Company’s latest earnings show its quarterly profit dived on soaring marketing costs, as it anticipates ending its 17-year run on Wall Street by year-end

Key Takeaways:

•      51job’s second quarter results could be its last as a listed company as it anticipates completing a year-old privatization bid by the end of this year

•      Company remains a major force in China’s online recruitment industry, though was recently overtaken for the top spot by the younger Kanzhun

By Thomas Zhang

It’s been a miserable summer for U.S.-listed Chinese companies, many of which have seen their shares sink to all-time lows amid a series of regulatory cleanups in their home market. But veteran online recruitment site 51jobs Inc. (JOBS.US) has somehow had a better summer than most, with its stock holding relatively stable during that time.

Not even the company’s latest – and possibly final – quarterly results announcement on Sept. 24 managed to sway its share price too much.

51job’s ability to stay above the regulatory fray could well owe to a major distraction among its investors, namely a privatization bid dating back about a year ago. In the latest twist of that saga, the company announced in June it had signed an agreement to be taken private by a consortium of Chinese investors including its co-founder and CEO Rick Yan.

The deal, priced at $79.05 per American depositary share (ADS), is expected to close by the end of this year. Perhaps that guarantee has given some stability to the stock, even as its current price of around $70 is still 14% below the offer price. Never mind that privatization offers do occasionally get revised downward when markets are weak like they are now for Chinese stocks.  

Truth be told, the company’s latest results don’t look too exciting anyway, which perhaps explains a 2.6% decline in its share price since in the three trading days since the announcement last Friday.

There are good-looking numbers in the report, such as total revenues that increased 32.6% year-on-year to 1.1 billion yuan ($170 million), though revenue for its core online recruitment services grew at a far slower 17.4%. Gross profit also grew 21.8% to 678.9 million yuan. There are less impressive numbers too, like an even larger 45.3% jump in operating expenses to 569.5 million yuan. And perhaps most worrisome, net income tumbled by about half to 181.7 million yuan.

But it seems most people may be looking past all those numbers to the day when they can cash out their shares, presumably in the next three months.

Looking beyond the latest modest selloff after the results announcement, 51job’s stock has been remarkably stable lately. Throughout the summer, it has traded within a range roughly between $68 and $78, much less volatile than its Chinese peers.

Looking closer, it’s worth noting that sales and marketing expenses for the quarter rose to 57% year- on-year to 455.6 million yuan, accounting for 80% of total operating expenses. Considering the slower rate of revenue growth, one might conclude the company’s aggressive spending hasn’t yielded an equally proportionate return.

That partly reflects the ever-competitive landscape of China’s online recruitment industry. The domestic market is indeed huge, with China Insights Consultancy estimating it could roughly quadruple to 223 billion yuan by 2025 from 55 billion yuan in 2020.

New Kid on the Block

Among the top three players in the space, 51job is the oldest, founded in 1998 and listed in New York since 2004.

Kanzhun Ltd. (BZ.US), best known for its Boss Zhipin service, is the “new kid” in town, founded in 2014 and listing in June this year. Like 51job, Kanzhun’s stock has been quite stable despite the turbulence, rising sharply from its $19 IPO price initially and trading mostly between $30 and $40 since then.

The company’s revenue is growing far faster than 51job, and officially passed its much older rival when the figure rose 173.9% in the second quarter year-on-year to 1.2 billion yuan. But it’s still losing money, though analysts expect the company to become profitable in the last two quarters of this year.

Tongdao Liepin Group (6100.HK), another rival, was listed in Hong Kong in 2018. It’s the smallest of the three, with revenue rising “only” 45% year-on-year to 675 million yuan in the latest quarter. Investors seem impatient with its slipping position, and the company’s stock now trades at about HK$10 – far lower than its IPO price of HK$33.

In terms of valuations, Kanzhun trades at the loftiest price-to-earnings (PE) ratio of about 141, based on analyst forecasts for this year, if it indeed becomes profitable. Even at its depressed price, Tongdao Liepin still trades at a PE of about 68, according to Reuter’s data. No analysts follow 51job anymore, though it trades at the lowest PE of about 30 – perhaps another reason the stock has held up so well despite the current volatility.

Low valuations naturally attract buyers, which is probably what attracted the initial privatization offer for 51job a year ago. 51job once told media that the rapidly changing Sino-U.S. relationship was the main concern behind its decision to go private, given that more than 99% of its business is conducted in China and all the data it holds is related to China’s domestic labor market.

51job isn’t the first in its class to de-list from New York. Rival Zhaopin was taken private in early 2016, just two years after listing. And, a Craigslist-style Chinese online platform whose offerings include job ads, privatized last year, ending seven years as a listed company.

In the case of 51job, the company’s stock may be partly suffering from investor fatigue. With more than two decades of history, the company belongs to China’s first generation of dot-com startups that rose to prominence in late 1990s and early 2000s. Many of those have since vanished.

51job survived the burst of the dot-com bubble, and was listed on the Nasdaq in 2004 with an IPO price of $14. Some 17 years later its stock has risen fivefold, giving it a current market cap of $4.8 billion. But that pales compared to Kanzhun, which is now worth $15 billion.

While it’s still an industry leader, investors may be looking warily at the rapid rise of Kanzhun and wondering if 51job may be on the way to becoming yesterday’s news.

Whether going private will improve 51job’s prospects is anyone’s guess. After all, China’s online recruitment, and the wider human resource service industry, are only getting more crowded and competitive. But that won’t be a concern for 51job’s New York shareholders soon, and the company was fully aware of that when it published only a brief financial report for the latest quarter and scrapped the usual investor call afterwards.

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