All right. We're gonna go ahead and get started. I'm Douglas Anmuth, JPMorgan's internet analyst. We're pleased to have with us today Ian Siegel, Co-founder and CEO of ZipRecruiter. ZipRecruiter is a leading online employment marketplace that connects people to their next great opportunity. The company's powerful matching technology improves the job search experience for job seekers and helps businesses of all sizes find and hire the right candidates quickly. It's also been the number one rated job search app on iOS and Android for the past 6 years. Ian has been CEO and on the board since 2010. He previously held various leadership roles in product and technology for MyLife.com, Pictage, Rent.com, and a number of other companies. Welcome, Ian.
Thanks for having me.
All right. Kicking off, just given your position in the recruiting space, you've got very good visibility into current data and trends. Perhaps you can talk more broadly about what you're seeing in the market and kind of the tone that you're hearing from employers.
Sure. Starting back in June of 2022, we saw, for the first time post-COVID, a meaningful slowdown that was protracted, in the appetite for hiring, particularly amongst SMBs. Coming into this year, in January, we saw something that, for us, was unprecedented, which was, a steep decline year-over-year in the amount of hiring that companies were doing. What was interesting about January is that it was no longer just SMBs, but it was also enterprises. We shared the information that we had at that point, which was that effectively January was down 15% year-over-year. Q1 came in 19% down year-over-year, and then we also shared April data, which was down 27% year-over-year. This is a macroeconomic, economy-wide, all job categories, all co-companies of all sizes slowdown in hiring.
Okay, that's pretty clear. All right. After that, you removed the 2023 revenue guidance, given the steep deterioration that you mentioned. I think this is the first time as a public company, right, that you've been without a full year guide, basically, which kind of speaks to some of the uncertainty. I guess, how do you think about any historical context or data? You know, have you seen anything similar, in terms of a period that you could compare to?
I think that the only interesting period to compare to is what happened during COVID. During COVID, obviously, it was a sudden shock to the system, and effectively, all companies stopped hiring at once, and it was a very rapid decline, followed interestingly by a very rapid recovery. When we came into this year, I mean, what made it so extraordinary is that we have been in business for more than 13 years, and over that 13-year period, every year has followed a very standardized and predictable seasonal hiring pattern. It's intuitive. You come into fourth quarter, there's Thanksgiving, there's Christmas, everybody effectively turns off hiring for the last half of December.
January, all hiring budgets are refreshed, people come back invigorated and ready to work again, suddenly the hiring season kicks off, then you see this very steady increase in hiring through the year. This year we came into January, it was like December never ended. Instead of following a pattern that had replayed itself for 13 years, we found ourselves in new territory where there was no longer a pattern we were following that was predictable. Rather than pretend to know what the year would hold for us, we decided to remove our annual guidance. We still gave quarterly top-line guidance, but we also gave bottom-line guidance because while we cannot predict the future in a wide variety of scenarios, ZipRecruiter has the ability to control what our adjusted EBITDA looks like.
That's what we decided to focus on in this year, which is control the things we can control and prepare and increase the size of our war chest for when the market inevitably rebounds in the cyclical macroeconomic reality we're in, and then be ready to take a disproportionate percentage of that share.
Okay, great. Let's just talk about online recruiting more broadly. Maybe you can just talk about where you think online penetration is today, where that could go over time.
Well, it's a big category. There's over $200,000,000,000 of TAM in it, and what's so interesting about it is it's one of the categories that has stubbornly remained with the majority of the revenue in the category coming from offline providers versus online providers. 90%+ of the total revenue out of that $200,000,000,000 is still going to staffing agencies and recruiting firms. Online is growing faster and taking market share away from those players, but it still is the minority of the total revenue in the category. It's just a really interesting phenomenon because it is also an information-based, skills-based, aptitude to try and match candidates to employers, and yet people still stubbornly are hanging on to working with human counterparts who are assisting them as power users in that process.
Okay. I guess when you think about, you know, how, you know, you talked about it kind of, you know, there's still a lot of room to go here. I guess, what do you see as the big drivers going forward, you know, that increase penetration levels overall?
Well, I'm not just paid to say this is what I truly believe is gonna happen. If you look at the post-COVID reality of the labor market, it forced an extraordinary period of rapid evolution in multiple areas of the labor market, which we are still seeing today. One of the most acute changes was that pre-COVID, roughly between 17% and 19% of people who got a job were effectively recruited by employers to that job. During the post-COVID recovery, when unemployment reached record lows, and we effectively had peak employment across the country, employers who wanted to hire had to do new things. The number one thing they did was proactively reach out to people who were potential candidates and increase the rate at which they went first and recruited people.
Post-COVID recovery, the rate at which people were recruited to a job went all the way up to 38%. If you look at online tools like ZipRecruiter, our signature feature is something called Invite to Apply, where as soon as an employer posts a job, our modern algorithmic matching identifies the best potential candidates in market, presents them to the employer, and the employer has the option to pick the ones they wanna directly recruit by inviting them to apply. That is the most runaway successful feature we have ever deployed. Job seekers love it. Everyone in this room takes for granted that they will get recruited. They think that recruiters call everyone. For the majority of the people in America, they go their whole careers without ever being recruited once.
Getting this outreach from employers is a highly effective psychological technique to create real engagement, and we have only scratched the surface of what is possible there. As I look into the future, it seems very clear to me that this notion of employers going first, reaching out to job seekers, and pitching them and inducing them to either apply to jobs or each just have a initial conversation, that is where recruiting is going, and that's why online is gonna continue to take significantly more share from offline.
Okay, great. Maybe you could talk a little bit about the competitive landscape in online recruiting. How do you feel Zip's positioned here with both job seekers, employers, and, you know, continuing to kind of penetrate more enterprises?
Yeah, I mean, I think fundamentally, the whole category really breaks down into three things now. There's a social network, the professional social network that everyone in this room is on. There are job sites which follow the traditional molds of the Monster and the CareerBuilder, and there is ZipRecruiter, who is consciously and intentionally trying to not be a job site, but rather we're trying to be a matchmaker. Why do we make that choice? It's because job seekers are terrible at finding the right jobs to apply to. Nobody trains you to be a job searcher, a job seeker, and this inorganic activity of dropping a person in front of a search engine and saying, "Go find and self-service your way through identifying the right jobs to apply to," is not a skill the majority of people in America have.
What's true about these modern algorithmic matching techniques is they are truly extraordinary at identifying who should be talking to which businesses. Once we have that confidence in the ability to match the right two entities, then what we really need to be in the business of is driving those job seekers to just apply and talk to those businesses. What I've said is, there's been three eras of the online recruiting world. The first one was volume, the second was the identification of quality candidates, and now we're on the sort of final frontier, which is all about engagement. Once I've identified the right two parties, how do I drive them to actually rapidly engage and ultimately, hopefully, make a hire together?
Let's see. While layoffs and tightening hiring budgets are headwinds clearly for demand, I guess the silver lining here is on the supply side and job seeker tailwinds that you're getting. How do you leverage these dynamics to strengthen the marketplace and your business, even with some of the headwinds weighing on the on the demand side?
Well, if you look at the history of the online job category, one metric has fundamentally defined who is the most valuable company since the job category moved from newspapers to online, and that is who has the most job seeker traffic. We've always been acutely aware of the need to have a large pool of job seekers inside of our marketplace, 'cause that's the liquidity that employers will come pay for. We have been building award-winning, raved about through third-party review job seeker features for a long time. As mentioned up front, we've had the number one rated job search app for the last six years on both iOS and Android.
About three years ago, we made a very conscious decision that in spite of the fact that in a post-COVID peak employment environment, there were many fewer job seekers using online sites than there had been pre-COVID, that we were gonna make a massive investment in building brand so that we could drive up brand awareness with job seekers of the fact that we had job seeker products, so that when they needed to find a job, just like when you wanna go buy something or go shopping, you go straight to Amazon, we wanted them to come straight to ZipRecruiter. So we invested in building that brand, and we got it to the same 80% plus aided brand awareness that we have on the employer side.
If there is a silver lining to 2023, we are reaping the rewards of that strategic investment because we are seeing soaring organic traffic from job seekers. fundamentally. You know, there are some pretty significant moats around the ZipRecruiter business at this point. One of them is a data moat, because we have billions of interactions between employers and job seekers from which to train algorithms. The other, and I feel often unappreciated moat, is the fact that we have spent over $1,000,000,000 building brand on both sides of our marketplace so that we can organically bring in both sides to that marketplace. Now that is what allows us to ride through these macroeconomic downturns with such grace.
Okay. I guess on the, on the job seeker side, what are some of the pain points perhaps that you still hear that you're looking to improve?
I mean, the number one complaint from job seekers has remained the same, which is what they call the black hole. They apply to jobs. They never hear anything back. This is something that we have worked on for many years, and we have many features that facilitate insight for the job seeker so that they know where they stand if they apply to a job. That's things like we tell them when the employer is reading their resume, we tell them if the employer gives them a rating. That's old news.
Like, to me, it's funny, if you look at the job seeker challenges and what they face, it's a little bit like that famous Henry Ford quote that he said, "If you ask people what they want, they'd say faster horses." Like, I'm not sure job seekers are able to articulate exactly what they want, but I will tell you what I think they need. The fundamental thing I think they need is, they need a coach. They need guidance in multiple areas of the job search process. It starts with how to craft their resume. It goes on to a comprehension of a forest view of based on the skills they have, how many employers are hiring? How much competition do they face? What is the compensation they can expect for those skills? What is the trend been in that compensation?
Since the labor market has moved online, there has been a tremendous information disadvantage for job seekers, where employers always have more insight and information than they do. That's something that we can definitely resolve. Finally, I think when you look at the process that they're going through, they are inexpert at every part of it. Things like interview advice or salary negotiation are things that traditionally sites have not tackled. When you look at the emergence of generalized AI and you look at the AI, we have deployed an AI character, we started working on it many years ago. When you look at the potentiality of that, it is transformational to the life cycle a job seeker will go through and will make them much better at the task.
Okay. Let's go there, and talk about AI.
Let's do it.
You've been building AI into your marketplace for a long time with Phil. Perhaps some people not close to the story, but, you know, some may not know exactly who Phil is, but maybe you can explain Phil.
Many years ago, one of our product people pitched me on what I thought was possibly a crazy idea, which was to create a AI personal recruiter that would assist job seekers through the process of finding work. Though I was dubious, what I learned very quickly is that when you went from a traditional marketing site language style to a human sounding voice, speaking the way a human does, it is a engagement multiplier, the likes of which I've never seen, and it works everywhere that we put it. It turns out people really wanna feel like they're working with humans when they go through this process. They wanna take advice from something that feels human. That has been an area that we've been heavily investing in.
It's funny because I think there was a lot of dubiousness about this direction, then ChatGPT comes out. Suddenly the whole world's thinking like, "General, like AI is brilliant. Like, what we want are software that talks to you like a person does." In many ways, we've been ahead of the game. What's really great about Phil, the character who you meet, who helps you through this process, is that Phil is not a feature. Phil is a site-wide experience. Phil exists in more than a dozen places. It's not something that's easy to copy. It's not something that's easy to get right. Now we have a host of Phil skills coming out that will do many of the things I just articulated to you guys.
This is gonna be the kind of gap and standout experience where you take what is already the highest rated job search app and you start to really, really expand your lead. 'Cause I think what we're gonna create is memorable, describable, and hopefully viral improvements in the way that people look for work with the partnership of this AI character, Phil.
Maybe talk a little bit about just how a prospective job seeker, when they come to the site, how they interact with Phil, what he's doing exactly, and then maybe some of the new ways the Phil skills, how that evolves going forward.
I mean, first and foremost, Phil greets you at the front door as you come into the site and segments you into what kind of job searcher are you, because some people know exactly what they're looking for and want a job tomorrow. A lot of people, basically half of the people searching for work, just want a job at some point in the future. They have a lower urgency search, and they're not sure what to type into a search engine 'cause they're willing to do a whole lot of things. This is where Phil is really impactful because Phil is very good at getting you to share your skills and then curating the right opportunities for you, often making you aware of things that you never even knew you were qualified for.
This is the future in that, historically, the job market worked on what's called Boolean algorithmic approaches, where it was just trying to match keywords in resumes to keywords in job descriptions. Now we've entered the age of modern algorithmic matching, otherwise called AI. Fundamentally, our software is leveraging what's called the wisdom of the crowd to identify you look like all these other people that we have seen, and people who look like you are liked by all these different types of employers. That is particularly true during COVID, when there was a scarcity of trained talent available. The willingness to expand the search parameters and accept candidates that were non-traditional was elevated. Phil has been really strutting stuff there.
Like, I think one of the fundamental things Phil will do for you that you've just never had before is Phil will literally pitch you to employers before you've applied. When Phil does that, advocating for you like a recruiter would, those employers reach out to you, and that is literally the best experience you can possibly have as a job seeker. It sucks to apply to a job because it's a huge commitment. You're literally saying, like, "I am telling you I wanna spend years with you," and you know nothing at that point. The average job seeker spends less than 10 seconds reading a job description, and they're asked to make that commitment. Well, now the employer is reaching out to them first, and they have leverage and the opportunity to actually get pitched and to listen before they make that commitment to apply.
What are some of the ways you're using AI on the on the employer side?
Well, first and foremost, it's with matching. It's this curation notion where we don't wanna leave it to chance or serendipity that the right candidates find your job. We're very targeted in identifying who the best potential candidates are and either getting them to apply or putting them in front of you so that you can recruit them as an employer. There's so much more that you can do, particularly with the advent of ChatGPT. Like, a great example is the most common behavior for an employer who's posting a job is they get to our post a job page, and then they open Google, and they say, like, "Give me a financial analyst job description." They use that as the starting point of the job description they will then write, right? Of course, we can do better than that.
We know so much about what the right best-performing job description historically has been, and now we can put a natural language interface on top of it, so it feels like the software is guiding you and talking to you, and help you create not only a highly effective ad, but, like, a degenderized term ad, and it's gonna be something where it feels like you have a helper taking you through the experience. That's like. That's basic.
Mm-hmm.
I think we're gonna see the insertion of AI throughout every part of the ZipRecruiter experience, 'cause our whole thing is trying to make software that feels human. The more we can accomplish that, the more it's that engagement multiplier. It doesn't matter where we put it. Everywhere we do it's a runaway win for us.
How do we think about, the costs of Phil, of AI, and just how do you think about R&D kinda going forward?
Well, I keep getting asked about the macroeconomy, and what I tell everyone is, you know, I don't have a crystal ball. I don't even try to be an economist. The superpower of ZipRecruiter is our nimbleness and our ability to rapidly react to whatever the economic conditions are, and we've been able to take our expenses down rapidly and raise our investments just as rapidly when the market turns positive for us. One thing that we do not take down and will not take down is R&D. The reason we don't take it down is, nobody has a favorite job site yet. Like, nobody thinks, like, "Ugh, that site solved it.
It's all done." The standard I hold our product team to when they come pitch me on features is, when you are done building that feature and you deploy it, are you gonna go home to your friends and family and brag about that feature you just deployed? Are you gonna go home and be like, "You have to use ZipRecruiter because we now do X"? Like, I'll tell you that if I show you the driving distance from where you're currently based to that potential job, you're not gonna go home and brag about it. You're not telling everyone they gotta go use ZipRecruiter 'cause we've put that feature on the site. We're striving for innovation and evolution of the category, 'cause we definitely don't think that people have solved this problem yet. It doesn't work in a rational way yet.
Curious to get your thoughts on generative AI overall, just in terms of the impact, on the business, on job seeking. You know, not just how, you know, kind of both sides of the market can use the technology, but, some of your views on how it may impact the number of jobs even overall.
First of all, it's the most impressive new technology I've seen in my lifetime. It's like smartphones had the title, and then this AI has come along and pound for pound is the new champ. I think it's gonna force product questions to be asked by companies they've never had to ask before. Like, what's the voice, demeanor, and attitude I want my software to have? Like, that's effectively where we're heading in this. It has the ability to do a lot of things well, but it is an expert at very few. So I think it can be an augmentation of what we do. The example I give on this is, Google puts out a software called AlphaZero. Turns out it's the best chess-playing software in the world. It was designed to be great at chess.
No human will ever beat AlphaZero. There's another one called Stockfish. No human will ever beat Stockfish. ChatGPT can play chess, but I can beat it. Like, it can play the game, but it is not the greatest chess player who ever lived, and that's effectively where this technology lies. Now, it turns out being just good at many tasks is good enough to potentially significantly impact the way those tasks are performed in the labor market. Will it have an impact on the labor market? Of course. Absolutely. It speaks every language. It writes well. It's never at a shortage for words or ideas. Is it going to en masse eliminate jobs in the next year? I would bet very much against it. I do not believe that is the likely arc.
Further, we can look at so many periods of technology disruption, and I am a student of this historically now. At no point in history has a new technology come along that when measured over a multi-year period, created, sorry, destroyed more jobs than it created. The most natural way this works is most often the technology comes along, and it basically requires a new execution of how jobs are done. Whether it's, you know, architectural draftsmen being required to learn AutoCAD or whether it's new emergent categories of work like podcasting, and suddenly there's a massive demand for sound engineers, where previously it was a very small category. It's just hard to predict all of the ways this will impact the labor market, but I think the belief that it will do so rapidly is overblown.
Okay. When we think about quarterly paid employers and revenue per paid employer, maybe you can walk through some of the puts and takes we've seen over the last couple of years and then just kind of where we are now and how you expect this to play out through 2023.
Yeah. Well, we are a company that services both SMBs and enterprises. 80% of our business is effectively SMB, 20% is enterprise. If you look at the split between SMB and enterprise in the country, it's about 5,000,000 businesses that are classified as SMBs, and it's probably less than 100,000 that are classified as enterprise. Yet, those 100,000 businesses have as many jobs posted and do as much hiring as the 5,000,000 SMBs. It's a 50/50 split between those two categories. If you look at our paid employer count number that we share, that's predominantly driven by SMBs because individual enterprises can come in and be companies that hire 80,000 people a year, and they would be the equivalent of 10,000 or more of those SMB customers.
It gets a little complicated to talk about the direct relationship between the number of customers we have and the average revenue per customer, because a single enterprise can come in and potentially be as an impact to the RP number that we share. We are on the cutting edge, and I would say the bleeding edge of what is being done in the recruiting space. Every month, every quarter, every year, quantitatively, measurably, our product gets better. We are obsessed with not just great matching, but great experiences. We are working in a disciplined fashion towards building products that we would be proud of, that we would recommend to friends and family.
It is my belief that good recruiting solutions that work, and they work at a much higher rate than the current recruiting solutions do, it will work across all categories of companies of all sizes, and you will see both the count of customers and RP go up. When you look at sort of like peak to peak, trough to trough over any extended period of time, I believe those numbers will continue to go up.
Okay. Let's shift gears a little bit, talk about profitability. You're one of the few smaller companies in our coverage of internet companies with real GAAP earnings. You've been outperforming on the bottom line through good sales and marketing discipline, and through, you know, the deterioration that you talked about for this year, preserved the 2023 EBITDA guidance, right, $178 ,000,000-$192 ,000,000, even after removing the revenue guide. Maybe you could just talk through that decision, you know, on kind of on profitability. What gives you the confidence in hitting those figures despite what's obviously a tough top-line environment?
I think the number 1 question I've been asked as the CEO of ZipRecruiter since taking the company public is, it's a cyclical category, so what do you do in a downturn? COVID hit, and what happened? We went backwards 3% in top-line revenue during COVID, and we did 29% adjusted EBITDA margins, throwing off $80,000,000 of adjusted EBITDA. The following year, during a steep recovery, we grew 77%. We were able to still deliver 15% EBITDA margins, and it was $115,000,000 of adjusted EBITDA that year. What we've always said is that we have extraordinary control over our expenses. We started as a bootstrapped business.
It was the philosophy for the first four and a half years where every dollar mattered to, like, instill that in every brick of the business that we built, this respect for sort of sensible data-driven investments that have high flexibility so that you can control when you need to take your expenses up or down. That's in our DNA and we've told the street that what we'll do is when there's a downturn, we will increase our profitability profile. Here we are again in another macroeconomic downturn. Again, we have a nimbleness with our expenses that allows us to continue to protect profitability, and in a wide variety of scenarios, feel confident about delivering EBITDA that I think is at a level that would, at a minimum, be acceptable if not impressive.
I told you that There was an unexpected downturn starting in the middle of last year, and it was really acute in January of this year. We shared the data, both the January data and the April data, with The Street. We told you what we're seeing. We're no longer following a predictable seasonal hiring pattern, so we're not gonna try and guess at what the top-line number will be, but we will control our investments such that we can deliver the EBITDA and feel really confident about that. I also think, like, part of what gives us the luxury to do that, and one of, as I said, the significant moats around our business is the brand we've built. You can build the world's greatest product, but it can be a tree falling in the forest if nobody comes to your site.
We have consciously invested hundreds of millions of dollars over the last few years in building a brand with job seekers, and now that investment is reaping the return because as job seekers come back to the market, we don't have. It is very expensive to build a brand. It is much cheaper to maintain it, and the tail is very long. I can prove this to all of you right now, 'cause you all still know who Monster is. Monster hasn't run a commercial in 17 years. There you go. Like, once you get there, once you get to that 80% aided brand awareness, very hard to fall out of the public consciousness, and we've done that on both sides of our marketplace.
What does what does all that mean just as you think about incremental any incremental investments that you'd like to make through 2023? Does this have to be kind of fully funded? You're finding dollars in other places. How do you think about that?
Well, I mean, if you sort of look at we're in a very healthy cash position. Net cash on the balance sheet, if you get rid of all of the share buybacks we've done, is higher than all the money we've raised. We have the luxury of choice right now. We first and foremost look at our available capital as a tool to grow our organic business. That's where we're intensely focused. Secondarily, we are obviously studying the market for M&A opportunities for things that are tuck-ins to whatever our core mission is, and particularly our new product direction, where we're seeing all this unique opportunity based on the technology that's suddenly emerged.
Finally, you know, we're not afraid to buy our own stock, as we've demonstrated, because we think it's undervalued, and so we have done so on a steady cadence. I feel very good about the position that we are in overall because I feel good about our R&D roadmap. It's not about our cash position, it's about our differentiation inside of the market.
Okay, great. One from the audience.
Yeah, just.
Leave the mic there, Dave.
Just a clarifying question. To your point about $1,000,000,000 spent on brand building, right? Over the history of the company, and your point about getting to 80% aided awareness on both sides of the equation, are you implying, or should I infer, that the brand building is largely behind you? The other related question is just, have you ever disclosed in rough orders of, you know, in rough magnitude of brand building as a percent of sales and marketing expense versus other uses of those dollars?
Well, the nature of the investment we make in marketing is very ROI-driven. We are scientists, not artists, when it comes to advertising. We're explorative. We're willing to experiment. You know, podcasting is a thing now. You're welcome. The range and nature of marketing we do is multi-channel but always measured. As I said, it's measured on time to return on investment. We never just do straight brand marketing. There's always some two-fer value inherent within it, where we're both trying to bring in one side of the marketplace, plus we're measuring the brand-building impact of it. We're not done marketing, 'cause marketing still brings in customers.
I think the magnitude of investment required in order to build a significant brand where you're making investments around this idea of getting to a higher level of brand awareness, I think we're ubiquitous now. I think, like, employers and job seekers know who we are. We're one of their top-of-mind answers when they think about performing the task that they're engaged in, and that's a great place for our business to be. We've never broken down the balance of marketing, it's just not, it's not how we think about it, and that's why we don't do it. Yeah.
Okay, great. Just last question. I wanted to circle back to something you just mentioned quickly. Just on capital allocation and the balance sheet, do we think about share buybacks more as being opportunistic or something that we should figure into the long-term playbook for the company?
Well, from my perspective, it's been opportunistic to this point. You know, we're gonna follow that model I described about where we're gonna put our investments, where first and foremost, I would like to apply our capital to growing our core business. Then, of course, I think the world is changing, valuations are changing, M&A opportunities are increasing. Then a tertiary consideration is share buybacks. If we have capital available, and we're a highly efficient business that's generating profits, I would like to use our money and not just hoard our money, 'cause we're trying to win.
Got it. All right. Great. Thank you, Ian.
Yeah.