ZipRecruiter stock falls as job market keeps getting worse

By Tomi Kilgore

Drop in demand for hiring has spread to larger companies, with job postings and spending on job advertising falling

Shares of ZipRecruiter Inc. took a hit Wednesday after the online hiring platform said demand for jobs has weakened even more than previous projections, with the weakness now spreading to larger businesses.

The company also withdrew its full-year revenue guidance, given the "evolving and uncertain" economic environment.

The stock (ZIP) sank 3.2% to close at $16.54, but pared earlier intraday losses of as much as 9.8% to a five-week low.

On Feb. 22, the stock had plunged a record 22.6% after the company warned of a first-quarter revenue shortfall as employer demand in January remained weak, particularly among small- and medium-sized businesses (SMBs), rather than follow the usual seasonal pattern of a run-up in demand. The midpoint of the guidance range for first-quarter revenue implied a 21% drop from a year ago, as January's trends were expected to continue for the rest of the year.

While the company reported first-quarter revenue that beat expectations, by falling just 19%, demand trends softened even more in recent weeks, with April revenue down 27% from last year. And the weakness is spreading.

"This reflects a contraction in demand, not only with both SMBs, but also with enterprises, as both are continuing to reduce the number of jobs they post and the amount they spend for job advertising," ZipRecruiter wrote in a letter to shareholders.

"This means we are no longer following the standard seasonal job market pattern ZipRecruiter has tracked over the company's 13-year history, excluding the COVID-19 pandemic period," the company added.

The company said it expects revenue for the quarter to June of $167 million to $173 million, down 30% to down 28% from a year ago. That compares with the FactSet consensus as of the end of April of $189.3 million. The consensus declined to $172.7 million after the guidance was given.

"Given the evolving and uncertain macroeconomic environment, we are not providing annual revenue guidance," the company said. In February, the company had said it expects 2023 revenue of $770 million to $790 million, which represented a year-over-year decline of 15% to 13%.

ZipRecruiter's downbeat outlook on the jobs market followed those made by others in the staffing services business.

Kforce Inc. (KFRC) said earlier this week that, after seeing an elongated sales cycle in the fourth quarter due to macroeconomic uncertainty, it would typically see a gradual increase in consultants on assignment through the first quarter, "but that was not the case this year."

And ManpowerGroup (MAN) said in late April that the softening trend it saw in the fourth quarter continued into the first quarter, "with demand for staffing services slowing further, most notably in the U.S."

The negative comments from staffing services companies contrasted with the latest government employment data, which showed the economy adding more jobs than expected in April, with the unemployment rate falling to match levels not seen in more than 50 years.

For the first quarter, ZipRecruiter reported late Tuesday net income that fell to $5.01 million, or 5 cents a share, from $8.4 million, or 7 cents a share, in the same period a year ago. (Earnings per share didn't fall as much as net income because the number of shares outstanding used in calculating EPS declined 13.4% to 109.98 million shares.)

That beat the average analyst estimate compiled by FactSet for a per-share loss of 2 cents.

Revenue was down 19.1% to $183.8 million, above the FactSet consensus of $179.7 million.

Cost of revenue fell less than revenue, down 4.6% to $20.6 million, as gross margin contracted to 88.8% from 90.5%.

Separately, the company said it was adding $100 million to its share repurchase program. After spending $60.2 million to buy back stock in the first quarter, the company said that as of March 31, it had $50.5 million remaining in its share repurchase program.

"ZipRecruiter believes investing in undervalued equity is an attractive option in its balanced capital allocation approach," the company said.

The stock has tumbled 24.8% over the past three months, while shares of ManpowerGroup have dropped 19.2% and of Kforce have lost 5.4%. In comparison, the S&P 500 index has gained 1.2%.

-Tomi Kilgore

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05-11-23 0805ET

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