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51Job Faces the Hiring Line

By Rick Munarriz – Nov 9, 2018 at 9:24AM

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The Chinese online recruiter delivers its third strongest top-line burst since 2010, but guidance is a party pooper.

Revenue growth is still going strong at 51job (JOBS), but guidance suggests that the top-line gains may be slowing. The Shanghai-based provider of online recruitment services posted strong financials for the third quarter after Thursday's market close, clocking in with its third consecutive period with revenue growth topping 30%. The challenge now is to get Wall Street to get over the aftertaste of its uninspiring glimpse of the fourth quarter.  

51job's revenue rose 31% in the third quarter, landing on a record $139 million. Three months ago, it was forecasting a top-line burst of just 26% to 30%. You have to go all the way back to 2010 to find the last time that 51job was growing its revenue at a clip of 30% or better, and now it has kicked off 2018 by doing that in each of the first three quarterly reports. 

51job employees on a patio balcony at corporate headquarters.

Image source: 51job.

Getting the job done

There is healthy growth across both of 51job's two major moneymakers. Online recruitment services increased, accounting for 68% of the revenue, rose 33%. Other human resources related revenue, which accounts for the other 32% increased 27% for the quarter. 

Average revenue per employer surged 39%, and if seeing that metric growing faster than overall top-line growth leaves you wondering if the number of companies filling job vacancies is shrinking, you'd be correct. The number of unique employers on the job listings platform has declined by 4% to 365,386 over the past year, but it's been largely by design. 51job has made it a strategic priority to focus on higher potential employers, weeding out certain customer accounts and being more choosy about who gets onto the platform. This isn't a new development. We saw the same scenario play out in the second quarter. 

Profitability surged during the quarter, but that was primarily the handiwork of one-time gains related to an asset sale gain and an accounting change in the fair value of its convertible senior notes. Adjusted earnings soared 53% to $0.74 a share, well ahead of 51job's per-share forecast of $0.56 to $0.60 three months ago. 

This brings us to the potentially thorny guidance. 51job is eyeing $158.7 million to $163.1 million in revenue for the fourth quarter, 25% to 28% where it was a year earlier in local currency. Investors knew that 30% growth wasn't going to be the new normal, but analysts were modeling a bit more on the top line. Wall Street pros were also holding out for more than the earnings per share of $0.65 to $0.69 that 51job is targeting for the fourth quarter. To be fair, 51job has historically been conservative with its guidance, but if the stock is weak on Friday, the culprit's hiding in plain sight.

51job remains a winning stock despite all of the volatility. It's moving higher for the third year in a row, and it's more than doubled since the start of last year. It's been weak lately -- down a blistering 44% since May in a downdraft that has taken down most Chinese growth stocks -- but that may help cushion the blow of the uninspiring guidance. 51job keeps getting the job done, even if its guidance this time around is well south of impressive.

Rick Munarriz owns shares of 51job. The Motley Fool recommends 51job. The Motley Fool has a disclosure policy.

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