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Technology Stocks : HotJobs.com (Now part of Monster Worldwide, Inc.) -- Ignore unavailable to you. Want to Upgrade?

To: SteveG who wrote (22)	9/7/1999 12:14:00 PM
From: SteveG	Respond to of 31

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. ETrade 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.

To: SteveG who wrote (22)	9/7/1999 12:19:00 PM
From: SteveG	Respond to of 31

from DBAB's Andrikopoulos and Berger: HIGHLIGHTS: INVESTMENT RATING: We are initiating research coverage on HotJobs.com with a BUY investment rating on the shares. A CATEGORY LEADER: As a leading provider of Internet-based online career solutions, we believe HotJobs.com has created a leading Contextual Career Network (CCN). We feel the stock should represent a core investment holding for investors seeking exposure to the rapidly growing online recruiting market. A LARGE MARKET OPPORTUNITY: The Company's service is currently aimed at the $190 billion recruiting market. We estimate online recruitment advertising to grow to $2.0 billion by the year 2003 from $100 million in 1998 (82% CAGR). ATTRACTIVE OPERATING MODEL: The Company has established a recurring, subscription-based revenue model that is built on a fixed-cost operating platform. We feel the Company can drive 30% long-term operating margins (equivalent to the Internet Media Networks). ESTIMATES: Our 1999 EPS loss estimate is $0.69 on revenue of $16.3 million, and our 2000 EPS loss estimate is $0.97 on revenues of $38.0 million. POTENTIAL UPSIDE DRIVERS AND CATALYSTS: (1) margin expansion, (2) rapid adoption of the Internet as a recruiting platform, (3) international expansion, and (4) revenue upside potential. RISKS: (1) management of hyper-growth, (2) Pricing pressure from free competitors, (3) Cyclical economic conditions and (4) the difficulty in maintaining a 100% uptime network. VALUATION: We feel that HotJobs.com is well positioned as a pure-play Internet leader. We believe HotJobs.com stock could trade at a 2000 theoretical P/E-to-growth rate multiple of 1.9x. This leads us to a 12 month price target of $40. DETAILS: COMPANY DESCRIPTION HotJobs.com is a premier provider of online career solutions that facilitate the recruiting process between job seekers (end-users) and employers (the Company's corporate clients). The Company's comprehensive suite of services attempts to eliminate many of the inefficiencies created by traditional recruiting platforms, thus enabling employers to cost- effectively reach, attract and hire qualified job seekers, in a timely manner. The Company's online employment exchange, www.HotJobs.com, has over 2,800 recruiters (subscribers) from over 1,700 companies including Intel, Nike, General Motors, Hewlett Packard, AT&T, Microsoft, Yahoo!, IBM, America Online, Amazon.com and Merck. HotJobs.com. The Company's career contextual network (CCN) allows job seekers to research, apply for and access a multitude of job opportunities across various categories. HotJobs.com also enables member corporate recruiters to manage their recruiting process real-time online by posting, tracking and updating job openings and provides access to a resume database of over 450,000 job seekers. The Company charges corporate clients approximately $600 per month, per seat (each seat is equivalent to 20 simultaneous job listings). This recurring revenue stream accounted for approximately 70% of the Company's C2Q 1999 revenue and accounts for nearly 75% of our 2000 revenue forecast. Softshoe software. The Company offers corporate recruiters Softshoe, a "behind the firewall" software solution which is a Web-based, private label job board and resume tracking system. Softshoe facilitates a seamless recruiting process for corporate clients, enabling companies to share critical applicant/recruiting information across their entire organizations in one easy-to-use software platform. Softshoe clients include Coors Brewing Company, DoubleClick, Ford Motor, Humana, Lucent, and Tricon. WorkWorld is the Company's program of targeted, local physical job fairs that it leverages to attract and retain corporate clients, as well as build brand awareness among job seekers. WorkWorld and Softshoe combined account for approximately 20% of our 2000 revenue forecast. The Company was formed in February 1997 and is a Delaware Corporation. It currently has over 110 employees and is located in New York, NY. INVESTMENT THESIS Driving The Online Recruiting Evolution-Huge Market Potential and Scaleable Business Model We believe that HotJobs.com stock should represent a core investment holding for investors seeking exposure to the rapidly growing online recruitment market: ú A MARKET LEADER WITH A LARGE AND GROWING OPPORTUNITY: With over 2,800 corporate recruiters (subscribers), and a database of 450,000+ resumes, HotJobs.com has established a leading recruiting network for member companies and a solid brand among job seekers. We estimate online recruitment advertising to grow to $2.0 billion by the year 2003 from $100 million in 1998 (82% CAGR). We forecast that long-term, 20-25% of the $190 billion recruitment market will migrate to online solutions. ú INEFFECTIVE TRADITIONAL RECRUITING PLATFORMS: We estimate that the HotJobs solution results in a 50-95% cost saving over traditional recruitment media such as Newspaper classifieds, headhunters, job fairs and campus recruiting. Traditional platforms also create slow hiring cycles and as a result of inadequate information dissemination create difficulty for job seekers in maneuvering through the recruiting process. ú THE EMERGENCE OF CONTEXTUAL CAREER NETWORKS: We see a new category of career solution companies emerging, the CCNs. These companies (e.g., HotJobs.com, Monster.com, and Career Mosaic) disintermediate traditional recruiting platforms by providing a more cost effective platform that facilitates information exchange and enables job seekers and recruiters to pursue the most appropriate leads, thereby reducing inefficiencies. We believe HotJobs.com has created a leading CCN. ú AN ATTRACTIVE OPERATING MODEL: The Company charges corporate clients approximately $600 per month, per seat (each seat is equivalent to 20 simultaneous job listings). This recurring revenue stream accounted for approximately 70% of the Company's C2Q 1999 revenue and accounts for nearly 75% of our 2000 revenue forecast. As the Company leverages its fixed cost operating model across a growing number of corporate clients (subscribers), we expect the Company to drive long-term gross margins in the 90+% range and long-term operating margins in the 22-30% range. We believe this compares favorably to other leading Internet franchises. ú LONG-TERM UPSIDE POTENTIAL: Potential upside catalysts include (1) margin expansion, (2) rapid corporate and consumer adoption of the Internet as a recruiting platform, (3) international expansion, and (4) revenue upside potential as the Company leverages its technology and loyal corporate client base into incremental "behind the firewall" value-added services. ú RISKS: We believe HotJobs.com could face four primary risks: (1) the management of hyper-growth, (2) Pricing pressure from free competitors (such as the free on-line classifieds offerings from the Internet Media Networks, Yahoo!, Excite, Lycos, Infoseek, etc.), (3) The possibility that the economic market will change and that recruitment advertising will begin to drop off as the labor shortage recedes in the U.S. or elsewhere in the world. and (4) the difficulty in maintaining a 100% uptime network. ú VALUATION: HotJobs.com most closely compares to other CCNs, such as TMP Worldwide and Career Builder. However, we feel that HotJobs.com is unique in its peer group because it has characteristics of a subscription media model (e.g., AOL), a market-based solution (e.g., eBay), and is behind the corporate firewall (e.g., Ariba), and is well positioned as a pure-play Internet leader. We fully expect HotJobs.com to trade up on positive news, but the recent appreciation in stock price leaves little room for fundamental valuation upside, in our view. We believe HotJobs.com stock could trade at a 2000 revenue multiple of 30x and 2000 theoretical P/E-to- growth rate multiple of 1.9x, which equates to a 12-month price target of $40. We point out that this represents a well deserved premium to other CCN companies, which currently trade at an average 2000 revenue multiple of 6.2x and an average 2000 theoretical P/E-to-growth rate multiple of 0.8x. FINANCIAL MODEL AND ESTIMATES We forecast 1999 EPS loss estimate of $0.69 on revenue of $16.3 million and 2000 EPS loss estimate is $0.97 on revenues of $38.0 million. We expect the Company to achieve break-even EPS in 1H 2002 as it enters the harvest and leverage stage of its business model. We feel that the Company's 3-5 year revenue growth rate will be in the 75-100% range. We expect that the Company will invest in incremental marketing and mass- market branding as it solidifies its early critical mass in this attractive category. As such we anticipate that the Company will invest $45 million in sales and marketing in 2000. Our model has operating margins going to - 150% in 3Q 1999, to -71% in 2000 and -20% in 2001. EPS Revenue* ------- -------- 1QA 1999 ($0.11) $2.6 2QA 1999 ($0.14) $3.8 3QE 1999 ($0.28) $4.5 4QE 1999 ($0.15) $5.4 CYE 1999 ($0.69) $16.3 1QE 2000 $6.7 2QE 2000 $8.5 3QE 2000 $10.4 4QE 2000 $12.3 CYE 2000 ($0.97) $38.0 *$ in millions. Source: Deutsche Banc Alex. Brown HotJobs.com Long-Term Operating Model 1H 1999 1999E Long-Term Model ----------- -------- ----------------- Revenue 100% 100% 100% Gross Margin 81% 83% 89-90% G&A 39% 42% 8-9% Sales and Marketing 113% 132% 45-50% Product Development 5% 6% 7-9% Operating Income (76%) (96%) 22-30% Source: Deutsche Banc Alex. Brown Estimates and Company Reports REVENUE VISIBILITY IS A HALLMARK--The Company's growing contextual career network provides a solid recurring revenue stream. Throughout the Internet industry other job boards (e.g., Monster.com, Career Path, Career Mosaic, etc.) are driven by the number of ads placed (job postings). We believe that HotJobs.com's subscription based model provides revenue visibility that is not found in other models. Recurring revenues accounted for approximately 70% of the Company's C2Q 1999 revenue and account for nearly 75% of our 2000 revenue forecast. The remaining 25% is generated through Softshoe, WorkWorld and related consulting services. We anticipate gross margin (83% in 2Q) to continue to expand as the Company leverages its technology platform across a larger base of member companies. We also note that the Company's Softshoe software product carries a gross margin of 92+%, providing potential gross margin upside, longer-term. POTENTIAL REVENUE DRIVERS--ROOM FOR UPSIDE IN A SENSITIVE MODEL Our revenue model is based on a bottom-up approach that assumes that the number of subscriber accounts will continue to grow at a compound quarterly growth rate of 24% through 2000. This is driven primarily by significant growth in HotJobs.com's number of registered member companies (23% compound quarterly growth rate, 1999-2000). We are conservatively projecting that revenue per member company will remain relatively flat at $590 per month. We believe there could be upside to this forecast given that as relationships with existing companies mature and Internet recruiting become ubiquitous, each recruiter is increasingly likely to purchase incremental accounts. The Company's Softshoe license fees of $250,000 are generally recognized over a three-year period, with monthly hosting fees of approximately $15,000-$20,000 recognized on an ongoing basis. We are conservatively projecting that the Company will sign 14 Softshoe clients in 2000. HotJobs.com's traditional job fairs (WorkWorld) garner, on average, $250,000 of revenue per event. While the Company gains significant cross- platform branding from WorkWorld, it carries a gross margin of approximately 80% and could prove to be dilutive to HotJobs.com's overall business model longer-term. As such we believe, overtime, the Company will limit the number of WorkWorld events as not to allow WorkWorld to materially adversely affect overall gross margins. Ramping the number of events per year is a straight forward exercise and have relied on company guidance for our 2000 estimate of 13 job fair events. 1999 ----------------------------- 2000 1QA 2QA 3QE 4QE Total ---------------------------------------- Corporate Members 1,151 1,700 2,126 2,600 5,870 Sequential Growth 64% 48% 25% 22% NM Accounts per Client 1.7 1.7 1.7 1.7 1.7 Subscriber Accounts 1,899 2,822 3,614 4,316 9,978 Monthly Revenue/ Member Company $590 $590 $590 $590 $590 Softshoe Licenses Sold 1 1 2 3 14 WorkWorld Shows 1 1 2 3 13 Source: Company reports and Deutsche Banc Alex. Brown POTENTIAL UPSIDES AND CATALYST We see five potential stock catalysts and upside drivers to our current model and potentially the stock. 1. Revenue Upside in Core Business-We believe that as HotJobs begins to employ its marketing resources, it could drive the number of registered job seekers higher than we are forecasting. We anticipate that traffic metrics will be key in attracting corporate recruiters and thus, driving revenues. We highlight that the Company has built a critical mass of users through an extremely low marketing budget, which to date has paled in comparison to most other Internet franchises. For example, CareerBuilder spent roughly $12.7 million on sales and marketing in 1998, while HotJobs.com spent a mere $3.1 million. We anticipate the Company to spend upwards of $45 million on sales and marketing in 2000. We highlight that the disparity between HotJobs' and CareerBuilder's marketing spending would have been even more pronounced, however, CareerBuilder recognizes the majority of its commission to sales people as Cost of Goods Sold. 2. Expanded Value-Added Services--These may include incremental consulting services, Web hosting fees, and e-commerce revenue streams. Overall, we believe there is significant upside potential for HotJobs.com as it further expands www.hotjobs.com into a comprehensive, full service vertical contextual network. Additionally, we believe longer-term, as the Internet becomes a ubiquitous platform for recruiting, our Softshoe revenue estimates could prove conservative. Currently Softshoe accounts for only 1.2% (or $475,000) of our 2000 revenue estimate of $38.0 million. 3. Rapid Employer and Job Seeker Adoption of Internet Recruiting--We believe that because online recruiting eliminates many of the inefficiencies associated with traditional hiring processes, mass market acceptance could be accelerated, which should provide a tremendous growth catalyst for HotJobs.com over a 1-3 year time frame. Early indications reinforce this thesis: In a recent study conducted by Opinion Research Corporation, HotJobs.com and Monster.com were the sixth and seventh most recognized e-commerce brands on the Internet, respectively. 4. Strategic Relationships--We anticipate the Company to continue partnering with other leading Internet franchises to develop co-branded career content. For example, HotJobs.com entered into a co-branding agreement with About.com to build and host job listings sites within the About.com platform. As a result the Company received valuable advertising inventory on About.com, which we believe serves as a cost-effective customer acquisition mechanism. Aside from driving accelerated customer and revenue growth, these announcements also drive brand awareness and overall investor interest. 5. International Expansion--We anticipate that HotJobs.com will pursue a marketing strategy that leverages the uniqueness of the Internet as a global platform. International markets are the next major battlefield for Internet growth and we feel there is significant opportunity abroad for the Company to extend its services. We believe International expansion will enable Hotjobs.com to better serve its global member companies, while expanding its existing client base. HotJobs.com is actively building a local sales team in Australia, and we anticipate they will launch a service in the near term. INVESTMENT RISKS We believe HotJobs.com could face four primary risks: (1) the management of hyper-growth, (2) Pricing pressure in the Interactive business from free competitors, (3) potential change in economic markets, and (4) the difficulty in maintaining a 100% uptime network. We highlight the risk of operational missteps as the Company continues to experience double-digit quarterly revenue and employee growth. The management of hyper-growth may become increasingly difficult as the Company plans to expand its marketing initiatives. We believe HotJobs.com's solid management team and its combined extensive industry experience in Internet technology and consumer industries mitigate this risk. The hyper-growth of Internet usage coupled with the ability for new entrants to launch e-commerce/content sites quickly and inexpensively has created an extremely competitive environment. Over time, this competitive landscape could result in increased customer acquisition pressures. As such the Company may find it necessary to increase its marketing expenses to sustain its industry position. We note that competitors, such as TMP Worldwide (Monster.com) and the Internet Media Networks (Yahoo!, Lycos, AOL, etc.) may have access to capital resources not afforded HotJobs.com. Additionally, the pure number of competitors (e.g., CareerPath, CareerBuilder, Career Mosaic, Headhunter.net, Jobs.com and Dice.com) may make it difficult for any single player to aggregate both dollars from recruiters, as well as consumer attention. We believe HotJobs.com is committed to leveraging its early successes into a more aggressive marketing campaign (both online and in traditional media). We feel this marketing strategy, coupled with its leading industry position and superior product offering will give HotJobs.com the needed ammunition to remain a top this competitive online career market. We believe the recruiting industry, as a whole, has exposure to cyclicality in economic markets. For example, recruitment advertising would likely be negatively impacted if labor shortages recede in the U.S. or elsewhere in the world. Overall, we feel that the hyper-growth of online recruiting over the next 5 years will mask the effects of economic market changes which would typically affect the recruiting industry. As such we are confident in the Company's ability to sustain our forecasted growth through cyclical downturns. We note that the Company faces challenges in maintaining a 100% uptime virtual career network. HotJobs' technology infrastructure serves as the backbone for its online career network. Job seekers and corporate recruiters rely heavily on the Company's technology to enable recruiting process. The satisfactory performance, reliability and availability of the Company's Web site is critical to HotJobs.com's reputation and its ability to attract new registered users/member companies. HotJobs.com has invested substantial resources in the development of its online career network infrastructure and should be able to leverage this investment as the Company scales its network to meet increasing demand for its services. We believe the Company's redundant technology and remarkable track record in uptime performance highlight HotJobs.com's commitment to a quality end-user experience. We note that the Company's career network technology is well equipped to handle HotJobs.com's forecasted hyper-growth and is designed to handle millions of simultaneous users. COMPETITIVE BUSINESS MODELS We believe that HotJobs.com stock should represent a core investment holding for investors seeking exposure to the rapidly growing online recruiting market. HotJobs.com most closely compares to other CCNs, such as TMP Worldwide and Career Builder. However, we feel that HotJobs.com is unique in its peer group because it has characteristics of a subscription media model (e.g., AOL), a market-based solution (e.g., eBay), and is behind the corporate firewall (e.g., Ariba), and is well positioned as a pure-play Internet leader. As a leader in the online recruiting arena, HotJobs.com has only scratched the surface of its growth potential, in our view. Furthermore, we contend that the Company's ability to leverage its early industry position should provide significant upside to our current forecasts. Our HotJobs.com model is based on a long-term 90+% gross margin structure and a 22-30% operating profit (in-line with the Internet Media Networks). Annual revenue growth of 100+% over the next several years should be followed by a 3-5 year EPS growth rate of equal magnitude. MONSTER.COM---TMP Worldwide (TMP) has clearly established itself as the benchmark for online recruiting, demonstrated by its 1.6 million resumes (versus HotJobs' 450,000), 240,000 job postings (versus HotJobs' 50,000) and our 2000 Interactive revenue estimate of $195 million (versus $38 million for HotJobs.com). TMP continues to reap the benefits of first mover advantage and scale as it Interactive division recognized $1.2 million in operating profit in 2Q. TMP's Interactive division continues to realize the fundamental cross-platform synergies of its traditional recruiting businesses, with its impressive global sales force and extensive client base. We highlight, however, that from a valuation and investment perspective, TMP's overall business model differs from that of HotJobs.com: 1. TMP is not a pure-play Internet investment: Monster.com accounted for only 17% of TMP's 2Q revenue. While we estimate TMP's Interactive division to post annual revenue growth rates upwards of 70%, its other traditional recruiting businesses are growing at a mere 5% per annum. Net/net, TMP's overall valuation parameters (e.g., revenue multiple) are not comparable to other pure-play Internet franchises. 2. TMP's risk profile hampered by its traditional businesses: As we outlined above, the traditional recruiting industry if often affected by cyclical and global economic factors. We feel TMP has exposure to such market conditions, while HotJobs' hyper-growth is likely to mask affects of economic turmoil, in our opinion. 3. Ad-based model versus recurring subscription fees: We believe TMP has demonstrated its ability to deliver on top-line interactive growth. We contend, however, that HotJobs' subscription fee revenue model provides significant visibility that is not inherent in TMP's ad-based model. HotJobs' recurring revenue stream accounts for nearly 75% of our 2000 revenue forecast. 4. Turnkey software solution: We believe, longer-term HotJobs' has the opportunity to capture a sizeable share of the recruiting enterprise software market. We note that TMP has not launched a product that directly competes with Softshoe. While TMP has built a formidable platform, we remind investors that the online recruiting industry is NOT a zero-sum game. We believe the current state of the online recruiting market resembles that of the Search Engine landscape in 1996 (Yahoo!, Infoseek, Excite and Lycos). Consensus sentiment was that the second-tier players (Lycos and Infoseek) were going to be squeezed out of the market. History, however, has proven that hyper- growth industries, such as Web advertising, have been able to absorb multiple successful franchises (and investment opportunities). We believe the online recruiting industry will prove that history repeats itself. CAREER BUILDER---While we believe there are few similarities between the business models of Career Builder and HotJobs.com, we feel compelled to compare the two, as Career Builder is also a publicly traded company focusing on online recruiting solutions: 1. HotJobs.com Scales Metrics-Career Builder, founded in 1995, had 1998 revenue of $7 million and 2Q revenue of $3.3 million. HotJobs.com, founded in 1997, had 1998 revenue of $3.5 million and 2Q revenue of $3.8 million. HotJobs has aggregated 1,700+ corporate clients, while Career Builder has roughly 645. We highlight that HotJobs.com has delivered superior top-line growth with minimal marketing spending (it spent $3.1 million in 1998 on Sales and Marketing, while Career Builder spent $12.7 million). 2. Gross Margin Structure-Career Builder outsources 30+% of its revenue generation to an external sales group (ADP) and in turn, pays ADP a commission of 33-50%. This commission is recognized as Cost of Goods Sold, and significantly dilutes gross margins to approximately 60%. HotJobs.com posted an 83% gross margin in 2Q, ramping to 90% overtime. 3. Owning the Eyeballs-Career Builder's business model is focused on aggregating corporate job postings and disseminating them across a core group of affiliate network sites. As a result Career Builder has limited connection to, or brand permission with job seekers. In contrast, HotJobs.com's builds loyal customer relationships through its branded Web property, which was recently recognized as the sixth most well known e- commerce franchise on the Web (Opinion Research study cited above).

To: SteveG who wrote (22)	9/7/1999 12:21:00 PM
From: SteveG	Read Replies (1) \| Respond to of 31

part 2 of dbab report VALUATION Theoretical Earnings Multiple Analysis(TEMA)---It is difficult to assess valuations of hyper-growth nascent business models. Adjusted market capitalization-to-forward revenue multiples simply do not capture the longer-term potential of an investment. We leverage a valuation methodology, TEMA, that is based on applying the long-term target operating margin of a business (i.e., the harvest stage model) to the forward 12-18 month revenue forecast to come up with a theoretical, fully-taxed forward earnings multiple. We then apply a more traditional P:E to growth assumption to arrive at a target valuation. Using TEMA we can uncover the true earnings power of a business while it is still in its invest and scale stage of development without taking our models out five years and without making broad assumptions about the target discount rate that the market will demand. Stock Momentum Continues--Minimal Room For Fundamental Valuation Accretion We highlight that HotJobs.com is currently trading at a well deserved premium to TMP Worldwide and Career Builder. HotJobs.com is valued at a 2000 theoretical P/E-to-growth rate multiple of 1.4x and 2000 revenue multiple of 23x. TMP and Career Builder are both currently trading at a 2000 theoretical P/E-to-growth rate multiple of 0.8x (a 43% discount to HotJobs). We note that with the recent stock excitement, ALL target valuations have become more theoretical than in most other Internet stocks. As opposed to attempting DCF-based valuations which must rely on arbitrarily low cost of capital assumptions to make any sense in this environment, we simply note that the stock is likely to go higher as more HotJobs.com job seekers become investors (i.e., driving continued retail stock demand). We fully expect HotJobs.com to trade up on positive news, but the recent appreciation in stock price leaves little room for fundamental valuation upside, in our opinion. As such, we believe that HotJobs.com could trade with a 2000 theoretical P/E-to-growth rate multiple comparable to other Internet leaders. These companies, like HotJobs.com, represent pure-play investment opportunities in attractive Internet sectors. These pure-play Internet leaders are currently trading at an average 2000 theoretical P/E-to-growth rate multiple of 2.4x. We feel that HotJobs.com stock could trade at a 2000 theoretical P/E-to-growth rate multiple of 1.9x. This leads us to a 12 month price target of $40. If we assume that HotJobs.com can deliver on the upside we discussed above, it would earn, on a theoretical, fully-taxed basis (assuming a 27% long-term operating margin and a 39% tax-rate), roughly $8 million or $0.27/share in 2000. Our $40 target price would represent a 148x 2000 P/E multiple.