Indaba WebTech Research: Online Recruitment (LNKD, MWW, DHX)

Talent Acquisition Investing in Online Recruitment

-‐ March 23, 2012 -‐

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Investment Universe + Report Focus

Online Recruitment Value Chain

Our Universe of Web Technology

-‐ 4 -‐ Worldwide labor force = 3.3B;

Professionals = 640mm

Online Networking: LinkedIn, Viadeo, Xing, Chatter

Traditional: Monster, Dice, Career-‐builder, etc.

200,000 enterprise level companies

Focus of this Report

Online Recruitment / Networking Companies

Consumers Enterprises

Content Sharing

Recruitment

Blogging

Platforms

Gaming

Networking

E-COMMERCEADVERTISING

INFRASTRUCTURESOCIAL

MEASUREMENT

AGENCY /DIVERSIFIED

SEARCH

IDENTITY

LOCATIONSERVICES

PLATFORMS

MERCHANTS

CONTENT

TRAVEL

CONTENTDELIVERY

SOFTWARE &SERVICES

DATACENTERS

GOVERNMENTPOLICY

-‐ 5 -‐ _____ 1. Passive recruitment refers to the recruitment of candidates who are satisfied in their current positions and are not actively seeking new opportunities

Global Talent Acquisition Opportunity

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The growth of the talent acquisition market will be largely contingent on a continued recovery in the global economy.

_____ Source: IDC, April 2011

85.5% 86.0% 86.5% 87.0% 88.0%

28.0% 30.0% 32.0% 35.0%

38.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2010 2011E 2012E 2013E 2014E

PenetrationUSD B

EMEA AmericaAsia/Pacific Internet Penetration -‐ USInternet Penetration -‐ International

CAGR -‐ 9.4%

CAGR -‐ 4.6%

CAGR -‐ 4.8%

Internet Penetration

Talent Acquisition Opportunity ($B)

Underpenetrated Asian economies will grow faster than their developed peers

US Recruitment: Spending by Channel

-‐ 7 -‐

US businesses will continue to use multiple channels to recruit talent a winner-‐takes-‐all scenario is unlikely.

Recruitment spending to remain fragmented

_____ Source: IDC, April 2011

43%

23%

15%

10%

7% 3% 2015F

42%

21%

15%

10%

9% 3%

2010

Total Spending: $42B Total Spending: $55B

42%

21%

15%

10% 9% 3%

2010

Staffing Services Executive Search Services

Online Recruiting Classfied Ads

Outplacement Services Others

2015E 2010

~5.5% CAGR

US Recruitment: Positions Filled by Channel

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Passive recruitment even in its nascent stage is the source for 10% of all positions filled in the US.

_____ For 2011. Source: Bersin & Associates, 2011 Passive candidates are those who are satisfied in their current positions and are not actively seeking new opportunities

Active Candidates

Passive Candidates

Internal Candidates; 19%

Job Portals; 19%

Employee Referrals; 16%

Company Website; 13%

Professional Networking Sites;

10%

Agencies; 9%

University; 7%

Print/Newspapers; 3%

Other Sources; 3%

Social Media; 1% We expect active

candidates to increasingly

profiles on professional networking sites, driving professional network

share gains.

US Recruitment: Macro Analysis

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_____ Source: Bloomberg, U.S. Bureau of Labor Statistics 1) Revenue of top 10 companies (by market capitalization) in recruitment industry operating in the US: MWW, MAN, KELYA, KFRC, HSII, HHGP, CRRS, CTP, LNKD and DHX

Revenues of the top 10 US recruitment companies(1) typically lag changes in GDP and lead changes in unemployment.

Global Credit Crisis

3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%11.0%

0.01.02.03.04.05.06.07.08.09.0

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

USD B Revenue vs. Unemployment Rate

Revenues of Top 10 US Recruiting Companies US Unemployment Rate -‐%

(10.0%)(8.0%)(6.0%)(4.0%)(2.0%)0.0%2.0%4.0%6.0%8.0%

0.01.02.03.04.05.06.07.08.09.0

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

USD B Revenue vs. Real GDP Rate

Revenues of Top 10 US Recruiting Companies Real GDP -‐ %

Global Credit Crisis

Consumer Media Consumption

-‐ 10 -‐

Increased time spent online provides a significant opportunity for social recruitment firms to drive both increased usership and engagement.

_____ Growth rates are absolute (not compounded) Source: North American Technographics Benchmark Surveys, 2005 to 2010

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Newspapers Magazines Radio TV Internet

Hours/Week

2005 2006 2007 2008 2009 2010

(26.0%)(18.0%)

(15.0%)

5.0% 121.0%

Competitive Analysis

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_____ Source: Company websites, Annual Reports, comScore, Google

Brand Description Pricing Page Views / Unique User

Unique Users (mm)

Subscribers (mm)

Social professional network targeting both active and

passive job seekers

LNKD Recruiter: $8,200.00/ year/seat Talent Finder: $99.95/ month LNKD Jobs: $1,200.00 /year Job Seeker: $19.95 -‐ $49.95/month

27.53 92.0 >150.0

Traditional online job posting sites with presence in 55 countries for over a

decade

Power Resume Search: $13,000.00/year Standard Search Product: $10,000.00/ year Career Ad Network: ~$135.00 $250.00/Job posting

NA 46.0 Job Posting: >1.0

Resumes: >150 (2008)

Provides niche sites targeting highly skilled

employment

Dice Job Posting Express: 495.00/month Resume Access Express: $995.00/month

NA 5.4 Job Posting: ~0.13

Private horizontal job site like Monster. Based in

Chicago, USA

Resume database: $6000.00/year Single job posting: $419.00/month

NA 24.0 Job Postings: 1.0 Resumes: 40.0

Xing

Listed in Germany, 2nd largest professional

network with 88.0% of users in Europe

Premium Membership: starting @ 5.55 ($7.50)/month

33.60 7.0 >11.4

Competitive Analysis [CONTINUED]

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Brand Description Pricing Page Views / Unique User

Unique Users (mm)

Subscribers (mm)

Based in Paris, a private professional networking

website

Most Expensive Plan: $3.95 (3 months subscription)

NA 5.0 40.0

Private company with platform to form a

professional community

Basic collaboration plus added customization and CRM features for $15.00

/user/month NA 2.0

Access of 0.07 (June 2010)

Operates as a private online search engine for jobs in US,

Canada and UK NA NA 50.0 NA

A startup company using Facebook Apps to build professional network

25 Job Postings: $250.00/ month 14.40 1.0 3.0

_____ Source: Company websites, Annual Reports, comScore, Google

-‐ 13 -‐

Online Recruitment Comps Key Statistics Takeaways

Comps Selection

o Considering the changing business dynamics in recruitment, we have focused on both emerging professional networking (LNKD) and traditional online portals (MWW, DHX)

Key Metric(s)

o Subscribers + Corporate Customers/Bookings:

Can company further penetrate addressable relevant vertical/segments to attract incremental corporate clients?

Can company attract additional subs / users to generate incremental revenue from advertising?

Market Valuation

o Based on 2013E P/E, we believe LNKD trades at a premium to its peers due to a) focus on social relevancy in a professional medium; and b) high growth opportunity. Premium of MWW over DHX is primarily on account of recent acquisition rumors

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_____ Source: Company Filings, Company Press Releases, Bloomberg Estimates and WebTech Research Estimates (1) Key Growth Metrics: a) corporate subscribers for LNKD; b) bookings for MWW; and C) customer packages for DHX

Company LinkedIn Monster Dice HoldingsTicker LNKD MWW DHXShare Price $100.57 $9.49 $9.53Market Cap $9,946.4 $1,168.2 $621.6Less: Cash $577.5 $250.3 $55.2Plus: Debt -‐ $188.8 $15.0Enterprise Value $9,368.9 $1,106.7 $581.3

Revenue2013E $1,209.0 $1,028.0 $219.4Y/Y Growth 38.3% 4.9% 11.5%2012E $874.2 $979.9 $196.7Y/Y Growth 67.4% (5.8%) 9.8%LTM $522.2 $1,040.1 $179.12013 EV/Sales 7.75x 1.08x 2.65x2012 EV/Sales 10.72x 1.13x 2.96xLTM EV/Sales 17.94x 1.06x 3.25x

Key Growth Metrics (1) Corporate Subs Bookings Customer Pckgs2013E 74.8% (1.9%) 8.6%2012E 39.3% 5.3% 3.5%

EBITDA2013E $293.4 $180.1 $90.7Y/Y Growth 72.5% 16.2% 15.7%2012E $170.1 $155.0 $78.4Y/Y Growth 146.7% 11.6% 7.6%LTM $68.9 $138.9 $72.92013 EV/EBITDA 31.9x 6.1x 6.4x2012 EV/EBITDA 55.1x 7.1x 7.4xLTM EV/EBITDA 135.9x 8.0x 8.0x

EPS2013E $0.58 $0.45 $0.69Y/Y Growth 248.8% 94.8% 20.0%2012E $0.17 $0.23 $0.57Y/Y Growth 50.9% (46.0%) 17.1%LTM $0.11 $0.43 $0.492013 P/E 173.7x 21.0x 13.8x2012 P/E 605.8x 40.9x 16.6xLTM P/E 914.3x 22.1x 19.4x

Oct-‐10 Dec-‐10 Feb-‐11 Apr-‐11 Jun-‐11 Aug-‐11 Oct-‐11 Dec-‐11 Feb-‐121.00

3.00

5.00

7.00

9.00

11.00

13.00

MWW UN Equity DHX US Equity LNKD US Equity

Stock Price Analysis

-‐ 15 -‐

_____ Source: Bloomberg Note: Stock prices have been benchmarked in multiples of $5.00 for comparison purposes

Stock performance follows trends in customer acquisition and bookings. 11/02/10: DHX Q3 10 beat, guidance for Q4 exceeds expectations

12/10/10: DHX increased stock sale to 12mm (19.5% of float) from 10mm @ $10.75/share

2/02/12: DHX Q1 12 weak guidance. Bookings from eFC to fall by 6-‐

10/28/11: MWW Q3 11 beat, and authorizes $250mm buyback

5/19/11: Listing of LNKD, +109.4% from IPO price of $45.00

1/28/11: MWW Q4 10 miss, guidance for Q1 11 below expectations

2/10/12: LNKD

expectations

2/01/11: DHX Q4 10 beat, guidance for Q1 11 exceeds expectations

8/30/11: top 3 executives reported buying a combined 87K shares

01/26/12: MWW Q4 11 miss, guidance for Q1 12 below expectations

10/29/10: MWW Q3 10 beat, guidance for Q4 10 exceeds expectations

6/28/11: MWW announced the launch of BeKnown

3/6/12: MWW hired Stone Key Partners and BOAML in pursuit of strategic alternatives

LinkedIn [NASDAQ: LNKD]

KEY SEGMENTS

Hiring Solutions: Recruitment products for enterprises (corporate solutions, LinkedIn Jobs, subscriptions for recruiters/hirers & job seekers). ~50% of revenues ($261mm in FY 11; +156% Y/Y). 9,200+ corporate customers

Marketing Solutions: Targeting solutions for direct marketers and advertisers (self-‐serve ads, display ads, social ads, and lead generation). ~30% of revenues ($156mm in FY 11; +97% Y/Y)

Premium Subscriptions: For general professional identify management (enhanced search/communication capabilities, à la carte premium features). ~20% of revenues ($105mm in FY 11; +70% Y/Y)

CONSENSUS CONCERNS

Lower User Engagement vs. Facebook [FB] will Impact Revenue from Marketing Solutions: Based on average time spent/month (6.25 hours for FB vs. 0.25 hours for LNKD) and page views/user (655 for FB vs. 28 for LNKD)

Our view: We do not share this concern. Time spent and page views are not comparable given the differing nature of each platform. For LNKD, we are more focused on user engagement momentum, evidenced by page view growth (+63% Y/Y) outpacing unique visitor growth (+61% Y/Y) following the launch of LinkedIn Today, Signal and Platforms

Ability to Expand EBITDA Margins: Questions persist around ability to expand EBITDA margin from ~19% in FY 11

Our view: We do not share the concern. Favorable gross margin trends, combined with successful sales & marketing investment, gives LNKD management increasing control over margin trends. That said, we believe SG&A and product development investment is justified given the addressable market opportunity (penetration at ~4.6% out of ~200K corporates)

-‐ 16 -‐

LNKD, with its disruptive recruitment model and focus on innovation/product development, has seen shares rise over 100% from

LinkedIn [CONTINUED]

WHAT WE LIKE

Market Leader: 13x larger than the closest pure professional network Xing. Used by 82 of Fortune 100 companies

Growth Potential Recruitment: Low penetration rate (<1% for hiring and ~3% for premium subscriptions) offers room for substantial growth in addressable market of ~$27B global recruitment and talent acquisition

User Engagement Upside Advertisement: Social element to platform gives it a significant opportunity to penetrate ~$25B addressable advertising compared to other traditional online recruitment companies

WEBTECH RESEARCH RECOMMENDATION = BUY under $89.76, aggressively under $85.73

Price Target: We arrive at a price target of $134.03 based on an average of our DCF and subscriber growth models. For our DCF we assume corporate client market share grows to 40% (from 4.6%) and EBITDA margin grow to 32.5% (from ~19%) by FY 20, with a terminal year growth rate of 2.5%. In our subscriber growth model, we assume LNKD exits 2013E with 276mm subscribers (up from 145mm; adding 2 subs every second, per mgmt comments in the last conference call) and an ARPU of $6.90 (up from LTM ARPU of $4.19), and a 65x P/E multiple (consistent with our view on subscribers and EPS growth rates)

Price Support: We recommend closely watching $75-‐76 for downside support (just below 100 DMA)

Short: The risk reward ratio for a short trade becomes favorable (at >4.5x) above $118.96. We would consider a fundamental short position if the long-‐thesis is -‐ (if shares rise above $147.43)

Stock a) positive employment numbers; b) Q1 earnings (5/9/12); c) comScore data releases; d) sale of any part of ~48mm shares owned by CEO, Greylock or Sequoia

Price Target = $134.03 (33.3% appreciation). Accumulate under $89.76.

-‐ 17 -‐

Monster Worldwide [NASDAQ: MWW]

KEY SEGMENTS

Careers: Connects employers with job seekers online through searchable job postings and career management resources. Over 200,000 clients

o North America: ~47% of revenues ($485mm in FY 11; +15% Y/Y). Operating margin of ~15%

o International: ~43% of revenues ($445mm in FY 11; +23% Y/Y). Operating margin of~8%

Internet Advertising & Fees: Provides employers, educators, and marketers with media driven solutions. ~10% of revenues ($110mm in FY 11; -‐16% Y/Y). Operating margin ~5%

CONSENSUS CONCERNS

Volatility in International Bookings + Soft Bookings Outlook:

Our view: We share this concern, as bookings in Germany (9% of revenue) grew 53% in 9M 11, but then dropped to 6% in Q4 11 (making comps tougher). Additionally, management guided Q1 12 bookings to decline of 6 10%, after flat bookings growth in Q4 11. We do not see a similar trend with competition

Competitive Threats: MWW has been unable to combat share gains from professional networking platforms (LNKD) and or vertically focused job posting sites (DHX)

Our view: We share this concern, as networking elements and pricing advantage (LNKD recruiter product ~$8K/user vs. MWW at ~$13K/user) will fuel share gains. Additionally, DHX continues to build its presence in technology, energy and financial services verticles, at the expense of MWW and Careerbuilder

-‐ 18 -‐

MWW, a traditional online recruitment model has been impacted by sluggish job recovery and the emergence of LNKD and other forms of social recruitment.

Monster Worldwide [CONTINUED]

WHAT WE LIKE

Leadership in International Markets: Maintains a #1 or #2 position in most of key international regions (~55 total)

New Product Developments: MWW invested in new products such as Power Resume Search, BeKnown, Career Ad Network and SeeMore through the down cycle, ensuring the participation in the next up cycle. These products should improve the EPS quality by driving stickier and more predictable annuity like earnings

Incremental Margins: revenue leverage to an improved job environment will be complimented by 50% incremental margins. Every 10% swing in bookings is worth ~$0.06 to EPS


Price Target: We arrive at a price target of $11.50 based on average of a) 2013E EBITDA exit multiple of 5x (vs. 5.8x LTM multiple) and b) average of acquisition rumors at $11.00 15.00. We assume bookings will grow conservatively at ~2.4% in 2012E (based on management estimates for a decline of -‐6 to -‐10% in Q1 12 and our estimate of a bookings pickup going forward) and ~10.0% in 2013E. We also estimate that incremental revenue in 2012/13 flows to EBITDA at a 40% margin (vs. management estimates of 50%)

Price Support: Four insiders increased their stake in August 11 accumulating stock around $8.17


Stock a) incremental information regarding strategic discussions; b) Q1 earnings (4/27/12); c) share repurchase program; d) positive US employment numbers; e) negative EMEA employment numbers


-‐ 19 -‐

Dice Holdings [NASDAQ: DHX]

KEY SEGMENTS

Technology & Clearance: Operates Dice.com & ClearanceJobs.com. ~64% of revenues ($115mm in FY 11; +30% Y/Y). Unique visitors: >2.7mm. 90K job postings

Finance: Operates eFinancialCareers.com. ~25% of revenues ($45mm in FY 11; +33% Y/Y). Unique visitors: 1.5mm. 8.5K job postings

Energy: Operates RigZone and WorldwideWorker. ~9% of revenues ($15mm in FY 11; +252% Y/Y). Unique visitors: 0.8mm. 8.1K job postings

CONSENSUS CONCERNS

Weak EBITDA Guidance: Expected EBITDA margin of 41% in FY 12 (43% in FY 11) as project development costs increased by 50%

Our view: We do not share this concern, as DHX has been conservative with respect to EBITDA guidance historically (exceeding by ~200-‐400 bps over the last three years)

Soft Bookings in Finance: Higher-‐than-‐expected slowdown in finance segment (management guidance of -‐12% in FY 12)

Our view: We partially share this concern. That said, note that this guidance was given during a period of heightened concern regarding passage of Greece austerity measures. Additionally, we have seen improving hiring trends in the finance vertical

-‐ 20 -‐

DHX, a vertically focused and niche recruitment service provider has been impacted by uncertainty in the financial sector. We believe these concerns are overblown.

Dice Holdings [CONTINUED]

WHAT WE LIKE

Vertically Focused, Niche Player: Sector focus, via distinct web properties, provides a unique business proposition to enterprises relative to other generalist players and also drives brand awareness.

Strong Cash Flows: Consistent FCF generation (avg of 27.5% from 09-‐ 11) facilitated by a) high client retention and b) nimble business model (subscription-‐based revenue model enables management to quickly identify business trend reversals via deferred revenue trends, allowing for the adjustments to variable cost structure)

Productivity/Efficiency: $0.5mm of revenue/employee compared to ~$0.2mm for MWW


Price Target: We arrive at a price target of $13.42 based on our DCF model (given the stable FCF generation). We assume revenue growth of 15-‐20% for tech and clearance (customer growth of 10-‐15% and ARPU growth of 3-‐5%) and conservative growth of 5% for finance and energy from 2013E-‐ 16E. We also conservatively estimate EBITDA margins to contract to ~37% (vs. 12 month rolling margin of ~43%)

Price Support: Average price of $8.64 based on the existing repurchase program of $30mm


a) Q1 earnings (4/27/11); b) positive US employment numbers; and c) increase in share repurchase program


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For questions and comments, please contact: Brian Murphy Indaba Global Research 617-‐571-‐1550 [email protected] www.indabaglobalresearch.com

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Indaba WebTech Research: Online Recruitment (LNKD, MWW, DHX)

Economy & Finance