Shares of HeadHunter Group (HHR, Financial), one of Russia’s biggest non-oil producing companies, are down nearly 40% since February. The online recruitment company is one of the three Russian companies traded on the U.S. main stock exchanges, alongside Mobile Telesystems (MBT, Financial) and Michael Pao (MTL, Financial).
HeadHunter’s position
Headhunter is Russia’s largest online recruitment platform and ranks third globally in terms of traffic. The company was cleared last month of monopolistic practices in the country after the Antitrust Agency concluded that its actions did not limit overall competition in Russia’s online recruitment market.
One of HeadHunter’s main strengths, which is also its business moat, is that locally, it appears to hold a strong position in terms of market share. The company’s local traffic is so high that it has pushed it to third globally in the online recruitment space. However, it still lags several steps back in terms of income.
The likes of Indeed.com are counting billions in their top-lines, while several other U.S. online recruitment companies are into hundreds of millions. HeadHunter has a long way to go to bridge the international gap as it bids to grow its global revenue stream.
The company’s gigantic traffic could be a good starting point. All it needs to do is introduce the necessary technological features to monetize its traffic. It could do so by tweaking its infrastructure to encompass more customer-centric features that offer more than just recruitment services.
Competition in innovation
Some of the global competitors like U.S.-based Robert Half International (RHI, Financial) and ManpowerGroup (MAN, Financial) have expanded their service offerings to include intuitive employee data analytics, which provides employers with more insights about the person that they are about to add to their staff. However, it could be a while before HeadHunter can reach that level.
At the regional level, HeadHunter is also facing competition from EU-based up and coming tech startups that have shown an insatiable appetite for innovation. One such company is Poland-based TenderHut, an IT powerhouse that invests in technological infrastructures for different industries. One of this company’s most interesting units is Grow Uperion, a startup operating in the HRTech sector. TenderHut is leveraging its diverse technology portfolio in HR to develop a smart online recruitment platform that will focus on psychology, motivation and education.
These are some of the developments that HeadHunter could look to introduce to its platform to try to compete globally. Headquartered in Bialystok, TenderHut is one of the closest regional rivals that HeadHunter will face in the old Soviet region all the way to Scandinavia. Another of TenderHut’s subsidiaries, SoftwareHut, was recently ranked 33rd in the Financial Times’ Top 1000 European companies. The company has already expanded to 10 global markets, which saw its revenue grow by 3,090% from 2015 to 2019.
HeadHunter could look at some of the technologies employed by HRTech to improve its product offerings. This could be a good platform to build on as it targets to expand global reach.
Immediate and long-term futures
The company’s revenue mainly comes from subscriptions, which makes it relatively predictable. In the three months ended Dec. 31, 2019, the company reported a revenue of $33.4 million, up 22.8% from the previous period.
Headhunter’s adjusted net income of $11.5 million for the period reflected an increase of 44.2%. The company’s top and bottom lines have maintained massive growth rates since going public and this was reflected on the full-year results. Last year’s total revenue of $125.8 million reflected a growth of 27.3%, while adjusted net income of $38.9 reflected an increase of 56.6% from 2018.
The company’s top line and bottom line growths are driven primarily by domestic revenue from Russia, which accounted for 92.6% of the overall income in 2019, posting a growth of 26.5%.
For the long term, note that HeadHunter went public in the U.S. at the NASDAQ stock exchange last May. This means that the company’s public life in the U.S. is still in its infancy. It is yet to complete the highly unpredictable first year, which means that investors should approach with a considerable degree of caution.
In addition, if HeadHunter is to become competitive at a global level, then it will need to work more on the monetization of its traffic. The company’s revenue of $125.8 million is massively dwarfed by most of its global competitors. Up and coming tech startups that look to disrupt the space, led by companies like TenderHut, could also begin to eat on HeadHunter’s share of the regional market in Europe.
Conclusion
In summary, shares of HeadHunter are down nearly 40% since February, which makes it a potential opportunity given that the company showed significant growth in the top line and bottom lines last year.
The recent plunge now values the company’s shares at a price-earnings ratio of 41.62, while the forward 12-month price-earnings ratio is 17.33. This could change when earnings for Q1 2020 are released, given the adverse effects of Covid-19, which have caused global lockdowns and unknown numbers of job losses.
Disclosure: No positions.
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