The View of the Analyst

June 24, 2016

Presented to the Job Board Summit North

America 2016

Randle G. Reece, CFA

Vice President, Senior Analyst – Business Services Sector Research

Avondale Partners, Nashville, Tennessee USA

2

Career Highlights:

• Two decades’ experience as a research analyst and investor in equities, with

heavy emphasis on service-oriented companies.

• Senior research analyst at Stephens Inc., Montgomery Securities / Banc of

America, Avondale Partners

• Buy-side stock picker for Mackenzie, Waddell & Reed, Hoover

• One-year interlude as Investor Relations Officer of StaffMark, a publicly traded

staffing company (now owned by Japan’s Recruit)

• Preceded investment career with 11 years as a newspaper reporter, editor

and columnist

Biography of the Speaker

• Global staffing industry

• Online recruiting / talent acquisition technology

• Professional consulting

… all about the business value of labor

3

Avondale Business Services Research Focus

Defining the Talent

Acquisition Market

4

•North American employers spent $83

billion to find and recruit labor

–$47 billion went to external vendors

– Largest categories of spend:

•Temporary / contract staffing

• Internal recruiters

• Job marketing – including help-wanted

– was a $4 billion business, less than

10% of market

5

2015 MARKET SIZE

Sources:

Temporary and contract staffing – Avondale Partners estimate based on American Staffing

Association headcount statistics and projected gross margins

Contingent and executive search – Avondale Partners estimates

Job marketing – Avondale Partners estimates, based on proprietary industry sources

Employer marketing – Avondale Partners estimates

Applicant tracking systems –Bersin/Deloitte

Internal recruiters – Avondale Partners estimate based on Occupational Employment

Statistics, US Department of Labor

Referral systems and incentives, and other – Avondale Partners estimates, Bersin/Deloitte,

and sources of hires surveys from CEB, Jobvite, SilkRoad, and CareerXroads

North America Market: Talent Acquisition

Temporary and Contract Staffing 24$

Contingent Search 9

Executive Search 5

Job Marketing 4

Employer Marketing 4

Applicant Tracking Systems 1

External Spend: 47$ billion

Internal Recruiters 21$

Referral Systems and Incentives 2

Other Expenses 13

Internal Spend: 36$ billion

Temporary and Contract Staffing:

Markup on >$100 million of gross billings from staffing agencies to employers

Contingent Search:

$10,000 - $50,000 fee per successful mid-level search

Executive Search:

Retained search assignment, high-end jobs – fees $100,000 up

All of these high-cost segments are ripe for disruption

6

MARKET SEGMENTS

North America Market: Talent Acquisition

Job Marketing:

Old – Help-wanted classified and display advertising

Now – Cross-media candidate acquisition, search engines, sponsored ads,

targeted campaigns, search retargeting, e-mail marketing, mobile apps, SMS, and …

WHY DO RECRUITING INDUSTRY PEOPLE KEEP SAYING “POST AND PRAY?”

Employer Marketing:

Brand advertising – Employer brand equity-building campaigns

Traffic acquisition for corporate career sites

Career network-building

7

MARKET SEGMENTS

North America Market: Talent Acquisition

How the Labor Market

Shapes Talent

Acquisition

•2000: Growth rate of women’s labor force down in line with that of men

•2000: End of financial sector’s job growth leadership

•2000: Last year of job growth in publishing industry

•2001: Last year of job growth in communications sector

•2001: End of retail sector’s job growth leadership

•2007-10: Worst drop in construction jobs since World War II

•2009: Last material growth in government jobs

•2010-16: Slowest population growth rate since Great Depression

•2011-15: First annual increases in manufacturing jobs since 1998

Major Changes in the Past 15+ Years

10

Changes Over the Past Decade

170

140

2005 2015

Hires Per Recruiter

1.3

1.0

2005 2015

Hires Per Job Opening

In the United States:

Hires per recruiter declined• Recruiting professionals increased at a 1.5%

annual rate

• Hiring volume in 2015 was 3% lower than it

was in 2005

• Private-sector jobs: 7% higher

Hires per job opening declined• Job openings increased at an annual rate of

2.7%

• Voluntary and involuntary attrition declined

• Job openings per existing job - higher

Are employers making smarter hires?

Or is something else involved?

Sources: US Bureau of Labor Statistics microdata, Avondale Partners research

11

Labor Market Conditions Determine Needs of Recruiters

US Employment Metrics for Ages 25-54

Statistics for Men Statistics for Women

92%90%

90%

88%

85%

80%

85%

90%

95%

100%

Participation Rate Employed / Population

2.7%3.3%

3.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Unemployment Rate

70.9%

40%

50%

60%

70%

80%

Participation Rate Employed / Population

3.1%3.5%

4.1%

2.0%

4.0%

6.0%

8.0%

10.0%

Unemployment Rate

Among prime

career-age people:

Participation is in

secular decline for

men and women

Employment is

within a year of

approaching “full”

Large differences

persist among

occupations

12

Are We in a Recession?

Unemployment Insurance Claims Momentum Indicator: Not A Recession

Sources: Avondale Partners calculations based on US Employment & Training Administration data; recessions as defined by the Bureau of Economic Analysis.

1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015

Recessions Claims Momentum

13

Why Are Job Losses Slower Than Ever?

0.5

1.0

1.5

2.0

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

% o

f E

ligib

le W

ork

ers

, S

ea

so

na

lly A

dju

ste

d

Sources: Avondale Partners calculations, based on data from Employment and Training Administration, US

Department of Labor

Four-Week Initial Claims

for Regular Unemployment

Benefits

1.0

2.0

3.0

4.0

5.0

Mo

nth

ly %

of U

S L

ab

or F

orc

e

Short-Term Unemployment Rates

Recession

1-14 Weeks

< 5 Weeks

Hiring is slow, but attrition is slower

Slowest

everEmployer’s view:

• High cost of attrition

• Little excess labor on hand

• More cross-company hires

• Difficulty of hiring

14

Why Is Hiring Slower Than Ever?

Hiring is slow, but attrition is slower

Slowest

ever

Workers’ view:

• Iffy competition for talent

• Increased switching risk

• Clinging to benefits

• Playing out the string…

Age demographics are a key

factor

Mixed Messages from Hiring, Job Openings

Y/Y Growth Rates:

2011 2012 2013 2014 2015 Last 3 Mo

Workers Hired 5.1% 3.9% 3.8% 8.3% 4.8% 1.2%

Job Openings 18% 13% 7% 17% 17% 7%

Sources: Data from Job Openings and Labor Turnover surveys, US Department of Labor. Avondale

Partners charts and calculations. May 2016 = Avondale Partners estimates.

May-16, 93%75%

100%

125%

150%

175%

200%

2001 2003 2005 2007 2009 2011 2013 2015

Monthly Private-Sector Hiring, % of Job Openings

-

1.0

2.0

3.0

4.0

5.0

6.0

2001 2003 2005 2007 2009 2011 2013 2015

Mil

lio

ns

Monthly Job Openings Near Recent High

Hiring Remains Below Past Peak

Job Openings

Hires

Sources: US Census Bureau projections, Avondale Partners research15

Labor Market Conditions Determine Needs of Recruiters

The population ages 18-24 will not grow

in size for the next TWENTY years

The population ages 45-64 was the

fastest-growing demographic for 25

years

Soon, it will begin to shrink27% 24% 22% 22%

11%10% 9% 9%

33%

27% 28% 27%

18%26% 24% 23%

10% 13% 17% 19%

0%

25%

50%

75%

100%

1990 2015 2025 2035

US Male Population by Age

65+

45-64

25-44

18-24

0-17

24% 22% 21% 20%

10%9% 9% 8%

32%26% 26% 25%

19%26%

24% 23%

15% 16% 21% 23%

0%

25%

50%

75%

100%

1990 2015 2025 2035

US Female Population by Age

65+

45-64

25-44

18-24

0-17

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Implications of Age Demographic Shift

Lack of growth in 18-24 population

Decline in 45-64 population

• Brutal competition for college freshmen

• Greater reliance on older workers to fill entry-level jobs

• Lack of demand growth for products and services aimed at

young adults (apparel, games, devices, entertainment...)

• Rate of new family formation – slower population growth =

slower economic growth

• Coming shortage of experienced leadership

• Lack of demand growth for products and services aimed at

middle-age adults (cars, upscale homes, apparel, investments,

entertainment...)

• Faster rate of change as businesses depend more on workers

ages 25-44

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Implications of Age Demographic Shift

Growth of the 25-44 population

Growth of the over-65 population

• Competition for mid-level “career” jobs will intensify

• Shortage of entry- to mid-level jobs

• More older, part-time workers competing for entry-level jobs

• Faster shift from consumption to service economy

State of the Industry in

2016

18

19

The Short, Unhappy Life of Online Help-wanted Advertising

Data sources:

Bars represent Y/Y percentage changes in two data series.

HWOL = The Conference Board Help Wanted OnLine census of US online job postings.

Openings = Nonfarm job openings, Job Openings and Labor Turnover Survey, US Department of Labor

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Year-over-year Changes in Percent

HWOL Openings

Online absorbed

the print help-

wanted market Market share

gains endedMarket share

losses began

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What’s a Job Board?

Staffing companies ...

Fortune 500 corporations ...

Social media ...

Networking sites ...

The government ...

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Recruiters’ Biggest Problems

• Competing for talent against “hot” industries with high stock-based compensation.

• Dealing with the sudden decline in productivity and soaring cost of print

recruitment ad campaigns.

• How to balance spending on internal and external recruiting resources.

• Adapting to the massive scale of online recruiting.

• Trying to develop wholly new processes around this new source of candidates.

• How to conduct candidate research and relationship management on a large

scale.

• Dealing with clunky applicant tracking systems and corporate career websites.

• Filter tremendous volumes of active, unqualified job seekers from the online

applicant stream.

• Develop research methods for identifying and connecting with attractive recruiting

targets.

• Manage frequent fluctuations in the corporation’s urgency about hiring.

1995-2000

2001-07

2008-13

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Recruiters’ Biggest Problems

• Recognize swift change in the labor market, make competitive offers fast enough

to hire high-impact talent.

• Hire/develop productive recruiters fast enough to keep up with need.

• Present job openings to targeted social media audiences (on mobile devices).

• Convert the gusher of social media applicant traffic into usable candidates.

• Recruiters will strain to handle the demands of corporate leadership:

• Insource procurement of temporary, seasonal and contract labor.

• Compete harder for direct hires of high-value talent.

• Employers will be “forced” to make more green hires – and deal with higher

attrition.

• Job marketing will move to cross-media, cross-platform, programmatic buying.

• Much spending will be done without anyone knowing whether the winners

and losers are justly decided.

• The cheap-and-easiness of candidate flow will subside as social media mature and

recruiters focus on targeted campaigns.

When that day comes, where will the recruitment marketing industry be?

2014-16

2017-20

23

Mobile Apps Are Job Boards, Too

The mobile environment is especially well-suited to

search engines, hastening an adverse trend:

Search gets credit for job boards’ content

For now, mobile is a

job-discovery channel,

with applications done

on the desktop

Guess where job-

seekers go first on the

desktop, to locate jobs

they saw first on

mobile

24

Parts of the Industry Are Growing – Some Aren’t

$0

$1,000

$2,000

$3,000

CY13 CY14 CY15 CY16E

US

$ M

illio

ns

Indeed

LinkedIn Hiring Solutions

$0

$1,000

$2,000

$3,000

CY13 CY14 CY15 CY16E

US

$ M

illio

ns

Monster

CareerBuilder

SEEK

Sources: Company financial reports, Avondale Partners research, FactSet currency exchange rates

Indeed – No. 1 in job search traffic

LinkedIn – No. 1 candidate database

In 2013, the three largest job boards

had about 2x the revenue of LinkedIn

and Indeed

In 2016, we project LinkedIn and

Indeed will beat them by >50%

25

LinkedIn Aimed at Contingent Search, Hit Job Boards Instead

-

10,000

20,000

30,000

40,000

50,000

1Q 2009 1Q 2011 1Q 2012 3Q 2013 1Q 2016

Corporate Solutions Customers

Sources: LinkedIn, Avondale Partners research

Why LinkedIn succeeded:

• By far, largest source of

fresh profiles

• Timely launch of direct

sourcing tool

• After recession, job ads

were swamped with

“undesirable” applicants

26

LinkedIn Growth Rate Is Coming Back to the Pack

Slowing Growth of Corporate Solutions Clients

Sources: LinkedIn, Avondale Partners research

174%

121%

63%

33%

1Q09-1Q11 1Q11-1Q12 1Q12-3Q13 3Q13-1Q16

Annualized

Growth RateWhy LinkedIn slowed:

• Client over-penetration

• Direct sourcing is less

effective in later-cycle

• Member data losing its

freshness edge

27

What Explains This?

(Don’t take it as an indication of strength.)

28

Indeed Had a Great Idea, Then Got Aggressive

Indeed.com is the most popular job-search site with

120 million monthly unique users in the US

• Indeed grew revenue >60% per annum in 2013-15

• We estimate 70% growth in 2016

29

Who Gets Credit for the Hire? A Case of Marketing

A major problem for job boards:

ATTRIBUTION

30

Why Does SilkRoad Credit Indeed with ~60% of Hires?

SilkRoad’s ATS enables its clients to feed job posts directly to Indeed

• SilkRoad credits Indeed as the source of applicants on the employer’s own site

• Indeed creates no job content

• But Indeed allows SilkRoad users to avoid paying for job posting traffic (at first)

• SilkRoad also credits Indeed as the “source” when Indeed sends candidates to

commercial job boards

31

Stampede: Other ATS’s That Distribute Job Ads to Free Outlets

ApplicantProApplicantStackAvatureBreezy HRBroadbeanBullhornCATSClearCompanyCrelate TalentDeltekFinancialForceFitziiGreenhouseHalogen

HireHiveHireSelectHiringThingIBM KenexaiCIMSInfor HCMJazz (Resumator)JobBoard.ioJobviteLumessemyStaffingProNewtonOracle TaleoPCRecruiter

RecruiteeRecruiterboxTalenteraTargetRecruitTechnomediaUltiProUnrabbleWorkableWorkdayZipRecruiterZoho Recruit

32

How Does the Job Board Business Evolve?

• Go “digital community” first – lead with real content

• Address the small and midsize business market

o 60% of US jobs are in firms with < 250 employees

o Giants get 80% of revenue from large enterprises + staffing firms

• Solve targeting – demand is real, execution is poor

• Have different solutions for all stages of the labor cycle

• Help employers find and use neglected labor supply

o 1.5 million Americans ages 35-54 among “shadow unemployed”

• Don’t be afraid of being 1) recruiters, 2) the ATS

• Don’t let attribution just “happen” to you

What May Come in the

Next Five Years

33

34

Major Fallacy: Shift to ‘Service Economy’

29%34%

39%

43%42%

40%

10%9%

9%

17% 15% 13%

1985 2000 2015

Sources: US Bureau of Labor Statistics microdata, Avondale Partners research

Skill Composition of US Employment

Blue collar

Skilled service

Service

Professional

Service-sector job growth is lagging

Traditional service jobs are upskilling into professions

Future growth will be led by professional …

and blue collar

35

You Should Prepare for These Events

• Demise (or death throes) of browser-based advertising

• Ascendance of pay-for-performance job advertising and automated

buying – and subsequent problems

• Cross-media branding + job marketing campaigns

• Intensified competition for talent: Longer time to hire, higher turnover

• Regulatory efforts to combat fake job posting / contact harvesting

• Newspapers begin dropping out of the help-wanted business

• Job search engines win the huge small/midsize business market

• The next economic recession – by 2019

36

Contact:

Randle G. Reece, CFA

Avondale Partners, Nashville

(615) 467-3519

rreece@avondalepartnersllc.com

Twitter: @RandleReece