Recruit Holdings: Recruit Holdings reports flat sequential revenue growth for 3Q 24

Recruit Holdings, headquartered in Tokyo, Japan, is a prominent human resources company established in 1960. Originally founded as a job search magazine for university students, the company has evolved to create and provide platforms that connect individual users and clients. Specializing in human resource technology, marketing media, and temporary staffing services, Recruit Holdings generates revenue in over 60 countries, including Japan, the US, Europe, and Australia. As of March 2024, the company employs 119 people at its holding company level and over 51,000 across its subsidiaries. The company conducts its business through three primary units: HR Technology, Matching & Solutions, and Staffing. These units contribute 30%, 22%, and 48% to the total segment revenue, respectively. Recruit Holdings has strategically expanded its HR Technology segment through the acquisitions of Indeed in 2012 and Glassdoor in 2018. FY24 guidance revised upward Recruit Holdings has revised its FY2024 guidance, now expecting consolidated revenue to increase by 4.2% y/y to JPY3.6tn, and consolidated adjusted EBITDA to grow by 12.5% y/y to JPY673bn, reflecting margins of 18.9%. Net profit is expected to rise by 14% y/y to JPY403bn, with basic EPS projected to increase by 18.1% y/y to JPY267. This updated guidance represents a slight upward revision compared to November's projections. Previously, the company forecast consolidated revenue of around JPY3.46tn - 3.54tn, consolidated adjusted EBITDA between JPY622.2bn and JPY682.2bn, net income between JPY362.4bn - JPY407.4bn, and basic EPS of JPY239.6 to JPY270.6. The revised figures indicate improved expectations for financial performance across key metrics. Rise in HR tech revenues due to Indeed Plus Starting FY25, HR Solutions within Matching & Solutions will transition to HR Technology. Accordingly, the company has been moving job advertising services within HR Solutions to Indeed PLUS since January 2024. This shift caused a decrease in Matching & Solutions revenue but increased revenue in HR Technology. The transition to Indeed PLUS in Japan has been slightly slower than expected but remains on track. By March 2025-end, all business activities, except for the New Graduates business, will move to HR Technology under Indeed PLUS. This strategic shift in business resulted in significant progress, with Japan's HR Technology revenue growing by 59.3% y/y to reach JPY82.4bn in 9MFY24. This was driven primarily by Indeed PLUS, while HR solutions within matching and solutions decreased by 9.0% y/y to JPY207.6bn in 9MFY24. Expanding long-term profitability From FY18 to FY23, Recruit Holdings has achieved revenue CAGR of 8.1%, reaching JPY3,416.5bn in FY23 (year ended March 2024). EBITDA and net profits have grown at CAGRs of 10.3% and 15.2%, respectively, to reach JPY598.4bn and JPY353.7bn in 2023. Over five years, the company's EBITDA and net margins have averaged at 14.9% and 8.4% respectively. On the other hand, the group's local peer, Open Up Group, has achieved a revenue 5- year CAGR of 16.2%, to reach JPY173.2bn in 2024. Over the same period, EBITDA grew at a CAGR of 19.5% to JPY16.4bn, and net profit CAGR of 26.0% to reach JPY11.8bn. EBITDA margins and net profit margins have averaged at 7.7% and 4.4% respectively over the past five years. Looking ahead, analysts project that Recruit Holdings' revenue will grow at a CAGR of 5.3% over the next three years, reaching JPY3,991.3bn in FY26. EBITDA and net income are expected to grow at CAGRs of 10.4% and 12.8%, respectively, reaching JPY805.4bn and JPY507.0bn, respectively in FY26. Operating and net income margins are anticipated to remain improve steadily to 16% and 12.7%, respectively in FY26. Prioritizing shareholder returns Recruit Holdings Co., Ltd. completed its largest share repurchase program on February 7, 2025, acquiring JPY600bn worth of shares. Combined with previous repurchases, the company bought approximately JPY679bn and 75.8mn shares in FY24 YTD as of December 31, 2024. The company announced a new JPY450bn share repurchase program to buy back up to 52.0mn shares (3.5% of total shares issued and outstanding, excluding treasury stock) from March 3, 2025, to December 23, 2025. For FY24, the company expects the total payout ratio of dividends and share repurchases to be around 177%, considerably higher than previous payout ratios. Analysts show cautious optimism Over the past one year, Recruiting Holdings' stock has achieved robust returns of approximately 27%, indicating a positive growth trajectory. Currently, Recruit Holdings is trading at a P/E of 30.5x, which is lower than its 10-year historical average P/E of 33.1x but higher than Open Up Group at 13.9x. In terms of EV/EBITDA, Recruit Holdings is trading at 17.1x, slightly above its 10-year historical average of 15.6x and significantly higher than Open Up Group at 7.5x. The 12 analysts covering the stock have a positive view on the company, with six issuing "Buy" ratings, three having "Outperform" ratings and two giving "Hold" ratings. The analysts estimate an average target price of JPY10,558, implying 28% upside potential from current price. Recruit Holdings is well-positioned for long-term sustainable growth, leveraging its expanding profit margins, technology-driven innovation, strategic market expansion, global operations, successful acquisitions, and diversified revenue streams across the US, Japan, and the rest of the world. The company also enhances shareholder value through share buybacks. However, key risks include adverse economic, social, and geopolitical conditions in its operating markets, potential failure to innovate and adapt to evolving user and client needs, rapid technological advancements, currency exchange rate fluctuations, and execution errors in business strategies or market size estimates. Recruit Holdings, headquartered in Tokyo, Japan, is a prominent human resources company established in 1960. Originally founded as a job search magazine for university students, the company has evolved to create and provide platforms that connect individual users and clients. Specializing in human resource technology, marketing media, and temporary staffing services, Recruit Holdings generates revenue in over 60 countries, including Japan, the US, Europe, and Australia. As of March 2024, the company employs 119 people at its holding company level and over 51,000 across its subsidiaries. The company conducts its business through three primary units: HR Technology, Matching & Solutions, and Staffing. These units contribute 30%, 22%, and 48% to the total segment revenue, respectively. Recruit Holdings has strategically expanded its HR Technology segment through the acquisitions of Indeed in 2012 and Glassdoor in 2018. FY24 guidance revised upward Recruit Holdings has revised its FY2024 guidance, now expecting consolidated revenue to increase by 4.2% y/y to JPY3.6tn, and consolidated adjusted EBITDA to grow by 12.5% y/y to JPY673bn, reflecting margins of 18.9%. Net profit is expected to rise by 14% y/y to JPY403bn, with basic EPS projected to increase by 18.1% y/y to JPY267. This updated guidance represents a slight upward revision compared to November's projections. Previously, the company forecast consolidated revenue of around JPY3.46tn - 3.54tn, consolidated adjusted EBITDA between JPY622.2bn and JPY682.2bn, net income between JPY362.4bn - JPY407.4bn, and basic EPS of JPY239.6 to JPY270.6. The revised figures indicate improved expectations for financial performance across key metrics. Rise in HR tech revenues due to Indeed Plus Starting FY25, HR Solutions within Matching & Solutions will transition to HR Technology. Accordingly, the company has been moving job advertising services within HR Solutions to Indeed PLUS since January 2024. This shift caused a decrease in Matching & Solutions revenue but increased revenue in HR Technology. The transition to Indeed PLUS in Japan has been slightly slower than expected but remains on track. By March 2025-end, all business activities, except for the New Graduates business, will move to HR Technology under Indeed PLUS. This strategic shift in business resulted in significant progress, with Japan's HR Technology revenue growing by 59.3% y/y to reach JPY82.4bn in 9MFY24. This was driven primarily by Indeed PLUS, while HR solutions within matching and solutions decreased by 9.0% y/y to JPY207.6bn in 9MFY24. Expanding long-term profitability From FY18 to FY23, Recruit Holdings has achieved revenue CAGR of 8.1%, reaching JPY3,416.5bn in FY23 (year ended March 2024). EBITDA and net profits have grown at CAGRs of 10.3% and 15.2%, respectively, to reach JPY598.4bn and JPY353.7bn in 2023. Over five years, the company's EBITDA and net margins have averaged at 14.9% and 8.4% respectively. On the other hand, the group's local peer, Open Up Group, has achieved a revenue 5- year CAGR of 16.2%, to reach JPY173.2bn in 2024. Over the same period, EBITDA grew at a CAGR of 19.5% to JPY16.4bn, and net profit CAGR of 26.0% to reach JPY11.8bn. EBITDA margins and net profit margins have averaged at 7.7% and 4.4% respectively over the past five years. Looking ahead, analysts project that Recruit Holdings' revenue will grow at a CAGR of 5.3% over the next three years, reaching JPY3,991.3bn in FY26. EBITDA and net income are expected to grow at CAGRs of 10.4% and 12.8%, respectively, reaching JPY805.4bn and JPY507.0bn, respectively in FY26. Operating and net income margins are anticipated to remain improve steadily to 16% and 12.7%, respectively in FY26. Prioritizing shareholder returns Recruit Holdings Co., Ltd. completed its largest share repurchase program on February 7, 2025, acquiring JPY600bn worth of shares. Combined with previous repurchases, the company bought approximately JPY679bn and 75.8mn shares in FY24 YTD as of December 31, 2024. The company announced a new JPY450bn share repurchase program to buy back up to 52.0mn shares (3.5%