IPO Preview: Zhaopin Ltd

Jun.12.14 | About: Zhaopin Limited (ZPIN)

Summary

The most popular career-focused website in China, based on daily unique visitors.

Also the second largest online recruitment services provider as measured by revenues in 2013.

Priced at the price range mid-point at a P/E of 24, annualizing results for the nine months ended March '14.

Based in Beijing, China, Zhaopin Ltd (NYSE:ZPIN) scheduled a $76 million IPO on the NYSE with a market capitalization of $674 million at a price range midpoint of $13.50 for Friday, June 13, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint managers: Credit Suisse, UBS Investment Bank

End of lockup (180 days): Wednesday, December 10, 2014

End of 25-day quiet period: Tuesday, July 8, 2014

Summary

ZPIN is the most popular career-focused website in China, based on daily unique visitors.

ZPIN is also the second largest online recruitment services provider as measured by revenues in 2013.

ZPIN is priced at the price range mid-point at a P/E of 24, annualizing results for the nine months ended March '14.

Financials & metrics

The rate of top-line revenue growth was only 14% to $122 million for the nine months ended March '14 vs March '13. Net income was up only 10.4% to $21 million.

Gross profit held steady at 88%.

Notice below the 29% increase in unique customers and the 56% increase in job postings for the March '14 nine months compared with the March '13 nine months.

Operating metrics rate of change

June fiscal

June fiscal

March 9 mos

March 9 mos

2012

2013

2013

2014

# of unique customers

222,449

249,533

213,527

274,450

Rate of change

12%

29%

# job postings (in thousands)

7,618

10,512

7,309

11,375

Rate of change

38%

56%

Click to enlarge

Valuation

Glossary

Valuation Ratios

Mrkt Cap (MM)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing March 9 mos '14

Zhaopin Ltd

$675

4.1

24.1

7.3

7.3

11%

Click to enlarge

Conclusion

The rating on ZPIN is a buy.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business

ZPIN is a leading career platform in China, focusing on connecting users with relevant job opportunities throughout their career lifecycle.

The website is well-branded

The zhaopin.com website is the most popular career-focused website in China as measured by average daily unique visitors in each month of 2013, according to the iResearch Public Data.

ZPIN is the second largest online recruitment services provider as measured by revenues in 2013, according to the iResearch Public Data.

ZPIN's over 77 million registered users include diverse and educated job seekers who are at various stages of their careers and are in demand by employers as a result of the general shortage of skilled and educated workers in China.

In the fiscal year ended June 30, 2013 and the nine months ended March 31, 2014, over 10.5 million and 11.4 million job postings were respectively placed on ZPIN's platform by 250,000 and 274,450 employers including multinational corporations, small and medium-sized enterprises and state-owned entities.

The quality and quantity of ZPIN's users and the resumes in its database attract an increasing number of customers.

This in turn leads to more users turning to ZPIN as their primary recruitment and career-related services provider, creating strong network effects and significant entry barriers for potential competitors.

Background and focus

Since its inception in 1994, ZPIN has capitalized on its early-mover advantage as an online career-related services provider to build a leading brand in China. ZPIN's "Zhaopin" brand, which means "hire" or "recruit" in Chinese, has contributed to its success.

ZPIN focuses on educated and skilled users, which positions its favorably in industries that contain high percentages of white-collar positions, where there are shortages of skilled labor.

ZPIN understands the needs of both users and employers and, as a result, its platform is well-positioned to best match users with relevant job opportunities provided by employers.

Growth

Benefiting from its strong brand, ZPIN's leading market position and its focus on industries with high hiring demand, ZPIN has achieved significant growth in its operations in recent years, as highlighted by the following data:

ZPIN had over 1.9 million average daily unique visitors to its websites and mobile applications in the nine months ended March 31, 2014;

ZPIN had 77.1 million registered users as of March 31, 2014, representing an increase of 18.0% from March 31, 2013;

11.4 million job postings were placed on its online platform by 274,450 unique customers in the nine months ended March 31, 2014, representing increases of 55.6% and 28.5%, respectively, from the nine months ended March 31, 2013; and

56.9 million completed resumes were available in its database as of March 31, 2014, representing an increase of 19.0% from March 31, 2013.

Seasonal

ZPIN's quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are out of ZPIN's control.

ZPIN generally generates less revenue during the national holidays in China due to the slowdown of business during the holidays.

In the periods following the Chinese New Year holiday and towards the end of a calendar year, ZPIN historically experienced an increase in recruitment activity.

The Chinese New Year holiday is based on the lunar calendar, varies from year to year and typically lasts for two weeks, which affects third-quarter results.

ZPIN also has observed seasonal campus recruitment activity by customers in the first and second quarter of each fiscal year.

In addition, employers' spending in China has historically been cyclical, reflecting the overall economic conditions as well as the demand for human resource services and recruitment patterns of employers.

Dividend Policy

No dividends are planned.

Intellectual Property

ZPIN owns the domain names, copyrights, trademarks and other intellectual property in relation to the design and content of its website, other than advertisements, trademarks and other intellectual properties provided by customers.

ZPIN relies on trademark, copyright, patent and trade secret laws, and confidentiality and non-competition agreements entered into with relevant third parties to protect ZPIN's intellectual property rights.

ZPIN holds 61 registered trademarks and 32 computer software copyrights in China. ZPIN has registered seven domain names, including its main website domain name zhaopin.com.

Competition

ZPIN faces competition in its various lines of services from direct competitors such as 51job.com, as well as from its local job-search websites.

Other large internet companies, social networking services websites and generalist classified advertisement websites have also entered the market for online recruitment services.

In addition, ZPIN faces competition from professional networking websites and existing participants in the offline recruitment industry who may develop online recruitment services and products.

5% stockholders

SEEK International Investments Pty Ltd. 79%

Jason Lenga*

John Alexander Armstrong*
*affiliated with SEEK

Use of proceeds

ZPIN expects to net $81 million from its IPO. Proceeds are allocated as follows:

for its geographic expansion, product development, upgrade of its information technology system and website, and working capital and general corporate purposes, including strategic investments and potential acquisition opportunities.

ZPIN may also use the net proceeds from this offering and the Concurrent Private Placement to repay part or all of its existing bank loans incurred for the repurchase of Series E preferred shares from Macquarie Zhaopin Holdings Limited with an aggregate outstanding principal amount of RMB420 million (US$67.6 million) as of the date of this prospectus, although ZPIN has not determined the exact amount of the proceeds that will be used for loan repayment.

The interest rates of these loans range from 1% above one month LIBOR per annum to 2.95% above three-month LIBOR per annum and the maturity dates of these facilities range from April 2015 to April 2016.

Disclaimer: This ZPIN IPO report is based on a reading and analysis of ZPIN's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.