Recruit Holdings Co., Ltd. (6098) Earnings Call Transcript & Summary

Thank you. Regarding your question, I briefly talked about this earlier, but the economic cycle in the U.S., to what extent becomes worse is key. We are seeing a deceleration or slowing down as we speak and many economists or either myself also thought about this. We expected that the cycle would enter the recessionary stage earlier. This was our thinking last year. However, the consumer side numbers remain strong. And as a result of that, from soft landing or to mild recession is the current expectation. At 15% probability, hard landing is also a possibility. So again, the COVID-19 pandemic was an event that happens once every 100 years. And after that occurrence, it is very difficult to predict where the economy will be. In my presentation, I talked about this. We continue to expect the consumer numbers to deteriorate, economic cycle to worsen or the number of job postings to continue to decrease. That is what we can say with certainty. But to what extent things will deteriorate. Looking at GDP decline or looking at other economic indicators and how they decline, the most difficult one is in the financial sector, the high interest rate has put high pressure or high stress. So the debt-related issues may occur. That is another possibility. But given these economic indicators and also the labor market, the HR markets are getting decoupled to some extent. As I mentioned in my presentation, the job postings may decrease by 3 million also, still the economy remained out of recession. Therefore, we expect things to get somewhat more stabilized. But as I mentioned before, especially for the financial sector, something like black swan events could occur. And if that happens, then we may see more of a recession. So there is that downside. That is the expectation we take into account in our management and that is why we presented a rather wide gap. In any case, for management, with the premise that the economy may take a downturn, we need to focus on improving operational efficiency. That is our main goal for this year. So to next year -- towards next year, we will complete our efforts on improving the operational efficiency. So things may get worse, but this management policy will remain unchanged.

So if I could elaborate. So the base guidance is an improvement, higher revenue. But if the environment worsens, then you will be in the negative territory. Is this correct?

Yes. Basically, the top line, if there is a downturn -- a big downturn, then the cost in spite of efficiency efforts may not be enough and we could see lower profit. If there's a delay in the recovery timing, as Deko mentioned, we will still prepare ourselves for year zero. And once we have more visibility in recovery, we will make new investments and we will start to increase advertising spend ahead of the recovery. So even in the low range, we will need to make some investments in preparation and that would mean some lower margins. And this may be a bit detailed, but as Kitamura-san said, Indeed PLUS revenue will be shifting from MS to HR Technology. So this shift or migration does have a numerical impact in terms of lower revenue. And if some negative scenario materializes, still we have to have the necessary expense and so that would mean a lower profit. So as Deko said, we would be prepared for the worst and this is the range that we have presented.

Next, JPMorgan Securities, Mori-san, please.

We are limited to 1 question, so this was difficult. But I have a question around HR Technology. I also wanted to ask some questions around M&S, but looking at specific periods, the HR Technology-wise, what are important events? I just want to confirm again with you. I think I have a good understanding on the macro aspects. But looking at the business, what areas will be your focus, specifically for this year? In the March Investor update, you mentioned a lot of things and Indeed Apply [ lever ] will need to be increased. Recently it has somewhat been stable at around 40%, 50%. And if you are going to increase this ratio, that means you need to add more added values. Are you going to focus on increase this percentage? What will you do in order to reach a higher level? And also yesterday, you mentioned -- you talked about some reduction in workforce and improving operational efficiency is important for the year. So would that be your focus? And you also mentioned making thorough preparations for year 1. Does that mean further improving efficiency? Or does it also entail something else? So for the HR Technology business, what is your main focus? That is my question.

Thank you very much. Simply put, we need to complete our efforts on improving efficiency. Our competitors are also presenting their numbers and we see that the U.S. was quite a challenge for staffing as well. The numbers quite fluctuated as if they were in a recessionary stage. So in this sense, in improving efficiency, what we consider to be most important is, of course, costs are important area, but the monetization, this also needs to improve in terms of efficiency. As Mori-san mentioned, we need to also increase Indeed Apply. What we offer to clients, our solutions need to be higher in values. And then we charge -- we bill them accordingly. We need to increase the client's budget accordingly. And this is something we are working on, on a daily basis by running various tests and we are starting to see good results out of these tests as job numbers increase in the U.S. and we need to be ready by then for the trend to take a positive turn. Including the organizational change, we need to be prepared so that we may act swiftly. So we need to bring these monetization efficiency tests to completion. And at this timing, AI, particularly GenAI is being incorporated into various aspects and these are bringing significant change. We need to be ready to adapt to these changes and apply those changes to ourselves. And that is why we are implementing these organizational changes. When the trend changes, we need to be ready and we need to make preparations for that. And in that sense, introducing further efficiency is important and I hope I answered your question.

Yes. I have a follow-up. Regarding Indeed Apply, within this year, more than half or more would be operational, up and running? Or are you intending to raise the ratio once the macro numbers recovered?

It should be higher as part of our thinking as management. But this integration also happens with the clients' cost. So when the economy worsens, things may not move as fast. As we heard, we haven't seen much increase in the past year or 2. But as numbers improve, hopefully, this will also be reflected.

Next, Munakata-san from Goldman Sachs, please.

This is Munakata from Goldman Sachs. It's difficult to choose one question, but I'd like to ask about the Japanese market in terms of the HR market. Indeed PLUS and TOWNWORK SUKIMA, Japan's unique initiatives seems to have accelerated. So the importance of the Japanese market seems highlighted from what we see. So how do you position the importance of the Japanese market? And over the past few years, have you changed the way you look at the Japanese market? Also regarding the Spotwork service, there are already competitors. So as a late comer in Spotwork, what do you think would be your uniqueness or your competitive edge in this area?

Kitamura-san, over to you.

Thank you for the question. Well, recently, the Japanese market HR for Matching Solutions and HR Tech, across the organization, we have been promoting various initiatives with Indeed PLUS at the center. And I think this has been very visible to the public. So in terms of this market, we do have a very high market share in Japan. And also, as mentioned at the onset, Japan is the second largest market behind the U.S. And by promoting new initiatives, perhaps we can realize the creation of a new service in Japan that would be expanded globally to other markets. And this is how we had been promoting the collaboration. So something that has been tried for the first time or invented in Japan being adapted to the global market. We have not had such an example in the past. But recently, we have recognized this possibility and that is why we are accelerating this. So have we changed our view on the Japanese market? To be frank, yes. And we need to make an effort to change the Japanese market ourselves so that what we are doing in Japan can be expanded globally. And this is not just HR Tech, but our group as a whole. Also regarding Spotwork, initially, we had 3 materials or resources to make the Spotwork business successful. One is AirSHIFT. So which shift is lacking, that kind of a corporate client information is available to us. And linked to that, there is shift mode. For people who are part-time workers, we have the application to manage the schedule of these part-time workers and this is linked to AirSHIFT. So on the shift board, we also know the information of people who are available, but are not working at the moment. Also, Spotwork is something that you receive immediate payment after work. And in order to provide that service, you need to cash out first. And then you make the -- you send the invoice to the client. And so there is this cash conversion cycle. And so we have the AirPAY service and we have liquid cash that is available for such an advanced payment. So we have other strengths, but these are the 3 competitive strengths that we have identified. And also, we have Indeed PLUS' unique matching system so that even if we are a latecomer, we believe that we can provide a valuable service. I hope that this answered your question.

That's very clear. It's very exciting to hear those initiatives. I'm looking forward to this and future updates.

Next is from Citigroup Securities, [ Yamamoto-san ].

I am Yamamura from Citigroup. I have a question about cash allocation. Cash over JPY 1 trillion down to JPY 600 billion. That is the reduction that you're aiming? That is a significant amount. And basically, shareholder returns will account for the majority of this. Based on the disclosed materials, M&As, which you suspended for the past few years will also be an option. So what is your priority? What balance should we consider this? And as for M&As, if you already have certain plans, any considerations, which areas in particular are you looking at? And what is the background of what you consider to be issues or challenges that need to be addressed through such M&As?

Deko, first on M&As, do you anticipate anything interesting to happen in this area?

Well, as you know, the U.S. has seen a rapid change in interest rate from 0 to 5. Based on this change, IPO and M&As, well, for M&As in the private sector, we are not seeing the numbers increasing, as you are aware. On the other hand, looking at start-ups, how they are financing through rounds based on our data in HR Tech start-ups over the past 2 years or more, they have implemented rounds of financing, the number amounts to close to 200 start-ups, maybe more than 200 in some cases. So in terms of activity or conversations, dialogue with start-ups and partnerships are increasing in number. But since we are talking about M&As, we want to be careful. If we rush into this, then the possibility of failures is also going to be higher. So we need to make sure that a company has a solid technology, which also shares the vision with us. With such companies, we are having conversations. But of course, M&As also consider the counterparts. Of course, we want to have some good results. So we are working on this. So while working on this, at the same time, we will be promoting shareholder returns. So we'll be focused on both. So allocating how much to which is not something we have or we share with you. But as I said before, we have the capital allocation policy of the company and that states that we use funds first and foremost for the businesses and they make stable dividends and then invest in promising M&As. And if we still have cash left and considering our valuation, of course, we will then implement share repurchases. That is the order and that order remains unchanged. So M&As and shareholder returns will be both sought and then we aim to bring the net cash level down to our target level.

Next question, Nagao-san, please.

I'm Nagao from BofA. I have so many questions and it's very difficult to narrow down the question. But since Kitamura-san is participating, I'd like to ask about Marketing Solutions and HR Solutions. Regarding Indeed PLUS, so having a unified solution, in putting that together with HR Tech, the job board type that kind of an agency reorganization may be necessary in terms of the remuneration or the former Recruit -- the ex-Recruit people who love Recruit, I think, have been responsible for them. But there seems to be some dissatisfaction on their side as well. But are you able to control that? And then from Indeed, when the job advertisements, job posts are sent, you need to make sure that there is no issue in terms of compliance. And that kind of an audit function needs to be added to Indeed in terms of the contents of the job postings. So is that really available in order to transition the business smoothly, I think we need some time to prepare. And so I would like to ask about the current status regarding the transition since this is a major turning point. I'm wondering if this will be a successful effort.

Well, you are very knowledgeable about this service. You have said it very well. Well, thank you very much for your question. In the transition to Indeed PLUS, we have agencies who have been partners and also ourselves, we need to change the way we work. This has been the decision that has been reached that we need to transform. And also in terms of the audit or screening of the job postings, we will be providing some people and we will be providing support in establishing this kind of an organization. And this ties in with what we talked about earlier regarding the financial numbers. So at this time, we're not really pursuing a higher profit more than any other indices because we need to make sure that we are compliant with the law and we need to provide sufficient audit functions. So this year, we will be focusing on these efforts more and that is why the improvement in terms of profit is limited. Of course, we are used to what we have been doing in the past and continuing what we have been doing is one thing. But there are some changes that we can make to further improve the situation. So we have to look at the balance. And this is not just from the agencies, but also from our internal employees, there are different views. Recruit is a very diverse organization. So there are people with different views. But we believe that Simplify Hiring and supporting the jobseekers find work that they can work with passion, we want to support such jobseekers more than anything and this is what we are committed to in the medium- to long-term. So we don't want to deviate from this goal. We want to work with everyone to make this service better. And as a result of that, we believe that we can generate profit that is higher than what we have enjoyed in the past. And creation of new value is essential in creating the future. We don't see a future of delivering profit growth without delivering new values. So this has been our focus.

Kitamura-san, what has been the feedback from the clients?

Well, we have received excellent feedback from the clients in terms of job application numbers and also regarding speed. In the past, it took like 2, 3 weeks to open up job postings, but now when companies require hiring, they are able to shorten the period and receive more application from jobseekers than in the past. So this is still early days. But over the past few months, we have received a very strong feedback.

May I add to that? Well, Recruit is a company that continuously challenges change and transforms itself. So in the short-term, perhaps doing what we have done before may be best. But now that Japan is facing a severe labor shortage and we know that this will become more aggravated as time goes by, we have had various internal discussions. And even though this is a big challenge, quite difficult, we wanted to create a solution to resolve this societal challenge and this is a decision that we have made as a group. So this is not just open to Recruit's job board, but also other company's job boards or other region's job boards. We want to work together with various partners in AI-based matching. So in this sense, this is our challenge towards the future. And so it may be quite tough, but we would like to work hard to make this successful.

Moving on to the next question from CLSA Securities, Kato-san, please.

Yes, I have one question. In March during the Investors Day, you had mentioned that we will have job offers to 100 million people by 2030 and 23 hires per minute by 2030 is the target you mentioned. So what will be the number of hires per minute then? And what are some of the factors that need to improve in order to reach that goal?

You're asking for numbers. Do we have numbers? Well, it's not that we have specific numbers. So rather than looking at numbers, we are focused on how we can make contributions to society and that is a benchmark that we are measuring against. We've done this last year and the year before that. And again, at the end of June or in the beginning of July, we will have the SI chat with myself. And hopefully, rather than presenting the best-case scenario and the worst-case scenario, we would like to talk about what we will be working on towards the goal. And coming back to what Deko said in the beginning, making everyone happy in the world, I think that's where we want to go. What needs to happen in order to reach that state, that's something we have yet to see. That is a difficult question. I believe in 2011 or 2010, Indeed, when I was writing the future goal for Recruit, I remember writing down 500 million users. Many people laughed at that. Everyone asked how I would achieve that, what is the formula you're using to calculate that number and many other questions. But today, we have 350 million users. We are still not there yet, but we are a company of a now continuous growth and we set ourselves a very ambitious target. We continue to run tests and we bring ourselves closer to achieving those goals. So I'm aware that this is not a satisfactory answer to your question, but I'm often engaged in similar conversations. But I would like to say that this is something that is not easy to calculate, but we are trying to reach and bring ourselves closer.

The next question will be the last question from Nomura Securities. Mr. Oum, please.

This is Jiyong Oum from Nomura Securities. I'd like to ask about the take rate of Indeed U.S. This year, what are the initiatives that we should focus on? For example, is it a connection to OTS or smart solutions, self-service, Indeed Flex? So what will be the priority in terms of the contribution of the different initiatives in Indeed U.S.?

Well, we're testing different initiatives and if I could highlight 2 of them. So there are many jobs that are being posted free of charge, without a budget. But there are job postings that have been posted 2, 3 years without any budget being allocated. And so we are testing -- asking clients to pay for that job post at some time -- after some time had passed. That is one. And then second is to provide the budget recommendation and to attach an explanation of why that budget should be raised. We are considering providing that in more detail. For example, for this job, this kind of an experience or this kind of a license is necessary. And our matching engine is very sophisticated. So the reason of the budget, we are able to provide a very finest analysis. So this kind of budget recommendation is going to be quite interesting. So that kind of automation requires perhaps more evolution in GenAI and more technology will be necessary, but we will be working on different initiatives to improve the take rate. And this is something that we need to have the customer onboard. We need to have them feel persuaded so that we can increase the take rate and the repeat rate as well. So of course, revenue is important, but we also want to make sure that the client satisfaction remains high.

So it is time to close. We would like to conclude the results call at this time. Thank you very much, everyone, for joining. [Statements in English on this transcript were spoken by an interpreter present on the live call.]