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A Case for $ZIP

ZipRecruiter ($ZIP) isn’t the sexiest company, but looking into their S1, I like what I see.

ZIP went public in late May via direct listing. Only existing shares were sold as the company is already profitable, and they had no need to raise additional cash or dilute ownership.

Since then the stock has had a floor of about $20, slowly rising to $27+ today, about a week before their first earnings call as a public company.

There have been 3 notable events that have had an effect on the stock in this time:

(1) A partnership with FB on 03August, which has pushed the stock up ~$1.50 (6%).

(2) Initiation of research coverage by a number of financial services companies. Mostly on 21June, which caused the stock to bump ~$2.25 (10.5%).

(3) A steady stream of conversion of reserve stock units to common stock and sales by early investors and executives.

The last of these increase supply of liquid stock in the marketplace and clearly puts downward pressure on ZIP. But…. the amounts you see being traded are not substantial on the scale of a ~$3B market cap. (Look for Form4 on SEC.gov for these sales) From the looks of it, it’s C-level execs cashing out ~$50-250k here and there. Nothing compared to the 85+ million shares sold (out of a fully diluted 123m) in the direct listing. (That and most of the high-ups seem to have the bulk of their stock locked up in family trusts.) Plus, I assume execs are kept from trading right now with their earnings announcement next week. Speaking of…

Unlike most tech companies going public these days, $ZIP is already quite profitable. By the looks of their S1, they took advantage of Covid to significantly reduce their cost structure and run a tighter ship (Operating expenses dipped from $381m (2019) to $300m (2020), over 20%. That while the money they’re making per employer (“Quarterly Paid Employers” in the S1) seeking employees via Zip went up 16% from ~$1100 to ~$1275. All in, the company ended 2020 with $86m in net income off of $418m in revenue. ($64m of net income, ignoring a tax benefit.)

Their Form 424B4 shows that the March quarter continued this trend, turning an $11m loss (2020) into a $13m profit ($20m). Revenues increased 10+% quarter over quarter. They were $20m cash flow positive for the quarter, with $135m in cash on hand against a little over $25m in convertible notes, the only debt listed.

Last: The business. I like that this isn’t a sexy business. The company is profitable and well-capitalized, but what they do (online job marketplace) keeps them under the radar. And we’re at a place where employers are willing to pay out their ears to get warm bodies in seats. See recent headlines like: “Millions of jobs and a shortage of applicants” and “US job openings hit record 9.2 million but businesses can’t find enough workers to fill them.” Which means ZIP’s customers are going to have more listings (+) and willing to pay even more for each of them (++).

So, yep, I’m long ZIP and have steadily bought between $20 and $25.

What do you think?

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5 Comments

  1. ZIP is the only pure play software company that only does recruiting. They will ride this wave of massive employee turnover post COVID. Other software companies have recruiting tools (MSFT/LinkedIn, Google, workday, etc) but the recruiting business won’t even be a rounding error on the financial results of the tech giants.

    ZIP is the way to play this trend.

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