPLOYEE BY CHANNEL*
*For a $50,000 annual salary position at a Fortune 500 computer manufacturer
Source: iLogos
Service Offerings
www.hotjobs.com: The www.hotjobs.com Web site creates a forum for direct contact between
corporate recruiters and job seekers. By removing intermediaries such as headhunters, advertising
agencies, print media companies that offer classified ads and resume warehouses, HotJobs is able to
connect employers and job seekers in real time and avoid the time delays inherent with legacy
recruiting methods. The company's branded Web site drives traffic to the job listings, and the depth
and breadth of listings from member companies establishes HotJobs as one of the premium online job
sites. While efforts to date have focused on building the HotJobs brand within the United States, and
more recently Australia, we believe the company is creating a platform and a brand through which it
can expand globally.
$12,500
$5,000
$3,000 $2,000 $1,000
$0
$5,000
$10,000
$15,000
Head
Hunter
Newspaper Job Fair Campus
Recruiting
Internet
Softshoe: Softshoe recruiting software allows employers to further leverage the Internet in managing
their enterprise-wide recruiting processes. The software allows employers to create private label
employment exchanges. The Web based system can be extended throughout the enterprise, and it
allows real time control, tracking, and reporting capabilities. Softshoe also provides seamless
integration with www.hotjobs.com. Through Shoftshoe, we believe HotJobs becomes embedded in its
client's recruiting processes. While we believe firms will continue to spend on multiple job boards,
Softshoe helps to ensure clients will continue to spend with HotJobs. We believe this will become
increasingly important as the online recruiting market matures and firms look to focus spending on
three to five Internet recruiters. Furthermore, we believe Softshoe helps create barriers to the success of
new market entrants.
WorkWorld: HotJobs conducts a series of job fairs known as WorkWorld that provide a physical
forum for recruiters, employers, and HotJobs account executives to meet. Fairs are fully integrated
with www.hotjobs.com, with all employer and job seeker information exchangeable online. As with
www.hotjobs.com, headhunters are excluded. We believe WorkWorld provides additional awareness
of the HotJobs brand in local markets.
Consulting Services: HotJobs also offers consulting services to assist employers with automating the
recruiting and job advertising process in areas including recruiting process reengineering, web page
design, online advertising, and customization. We believe these services reinforce HotJobs role as an
essential partner in its client's recruiting processes and help diversify the revenue base.
Growth Strategy
HotJobs goal is to become the leading provider of online recruiting services. To this end, HotJobs is
investing heavily in an aggressive marketing campaign to build brand awareness. In addition, the
company is beginning to expand overseas, opening an office in Sydney, Australia. We believe HotJobs
is also looking at strategic acquisitions to penetrate new markets, add infrastructure to help accelerate
growth, add new content, advertisers, employers, and job seekers, and develop new technologies.
Internally, we believe the company will continue to build out its sales force, further develop and
enhance the www.hotjobs.com exchange related service offerings, as well as expand existing client
relationships.
Customers
HotJobs customer base includes over 2,700 recruiter Web-stations, representing over 1,650 member
companies, and numerous job seekers, represented by more than 500,000 resumes on file. Whereas
technology firms were early adopters of HotJobs' offerings, current clients span industries such as
financial services, health care, professional services, retail and telecommunications. Representative
clients include:
Amazon.com America Online Central Intelligence Agency
CNN IBM eBay
Disney City of Palo Alto Microsoft
Merk & Co. E*Trade Group Procter & Gamble
Nike Yankee Group Union Carbide
Home Depot Young & Rubicam
Clients that have purchased Softshoe to manage their recruiting systems include:
Coors Brewing Company Lucent Technology Wang Gov't Services Division
DoubleClick Tricon Global Restaurants Ford Motor Company
REVENUE, EARNINGS & VALUATION
HotJobs has a diverse revenue base with regards to both client and service. No single client accounts
for as much as 10% of revenues, and the company currently has at least 11 revenue streams from its
three principal service areas. Through www.hotjobs.com, the company recognizes monthly
subscription fees from member companies, banner advertisement revenue, single ad revenue, and
sponsorships. Companies pay HotJobs $600 per recruiter per month to post jobs on the company's
Website. Discounts are given based on the number of recruiters and the duration of the contract signed;
this can take the price down to $300 per recruiter. Through Softshoe, HotJobs receives revenues from
leased software licensing, hosting, and support, as well as license sales and software customization,
consulting, and training. WorkWorld revenue opportunities include booth rentals and event
sponsorships. Significantly, a large portion of revenues are recurring subscription or software lease or
hosting fees. In the recent June quarter, approximately 78% of revenues were from recurring
opportunities. Before acquisition, we believe HotJobs can grow 1999 revenues by about 367%, 2000
revenues about 130% and 2001 revenues by about 83%.
As a check on our growth assumptions, we can also look at potential market size and share (see Figure
2, below). The online recruiting market is expected to reach $1.7 billion by 2003. If we assume that
the top 5 to 10 job boards will capture 80% of the market, and that HotJobs can be one of the top job
boards, then we can expect the company to attain revenues in the range of $139 million to $278 million
by 2003. This would imply a compound annual growth rate over the period of 69% to 101%. Given
the company's current trajectory, as well as the growth of the marketplace, these projections seem
highly possible.
Figure 2: REVENUE POTENTIAL: HOTJOBS.COM
Projected Market-2003 $1,740 million
80% Market $1,392 million
HotJobs.com Market Share 10% - 20%
Projected Revenues-2003 $139 million - $278 million
Compound Annual Growth 69% - 101%
Source: BancBoston Robertson Stephens Estimates
As with most Internet companies, our basis for valuing HotJobs is on revenues. While gross margins
are in the low 90% range, the company is expected to run at a loss until 2001 as HotJobs establishes its
brand, builds out its sales force, and expands overseas. We believe the company has the opportunity to
become the online recruiting services firm; however it will require significant investment in order to do
so. As the market matures and the company establishes itself at home and abroad, we believe the
company could be highly profitable. As investment stabilizes, we believe operating margins could be
in the realm of 20% to 24%. We would note, however, that to date advertising spending has been
highly seasonal, and we would expect this pattern to continue over the foreseeable future. The stock is
currently trading at 21 times our 2000 revenue estimate of $38 million; however we believe the
company will be able to grow into its valuation. Recently, HotJobs has been growing in excess of 40%
per quarter, and as mentioned above, we feel that the market supports sustained above-average growth
over the foreseeable future. While near-term gains may have been taken out of the stock by its fantastic
3-week rise, we believe that investors will benefit over the long-term as the company assumes its place
as one of the leaders of a multi-billion dollar marketspace. Accordingly, we initiate coverage of
HotJobs with a BUY recommendation.
INVESTMENT RISKS
Among the risks are that the Internet market is evolving rapidly, and has not yet been proven to be an
effective medium for recruiting purposes. HotJobs.com faces an increasingly competitive landscape,
including traditional recruiting firms, Internet job boards, and other companies offering recruitment
services and solutions. The business model could be subject to seasonal fluctuations, for example in the
months of August, November and December, when traditional recruiting and job search activity is low
due to holidays and vacation plans. |
