Cyclical Hiring Trends Will Pressure Revenues But Spur Resilience

Key Takeaways

• Macroeconomic uncertainty and labor market shifts challenge ZipRecruiter's growth, with employer hesitation and demographic headwinds limiting platform usage and revenue resilience.
  
• Competitive pressures and direct hiring trends threaten incremental revenue, despite ZipRecruiter's AI investments and efforts to diversify beyond small and mid-sized business clients.
  
• Ongoing revenue and employer declines, rising expenses, and a more competitive hiring market all threaten ZipRecruiter's growth, profitability, and pricing power amid macroeconomic uncertainty.

Catalysts

Operates an online marketplace that connects job seekers and employers in the United States and internationally.

• While ZipRecruiter is benefiting from the ongoing expansion of remote and flexible work models and saw a 10% sequential increase in paid employers during Q1, the company faces an environment where employers remain hesitant to accelerate hiring due to persistent macroeconomic uncertainty, which continues to dampen top-line revenue growth and creates risk for sustained recovery in paid employer volumes.
  
• Despite continued investment in AI-driven product enhancements and integrations, such as Workday-certified status and improved collaboration features that can strengthen employer engagement, intensified competition and the increasing prevalence of direct hiring channels could erode ZipRecruiter's ability to capture incremental revenue per customer over time.
  
• While the platform is positioned to benefit from increased adoption of recruitment automation and analytics industry-wide, the year-over-year decline in both total paid employers and adjusted EBITDA margin to the mid-single digits highlights that operating leverage gains may be harder to realize if hiring market softness persists, pressuring net margins.
  
• Although ZipRecruiter's efforts to diversify beyond SMBs into enterprise and mid-market accounts through integration and premium features offer longer-term revenue resilience, adoption could be constrained if labor market volatility or demographic headwinds (like a declining working-age population in core developed markets) reduce overall platform usage and limit ARPU growth.
  
• While ZipRecruiter has significant financial flexibility demonstrated by $468 million in cash and recent share repurchases, its continued exposure to the cyclical U.S. hiring market—without accelerated success in expanding international revenue streams—could result in ongoing earnings volatility if the macro recovery lags or secular trends like labor force aging become more pronounced.

ZipRecruiter Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ZipRecruiter compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ZipRecruiter's revenue will grow by 6.2% annually over the next 3 years.
• The bearish analysts are not forecasting that ZipRecruiter will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate ZipRecruiter's profit margin will increase from -4.2% to the average US Interactive Media and Services industry of 10.8% in 3 years.
• If ZipRecruiter's profit margin were to converge on the industry average, you could expect earnings to reach $60.0 million (and earnings per share of $0.82) by about July 2028, up from $-19.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, up from -21.9x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 6.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.85%, as per the Simply Wall St company report.

ZipRecruiter Future Earnings Per Share Growth

Risks

• Persistent year-over-year declines in both revenue and the number of paid employers signal ongoing challenges in attracting and retaining customers, suggesting potential long-term headwinds for revenue growth and earnings improvement.
  
• The company’s reliance on cyclical hiring trends, particularly the US employment market, exposes ZipRecruiter to increased revenue volatility and potential downside to both revenues and adjusted EBITDA if macroeconomic uncertainty leads to prolonged periods of tepid hiring activity.
  
• Elevated marketing and personnel expenses have resulted in declining adjusted EBITDA margins, which, if not offset by stronger revenue growth or cost controls, could create ongoing downward pressure on net margins and overall profitability.
  
• Despite continued investments in product improvements and integrations, there is evidence of a more competitive and commoditized market, as noted by the relatively consistent presence of competitors and employers taking longer to make hiring decisions, which may further erode revenue per user and diminish pricing power.
  
• Management’s emphasis on flexibility and caution regarding macroeconomic conditions, coupled with guidance implying only modest quarter-over-quarter improvement and year-over-year growth delayed until the fourth quarter, reflects underlying risks to sustained revenue growth and margin expansion in the foreseeable future.

Valuation

• The assumed bearish price target for ZipRecruiter is $6.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ZipRecruiter's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $10.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $553.3 million, earnings will come to $60.0 million, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 10.8%.
• Given the current share price of $4.67, the bearish analyst price target of $6.0 is 22.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.