51Job Discusses Shift from Print to Online Growth

From the question-and-answer portion of 51Job's (JOBS) Q2 2006 earnings conference call:

Jason Brueschke - Citigroup

Thank you. This may have been already asked, or at least answered in bit parts, but I am going to ask it again, because maybe I am a little bit unsure. You talked a lot about that there is in fact a slowdown going on in the print business. Rick, you guys have a large sales force. You have $100 million or so in cash.

What are the options for you to step in and reverse the trend? Is it trying to change the mix of customers that you are going after? Is it trying to basically maybe do more of a direct selling effort? Is there really any strategies or any I guess leverage that you guys can pull to go after to reverse this? If so, what would be a timeframe that we should be thinking about your ability to step in and offset what may be a macro trend going on in the market?

Rick Yan - CEO, 51Job

Well, I think, Jason, in today’s call, we have indicated that there is differential growth rate between online and print, meaning that in the larger cities and larger customers, there is a faster shift to online from print. I think that shift eventually would stabilize at some point. We do not believe that print will go away. I do not think print will just disappear. I do not think we have seen any country in the world that print would just disappear overnight.

We are also talking about a second trend that when we start getting smaller, medium- and smaller-sized customers, when they go to print, they first start with print, but when they go to print, they choose a smaller, lower-priced package, actually very similar to some of the first-time online customers that we have.

I think these are trends that if you look at the underlying growth in customer, we have found that healthy, but that these trends does hurt our top-line revenue growth.

Having said that, I do not think we are just sitting here and just waiting for the trend to stabilize. I think, as I mentioned in the comments, we are actively working with Recruit to look at their experience in Japan and look at ways to further penetrate the print market through different initiatives. It could be different products, it could be different segmentation, it could be different initiatives that they have that could have proven to be successful in Japan.

In addition, as contemplated by the business alliance agreement, we are looking at additional business opportunities together with Recruit, because we do have a very good infrastructure, a sales and distribution infrastructure that spans 25 cities in China, and we will be looking at an opportunity to leverage that infrastructure to launch additional new businesses together with Recruit.

How long this will take and how they would affect our -- certainly not next quarter, I would say, but we are actively looking at ways to improve the value proposition of our print product as well as looking at new business opportunities to leverage our sales and distribution infrastructure.

Jason Brueschke - Citigroup

Thank you. Let me just one final question, and kind of ask this from maybe a completely different perspective. I remember two years ago, you guys received a lot of criticism, and I think in some quarters, you still do, that your print business is so significant relative to your online business.

So while this appears to be maybe a little bit of an unexpected transition, in some ways, on the other side of this transition, meaning if as your online revenues continue to grow significantly, if your print ends up falling as a percentage of total revenues, that at the end of this trough there is obviously a point if that continues where you cross over what the majority of revenues will be online, it tends to be much higher revenue.

Are we seeing maybe, and I think you have implicitly said this, but are we maybe seeing, at least with respect to the big force or so cities that tend to kind of lead the evolution of these markets in China, are we just seeing the natural evolution away from the legacy print business with respect to the services that you provide to the newer, more efficient, maybe more exciting online services?

In a sense, looking longer term, is this not actually a good thing that is actually happening to your business, given the fact that you are the dominant player in the online business as well?

Kathleen Chien - CFO, 51Job

I think at the end of the day, Jason, I mean, for us, whether or not it is print or online, I think one of the very, very important metrics that we always have focus on is actually the number of customers that we serve. I think if for some of the newer guys that we are serving in the print business, we are able to up-sell, just as we have done so in the online business.

We still believe that there is actually a very robust market out there for us to continue to tap and grow. Now, whether or not the transitioning between online and offline, I think being positioned as a leader in both segments certainly helps us, and we are -- in a way, I wish that we could be indifferent to that, but I think if you look at the total numbers, that is where people are trying to understand a little bit better whether or not a dollar spent on print, is it still a dollar online or is it $0.75 online? That is the question I think maybe that we are also focusing on and trying to understand better.

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