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

All right. I know everyone's switching. Do we have it on the microphone? Okay. So I think we're on. I think everyone's switching rooms and moving around. But in the interest of time, let's move on to our next session. So it's my pleasure to have the team from ZipRecruiter here at the conference again this year. Ian Siegel, Co-Founder and CEO, Ian, thanks so much for being part of the conference.

Thanks for having me.

So I think maybe just start with a level set and a step back first. I know we're going to get into a lot of what's going on from the product side and the demand side on the platform as we go through this conversation. But for those who are less familiar with the company, why don't you set the table in terms of where the company -- the journey of the company has been on over the last couple of years, how it's evolved, what you're trying to aim for and shoot after over the longer-term perspective?

Is this working? Can you hear this?

Yes. There we go.

Great. Well, ZipRecruiter was founded in 2010. It was started at my kitchen table and bootstrapped for the first 4.5 years, took it to north of $50 million in revenue with millions of free cash flow before we ever took any outside money. The original concept for ZipRecruiter was born out of my frustration as someone who had serially worked for Internet start-ups and had no one to do his recruiting for him. I was the guy who'd take a job and put it on one job board, then another job board, then another job board. And every time I had to make a hire, it just took a stunning amount of time to just get a job live, so I could collect candidates. And the simple idea of simple premise behind the original ZipRecruiter was push one button and send to all job boards at once and have all the candidates from those boards come into one easy-to-review list. This is what I call the volume era of ZipRecruiter. So in our original incarnation, our only goal was to get you a nice pipeline of candidates coming in. Very quickly, we learned that after you reach a certain threshold of candidates, a lot of employers start to be unhappy with getting more candidates. And so then we moved into what I call quality era just when we started using the modern algorithmic techniques that I'm sure we'll end up talking a lot about today. That led to a tremendous amount of success for us as a business. And now finally, here we are in the present where we have all sorts of exciting new technologies that are emerging and allowing us to explore some completely novel directions and I'm sure we'll get into those as well.

We are as well. We talk on a quarterly basis on the earnings call, but we're going to go a little bit deeper into those today as well. But before we get into some of those technologies, I do want the level set again around the market opportunity, how you see the competitive landscape evolving for talent acquisition? Who you see? Because it's always interesting when new interesting marketplaces pop up, what I hear from a lot of companies is we're disrupting the old way of doing things. But then there's always questions that come from investors of, but also what are the other elements of competition you see out there. So how do you see the competitive landscape when measured against the market opportunity set?

Well, the recruiting category within HR is a $200 billion plus total TAM opportunity. And whenever I come to conferences like this, everyone asks me about the 2 obvious competitors we have, which would be LinkedIn and Indeed. Between the 3 of us, we are the 3 big dogs inside of the recruiting category. But the reality is that if you take all of our revenue and all the rest of the online players revenue, the total amount of the TAM that is represented by online is still under 10%. So the reality is that the majority of recruiting dollars are spent with offline recruiters, those are people who are collecting up to 25% the first year salary. And that's where really the bulk of the opportunity lies within this category because the disruption that has come to so many other categories has still evaded the recruiting category. And that's -- so when we look at competition, we do look at our online brothers and sisters and think about what they're doing, but we predominantly look at the off-line world because that's where we see so much greenfield opportunity.

So with that in mind, though, maybe just one follow-up for me. How do I think about with the problems or the friction points you're trying to solve for are to move that 90% plus online? How much of it is inertia, how much of it's education, how much of it's the right product, how should we think about unlocking that opportunity?

When you think about what a recruiter is paid to do, what do they get money for? It's really only 2 things. The first is to provide 3 to 5 ready-to-interview qualified candidates. And the second is that once that employer has picked the candidates, they like the best, to stoke that candidate to accept the offer from the employer. The technology we have built is better at finding the right matches for any open job than any human will ever be ever again. Without a doubt, we can definitely go find the best people in market for a job who are currently looking for work and who should be talking to that employer. There is, however, an engagement and social engineering component to what these recruiters do that has not been matched or mirrored by any technology company yet, and that is why they still play such a fundamental role because when you are a big company, what you're paying for is convenience and certainty. You're paying to have somebody who is in your pocket, working with you to try and fill this as fast as possible. I do believe that the technologies that are coming out today are going to make it possible for us to fully engage in competition with those offline recruiting value propositions. And that, I think, is the future we are all headed for.

Okay. There's been a volatile macro backdrop over the last 12, 18 months. A year ago, we were talking about one of the tightest labor environments that have been ever seen. Now we're talking about a very different labor environment today and certain pockets of the labor environment, we're sitting here in San Francisco in the technology industry or even more pronounced than what you're seeing in the broader labor market. Talk a little bit about the evolution of what's been out of your control from a demand standpoint and how you think about the current state of play of the volatility of the broader labor market right now.

Well, there has been tremendous shifts over the last 2 years in the post-COVID environment in the overall labor market. It started with a massive ramp up in hiring in 2021 and then starting in the middle of 2022, we saw SMBs radically pull back on hiring relative to the pace and the urgency that they had been demonstrating prior to that, but enterprise was still coming along at a very healthy clip. Then you get to this year, and enterprise pulls back as well and the seasonal hiring pattern that we have observed for well over a decade at ZipRecruiter, which made our business highly predictable for the first time ever, did not manifest. And you're sort of seeing like a bounce back from what was a period of time where there was an absolute war for talent, where no company could get enough people in their doors to a time where most of the businesses in America, businesses of all sizes are hesitant and weary to hire even though their businesses are not doing poorly, a very interesting switch that has been made. So everybody has effectively pressed the pause button because there's so much uncertainty around things like is there going to be a recession? What's going to happen with inflation? What's going on with the rates? It looks like this is an [ average ] period, a nonstandard period, something that I would call the perfect storm of factors that have come together and you're not just seeing employers who manifest this wariness, you're also seeing people who are currently employed. So the rate resignation is over. People who are currently employed are staying at their jobs. And so you effectively have both sides of the marketplace at the same time pressing pause and that has created a steep production and not just ZipRecruiter business, but in Ranstad's business and Indeed's business in multiple outplacement services. So effectively, anyone who's involved in the business of recruiting is going through a period where they are suffering right now, but is a macroeconomic-induced reality.

Understood. When you think about that current environment, you find yourself in, what are you looking for, for signs of a mix of stability or potential improvement in that environment? What are the signals you've been at this for a while in terms of running this business? From the outside looking in, what should we be watching for or what are you watching for to watch for signals?

Well, one of the -- one of the advantages ZipRecruiter possesses is that we have 80% brand awareness on both sides of our marketplace, which we achieved by spending over $1 billion on marketing in order to achieve that awareness level. And while deploying all of that capital into marketing, we were able to build very sensitive dashboards that tell us the ROI on literally every dollar we spend from a bottoms-up perspective. So that's like time to pay back, LTV-to-CAC numbers. And that's how we do it. I say we're scientists, not artists when it comes to marketing. And the way we measure the soft signals in there are things like how many new customers are we bringing in for the dollars that we're spending, how many old customers that we've previously had are reactivating, how many of our current customers are upgrading their accounts or buying upsells from us. There's a variety of metrics that we have internally that tell us both the volume of demand and the urgency of demand in the labor market. And that's why, interestingly, during COVID, COVID hit in March of 2020, we are able to see it within a week, we had taken down a substantial amount of our marketing. It's the lowest we ever took our marketing is when we learn the power of having a brand, it's amazing, by the way, I recommend it because the traffic kept coming to us on both sides of our marketplace. But what was really interesting is 3 months later, when we're in like the absolute belly of COVID where everything is shut down. We saw that employers were responding to what marketing we had almost immediately at that moment, and we're able to start ramping our investment because that's how sensitive our tools are in terms of being able to measure that response. So we have a -- we'd like to say like we don't have a crystal ball. I can't tell you where the bottom of the current labor market recession is going to be. But I can tell you that we have the ability to see it and respond very quickly when the signal flips the other direction.

Well, and to that point, I think one of the more interesting messages coming out of the last earnings call was just trying to marry investments and margin with the depressed demand environment you find yourself in. Help us understand a little bit about fixed versus variable costs and how to think about switching those -- flipping those switches and sort of moving back into investment mode? How should we be thinking about one leading the other and elements of tying those together from a time period standpoint?

Well, like I said, we have a very sensitive set of dashboards on what the response to our marketing is, and it's all running as programmatic way as we can. Again, we're scientists, not artists. So we pull back spend when we see the ROI start to diminish below thresholds that we set. We have a lot of flexible -- we spend a lot on sales and marketing. We have a lot of flexibility in our ability to rapidly bring those costs down and/or to take those costs up as we have demonstrated in the past. In addition to that, we rightsized our business for the current climate. It's how I'd put it. We did a risk of 20% this year. And we try to be really thoughtful stewards of the capital that we have. We try to be really strategic. So we are, while facing what is a terrible climate or recruiting companies, continuing to expect healthy double-digit adjusted EBITDA margins. We've been running as a profitable business since we went public. And it feels like that the advantage our business has is the speed with which we can react to market conditions, and we have now repeatedly demonstrated that.

Maybe just one more on this topic and then we'll move on to some of the bigger product initiatives. I could like me, I can't remember if we did this on an earnings call or away from it at a conference event. But we've talked in the past about investing in the downturn. How do you think about -- when you look at the history of technology companies and marketplaces, companies that position themselves well for growth in downturns and then are ready to capitalize on that coming out. How do you think about positioning the company irrespective of what you see right now for demand but being ready to capitalize on it coming out?

Well, I think the foundation for ZipRecruiter is the fact that we have an award-winning product. We have the #1-rated mobile app on both Android and iOS for job seekers who are looking for work, and that's the foundation from which we start. But we are keenly aware that when we think about what we're trying to do, which is to actively connect people to their next great opportunity, just being a traditional job board definitely doesn't cut it. And so what we need to do is continue to push innovation. What we need to do is give people better experiences than they've ever had when they were either looking for work or when they were looking for talent. And so we remain fully invested in both near-term, midterm and long-term innovation. We have strategies and specific perspectives on where the market is going and needs to go. That stays fully funded, and that's how we're investing into the downturn. The marketing and sales effort will be adjusted based on what the ROI is, but we are still pedal to the metal on R&D.

Okay. When you think about building scale on the employer side, on the hiring side of the marketplace, are you seeing any different behavior by geographies or industry verticals right now given the current landscape? And do you think -- and I think we've even spoken about this on our earnings calls. How do you think about improving or more diversifying the SKU of employers on the platform longer term and making investments there and growing additional layers of vertical scale on the platform?

I mean what is clear is there is always categories within the labor market that are growing, while at the same time, there are categories that are shrinking and the different market conditions create winners and losers depending on what cycle we're in, but what ZipRecruiter is focused on is not the individual categories or individual geographies, but the type of companies that are on our platform. So we started with SMBs and they still account for 80% of our business, but we have been consciously moving upmarket into enterprise. And over the last 3 years, now 20% of our business roughly is coming from larger companies that have very different hire needs. It's a totally different customer, someone who has 10 jobs versus someone who has 10,000 jobs. They're definitely not going to put those jobs on your site one at a time, and they're definitely not going to go look at the results of those jobs one at a time. So you have to build the right interfaces, the right sales force to talk to them. And that has been a major focus of ours. We would expect that over time, that's also going to be a major growth engine for us.

How much of what you need to build to capitalize on the enterprise opportunity is already built versus how much of it is still in process on being put in place to capitalize on that opportunity? I guess, I'm trying to understand rate of change on investment versus rate of change on capitalizing on the enterprise opportunity whenever we exit the current demand environment.

Well, you're never done. But if you look at where we started 3 years ago to where we are today, so the ability to ingest jobs, the ability to support large enterprise in programmatic bidding so that they can hit whatever their goal is in terms of like a target CPA or target cost per hire. If you look at the applicant tracking system integration, it's so interesting because no one who looks at this business, I think, fully appreciates the moat that is created around anyone who has taken the time and gone through the brain damage of doing more than 100 ATS integrations. There is so much biz dev to do you can do the tech just so that a new customer you are bringing on can buy from you quickly. It is so underappreciated like the advantage that being able to talk to an enterprise customer and say, try it out and then within 48 hours, they can actually be live on the platform as opposed to weeks confers to a company. And so that is work we've been doing for many years, these integrations with applicant tracking systems, and that is now definitely paying off.

Okay. So we talked a little bit about mix between SMB and enterprise. When you think about product set and the way in which you monetize, how would you expect some of the mix shift between the transaction model and the subscription model to continue to evolve on a multiyear view? And how does that feed back to elements of pricing mix in the business more broadly?

I mean, right now, our split of business is basically 80/20. And fundamentally, there's the same sort of unit economics on the 2 different pricing strategies that those different segments used to buy from us. So the margin doesn't fundamentally shift whether you're buying on a pay-per-click basis or whether they're buying on a subscription basis. But I would expect, if you look at the U.S. economy, effectively half of all hiring happens at large enterprises and half happens at SMBs is rational to assume that we will move to a more 50-50 split over time with large companies making up an ever larger percentage of the total revenue mix that we have. That's why we think it's a growth engine and as well as an opportunity to simply make our product better. Having all the jobs on your platform is one of the keys to success and fortunately, we've built such a strong brand that we can get in basically every door at this point. And it's been all about do we have the tools, make it easy for them to post their jobs, to make it easy for them to buy from us and to make it easy for them to see the results. And the answer is ever increasingly, yes.

Understood. Okay. You talked a lot about the investments you want to make in the technology that continues to get deployed on the platform. Why don't you bring us into the technology evolution that's been happening and innovation that's been happening on the platform in the last couple of years? And how we should be thinking about some of the technology driving end market results for the company in the years ahead?

Well, we definitely think of ourselves not as a job site. The last thing I ever want to do is drop someone on a job search form and they enter a job title and pick a city because nobody trains job seekers how to do that well. They're terrible at finding the right jobs that they should be applying to. So we think of ourselves as a matchmaker and just a massive amount of our R&D investment has gone into a variety of different algorithmic techniques in order to find the right jobs to play matchmaker between employers and job seekers. I told you the first era we were in was volume. The second era was quality because too much volume turns out to be a negative. Well, it turns out there's the third era, and we're in it now and that era is the era of engagement. It does us no good if we provide the right job seeker and get them to apply to an employer's job and then the employer reaches out and the job seeker goes to them. And that happens with surprising frequency, usually because employers took too long to reach back out. So we are spending a tremendous amount of time playing a social engineering role where we try to do what those recruiters do to stoke the 2 sites to engage with each other quickly and look attractive to each other. So a lot of our R&D focus has been going there. And then, of course, we were doing AI chat bots before it was cool. We have our character Phil, who has been on our site for the last 3 years. And he greets job seekers at the door. He has a human voice. He speaks in an informal tone and what we're so excited about is Phil has a set of highly specialized skills where he's deeply advantaged because is a trove of data from which to get trained on things like which companies should I show this job seeker to? Should I literally pitch this job seeker to? Did they reach out and recruit this person? Or which jobs, should I show to a job seeker that they're applying to jobs for which they're highly likely to get a response? That's a super power. But now we get to marry it with large language models and make so even more human than he has already been really was astonishing because candidly, as when you had a product background, I was not initially excited about a Phil-like character on our site and our product team convinced me and put it on the site and every single place we've put Phil has been a massive double-digit win in engagement. People love talking to characters that seem human. And so the idea that natural language through a large language model will allow it to become a real conversation is something we're very excited about.

It is interesting that we were talking about Phil well before. A lot of us in my role were writing AI notes in the last 6 to 9 months. Talk a little bit about the future of Phil within the broader evolution of the future of AI outward facing into the end demand environment. How do you expect it to change? What are you most excited about in terms of where investment dollars can translate into product enhancements in the years ahead?

If you think about the experience of looking for work, it is a lonely uncomfortable exercise for most people, maybe not the people in this room, but for most of the people in America, they don't know what they're qualified for. They don't know what they're worth. They don't know who they should be talking to. They don't know how to dress for interviews. They don't know how to answer the most common interview question. They just feel anxious at every step and they're never sure that it's like buying a car. Did they pay the right price? Did they take the right job, right? And Phil for the first time ever, has the ability to give them a forest view instead of looking at individual trees. It's dramatic what we have seen Phil do in terms of people's satisfaction and engagement with the product, and we've literally only just gotten started. So I think having an expert partner who's reassuring you along the way and giving you that context on these key questions, is transformational for the average job seeker in terms of the confidence and the likelihood that they're going to go into the job-seeking process.

So as generative AI as a technology continues to scale, what's the time to market to see some of those improvements that could play out with Phil? Is that the next 6 to 12 months? Is it the next 12 to 24 months? How do we think about iteration of product along some sort of time frame?

I think what you can expect is that ZipRecruiter is a great matchmaker today. And that every quarter going forward, you're going to be hearing about the improvements we're making to move into the category of extraordinary. That what we're looking for is all of the rough edges in the process a job seeker goes through, the things that reduce their confidence being rubbed away that they know they're talking to the right companies. And like I said, they know how much they're worth, so they know that they're getting the right amount of salary and/or compensation. So I think you're going to hear like a drumbeat that's what you're going to see.

Okay. The other question we're asking a lot of people this year at the conference is, I know there's a lot of fascination around how generative AI will be a consumer-facing or an enterprise-facing tool going forward. How do you think about deploying more and more AI and generative AI inside your own organization to improve processes and drive efficiencies and possibly accelerate elements of your long-term margin targets?

I think generative AI is an extraordinary technology. I think it has the opportunity in exactly the right context to be an unbeatable feature in terms of people's willingness to engage in a way that's comfortable for them. Its use as a tool within our organization is something that is happening on sort of like a spot basis. Right now, it's not happening systemically. It's use on our site is going to be much more focused and/or directive. So I look at it as something that's really nascent, though. Like the things that we're going to be able to do with this tool over the next few years are undoubtedly going to be extraordinary. But for the short term, the thing I think it does best is make people feel comfortable engaging with someone who's going to offer advise or criticism and improve some small aspect of the work that they do.

Understood. So bringing some of what we've said together, and I know you're in a mode right now where you see weaken demand and you're trying to manage margins and fixed versus variable costs against that demand environment. But if we come out of that demand environment at some point, how should we think about some of the key elements of investment priorities for the company of where you view it as mission-critical to deploy the right capital against the right opportunity set to execute?

Our investment philosophy and framework is very straightforward, and it's never changed, which is the first thing we're focused on is growth. We think the organic growth opportunity is substantial. Like I said, like all of the online sites combined have barely scratched the opportunity inside of the category. M&A increasingly viable, exciting because the prices were pretty unreasonable a couple of years ago, and now they're moving in our direction, and I think you can expect us to be looking very hard at a number of opportunities over the next couple of years? And then third and the least interesting is returning capital to shareholders. And I feel like the buybacks that we've been doing have been opportunistic, and we'll continue to be opportunistic with that, but that's definitely like a tertiary goal for us.

And in terms of maybe just coming back to a point, I know you've talked a little bit about so far today, but elements of signal. Is it really just elements of seeing the demand environment improve and then quickly following that with the investments you want to make? Or are there elements of where there could be a period of time where demand may be as stable to slightly getting better and you want to there might be a disconnect between margins and growth for a period of time just because you'd rather be ahead of the curve than behind the curve. Just want to know philosophically how you think about that.

I mean, philosophically, we were born as a bootstrap business. We are disciplined users of capital, and we will have good reasons for spending money. And we don't tend to speculate a lot. We don't tend to guess a lot. And even based on the guidance that we've been giving, like we tried to try to be a friend. We tried to share with you when we reported our last quarter's earnings like what happened in July? So you saw what we were seeing, so you knew why we were saying what we were saying. So I don't think you can expect to hear a lot of surprising. We're just taking a flyer on this because we want to get ahead of it kind of talk coming from the leadership team at ZipRecruiter.

Okay. Understood. So in the last couple of minutes we have, I just want to give you the opportunity. We've talked a lot about the market opportunity today. We've talked about the growth you've seen. Obviously, we're in the demand environment we're in, but there's a lot of interesting technologies that can be deployed to drive some of this offline to online penetration. What are your key priorities in the year ahead? What are you most interested about watching for the demand environment, the broader landscape in the industry and how to marry execution and investments against that landscape?

I mean, fundamentally, searching for a job online, which is how most people search for a job, sucks. It's still -- it's just terrible. It's -- honestly, it's like -- it's an almost pointless exercise for most people. And I feel like our focus is going to remain locked on that because what we're seeing is we had a 46% increase in organic traffic last quarter. This is a moment where we have an opportunity to build tremendous loyalty with job seekers who effectively like abandon the market because there was so much opportunity. Even if you change -- if you quit your job, you could get a new job so fast over the last couple of years. So finally, they need us. And I think this is going to be something you see us really dedicated to. And as I said, laser-focused on, we're also going to see us moving upmarket to enterprise because that's good for job seekers as well. They want to see all of the opportunities at all companies. They want to have the same advice from our personalized AI recruiter about enterprise jobs as they're currently getting about SMB jobs. And so I think you're going to see us lean really hard into, as I said, not just matching but stoking, how do we get the 2 sides to actively engage and do so quickly?

I do want to follow up with one point you made just there, which I should have asked about earlier. When you see organic traffic pick up the way it is, and obviously, there are more people in the environment right now, looking for jobs that there are available jobs. What can you do to nurture that audience so that audience stays in and around your brand and in and around your platform. So when the demand environment does improve, you sort of -- you're ready made for sort of a different stage of scale on the seeker side of the marketplace?

One of the things that we spent a lot of time on is ZipRecruiter is something called proactive sourcing. That's where we drive employers to go first. We get them to reach out to a job seeker who has not yet applied and say, "You look fantastic for this open role I have, will you please apply?" Now, getting recruited is something that most people in this room have probably experienced, but the majority of people who are in the labor market will never get recruited over their entire career. So this is a first-of-its kind and truly tremendous experience for them. It's like getting picked up. It's like being told you're beautiful. It's so rare for them and it's so extraordinary it becomes a story. And then after that, the other thing we do that is truly special. The #1 complaint from job seekers has always been a black hole. They have put up a job, and they never hear anything back. But on ZipRecruiter, we tell them when the employers read their resume. We tell them when the employer has given them a rating. And they have this feeling of momentum as they go through a process even when the employer is not communicating with them. That is part of why we have such a highly rated mobile app on both Android and iOS. And it has been a key part of our success. Like we're aware that this is not just a matching problem, this is an experience problem. And so I think that what this window of opportunity provides is an opportunity to introduce Phil to a huge number of new users, to introduce getting recruited directly from employers who never even looked at their job. And it's also an opportunity to discover that when you do apply, you have extraordinary insight and visibility and it's a lot of reasons to use ZipRecruiter, not just on this job search, but on all subsequent job searches you may do.

Okay. Well, I really enjoyed the conversation today. Please join me in thanking Ian and the ZipRecruiter team for being part of the conference this year.