Indaba WebTech Research: Online Recruitment (LNKD, MWW, DHX)

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Indaba's Webtech Research report covering Online Recruitment space. This report will help Portfolio Managers make investment decisions regarding the online recruitment sector.

* We are structurally positive on the outlook of social-passive recruitment models.

* We expect the businesses to outperform with the elements of a) user engagement; b) client retention; c) focused target market

The companies we cover in depth include LinkedIn (LNKD), Monster (MWW), Dice Holdings (DHX). We have initiated coverage with Buy ratings on each of these because of their evident strong points.

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Indaba WebTech Research: Online Recruitment (LNKD, MWW, DHX)

  1. 1. Talent  Acquisition  Investing  in  Online  Recruitment     -­‐  March  23,  2012  -­‐  
  2. 2. DisclaimerThis   presentation   is   confidential   and   intended   solely   for   distribution   by   Indaba   Global   Research     on   behalf   of  WebTech  Research   .  This  document  may  not  be  reproduced  or  redistributed  without  the  express  permission  of  Indaba  and  WebTech.    Recipients  of  this  document  agree  to  treat  the  document  as  confidential  and  agree  not  to  disclose  or  permit   agents   or   affiliates   to   disclose   any   information   contained   herein   without   the   express   written   consent   of   Indaba   and  WebTech.    This   document   has   been   prepared   for   discussion   purposes   only   and   does   not   constitute   an   offer   for   sale   of   any   security.  WebTech  is  not  a  legal,  tax,  or  accounting  adviser  and  makes  no  representation  as  to  the  accuracy  or  completeness  of  any  data  or   information   gathered   or   prepared   by   WebTech   hereunder.   Your   company   should   therefore   consult   with   its   own   tax,  accounting,  legal,  or  other  advisers  and  make  its  own  independent  analysis  and  investigation  of  any  proposed  transaction,  as  well  as  the  financial  and  tax  consequences  thereof,  the  creditworthiness  of  the  parties  involved  and  all  other  matters  relating  to  any  transaction,  prior  to  its  own  independent  decision  whether  or  not  to  enter  into  any  agreements  in  connection  with  any  transaction.    This  document  is  not  intended  to  provide  the  sole  basis  for  any  evaluation  by  you  of  the  transaction,  security,  or  instrument  described  herein  and  you  agree  that  the  merits  or  suitability  of  any  such  transaction,  security,  or  instrument  to  your  particular  situation  will  be  independently  determined  by  you  including  consideration   of  the  legal,  tax,  accounting,  regulatory,  financial,  and  other  related  aspects  thereof.  Opinions  and  estimates  constitute    judgment  and  are  subject  to  change  without  notice.     In   particular,   WebTech   owes   no   duty   to   you   (except   as   required   by   the   rules   of   the   Securities   and   Exchange  Commission,  FINRA,  Financial  Services  Authority,  and/or  any  other  regulatory  body  having  proper  jurisdiction)  to  exercise  any  judgment  on  your  behalf  as  to  the  merits  or  suitability  of  any  transaction,  security,  or  instrument.     -­‐  2  -­‐  
  3. 3. WebTech Research OverviewWebTech  Research  produces  a  research  product  tailored  specifically  for  investors  searching  for  an  investment  edge  in  emerging  web-­‐based  technology  companies.    We  are  distributed  exclusively  through  Indaba  Global  Research.    We  enable  clients  to:    EFFICIENTLY  NAVIGATE  INVESTMENT  OPPORTUNTIES  IN  WEB-­‐BASED  TECHNOLOGY  COMPANIES   Concise  Communication:  Large  amounts  of  data  distilled  to  the  most  important  pieces  of   information.     Actionable  Items:  Investment  ideas  with  catalysts  for  realization  of  our  thesis.  We  know  our  clients      INVEST  WITH  CONFIDENCE   No  Conflict  of  Interest:  Our  only  clients  are  investment  firms.   companies  we  cover   Buy  Side  Experience:    Our  ideas  are  generated  by  investors  who  cut  their  teeth  with  hedge  fund   investment  teams  and  remain  active  investors     -­‐  3  -­‐  
  4. 4. Investment Universe + Report FocusOur  Universe  of    Web  Technology   ADVERTISING SEARCH MERCHANTS E-COMMERCE Platforms   MEASUREMENT CONTENT Blogging   AGENCY  / DIVERSIFIED TRAVEL Recruitment     GOVERNMENT POLICY Networking   SOFTWARE  & IDENTITY SERVICES Gaming   Content  Sharing   LOCATION CONTENT SERVICES DELIVERY SOCIAL INFRASTRUCTURE DATA CENTERS PLATFORMS Focus  of  this  Report   Online  Recruitment  Value  Chain   Consumers   Online  Recruitment  /   Enterprises   Networking  Companies       Online  Networking:  LinkedIn,   Viadeo,  Xing,  Chatter   Worldwide  labor  force  =  3.3B;    Traditional:  Monster,  Dice,   200,000  enterprise  level   Professionals  =  640mm     Career-­‐builder,  etc.   companies   -­‐  4  -­‐  
  5. 5. _____1. Passive recruitment refers to the recruitment of candidates who are satisfied in their current positions and are not actively seeking new opportunities -­‐  5  -­‐  
  6. 6. Global Talent Acquisition Opportunity The  growth  of  the  talent  acquisition  market  will  be  largely  contingent  on  a  continued   recovery  in  the  global  economy.       Talent  Acquisition   Internet   Underpenetrated   Asian   Opportunity  ($B)   USD  B Penetration   Penetration economies  will  grow  faster   than  their  developed   peers   120.0 100.0% 86.0%   86.5%   87.0%   88.0%   CAGR  -­‐ 9.4% 85.5%   90.0% 100.0 80.0% CAGR  -­‐ 4.6% 70.0% 80.0 60.0% 60.0 50.0% 38.0%   35.0%   40.0% 30.0%   32.0%   40.0 28.0%   30.0% CAGR  -­‐ 4.8% 20.0% 20.0 10.0% 0.0 0.0% 2010 2011E 2012E 2013E 2014E EMEA America Asia/Pacific Internet  Penetration  -­‐  US Internet  Penetration  -­‐  International_____Source: IDC, April 2011 -­‐  6  -­‐  
  7. 7. US Recruitment: Spending by Channel US  businesses  will  continue  to  use  multiple  channels  to  recruit  talent       a   winner-­‐takes-­‐all scenario  is  unlikely.   2010   2010 2015E   2015F 21%   7%   3%   10%   Recruitment  spending   to  remain  fragmented   42%   15%   15%   43%   10%   3%   9%   23%   2010 Total  Spending:  $42B ~5.5%  CAGR   Total  Spending:  $55B Staffing  Services Executive  Search  Services Online  Recruiting Classfied  Ads Outplacement  Services Others_____Source: IDC, April 2011 -­‐  7  -­‐  
  8. 8. US Recruitment: Positions Filled by Channel Passive  recruitment    even  in  its  nascent  stage    is  the  source  for  10%  of  all     positions  filled  in  the  US.     Job  Portals;  19%   Internal  Candidates;   19%   Active   Candidates   We  expect  active   candidates  to  increasingly   Social  Media;  1%   profiles  on  professional   Other  Sources;  3%   networking  sites,  driving   professional  network   share  gains.   Print/Newspapers;  3%   Employee  Referrals;   16%   University;  7%   Agencies;  9%   Company  Website;   13%   Passive   Professional   Candidates   Networking  Sites;   10%  _____For 2011. Source: Bersin & Associates, 2011Passive candidates are those who are satisfied in their current positions and are not actively seeking new opportunities -­‐  8  -­‐  
  9. 9. US Recruitment: Macro AnalysisRevenues  of  the  top  10  US  recruitment  companies(1)  typically  lag  changes  in  GDP  and    lead  changes  in  unemployment.     USD  B Revenue  vs.  Real  GDP  Rate 9.0 8.0% Global  Credit   Crisis 8.0 6.0% 7.0 4.0% 6.0 2.0% 5.0 0.0% 4.0 (2.0%) 3.0 (4.0%) 2.0 (6.0%) 1.0 (8.0%) 0.0 (10.0%) Q1  07 Q2  07 Q3  07 Q4  07 Q1  08 Q2  08 Q3  08 Q4  08 Q1  09 Q2  09 Q3  09 Q4  09 Q1  10 Q2  10 Q3  10 Q4  10 Q1  11 Q2  11 Q3  11 Q4  11 Revenues  of  Top  10  US  Recruiting  Companies Real  GDP  -­‐  % USD  B Revenue  vs.  Unemployment  Rate 9.0 Global  Credit   Crisis 11.0% 8.0 10.0% 7.0 9.0% 6.0 8.0% 5.0 7.0% 4.0 3.0 6.0% 2.0 5.0% 1.0 4.0% 0.0 3.0% Q1  07 Q1  08 Q1  09 Q4  09 Q1  10 Q4  10 Q4  11 Q2  07 Q3  07 Q4  07 Q2  08 Q3  08 Q4  08 Q2  09 Q3  09 Q2  10 Q3  10 Q1  11 Q2  11 Q3  11 Revenues  of  Top  10  US  Recruiting  Companies US  Unemployment  Rate  -­‐%_____Source: Bloomberg, U.S. Bureau of Labor Statistics1) Revenue of top 10 companies (by market capitalization) in recruitment industry operating in the US: MWW, MAN, KELYA, KFRC, HSII, HHGP, CRRS, CTP, LNKD and DHX -­‐  9  -­‐  
  10. 10. Consumer Media Consumption Increased  time  spent  online  provides  a  significant  opportunity  for  social  recruitment     firms  to  drive  both  increased  usership  and  engagement.   Hours/Week 121.0% 16.0 5.0% 14.0 12.0 10.0 (15.0%) 8.0 6.0 (26.0%) (18.0%) 4.0 2.0 0.0 Newspapers Magazines Radio TV Internet 2005 2006 2007 2008 2009 2010_____Growth rates are absolute (not compounded)Source: North American Technographics Benchmark Surveys, 2005 to 2010 -­‐  10  -­‐  
  11. 11. Competitive Analysis Page  Views  /   Unique  Users   Subscribers   Brand   Description   Pricing   Unique  User   (mm)   (mm)   LNKD  Recruiter:  $8,200.00/  year/seat   Social  professional  network   Talent  Finder:  $99.95/  month   targeting  both  active  and   27.53   92.0   >150.0   LNKD  Jobs:  $1,200.00  /year   passive  job  seekers     Job  Seeker:  $19.95  -­‐  $49.95/month   Power  Resume  Search:  $13,000.00/year     Traditional  online  job   Standard   Search   Product:   $10,000.00/   posting  sites  with  presence   Job  Posting:  >1.0   year   NA   46.0   in  55  countries  for  over  a   Resumes:  >150  (2008)   Career   Ad   Network:   ~$135.00     decade   $250.00/Job  posting         Provides  niche  sites     Dice  Job  Posting  Express:  495.00/month   targeting  highly  skilled   NA   5.4   Job  Posting:  ~0.13   Resume  Access  Express:  $995.00/month   employment   Private  horizontal  job  site   Resume  database:  $6000.00/year   Job  Postings:  1.0   like  Monster.  Based  in   NA   24.0   Single  job  posting:  $419.00/month   Resumes:  40.0   Chicago,  USA   Listed  in  Germany,  2nd   Xing   largest  professional   Premium  Membership:  starting  @   5.55   33.60   7.0   >11.4   network  with  88.0%  of   ($7.50)/month   users  in  Europe  _____Source: Company websites, Annual Reports, comScore, Google -­‐  11  -­‐  
  12. 12. Competitive Analysis [CONTINUED] Page  Views  /   Unique  Users   Subscribers   Brand   Description   Pricing   Unique  User   (mm)   (mm)   Based  in  Paris,  a  private   Most  Expensive  Plan:  $3.95  (3  months   professional  networking   NA   5.0   40.0   subscription)     website     Private  company  with   Basic  collaboration  plus  added   Access  of  0.07  (June   platform  to  form  a   customization  and  CRM  features  for  $15.00   NA   2.0   2010)   professional  community   /user/month   Operates  as  a  private  online   search  engine  for  jobs  in  US,   NA   NA   50.0   NA   Canada  and  UK     A  startup  company  using   Facebook  Apps  to  build   25  Job  Postings:  $250.00/  month   14.40   1.0   3.0   professional  network  _____Source: Company websites, Annual Reports, comScore, Google -­‐  12  -­‐  
  13. 13. -­‐  13  -­‐  
  14. 14. Online Recruitment Comps Takeaways Key Statistics Company LinkedIn Monster   Dice  Holdings Comps  Selection   Ticker LNKD MWW DHX Share  Price $100.57 $9.49 $9.53 o Considering   the   changing   business   dynamics   in   Market  Cap $9,946.4 $1,168.2 $621.6 Less:  Cash $577.5 $250.3 $55.2 recruitment,   we   have   focused   on   both   Plus:  Debt -­‐   $188.8 $15.0 Enterprise  Value $9,368.9 $1,106.7 $581.3 emerging   professional   networking   (LNKD)   and   traditional  online  portals  (MWW,  DHX)   Revenue 2013E $1,209.0 $1,028.0 $219.4 Key  Metric(s)   Y/Y  Growth 38.3% 4.9% 11.5% 2012E $874.2 $979.9 $196.7 Y/Y  Growth 67.4% (5.8%) 9.8% o Subscribers  +  Corporate  Customers/Bookings:   LTM $522.2 $1,040.1 $179.1 2013  EV/Sales 7.75x 1.08x 2.65x Can   company   further   penetrate   addressable   2012  EV/Sales 10.72x 1.13x 2.96x LTM  EV/Sales 17.94x 1.06x 3.25x relevant   vertical/segments   to   attract   Key  Growth  Metrics  (1) Corporate  Subs   Bookings Customer  Pckgs incremental  corporate  clients?     2013E 74.8% (1.9%) 8.6% 2012E 39.3% 5.3% 3.5% Can   company   attract   additional   subs   /   users   EBITDA to   generate   incremental   revenue   from   2013E $293.4 $180.1 $90.7 Y/Y  Growth 72.5% 16.2% 15.7% advertising?   2012E $170.1 $155.0 $78.4 Y/Y  Growth 146.7% 11.6% 7.6% LTM $68.9 $138.9 $72.9 Market  Valuation   2013  EV/EBITDA 31.9x 6.1x 6.4x 2012  EV/EBITDA 55.1x 7.1x 7.4x o Based  on  2013E  P/E,  we  believe  LNKD  trades  at   LTM  EV/EBITDA 135.9x 8.0x 8.0x a  premium  to  its  peers  due  to  a)  focus  on  social   EPS 2013E $0.58 $0.45 $0.69 relevancy  in  a  professional  medium;  and  b)  high   Y/Y  Growth 248.8% 94.8% 20.0% 2012E $0.17 $0.23 $0.57 growth   opportunity.   Premium   of   MWW   over   Y/Y  Growth 50.9% (46.0%) 17.1% LTM $0.11 $0.43 $0.49 DHX   is   primarily   on   account   of   recent   2013  P/E 173.7x 21.0x 13.8x acquisition  rumors   2012  P/E 605.8x 40.9x 16.6x LTM  P/E 914.3x 22.1x 19.4x_____  Source: Company Filings, Company Press Releases, Bloomberg Estimates and WebTech Research Estimates(1) Key Growth Metrics: a) corporate subscribers for LNKD; b) bookings for MWW; and C) customer packages for DHX -­‐  14  -­‐  
  15. 15. Stock Price AnalysisStock  performance  follows  trends  in  customer  acquisition  and  bookings.   11/02/10:   DHX   Q3   10   beat,   1/28/11:   MWW   Q4   10   miss,   5/19/11:   Listing   of   LNKD,   10/28/11:   MWW   Q3   11   beat,   2/02/12:  DHX  Q1   12  weak   guidance   for   Q4   exceeds   guidance   for   Q1   11   below   +109.4%   from   IPO   price   of   and   authorizes   $250mm   guidance.  Bookings  from  eFC  to   expectations   expectations   $45.00   buyback   fall  by  6-­‐   12/10/10:   DHX   increased   stock   2/01/11:   DHX   Q4   10   beat,   8/30/11:     top   3   01/26/12:   MWW   Q4   11   miss,   2/10/12:    LNKD   13.00 sale   to   12mm   (19.5%   of   float)   guidance   for   Q1   11   exceeds   executives   reported   buying   a   guidance   for   Q1   12   below   from  10mm  @  $10.75/share   expectations   combined  87K  shares     expectations   expectations   3/6/12:  MWW  hired   Stone  Key  Partners     11.00 and  BOAML  in   pursuit  of  strategic   alternatives   9.00 7.00 5.00 10/29/10:   MWW   Q3   10   beat,   3.00 guidance   for   Q4   10   exceeds   6/28/11:  MWW  announced  the   launch  of  BeKnown   expectations     1.00 Oct-­‐10 Dec-­‐1 0 Feb-­‐11 Apr-­‐11 Jun-­‐11 Aug-­‐11 Oct-­‐11 Dec-­‐1 1 Feb-­‐12 MWW  UN  Equity DHX  US  Equity LNKD  US  Equity_____Source: BloombergNote: Stock prices have been benchmarked in multiples of $5.00 for comparison purposes -­‐  15  -­‐  
  16. 16. LinkedIn [NASDAQ: LNKD]LNKD,  with  its  disruptive  recruitment  model  and  focus  on  innovation/product  development,  has  seen  shares  rise  over  100%  from    KEY  SEGMENTS   Hiring  Solutions:  Recruitment  products  for  enterprises  (corporate  solutions,  LinkedIn  Jobs,  subscriptions  for  recruiters/hirers   &  job  seekers).  ~50%  of  revenues  ($261mm  in  FY   11;  +156%  Y/Y).  9,200+  corporate  customers   Marketing  Solutions:  Targeting  solutions  for  direct  marketers  and  advertisers  (self-­‐serve  ads,  display  ads,  social  ads,  and  lead   generation).  ~30%  of  revenues  ($156mm  in  FY   11;  +97%  Y/Y)     Premium   Subscriptions:   For   general   professional   identify   management   (enhanced   search/communication   capabilities,   à   la   carte  premium  features).  ~20%  of  revenues  ($105mm  in  FY   11;  +70%  Y/Y)  CONSENSUS  CONCERNS   Lower  User  Engagement  vs.  Facebook  [FB]  will  Impact  Revenue  from  Marketing  Solutions:  Based  on  average  time   spent/month  (6.25  hours  for  FB  vs.  0.25  hours  for  LNKD)  and  page  views/user  (655  for  FB  vs.  28  for  LNKD)   Our  view:  We  do  not  share  this  concern.  Time  spent  and  page  views  are  not  comparable  given  the  differing  nature  of   each   platform.   For   LNKD,   we   are   more   focused   on   user   engagement   momentum,   evidenced   by   page   view   growth   (+63%  Y/Y)  outpacing  unique  visitor  growth  (+61%  Y/Y)  following  the  launch  of  LinkedIn  Today,  Signal  and  Platforms   Ability  to  Expand  EBITDA  Margins:  Questions  persist  around    ability  to  expand  EBITDA  margin  from  ~19%  in  FY   11   Our  view:  We  do  not  share  the  concern.  Favorable  gross  margin  trends,  combined  with  successful  sales  &  marketing   investment,  gives  LNKD  management  increasing  control  over  margin  trends.  That  said,  we  believe  SG&A  and  product   development   investment   is   justified   given   the   addressable   market   opportunity   (penetration   at   ~4.6%   out   of   ~200K   corporates)   -­‐  16  -­‐  
  17. 17. LinkedIn [CONTINUED]Price  Target  =  $134.03  (33.3%  appreciation).  Accumulate  under  $89.76.  WHAT  WE  LIKE   Market  Leader:  13x  larger  than  the  closest  pure  professional  network  Xing.  Used  by  82  of  Fortune  100  companies     Growth  Potential    Recruitment:  Low  penetration  rate  (<1%  for  hiring  and  ~3%  for  premium  subscriptions)  offers  room   for  substantial  growth  in  addressable  market  of  ~$27B  global  recruitment  and  talent  acquisition   User   Engagement   Upside     Advertisement:   Social   element   to     platform   gives   it   a   significant   opportunity   to   penetrate  ~$25B  addressable  advertising  compared  to  other  traditional  online  recruitment  companies  WEBTECH  RESEARCH  RECOMMENDATION  =  BUY  under  $89.76,  aggressively  under  $85.73   Price  Target:  We  arrive  at  a  price  target  of  $134.03  based  on  an  average  of  our  DCF  and  subscriber  growth  models.  For   our  DCF  we  assume    corporate  client  market  share  grows  to  40%  (from  4.6%)  and  EBITDA  margin  grow  to  32.5%   (from  ~19%)  by  FY   20,  with  a  terminal  year  growth  rate  of  2.5%.  In  our  subscriber  growth  model,  we  assume  LNKD  exits   2013E   with   276mm   subscribers   (up   from   145mm;   adding   2   subs   every   second,   per   mgmt   comments   in   the   last   conference  call)  and  an  ARPU  of  $6.90  (up  from  LTM  ARPU  of  $4.19),  and  a  65x  P/E  multiple  (consistent  with  our  view  on   subscribers  and  EPS  growth  rates)   Price  Support:  We  recommend  closely  watching  $75-­‐76    for  downside  support  (just  below  100  DMA)     Short:  The  risk  reward  ratio  for  a  short  trade  becomes  favorable  (at  >4.5x)  above  $118.96.  We  would  consider  a   fundamental  short  position  if  the  long-­‐thesis  is   -­‐  (if  shares  rise  above  $147.43)   Stock   a)  positive  employment  numbers;  b)  Q1  earnings  (5/9/12);  c)  comScore  data  releases;  d)  sale   of  any  part  of  ~48mm  shares  owned  by  CEO,  Greylock  or  Sequoia     -­‐  17  -­‐  
  18. 18. Monster Worldwide [NASDAQ: MWW]MWW,  a  traditional  online  recruitment  model  has  been  impacted  by  sluggish  job    recovery  and  the  emergence  of  LNKD  and  other  forms  of  social  recruitment.  KEY  SEGMENTS   Careers:   Connects   employers   with   job   seekers   online   through   searchable   job   postings   and   career   management   resources.  Over  200,000  clients   o North  America:  ~47%  of  revenues  ($485mm  in  FY   11;  +15%  Y/Y).  Operating  margin  of  ~15%   o International:  ~43%  of  revenues  ($445mm  in  FY   11;  +23%  Y/Y).  Operating  margin  of~8%   Internet  Advertising  &   Fees:  Provides   employers,  educators,  and  marketers  with   media  driven  solutions.  ~10%  of   revenues  ($110mm  in  FY   11;  -­‐16%  Y/Y).  Operating  margin      ~5%  CONSENSUS  CONCERNS   Volatility  in  International  Bookings  +  Soft  Bookings  Outlook:   Our   view:   We   share   this   concern,   as   bookings   in   Germany   (9%   of   revenue)   grew   53%   in   9M   11,   but   then   dropped   to   6%   in   Q4   11   (making   comps   tougher).   Additionally,   management   guided   Q1   12   bookings   to   decline  of  6    10%,  after  flat  bookings  growth  in  Q4   11.  We  do  not  see  a  similar  trend  with  competition   Competitive  Threats:  MWW  has  been  unable  to  combat  share  gains  from  professional  networking  platforms  (LNKD)   and  or  vertically  focused  job  posting  sites  (DHX)   Our   view:   We   share   this   concern,   as     networking   elements   and   pricing   advantage   (LNKD   recruiter   product   ~$8K/user   vs.   MWW   at   ~$13K/user)   will   fuel   share   gains.   Additionally,   DHX   continues   to   build   its   presence  in  technology,  energy  and  financial  services  verticles,  at  the  expense  of  MWW  and  Careerbuilder   -­‐  18  -­‐  
  19. 19. Monster Worldwide [CONTINUED]Price  Target  =  $11.50  (21.2%  appreciation).  Accumulate  under  $9.00.   WHAT  WE  LIKE   Leadership  in  International  Markets:  Maintains  a  #1  or  #2  position  in  most  of  key  international  regions  (~55  total)   New  Product  Developments:  MWW   invested  in   new  products  such  as  Power  Resume  Search,   BeKnown,  Career   Ad  Network  and  SeeMore  through  the  down  cycle,  ensuring  the  participation  in  the  next  up  cycle.  These  products   should  improve  the  EPS  quality  by  driving  stickier  and  more  predictable  annuity  like  earnings   Incremental  Margins:    revenue   leverage  to  an  improved  job  environment  will   be   complimented  by   50%   incremental  margins.  Every  10%  swing  in  bookings  is  worth  ~$0.06  to  EPS   WEBTECH  RESEARCH  RECOMMENDATION  =  BUY  under  $9.00,  aggressively  under  $8.78   Price  Target:  We  arrive   at  a   price   target   of   $11.50   based   on   average  of  a)  2013E  EBITDA   exit  multiple   of   5x  (vs.   5.8x   LTM   multiple)   and   b)   average   of   acquisition   rumors   at   $11.00     15.00.   We   assume     bookings   will   grow  conservatively  at  ~2.4%  in  2012E  (based  on  management  estimates  for  a  decline  of  -­‐6  to  -­‐10%    in  Q1   12  and   our   estimate   of   a   bookings   pickup   going   forward)   and   ~10.0%   in   2013E.   We   also   estimate   that   incremental   revenue  in  2012/13  flows  to  EBITDA  at  a  40%  margin  (vs.  management  estimates  of  50%)   Price  Support:  Four  insiders  increased  their  stake  in  August   11  accumulating  stock  around  $8.17   Short:   The   risk   reward   ratio   for   a   short   trade   becomes   favorable   (at   >4.5x)   above   $10.89.   We   would   consider  a  fundamental  short  position  if  the  long-­‐thesis  is   -­‐  (if  shares  rise  above  $12.65)   Stock   a)  incremental  information  regarding  strategic  discussions;  b)  Q1  earnings  (4/27/12);     c)  share  repurchase  program;  d)  positive  US  employment  numbers;  e)  negative  EMEA  employment  numbers   -­‐  19  -­‐  
  20. 20. Dice Holdings [NASDAQ: DHX]DHX,  a  vertically  focused  and  niche  recruitment  service  provider  has  been  impacted  by  uncertainty  in  the  financial  sector.  We  believe  these  concerns  are  overblown.  KEY  SEGMENTS   Technology   &   Clearance:   Operates   Dice.com   &   ClearanceJobs.com.   ~64%   of   revenues   ($115mm   in   FY   11;   +30%   Y/Y).  Unique  visitors:  >2.7mm.  90K  job  postings   Finance:  Operates  eFinancialCareers.com.  ~25%  of  revenues  ($45mm  in  FY   11;  +33%  Y/Y).  Unique  visitors:  1.5mm.   8.5K  job  postings   Energy:  Operates  RigZone  and  WorldwideWorker.  ~9%  of  revenues  ($15mm  in  FY   11;  +252%  Y/Y).  Unique  visitors:   0.8mm.    8.1K  job  postings  CONSENSUS  CONCERNS   Weak   EBITDA   Guidance:   Expected   EBITDA   margin   of   41%   in   FY   12   (43%   in   FY   11)   as   project   development   costs   increased  by  50%   Our   view:   We   do   not   share   this   concern,   as   DHX   has   been   conservative   with   respect   to   EBITDA   guidance   historically  (exceeding  by  ~200-­‐400  bps  over  the  last  three  years)   Soft  Bookings  in  Finance:  Higher-­‐than-­‐expected  slowdown  in  finance  segment  (management  guidance  of  -­‐12%  in  FY   12)   Our   view:   We   partially   share   this   concern.   That   said,   note   that   this   guidance   was   given   during   a   period   of   heightened  concern  regarding   passage   of   Greece  austerity  measures.  Additionally,  we  have   seen   improving   hiring  trends  in  the  finance  vertical   -­‐  20  -­‐  
  21. 21. Dice Holdings [CONTINUED]Price  Target  =  $13.42  (40.9%  appreciation).  Accumulate  under  $9.84.  WHAT  WE  LIKE   Vertically  Focused,  Niche  Player:  Sector  focus,  via  distinct  web  properties,  provides  a  unique  business  proposition   to  enterprises  relative  to  other  generalist  players  and  also  drives  brand  awareness.     Strong  Cash  Flows:  Consistent  FCF  generation  (avg  of  27.5%  from   09-­‐ 11)  facilitated  by  a)  high  client  retention  and   b)   nimble   business   model   (subscription-­‐based   revenue   model   enables   management   to   quickly   identify   business   trend  reversals  via  deferred  revenue  trends,  allowing  for    the    adjustments  to  variable  cost  structure)   Productivity/Efficiency:  $0.5mm  of  revenue/employee  compared  to  ~$0.2mm  for  MWW  WEBTECH  RESEARCH  RECOMMENDATION  =  BUY  under  $9.84,  aggressively  under  $9.51   Price  Target:  We  arrive  at  a  price  target  of  $13.42  based  on  our  DCF  model  (given  the  stable  FCF  generation).  We   assume  revenue  growth  of  15-­‐20%  for  tech  and  clearance  (customer  growth  of  10-­‐15%  and  ARPU  growth  of  3-­‐5%)   and   conservative   growth   of   5%   for   finance   and   energy   from   2013E-­‐ 16E.   We   also   conservatively   estimate   EBITDA   margins  to  contract  to  ~37%  (vs.  12  month  rolling  margin  of  ~43%)   Price  Support:  Average  price  of  $8.64  based  on  the  existing  repurchase  program  of  $30mm   Short:  The  risk  reward  ratio  for  a  short  trade  becomes  favorable  (at  >4.5x)  above  $12.55.  We  would  consider   a  fundamental  short  position  if  the  long-­‐thesis  is   -­‐  (if  shares  rise  above  $14.77)   a)  Q1  earnings  (4/27/11);  b)  positive  US  employment  numbers;  and  c)  increase  in  share   repurchase  program     -­‐  21  -­‐  
  22. 22.     For  questions  and  comments,  please  contact:     Brian  Murphy   Indaba  Global  Research   617-­‐571-­‐1550   brian@indabaglobalresearch.com     www.indabaglobalresearch.com         DISTRIBUTED BY -­‐  22  -­‐  

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