Recruit Holdings Co Ltd
TSE:6098
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Recruit Holdings Co Ltd
Earnings Call Analysis
Q2-2025 Analysis
Recruit Holdings Co Ltd
In the recent earnings call, Recruit Holdings discussed its performance amid a challenging job market. U.S. revenue was stronger than expected; despite a decline in job postings, revenue per paid job ad rose due to innovative testing. However, the U.S. job openings are projected to stabilize only after another 18 to 24 months of decline. On the flip side, Japan's transition to Indeed PLUS is progressing but slower than expected, indicating there's room for growth but with some hurdles.
The company revised its full-year guidance, now projecting a substantial increase in the lower limits of the revenue ranges compared to prior estimates. Importantly, the outlook for the second half of FY 2024 leads to optimism about revenue stability, but margins are expected to remain under pressure. Specifically, the upcoming revenue growth in Japan might offset declines in other markets like Europe and Australia, signaling a cautious yet proactive approach to managing pressures in the current business environment.
A focal point in the call was the ongoing share buyback program, where approximately JPY 500 billion of the JPY 600 billion allocated has been utilized quickly, suggesting a potential early completion of the buyback initiative. Further, the company intends to manage its cash and equivalents effectively, aiming for a balance that allows for both shareholder returns and growth investments. Personnel expenses are expected to remain flat, reflecting a strategic alignment to optimize costs without drastically increasing headcount.
Recruit also highlighted its focus on innovations within its HR technology segment. New features like urgent hiring labels and candidate matching are designed to improve engagement for employers and job seekers alike, aiming to boost revenue growth through better unit pricing and volume. Furthermore, efforts to shift marketing solutions towards performance-based models are underway, which could enhance profitability if executed successfully.
The executives expressed cautious optimism regarding the labor market dynamics, noting that solutions like Indeed PLUS will play a crucial role. However, they cautioned that current market conditions may not benefit the company significantly until a meaningful recovery in job volumes occurs, which they predict may take time. As such, the possibility of utilizing external media to expand the Indeed platform remains important, but not a dependency for achieving growth targets.
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Welcome to the Recruit Holdings Q2 FY 2024 Earnings Conference Call. This call is a simultaneous translation of the original call in Japanese, and translation is provided for the convenience of investors only. I'm Mizuho from IR and PR, and joining me today is Junichi Arai, Senior Vice President, Corporate Strategy and Investor Relations of the Recruit Holdings. The Q2 financial results presentation video and transcript were uploaded to the IR website at 3:30 p.m. today. Today, we will start with Jun's opening remarks followed by Q&A session. Now I pass the call to Jun. Please go ahead.
Hello, everyone. I have a cold, I'm sorry if my voice is a bit inaudible to you. Before I take your questions, as I do every quarter, I would like to make a few additions to the presentation we disclosed at 3:30 in the presentation with regards to the results for the second quarter and the first half of FY 2024. I explained in HR technology, U.S. revenue exceeded our initial expectations which was due to the fact that despite the continuing trend of a decrease in the number of job postings, the rate of increase in revenue per paid job ad exceeded the rate of decrease in the number of paid job ads, thanks to a combination of small-scale tests and innovations. And in Japan, the transition to Indeed PLUS is progressing, although it is slightly slower than our initial expectations.
Regarding the outlook for the second half of FY 2024, we are not changing our view that the number of job openings in the U.S. will hit the bottom after decreasing for another 18 or 24 months. [indiscernible] said in May, and we assume that the number of paid job hostings will continue to decline until the end of the current fiscal year.
Regarding HR Solutions in Japan, it has been decided to discontinue the PPP paper post advertising model by the end of FY 2024 with the exception of the new graduate recruitment platform, and it has been confirmed that HR Solutions will integrate into Indeed PLUS. The outlook for marketing solutions and SaaS solutions has not changed significantly.
And regarding staffing, it is assumed that the growth in revenue in Japan will be offset by that in Europe, U.S. and Australia as there is no improvement in the business environment.
We have prepared the outlook for each segment, assuming exchange rates of JPY 142 per U.S. and JPY 157 per euro. And based on this, we have prepared our outlook for the second half of FY 2024 on a consolidated basis, and we have disclosed today the revised full year guidance, which is a sum of the results for the first half and the outlook for the second half. For those of you who already have looked at this information, you will notice that the lower limits of the ranges have been significantly raised compared to the guidance ranges we disclosed in May.
Thirdly, the share buyback's currently underway. As informed previously, have been progressing much faster than our initial expectations with the 2 ToSTNeT-3 transactions executed so far. Approximately of the maximum total purchase price of JPY 600 billion has been utilized over 4 months through the end of October. If the remaining 20% is also utilized similarly, even though it depends on the share price, we expect that the buybacks may be completed earlier than the originally anticipated end date.
Now as of September 30, 2024, net cash and deposits were JPY 756.6 billion, which is a decrease of approximately JPY 378.7 billion from JPY 1,135.4 billion as of March 31, 2024.
And fourthly, regarding the transfer of businesses between disclosed segments, this will be the first change since the significant change made to the disclosed segments in 2017. From next fiscal year, the HR Solutions business in matching and solutions will be transferred to HR technology. And as a result, matching Solutions will consist of the current marketing solutions and SaaS solutions.
We understand this may cause a significant inconvenience to capital market participants. But we would greatly appreciate it if you could consider revising your financial model and valuation model according to this change.
With this in your mind, I would like to open up the floor now for questions. Thank you for your attention.
[Operator Instructions] First, Nomura Securities on the phone.
This is [indiscernible] from Nomura. I also have a cold. I have 2 questions. First, so Indeed, U.S. business, are the impact from the increase, so the job posting, how is the immigration important? Do you have any past data to see how much impact it will have and Indeed job posting and others?
Please ask the second question, too.
Also in Indeed U.S. So you've seen the establishment of new plants or the bring bad jobs, the increase in the production sites has been pursued to increase the employment in the U.S. subsidy and the tax reduction and customs these past factors been an increase has been pushed up the revenue of Indeed. So the increase in immigration and bring back job factor, how much impact do these 2 factors have on Indeed business?
Thank you very much. So I think the question is based on the result of the U.S. presidential election. As you know, our business -- we have a 2-sided business model. So first, is the job seeker side of the story, supplier side and the demand side. How we match efficiently is the key in our Indeed end U.S. business, the key to increasing the revenue in our business. So when large number of people look for jobs, or employment promotion, increase of the employers who want to hire people will be a factor. And in some cases, there is a mismatch or a balance, and that impacts our pricing. From the business structure of Indeed PLUS, it's pay for performance and for pricing, it goes down depending on supply and demand. So that is the type of business model we have. So of course, that is an impact but it's hard to quantify. I cannot say what percentage, and we do not disclose that. Of course, if supply goes down, demand goes up, the mismatch increases like post-COVID, then pricing goes up, volume goes up. So pricing volume persist revenue and vice versa. So I think you're asking about higher demand and our supply will differ depending on that. And the speed is another factor. So when qualified employers want to hire, how quickly can they take action is important. So job opening will decline, but we'll hit a bottom and will rise up again at 1 point in the future. And the curve of increase cannot be predicted easily. It will not be a surge like post-COVID unless it's an extraordinary circumstances, it will be a mild increase. So it's not that will be the only factor that impacts our revenue. but employers who want good talents will give us assignment for advertisement to us early on. So supply and demand side, both sides fluctuate. So the number of job seekers will be 1 factor and the demand was also factor. But when that will be, what percentage will that be, how much this will activate the company's activity. We have parameters we look at, but it's difficult to say what percentage and explain very clearly at this point. But as I mentioned earlier the market volume will decline. So we are preparing for the next peak out. And so our stance remains unchanged. So thank you. I hope this answers your question.
Next is SMBC Nikko Securities, Maeda-san.
This is Maeda of Nikko. I have 2 questions also. First of all, in the presentation earlier, you referred to the situation of indeed revenue in the U.S. The growth of revenue per opportunity and growth of job posting were alluded to. So can you please mention how much they increased or decreased? And you also alluded to trials on the second page of FAQ, you introduced some examples. But what kind of functions are they? What kind of factors are there? If there were any significant factors that affected the situation, I would like to know.
And secondly, this is a more straightforward question about the decrease of HR cost, employee benefits decrease and housing allowance. Can you quantify the impact, especially in HR Tech, can you please explain what was the specific impact?
Percentage of unit price growth and decrease. I apologize, at least today we decided not to disclose that information. I hope you will understand. And regarding functions, I talked about 3 functions: urgent hiring label, candidate targeting matched candidate. So this is, for example, a label to show that this is an urgent hiring or employers who are doing paid job ads, we can prescreen conditions and available candidates. And we will utilize the employer's budget only when there is a good match. Also on the Indeed platform, job seekers sign up with their CVs and profiles. And based on such personal information for employers, we use our machine learning to identify suitable candidates. So without having to wait for applications, employers can directly reach out to job seekers who would satisfy their needs. And if they really meet the demand of the employer compared to when we don't use that function, we will be able to improve the benefit for clients, and we will be able to charge a higher price, which will result in a higher unit price and we aim to develop a better environment so that we can introduce a better job postings to job seekers so that they can find better jobs. We have been making these efforts little by little to develop a better environment. And I think that it's going to lead to higher unit price. Of course, we try and clients may not be satisfied or it may create some disadvantage could happen. But even if we fail or even if we didn't perform as expected, we can also learn from such experience, and we can repeat that process. So hopefully, we would like to continue to increase the unit price as well as the volume. When that is achieved, we can make better contribution to the revenue growth. That is our idea in evolving our business day by day. I apologize. I cannot quantify the impact, but that is the idea, as we explained previously. And in terms of the labor cost decrease, in the Q1 announcement, I think I explained that due to the reduction of headcount payroll, their payroll has been discontinued as of the end of May. So in Q1, there is a 1-month worth of impact in the second quarter, there is a full impact. That is the impact we are experiencing. So on a quarterly basis, we are not giving cost reduction for each segment. For the first half, we are providing such information, but we don't provide that information on a quarterly basis. So I hope you can refer to the number for the first half. That's it. Thank you.
Next, BofA Securities, Nagao-san.
Yes. Nagao of BofA Securities speaking. Two questions. First, is Indeed second half margin, the way you think of margin, so in the FAQ, it's written that in the second half U.S., so the biggest volume, the U.S. dollar base, 4.5% plus/minus revenue is expected, but the adjusted EBITDA in the first half. Second half is down from the first half. So revenue and profitability or the profit balance between first and second half? How should I look at that? That's my first question.
Second question is I have many, but I think 1 key question is around JPY 600 billion share repurchase and 80%, around JPY 500 billion has already been used. This is much faster than your original schedule. So you plan on additional share repurchase? And not just that, in your balance with your growth investment. Once again, if you could share with us your capital allocation policy.
So which 1 should I go first? Let me start with the second question. So we started as a 1-year program, but we are not -- there was a supply that we did not anticipate in the beginning, and therefore, the usage was faster than we thought. As I mentioned earlier, this 2 years, cash and equivalents. We want to use the 2 years to adjust our cash and equivalents. And the way to do that is share repurchase and/or acquire good business if we have some options outside and use the cash for our future business and for our shareholders and reduce the cash and cash equivalents to a certain level. And we will continue that effort. So this time, the program may end earlier than we thought, but we will think of what we will do at which size we will decide, discuss and decide going forward. But for the 2 years, 2 years is the period to adjust our cash and cash equivalents. So next fiscal year, we will continue studying this plan and the margin the second half. As we mentioned earlier, Indeed, HR technology. The cost is not entirely necessary for our revenue at this moment. We are conducting various tests and various developments and we launched them in the market to improve the promising ones and make them bigger. So we are doing all this cycle. And the other large cost spending is our advertisement and promotion. If we have good opportunities, if it leads to higher revenue, we may use cost expense in the upfront fashion and head count. We do not plan to increase our headcount radically at this moment. So this will be flat. If revenue remains flat and margin drops by 1%, it means we are using marketing costs for our customers and users. That's what I would like you to think like. As we said, if there is a demand, if there's needs, we will try to invest as efficiently as possible. So if there is a like for recovery, we will be willing to invest, but we are not there yet. So this time, we revised the full year forecast and the margin was not a significant revision from May. That is where we stand.
Just 1 follow-up question. HR tech, marketing cost, second half, SBU is now being realigned. And Japan, Japan domestic business is in the scope?
This year, the segment is still different this year. So that is that. This is this. Next year onward, it will be unified, integrated. So from efficiency purpose, we may revisit we may. But for this fiscal year, it will be separate the cost will be incurred separately.
Nomura Securities, [indiscernible].
About Indeed Apply. In 2024, the Big 4 ATS you talked about wanting to integrate with it. So if there is any progress that you can share with us, I would appreciate it. The other thing is about Indeed PLUS, there is more outside media. Going forward, what kind of growth is anticipated. What is the road map? Is there anything that you've learned from the current experience?
About ATS large-scale business clients with them, we want to increase the volume of business we want them to use this more efficiently, and we want to offer higher added value by linking and synchronizing that is essential. It's not only the big 4, but also with other clients, we have been implementing various measures. It may be possible technologically, however, we still have to gain agreement from clients. So we have to make it technologically possible and we have to gain support from the client. The number of clients connected through ATS is not as closed, but that number is continuing to grow steadily and that needs to come with higher volume for us to grow further. So this is what we have been working on. About indeed plus I believe you are referring to non Recruit media job boards when you say outside media. I think it was in January when we launched the service, I think we explained that this is what we welcome, and we would want to encourage those media to join. But of course, there is a revenue split in other terms and conditions that we need them to agree on. So it is not something we are pushing for, but if they are interested, they can join us. But this is not what we were assuming for when we started the service. Within Group, we have Japan media, job board business that we want to integrate. And this will make it even stronger. We use record job board to shift from PPP to PPC. That is the strategy for Indeed PLUS. So we are not requiring a certain number of outside media to join us to achieve our goal. We are not depending on such outside factors, but rather, we are focusing on designing better operation internally. Again if outside media is interested, we welcome them, and we want them to join us. But that is not the only factor, we want to make ourselves stronger and more powerful. That is what we are determined to focus on so that we can evolve the service even further.
Next is SBI Securities, Housui-san.
Housui from SBI Securities. I have 1 question. So it's about Indeed Japan. Last time, existing indeed. And indeed plus, you said it is difficult to divide, but of the overall revenue of the unit price which 1 is contributing to revenue and how far long are you in transferring from PPP to PPC. That's my first question.
Next, Indeed PLUS transfer speed. You said the seed is rather mild. What are the factors? And what are the hurdles?
So your 2 questions were on Indeed PLUS in Japan. So last time or the 1 before last, we said that it's difficult to say which of 2 factors are the bigger factor. And this has become deeper because job board that we originally did as a recruit is now being switched or transferred to Indeed PLUS. And in recruit, we count on a gross basis, but Indeed PLUS will be net accounting. So 100 will not be 100. It's difficult to numerically explain. So it cannot be explained in a clear cut fashion. And clients like it. And we received revenue from that, but now will be for we need to explain the benefits directly. And if it's through agency, the agencies will explain to the clients to win their understanding. So we will use various routes, channels to realize this shift in this 100, 20,40, 60, 80 and eventually 100. So what we mean by mild is the agency part. They are promoting Indeed PLUS, agencies need to get used to it or be convincing to the clients or when their clients like PPP, they need to convince and persuade clients. It's not just about logic or efficiency or just pure theory, clients' mindset change. So we thought this transition will be rather quick. But by the end of March, business will be discontinued, but the transition speed is mild, and there are other factors, too. So the progress is slightly delayed. So the HR Tech revenue Indeed PLUS related revenue. The second quarter -- third quarter revenue is slightly lower than what I thought in May. And so matching in solutions, HR solutions revenue is not declining as much as we thought. We will come to the same level the originally planned level by the end of March. But as of second and third quarter, the speed is still mild. And so this slide, revenue is lower, and that side revenue is not declining as much. At the end of third quarter, we will update you, but this is where we stand.
Mizuho Securities, Kishimoto-san.
This is Kishimoto of Mizuho. I have 2 questions. Firstly, about Indeed U.S. about the current headcount situation, well, you have revisited the head count this year. And our top line improvement is expected. So in accordance with the top line growth, are you planning to increase the number of headcounts once again? Or is that not necessary if there is a certain level of revenue growth. And as a result, do you anticipate margin to grow. So what is the expectation for the personnel expenses? That is my first question.
And my second question is about the spot work, Townwork scheme up. You announced that you are planning to release this in fall -- this fall. Well, it is still in fall. So I think we should wait for a further announcement. But I was expecting some needs to come out by now, recently I have seen some difficulties related to spot work. So are you kind of waiting for the right timing? Or is it going to be released sometime after without any issue? Is there anything that you can share with us at the moment?
Top line is growing. That's what you said. But it is not a rapid significant growth and in this presentation, I didn't use the word recovery or improvement. So we are not thinking of this as a recovery. Of course, we need to have volume recovery in order to be able to record the situation is recovering. So once again, as Idekoba said in May, in 18 to 24 months, volume will decline, and we are right in the middle of that decline or we are at the beginning or in the middle of this decline. That is our view of our business.
And regarding headcount, in May, we may that decision or in March, April and May, we made that decision and executed. For the time being, in this environment, with the reduced headcount, we will continue to operate, and that is as planned. And there is no necessity or meaning to increase the headcount immediately. So as I responded to Nagao-san earlier, regarding personnel expenses, in a simple model, it will remain flat.
In such market how efficiently are we going to spend personnel or marketing expenses? I think that is the question. So there was a headcount reduction recently and it's not that we are in need of more headcount immediately.
And the second question was regarding the spot work business in Japan. As Kishimoto-san said I did mention that given the recent social circumstances, we have been carefully discussing our plan. And as I mentioned today, there is a transfer of business between segments. So we have to be mindful about that as well. So there are 2 factors, segment transfer and social circumstances. It is not that we are in a hurry. Rather, we want to take time to prepare. We initially announced this will be released in full. But at least for now, it is not going to be released in this fall. That is the current status. Did I answer your question?
BofA Securities, Nagao-san, please.
This is Nagao from BofA Securities. Thank you for giving me a second round. So 1 strategic side -- so in MS, matching in solutions, there's the traditional job board type, which is now shifting to HR tech. So in the traditional business, there is a recruit agent middle, the placement or recruit executive agent, the high-class headhunting business, these businesses will also shift to HR Tech. Could you elaborate on the progress there?
And my second question is the peer the Marketing and Solutions growth strategy. So in each segment, performance guidance, lower side, the floor is now risen. So but marketing solution is not improving that much. So the original forecast has not changed much. So my question is the growth strategy of marketing solutions. Once again, it's becoming invisible Air business tools, and new initiatives exist, but they are not clearly reflected in the financial performance. So how are you sorting this out?
Thank you very much for the question. So to your first question. So the Japan's HR business will become under HR technology in April. So the placement this will come under HR Tech. This business is run only in Japan. So this will come under Japan's revenue. So in the presentation, it says that on April 1 next year. This leads into your second question, but matching and solutions will be marketing solutions in SaaS business segment from April next year. From next fiscal year, this business will be a stand-alone segment. So the current status in the -- your growth strategy, and the strategy to improve the business efficiency can hopefully be explained more clearly. We are preparing this internally. So HR business and -- which consists of a HR technology and staffing, simplified hiring block of business and business work smarter, help businesses work smarter. This is marketing solutions in SaaS making matching and solutions business. So we showed you a pie chart in the past. Right half, we'll do this and left half, we'll do housing and real estate. In May, we hope to be able to explain more clearly and we're discussing that internally. I hope you could give us a little more time. Nagao-san, I understand your preference. So please look forward to it.
So SBU realignment. My first question, a follow-up on that. So agent referral. This will be HR tech business, but recruit agents, recruit executive agent. These are labor-intensive traditional type of referral business. So if you can multiply tech to that, what can be leveraged. Is this a big realignment? Or are you trying to change the business model as well? If you could elaborate on the strategy, please.
A while ago, I think I said this, so the placement in Japan, by bringing Indeed engine the matching efficiency can be enhanced. And we're seeing improvements. I think we've been saying this for 2 years now. Of course, the candidates, we have our sales people in charge. And our business clients have our salespeople taking care of in the GAC office. So we've been doing this for 2, 3 years. So the front end is handled by our people, but the back end, there's a machine used already. How we move this forward is the challenge we need to address. And furthermore, this HR Tech simplify hiring strategy. How can we shift from agency had ad model to transaction model from ad to transaction. This business in Japan can be used as a basis to do more business globally, we're thinking of that possibility. So this placement is now working well. How we can develop this further in Japan and globalize this going forward is something we are still thinking. So we don't have any concrete plans. We are just starting now. But this Japan's placement business that we've been cultivating over the years, can leverage harness the power of technology and may become global, so we're discussing that internally.
Thank you very much for your insightful comment.
Nomura Securities, [indiscernible].
About the 2 new subsidiaries, I would like to ask a question. First is about the name, both have Indeed, both starts with Indeed. So what is the aim? And about the chain of command, using Indeed technology and integrating the placement business as you explained earlier. I understand that, but will you continue to have the same person of the head of business in the new subsidiary? Or are you going to reshuffle the structure as well? What is going to be the reporting line? Is there anything that you can share with us about what you are discussing internally?
Well, that is what I also would like to know, but it is not decided yet. When we have a big reshuffling or reorganization in our company, in most cases, when we make announcement in February for the third quarter, we make a disclosure for the TSC about the change. So at this point in time, I believe that is going to be the timing to share the details. Well, it's not really about which is which, but we just want to make something better. So if we already have something good, we will use it to a full extent. It's not really about using something from Recruit and something else from Indeed. It's not really about which organization is going to take the initiative that will be very narrow viewed. We are trying to be united, and I think we now have a foundation to develop something better by integrating our capabilities. So we will just focus on who is capable of doing what rather than paying attention to the current structure. And also about the naming of these 2 subsidiaries.
Well, we thought about including Indeed in Recruit both the name starts with R and when we try to make an acronym, it doesn't look good. That's just 1 example of our thought process. Do you get me?
No, not really. If the name starts with an R?
Well, if it is recur indeed partners, it is RIP. It is not really good. As an acronym, we have discussed with native English speakers. So it was a hard work actually to come up with a good name. So there is no hidden meaning, but we also thought about integrating into HR Tech. So we could give it a brand-new name, but rather than creating a new logo for the brand new name, we thought it is better to build on what we already have. That is the background of why we decided on these names. So there are really specific meanings or thoughts, but rather, we paid attention to the acronym is good, and we excluded the bad acronyms.
Understood. I have a specific follow-up question. M&S about advertising and promotion expenses. In the second quarter, how much did you use if it is difficult to quantify the amount, can you please share with us the year-on-year change?
I believe I responded to Maeda-san's that we do disclose that number for the first half, but we don't disclose this on a quarterly basis. So I hope you can refer to that information.
Thank you very much. We answered all the questions we received, and we were able to share with you some back of the same story to. As Arai-san said, once we decide on something, we will disclose and continue close communications with you. Thank you very much. So we will bring this session to a close today. Thank you very much for joining us today. Thank you, as always, and I ask you for your continuous support.