Shares of ZipRecruiter (ZIP 2.41%) have plummeted by as much as 27% this week, according to data from S&P Global Market Intelligence. The online employment marketplace posted a disappointing fourth-quarter earnings result due to a softening white-collar hiring market, with many technology companies reducing hiring plans. As of 10:47 a.m. ET on Friday, Feb. 24, shares of ZipRecruiter are down 26.8% this week.
For the full year in 2022, ZipRecruiter's revenue grew 22% year over year to $905 million, while also posting a positive net margin of 7% (something not many software companies can say at the moment). However, it started to see slowing demand in the fourth quarter as many technology companies started laying off thousands of workers and implementing hiring freezes. As a marketplace that promotes job listing across various white-collar sectors, this slowdown in the technology industry will no doubt have an effect on this business.
We saw that occur in Q4, with revenue declining 4% year over year to $211 million. The company is still profitable, posting a net income margin of 9%, but declining revenue is never a good sign, especially for a young business like ZipRecruiter.
Guidance was likely highly discouraging to investors as well. Management currently expects 2023 revenue to decline by 13% to 15% compared to 2022 based on what it is currently seeing within the job hiring market. And there's no reason to think these hiring trends won't get worse if the U.S. economy eventually heads into a recession and if inflation stays higher for longer than people are expecting. The next few years could be tough for ZipRecruiter, the opposite of the hypergrowth hiring era for tech companies in 2020 and 2021.
ZipRecruiter not only faces a tough industry environment right now, but major competition from other digital platforms like LinkedIn (owned by Microsoft), Indeed, and contractor marketplaces like Fiverr and Upwork. It has proven to be somewhat resilient from this competition so far but will face a cutthroat competitive environment over the next 10 years. I am especially concerned with the behemoth Microsoft, which is pouring tons of dollars into the LinkedIn platform. ZipRecruiter, as a subscale player, may not have the resources to compete on a level playing field.
Unless you have a reason for why ZipRecruiter has differentiated itself versus other hiring platforms, it is probably best to avoid buying the dip on this stock.