ZipRecruiter, Inc. (ZIP) Earnings Call Transcript & Summary

All right. We're going to go ahead and get started. My name is Doug Anmuth. I'm the Internet analyst at JPMorgan. It's our pleasure to have with us Ian Siegel, CEO and Co-Founder of ZipRecruiter. So ZipRecruiter is a leading online employment marketplace that actively connects people to their next great opportunity. The company's technology provides valuable service, especially in a tight labor market environment like we're currently in. The company had more than 150,000 paid employers as of 1Q. Prior to co-founding ZipRecruiter in 2010, Ian had a number of key leadership roles at pictage.com, rent.com and stamps.com. So thanks for being here, Ian.

Yes.

So maybe just to start out, you could talk about -- for those who are a little bit less familiar with the story, talk about what ZipRecruiter does and really how you're changing how employers find great talent.

Sure. Delighted to be here. So for those of you who may have heard one of our ads, you would note that ZipRecruiter initially provided a distribution service so that you could post a job to all job boards at once with one submission. We did that for about 4 years, and we just kept adding more and more places jobs got distributed to, so the volume of applicants we delivered just kept going up and up. And it turned out that when you keep delivering more and more applicants, you don't make employers happier than they were before, you frustrate them. And we realized we had to pivot from focusing on quantity to focusing on quality. That's when we made our first foray into leveraging machine learning and deep learning, effectively the same technology as when you go to YouTube that picks the various videos you see in the right rail or when you go through TikTok and you're scrolling and it seems to get to know you. We use that in the job category to help job seekers identify the right jobs to apply to and employers to identify the best candidates.

Okay. Great. So maybe you can talk about the competitive landscape a little bit just to help frame the kind of the overall backdrop. Who are your biggest competitors? And how is ZipRecruiter most differentiated from them?

Well, if you look at the recruiting category overall in the United States, it's over $200 billion in its TAM, and the bulk of that revenue still goes to offline solutions, so staffing for -- sorry, staffing firms, temp labor agencies, et cetera. And then something under 10% of it is amongst online competitors. And when you look at the growth that we've experienced over the last 12 years, and in particular, the last 1.5 years, we are significantly outgrowing the market in terms of the overall rate of growth of the recruiting industry. And then within the online competitors who we compete with, we've also been the fastest growing within that set. I think what you're seeing right now is the classic story of a category that is being disrupted by novel technology that had never been deployed inside of the category before. And you can see the impact both in the results that we're generating and also in the awards that we're winning. ZipRecruiter was voted by employers on G2 crowd to be the most recommend -- likely to be recommended job site as well as the best online recruiting site so...

So maybe we can talk a little bit more about the technology. How you're applying that? How it's most differentiated? How are you really trying to change the kind of flip the experience in terms of the overall job search?

Yes. So if you look -- let's focus on the online players for a second. If you look at the landscape, the U.S. has basically become a triopoly between 3 companies, which is LinkedIn, Indeed and ZipRecruiter. Those are the foremost recruiting solutions used in the United States. LinkedIn is a social network. It's a fantastic place to go recruit the currently employed passive candidate market, predominantly white collar. You go look at Indeed, it's the biggest job site. It fits all the traditional paradigms of the job site, meaning that you as a user get dropped in front of a search engine and you're asked to go search and find your way to the right jobs to apply to. Here's how ZipRecruiter is different. It's very straightforward. ZipRecruiter is not a traditional job site. ZipRecruiter is a matchmaker. When you come to ZipRecruiter, we onboard you and learn what it is that you are interested in. And then from that point forward, our software will literally curate opportunities for you for which you'd be a top 10 candidate using those modern algorithmic matching techniques that we talked about. It's not just a straight keyword match, it's leveraging the wisdom of the crowd. It's doing constant retraining on itself, and so it is very, very good with scant information at recommending the right jobs for you as a job seeker to apply to. And on the flip side, as an employer, as soon as you post a job, our solution will algorithmically identify the best candidates in your market for that job you just posted and give you the opportunity before they've applied to reach out and directly recruit them. That's proven to be a critical and highly successful approach, particularly in the hypercompetitive labor market that we have discovered over the last 1.5 years as companies have come out of COVID, and we've gone through this sort of grand reopening. So in summary, the biggest differentiator in ZipRecruiter is very much we are a platform now where employers go first and reach out and directly recruit the candidates they're interested rather than just taking a large passive candidates in who are randomly finding their way to the job and applying.

Okay. Great. So we'll circle back a little bit more there on some of the technology as well. I want to get your thoughts on current state of the job market. You've talked about being on kind of this glide path down to more traditional levels of the job market. Where are we on that glide path? And how do we kind of get back there?

Well, I think everything becomes relative when you consider the last 2 years. Coming into COVID, there were 7 million open jobs, sub-5% unemployment, and everybody was talking about whether or not we were at peak employment. And then COVID hits and 20 million people lose their jobs, and we think we're in for this long recession, but it turns out we couldn't have been more wrong. It actually proved to be very brief for employers. They started rehiring very quickly. Now we have 11 million open jobs as opposed to the 7 million when we thought we had a hot market pre-COVID and under 4% unemployment. And it seems like that when the country reopened, the demand for talent was not met by participation from workers who wanted to come back to work and that has been the predominant theme of the post-COVID recovery, which is all these people who had the opportunity to work a different way and/or to spend time away from work decided they want a different style of work and that has become a real gating factor to a return to normalcy as we once knew it. And we may never return to a normal job market, but as far as where we are in terms of hot job market versus a white hot job market, there's still 11 million open jobs. Yes, we've seen signs of slowing. Yes, we have added to our forecast and incorporated into our predictions that we will see a return to something closer to the 7 million jobs this year. However, it's very difficult to predict. And you know there are so many moving parts, whether it's inflation or rising interest rates or war with Ukraine and its impact on gas prices. So this has just been a 2-year period of sort of extreme outlier factors, making it difficult to predict. But as of today, we see nominal declines in appetite for hiring from employers, but we're still in rare air as it relates to the market that we came into COVID with and how we compare to it.

So you talked about some of the components here that are different versus pre-COVID and maybe some of the requirements or asks on both sides from workers and then also from companies. What has changed most in this kind of remote and hybrid type of world, for example?

Yes, there's an economist at Stanford named Nick Bloom, who did a bunch of research. It's so interesting because basically, he's posited that we have accelerated adoption of remote work by 20-plus years. It makes sense. The average worker saves 70 minutes a day when they eliminate their commute time and interestingly, grooming time. So the benefits from a time and a quality of life perspective are significant for job seekers and the currently employed. And you see that playing itself out when survey after survey -- and we did our own survey on this, 65% of the workforce now wants either fully remote or hybrid as their preferred work style. The headlines across the country right now say, employers are compelling workers to come back to the office, and yet even with that insistence from their bosses, they're still not doing it. So it seems like we are entering a period of what I'd call like radical change and acceleration into the future of work. So that means 2 things: one, employers need tools that effectively allow them to recruit nationwide because more and more employers are likely to move where the puck is going and adopt and accept hybrid or fully remote work practices; and two, job seekers need tools that make it efficient and easy to search for opportunity nationwide. That may sound easy, but that -- neither of those features were standard in any job site that has predated this COVID period, and it is nontrivial. If you are an employer trying to recruit nationwide and you post a job in all 50 states, I guarantee you will get thousands of candidates and you will never read all those resumes. That's a terrible solution, and this moment requires the kind of technology that we were fortunate enough to be experimenting with these last few years, which allows you to, in a much more surgical fashion, identify the top candidates, not just in a specific geo, but literally across the country and enable employers to reach out to those candidates directly, effectively recruiting them.

Okay. So there's this guy named Phil that's pretty important to ZipRecruiter. Who is Phil? What's he all about?

So when we looked at the labor market and how it worked, it was really interesting because effectively, there's no employer who feels like they're great at hiring, and I guarantee there's no job seeker who feels like it's easier and fun to find work. And so everybody is thrashing in this, and we decided rather than build another job site, what would work better? What do people want? And what they really want is a guided experience. What they really want is an expert partner who effectively tells them every step of the way what they should be doing next, how they should be enhancing their resume, what jobs they should be applying to, how they should go dress for the interview, how they can negotiate for pay. And so we have set out to do something, I think, relatively ambitious, which is produce a personal recruiter who is like your career coach, who meet you at the front door of ZipRecruiter, onboards you, effectively does an intake and then guides you through the entire experience. We have a philosophy that we're going to make this process feel more human and rather than a do-it-yourself search engine, you are going to have a curated white glove expert who takes you through and helps you get a job. So far, the results of our initial experimentation have been off the charts. Introducing Phil to our onboarding flow increased onboarding completion by 29%. Phil is the persona that has become our product, and he is capable of doing so many different things for job seekers, which is the primary thrust of our investment is the answer to the question of why should you use ZipRecruiter if you are a job seeker. It's because on ZipRecruiter, you get this expert partner who guides you through the entire process.

So walk us through a little bit. I go on to ZipRecruiter, how am I interacting with Phil? Let's say, I'm looking for a job in finance. I don't think that I am. Maybe after this week, it's possible. But how -- what's the experience in the ways that I'll use Phil?

Well, I'll just give you a couple of examples because it's possible to become a very long onboarding process depending on who you are. But the most important things that Phil does is, number one, he figures out what type of job searcher you are. So there's a really broad spectrum of people who need a job tomorrow to people who are opportunistically looking for work, to people who just don't want to miss a great opportunity. So he does that segmentation upfront. He identifies your preferred work style. So are you somebody who wants to be in an office? Are you somebody who wants hybrid work? And then Phil is going to assist you by ingesting either your resume or letting you create a mini profile, identifying opportunities for enrichment in there and then begin the process of curating opportunities for you and most importantly, pitching you as a candidate to jobs where you'd be an extraordinary fit even before you've applied so that then the employer reaches out and directly recruits you. Phil is effectively operating as your advocate all the way through this process and that's something that hasn't previously existed. We did a survey of job seekers that got hired over the last 6 months and the biggest finding from it is that 37% of them were recruited to the position that they took. This is a radical departure from where we were back in 2019 when a similar study found that only 18% of the people who had found new work were recruited to those positions. The trend is increasingly tilting towards, particularly in this market, employers going first.

You mentioned -- you talked about a UI update recently that drove a 13% increase in job seekers completing an application in 1Q. Can you talk a little bit more about that? And then also, how do you envision ZipRecruiter's UI kind of evolving over time?

The challenge that faces modern job sites sort of the ones that are in competition for top position in the U.S. starts with matching. So it's very much you have to be deploying one of these modern algorithmic techniques, if you want it, that's table stakes. But then it doesn't matter if we get the right job in front of the right candidate if they apply and the employer takes too long to respond or vice versa. Employer reaches out and the job seeker takes too long to respond. It's all about speed and engagement. We really focus on getting users through information as quickly as possible because we know from the data that the average employer will spend 7 seconds or less looking at someone's resume. All those carefully crafted pieces of pros that you guys have been putting in your resumes are wasted. You should write like a cave man, it's easier. And then similarly, we know that many job seekers don't get all the way through job descriptions. They're just like, yes, that's a company I've heard of, that's a salary I like and they press the apply button. So the kinds of UI improvements we've already made that generate these kinds of wins are on both sides, figuring out how to condense information into shorter, easier to digest components so that decisions can be made with more efficacy and engagement can be driven up. There is going to be many more improvements along this vein. It is a nontrivial portion of what we do. It's the social engineering layer that we put on top of the awesome matching technology that we've been building.

Okay. Great. So let's shift gears a little bit, talk about some financials. You recently raised your '22 revenue growth outlook by about 4.5 percentage points to 23% growth at the midpoint. Can you talk a little bit just about what macro environment that's assuming in this guide? And kind of how do you think about that trending as you go through the course of the year?

We have, I would say, an interesting market in which to give you guys predictions about our revenue, and the reason I say that is, in a post-COVID recovery where we had a white hot spike in employer demand, it's very difficult to assess the speed with which a market will return to normal. So we -- our perspective has always been that the market will, in fact, return to a more normal state. We keep building it into our forecast. And what's a normal state? I mean I think for this year, in the forecast that we gave you, instead of there being 11 million open jobs, we don't think it's going to go all the way down to the 7 million we had pre-COVID, but it is going to start to come down to something possibly in between those 2 numbers. That's what we have built into our forecast. We could be wrong. We look at the numbers today, and we start to see an easing of demand from employers, but it is modest, and it's also on a relative basis, still in the rare air of -- it's near the top of the spike than it is the 7 million. So it's entirely possible that we've been too conservative. But then you look what's happening in the stock market and with inflation and the interest rate rise, and I would say, this is even more challenging as the year to try and predict where the market will go. So that is our philosophy though that we will see some regression from the 11 million open jobs that we are looking at today.

How quickly, how immediately do you see the impact, right? I mean there's companies obviously all around us this week, quite frankly, who are talking about slowing down hiring, maybe curbing kind of hiring completely. How quickly does that kind of translate into what you see on the platform?

We're a really good early indicator on our platform of what's going on with the labor market. We're large enough in terms of usage on both sides of our marketplace to be statistically significant, and usually job postings are a leading indicator of what's going to happen in things like the jobs reports that the labor department puts out. So I think it will probably -- and I want to say this carefully, it will probably be something that we can clearly see coming now. I got a real lesson in humility when COVID happened because let me tell you, nobody saw the millions -- actually, the tens of millions of people who would lose their jobs and the collapse of the job market that happened really in like a 2-week period after WHO declared a pandemic. So that was an interesting perspective builder for me, but I'm dubious of another sort of outlier shock to the system like that.

Okay. So in 1Q, you grew paid employers by about 3,000 sequentially and kind of bucking the seasonal trend, right, which has been more of a sequential decline, maybe you can just talk about some of the key drivers there. Then how do you think about current mix of your paid employers? Whether it's across geography, industry size, how do you kind of segment them?

I think the most relevant segmentation to take the back half of the question first is about 80% of our business is from SMBs. We started in SMBs and about 20% of it comes from enterprise. The U.S. labor market is broken effectively 50-50 in terms of hiring between those 2 groups, so we're not reflective of it, but we are moving very quickly to become a reflection of it, and I would expect over time that we will get to 50-50 on revenue. It's part of the reason why ARPE, our average revenue per employer, continues to climb. And I can't remember the first part of the question. What was it?

Just the drivers in 1Q, the 3,000 sequential increase.

I mean the fun thing about ZipRecruiter as a CEO is, we don't have to stock inventory to drop ship to people ahead of time, so we don't have any supply chain issues. We are a very dynamic and nimble business, and we displayed that. I think the most common question I got asked today was, what do you do in a recession? And the answer was like, okay, let's go look at what we did during COVID, which is, we implemented austerity measures, and we took marketing way down, and we became a significantly more profitable company because we're able to operate very quickly in terms of cutting expenses. And that same philosophy, though, means that when we see opportunity, we will aggressively invest into it. So when you look at first quarter, we have a highly repeatable playbook with our sales force. We saw that it was working. We had high confidence that we could staff it faster. So we hired up in sales, and we were able to buck what had been a multiyear historical trend of first quarter dropping below what we saw in Q4 before the inevitable climb in Q2 and Q3, but that's the philosophy with which we operate, which is sort of rapid strategic decision-making followed by changes to our investment.

Okay. Great. You mentioned ARPE kind of -- we saw record highs, basically north of $1,500 accelerated for the third consecutive month, essentially in 1Q. How do you think about the biggest drivers going forward of that monetization improvement? Maybe you can talk about some of the premium options as well that are helping there?

ZipRecruiter very much operates like an auction-based marketplace. And what I mean by that is, regardless of your pricing plan, it doesn't matter if you're on subscription, it doesn't matter if you're in performance marketing, there are multiple ways you can pay more to get more. And we are observing a consistent and predictable pattern of businesses doing just that. So the ability to see into the future and predict where our revenue will go, I feel is relatively high as a result of that. We -- the things that drive revenue per paid employer up are really twofold. The first is the introduction of premium options, so more ways for employers to pay more to get more and each of those that we've rolled out has been successful. And then the other is customer mix shift. So as more and more of our customer base becomes larger enterprises, not all quarterly paid employers are equal. Some have thousands of hires to make and some have one, and the one with thousands of hires to make will spend a considerable amount more on ZipRecruiter than the person who only has one.

Okay. How do we think about kind of long-term growth potential of the company and the drivers of that growth? And I guess within that kind of mix of paid employers and ARPE.

ARPE will, in my estimation, predictably and consistently go up. It's the thing that when we look at it has -- I mean there was an anomalous quarter, thanks to the super spike that we experienced post COVID, where new customers flooded our service and new customers spend less. So ARPE went down for the first time in, I think, years and then immediately resumed its normal March up and to the right. And that's just because, as I said, it's an auction-based marketplace. The more employers on the platform bidding against each other, the more it drives up price. How high can it go? Significantly higher than we are currently at because we dramatically underpriced all of the offline options that employers have available to them where they are happily playing as much as 25% of the first year of a person's salary or they're paying a significant premium for temporary labor. So we are pound for pound unquestionably dramatically underpricing the market. And when you look at the efficiency of online tools, particularly with the deployment of these modern algorithmic techniques and you look at the trends where there's this desire for remote work amongst job seekers, there's a need for employers to directly recruit talent to be successful in pulling them in. I think we are in the right place at the right time with the right technology. So we grew 81% in Q1. That's significantly faster, obviously, than the overall recruiting category. We're definitely taking market share from both the offline and the online competitors at this point. And so far, this year looks very much in line with what we have predicted.

You talked earlier about $200 billion TAM for recruiting in the U.S. How do you think about, I guess, what's really addressable to you? And do you have ability to like reach up more kind of go after some additional areas within that TAM?

I think there's an incredible opportunity in front of ZipRecruiter because historically, job sites fail more than they succeed. That's just the fundamental truth. If you had a job site that always filled your job in less than a week, everyone would use it. That's just the reality of it. So when we introduced these modern algorithmic techniques to the job search process, it took the average time of job was posted on ZipRecruiter down from 39 days to 17 days. Our goal is to get that under 7 days. That is achievable. And if we achieve that, the quantum of disruption is not only significant in terms of taking share away from the existing market players, but how much more hiring would happen, particularly amongst small businesses, which are overtaxed from a time and money perspective if they had more certainty and outcome, if they knew that it was easy to hire and find quality talent. How many more people would look for work if they felt like finding a job was easy that they just had to raise their hand and say to employers, I'm available. Go ahead and recruit me. I think that's the world that we're heading for. If you ask me what the world looks like 5 to 10 years from now or how my kids will look for work, that's how it's going to operate because it just makes more sense. Nobody on either side of the current marketplace is happy with the thrash involved in posting a job and getting bad candidates or not getting a response once you've applied. So I think that when you talk to me about TAM, I think that there is significant upside on the TAM in general, but I think there is a big ability for us to go also take market share away from all of the existing players.

Okay. Great. How do you think about balancing growth and profitability? And what are some of the key focus areas for investments as you look over the next 12 to 18 months?

Well, I'm not sure everyone here knows the story of ZipRecruiter, but we bootstrapped for our first 4.5 years, took the company to north of $50 million in revenue and had millions of free cash flow before we ever brought in $1 of outside capital. And being a steward of capital as a bootstrap entrepreneur is effectively in my DNA and it's affected our philosophy about where we invest and how we invest all the way through the current day, we believe we can continue to be a growth company, but we're also going to be a company that generates healthy margins because that's just sensible in our opinion, and we intend to continue to do that. We've given a long term -- we're currently predicting 16% margins for the year, but long term, we believe we can drive that to 30%, and we have high confidence in our ability to do that. Again, if you go back and look at 2020, we've effectively done it once. So as far as go-forward investment, I think there are a couple of areas where we're really keen to invest right now. One is going to be in simply accelerating organic growth. That's just making our current features better and/or adding new features that make our service better and better just means filling jobs faster. Another opportunity for us that we're closely examining is corporate development. So there's a number of acquisitions that potentially make sense for us. There has been a disconnect, I'd say, between the private market valuations and public company valuations, but I think that we may be in a period of sort of extreme compression of those valuations. And so I definitely think that's an option that's in front of us.

Okay. You began repurchasing shares this year, and you've completed 62 million of $100 million authorization. Could you talk a little bit just about your current thoughts around capital allocation and kind of what changed for you to start that buyback program?

We're in an interesting position, I would say. Our first and primary use of capital is going to be to accelerate organic growth. That is definitely our top of mind use for it. And we have a number of places -- as you just saw what we did in Q1, where we accelerated the expansion of our sales team where we can deploy capital effectively. Secondly, acquisitions. Definitely, if we can buy something that will assist our mission of connecting people to great opportunity, that's going to be the second use of capital and that's the one we're most interested in. A distant third would be a stock buyback, which we did once and we did it because we felt our stock was undervalued and that this was just a sensible decision. And now the stock has fallen from the value at which we've been purchasing it, putting us in a really interesting strategic position. So I would say, it's sort of an extraordinary time and extraordinary impact. We thought it was undervalued in the low 20s, and now I don't even know what it is today. So it's not off the table that we would continue to do share buyback, but it's certainly not my priority.

Got it. Okay. What does ZipRecruiter look like in 5 years' time?

I think the most important change to ZipRecruiter is Phil because it's going to be something completely unlike any job site you have ever used where you're literally going to feel like you're talking to a human, who is guiding you through the process of finding a job, who is advocating for you aggressively with employers where he thinks he would be a fit and he gets smarter every quarter. He is persistently retrained millions of data points of interactions between employers and job seekers. This is not a bullion match of keywords between a job description and a resume, this is something that literally could not have been done until this decade. And I'm -- like when we roll out new versions of the algorithm to this day, we're still getting double-digit percentage wins on the satisfaction of employers as measured by the thumbs up they give candidates when the algorithm picks the candidates for them. So I just wonder how far we can take it, how fast and efficient can we make the process. If over well above 50% of the candidates who get delivered are getting a thumbs up from employers, how high does that thumbs up rate have to go before the employer says, just set up an interview for me. I don't even need you to give them a thumbs up. You pick them, just get them in here. Yes, trust Phil. Thank you. So I think we're going to be changing the way hiring works, and we're going to change the way job seekers look for work. Most importantly, job seekers hate applying to jobs. They hate it. They don't have to on ZipRecruiter. On ZipRecruiter, the employers are effectively applying to them.

How do you -- maybe the last question, but how do you improve awareness of Phil? And how does -- how do you think about kind of your overall branding and the marketing message? You've kind of said that you don't want to be known for kind of all the marketing you do through podcasts and other things, but really about the product and how people can use that.

Well, my personal background is a product background. So I've been building products for a variety of internet start-ups for more than 2 decades. And so I take great pride in the ZipRecruiter product, but we have pushed the envelope not just in product innovation, but also in marketing approach. It was one of the keys to our success, and we were really the first to do a number of different media channels. So whether it was satellite radio or it was podcast or like, believe it or not, direct mail, like we went into categories that online businesses don't normally go into. And because of the breadth of advertising we did, we started to build a brand, but really that brand was much more focused on our advertising than our product, which is an interesting situation. What I think is going to happen though is that the quality of the products that we have created is going to create a wave of evangelism, and we're already seeing it. We've literally won awards for both our employer products and for our job seeker products. We're the #1 rated mobile app on both iOS and Android, and that's been true for years. These are not small accomplishments. This is a hypercompetitive field with true technology titans participating in it with the likes of Recruit or Microsoft behind them. So I think Phil, in particular, is going to be the thing where you don't just take market share, you take mind share, where we will have an identity as a business that does something unique and different and novel.

All right. Great place to leave it. Thank you, Ian.

Yes.