Q3 2023 Earnings Summary
- Significant growth in organic job seekers, with three consecutive quarters of over 40% year-over-year growth in organic visits, driven by long-term investments in the company's AI personal assistant Phil, and brand awareness increasing to over 80%, positions ZipRecruiter well for future growth as the labor market recovers.
- The campaign optimization solution for enterprise customers is showing extremely promising results, with campaigns using the solution being 40% more likely to achieve their targets than those that were manually managed, potentially driving increased revenue from enterprise customers as adoption grows.
- Despite the challenging macroeconomic environment, ZipRecruiter achieved an all-time high adjusted EBITDA margin of 35% in Q3, demonstrating strong financial strength and operational efficiency, and remains confident in achieving long-term adjusted EBITDA margins of 30% as the company scales.
- Continued Revenue Declines and Steeper Sequential Declines: ZipRecruiter has not seen any return to normal seasonality and expects a sequential revenue decline that is steeper than in previous Q4s, indicating ongoing revenue challenges.
- Reduced Hiring Demand from SMBs Affecting Paid Employers: The vast majority of ZipRecruiter's paid employers are small and medium-sized businesses, which tend to hire less during the holiday season. This is expected to result in a material tick down in paid employers in Q4, potentially impacting revenue.
- Employer Uncertainty Causing Reluctance in Hiring: Employers are expressing profound uncertainty about the economic outlook, leading them to hesitate in investing in long-term hiring, which may negatively affect ZipRecruiter's business as employers delay or reduce recruiting activities.
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Revenue Trends and Outlook
Q: How did revenue trend in Q3 and into Q4?
A: In Q3, revenue trended roughly in line to slightly down towards the end, yet we finished a couple of million dollars better than our guidance . We haven't seen a return to normal seasonality and anticipate a sequential decline steeper than previous Q4s, reflecting current conditions . -
Margin Philosophy and Outlook
Q: Is there a target margin level during this down cycle?
A: We don't have a specific target margin. Q3 adjusted EBITDA margin was strong at 35%, driven by investment opportunities we saw . While margins may fluctuate based on our response to the environment, we remain confident in our long-term adjusted EBITDA margin of 30% as we grow and scale . -
Capital Return Strategy
Q: Will excess cash above $250M be returned to investors?
A: Our capital allocation strategy prioritizes organic investments first; we're cash flow positive and well-funded . We've been actively repurchasing shares opportunistically, approaching it with a long-term mindset, and will continue to do so when we see dislocations in the stock price . -
Business Outlook and Fed Impact
Q: Do employers need Fed rate easing to increase hiring plans?
A: Employers' uncertainty about the outlook is profound, making them hesitant to invest long term despite strong business results . Increased confidence—whether through Fed actions or improved sentiment—is needed for employers to ramp up hiring . -
Paid Employers and Revenue Dynamics
Q: How will paid employers and revenue per paid employer trend in Q4?
A: Typically, paid employers decline more materially in Q4 as SMBs hire less, while revenue per paid employer increases due to a mix shift toward enterprises . Although we haven't seen typical seasonality lately, we expect this pattern to hold this time . -
OpEx Seasonality and R&D Expenses
Q: Can you refresh us on OpEx seasonality and explain lower R&D expenses?
A: Historically, operating expenses—especially in sales and marketing—follow hiring market seasonality, but we haven't seen typical patterns for a while . R&D expenses decreased due to personnel reductions made in Q2, with the full impact reflected in Q3 . -
Job Seeker Growth and Platform Impact
Q: What impact does growing job seekers have on the platform?
A: We've had our third consecutive quarter of organic job seeker growth . This growth enhances our marketplace's liquidity, improves our product, and validates our long-term strategy . -
Job Seekers' Engagement Channels
Q: Where are job seekers engaging—mobile app, web, or desktop?
A: Job seeking is predominantly a mobile activity; desktop isn't a major factor . Job seekers access us via mobile web and mobile app, benefiting from our AI assistant "Phil" and high brand awareness . -
Campaign Optimization Adoption
Q: Is the campaign optimization solution widely available to enterprises?
A: It's largely available to larger enterprises . The solution depends on agreeing on specific campaign goals with employers, and early results are extremely promising as more employers hit their targets .
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