Job Sites Are Doing a Heck of a Job


As the Internet storm continues, one sector has found a shelter: online recruiting. Online layoffs and hiring freezes may dominate the headlines -- but those downers are good news for online job sites. According to a survey this month from Alexa Research, industry leader Monster.com (TMPW) was the 13th-busiest of all Web sites in January -- up from 25th in December. HotJobs.com (HOTJ), the No. 2 career site, jumped from 92nd-busiest on the Web in December to 57th in January.

Monster.com, long the No. 1 job-search site on the Net, boasts a database with more than 8.3 million resumes -- up from 2.7 million a year ago. As part of bricks-and-mortar headhunter TMP Worldwide, Monster has also skillfully exploited the links between TMP's offline recruiting and advertising businesses and its online job exchange. HotJobs, too, has seen a remarkable rise in usage. Registered job seekers at HotJobs rose from 2.8 million at the end of December to more than 3.2 million in January. That job-seeker traffic translates into cash. According to IDC, the online-recruiting market was worth $500 million in 1999. It is expected to rise to $4.5 billion by 2004.

As hiring slows, however, is there room for both companies to survive and thrive? Analysts sure think so. In fact, pressure on earnings and the desire to cut costs are driving companies away from traditional classified advertising and staffing agencies to online recruiters, which offer wider distribution for less money.

INTERNET ODDITY. For investors, that could be a big opportunity. Both stocks, each near its 52-week low, are bargains, according to analysts. TMP/Monster.com closed at $48.17 on Mar. 8, and Hotjobs.com was at $6.13. "In the near term, you have to be cautious about how damaging the economy will be to growth. But if you are a long-term investor and can ride out a potential storm, this is a great time to buy," says Andrea Williams Rice, an analyst with Deutsche Bank Alex Brown.

Monster.com deserves particular attention. TMP's target share price for 2001 ranges from $68 to $140 per share, according to FirstCall. While analysts can't agree on a price, the consensus is uniformly bullish. Monster is the only online recruiter already making money -- something that makes it a veritable wonder of the Internet Age. TMP, which includes Monster as well as offline yellow pages, recruiting advertising, and executive-search services, saw 2000 profits rise 113%, to $1.02 per share from 48 cents. Monster.com's operating profit for the fourth quarter was $28.1 million. That's more than half of TMP's $54.1 million total.

What really grabs analysts', however, is TMP's operating margins. Monster.com reported a 24% margin for the fourth quarter -- an outstanding figure for an Internet business. (Dell Computer, once known for its impressive margins, reported only an 11.3% operating margin during the boom of 1999.) Analysts expect to see Monster's margin rise to around 30% by the end of the year. TMP also expects to see the operating margins for its other businesses improve as they move increasingly online. "TMP specializes in taking a 10%-operating-margin business, putting it on the Net, and turning it into a 30% to 50% margin," gushes one of TMP's largest institutional investors. "It's the kind of business you dream about in terms of profitability."

NOT AD-DEPENDENT. Equally important, though, is the diversified customer base. No single corporate client accounts for more than 0.5% of Monster's revenues. This protects Monster.com from sudden losses in revenue, even as clients such as Cisco and Apple Computer institute hiring freezes. Customer concentration, especially for Internet companies, has been a common cause of stock blowups.

Though still a money loser, HotJobs mirrors TMP's in significant ways. Like Monster, HotJobs is largely immune to the decline in online ad sales since it makes its money from corporate clients that pay a subscription fee to list jobs and search resumes posted at the site. At last count, HotJobs was boasting that more than 9,100 companies had subscribed to its online employment exchange. Like TMP, it also has a large cash reserve of about $100 million. At the current burn rate, that would give the company nine years before it runs out of money -- an eternity in the online world. HotJobs says it's academic in any case, since it expects to turn a profit by the end of 2001.

Due to its No. 2 status, HotJobs is trying hard to distinguish itself from Monster.com. For example, HotJobs enables job seekers to prevent certain companies viewing their resumes, a safeguard that prevents employers from checking to see if their people are hunting for other jobs. HotJobs also prohibits headhunters from searching its resume base, which reduces blind recruiting calls. Analysts says HotJobs' efforts are working fine. Investment firm BlueStone Capital estimates that recruiting on HotJobs results in savings of 50% to 90% over traditional recruitment methods.

LET'S COMPARE. True, both Monster and HotJobs will face challenges as the economy slows. During the Internet boom, it was enough that page views and the number of registered users rose exponentially. But traffic trends aren't always a great indication of future revenue for the e-cruiters, says Thomas Weisel Partners analyst Perry Boyle, who writes a monthly report on the sector. Both companies make money from corporate clients who measure value not by traffic but in the quantity and quality of candidates, and the speed with which they're hired.

HotJobs claims it does a better job placing applicants than Monster. And it is willing to put its money where its mouth is. On Feb. 8, Chairman Richard Johnson challenged Monster CEO Jeff Taylor to bring in an independent third party to measure and compare the hires made from the rivals' job postings and resume databases. Monster.com declined the invitation, with President Hans Gieskes citing Monster.com's rising market share as proof enough in itself.

But with both companies seeing traffic and revenues growing smartly, the market looks like it will be big enough for two, at least for the foreseeable future. And that's welcome news -- not only for the companies but for the battered Internet sector as a whole. It renews faith that Internet-based business can still be a winning combination: efficient and profitable. By Jane Black in New York


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