Tech Market WatchBy Perry Wu
Take a look at China's largest online career posting website, 51Job.com, and you'll see a company different from many others in China's Internet space. Unlike those that involve themselves in an interminable variety of businesses and seem to lack focus, 51job has the advantage of specializing in only one area: job recruitment services. And there is no evidence that the company intends to distract itself by branching out into other areas. Operating since early 1997, the company is a Shanghai-headquartered provider of all levels of job-finding services, and has recently filed an IPO prospectus with the U.S. SEC.

Originally started as a print newspaper, its most popular periodical is called Career Post Weekly and is published throughout China, both as a stand-alone newspaper and as an insert in local Chinese newspapers. There are currently nineteen cities in China that carry the periodical and the number is growing. In 1999, the company branched into online recruiting services, and now boasts a very popular job-hunting website in China.

51Job is organized along three major lines: print advertising, online recruitment, and executive search. All three segments have shown healthy growth in the past year (why else would they be doing an IPO now?), and the company sees hefty growth potential in the number of Chinese job openings. According to the PRC Ministry of Personnel, there were approximately 2.4 million job openings in the fourth quarter of 2003, up from 1.5 million job openings in the fourth quarter of 2001. However exact these numbers are, it is basically true that there has been large growth in the PRC job recruitment industry.

And 51job is in an industry that has a particular advantage: full government sanction. Unlike other areas of the Internet and media businesses where government regulations can be a hindrance, this is an area where the interests of the government and the interests of the company are the same: get people employed.

In fact, although its heavily-trafficked website is a major selling point for the IPO, 51job is not yet a full-fledged online company. It still derives a majority of its revenues from its print advertising business. For 2003, 62% of the company's revenues derived from the print business while only 22% of its revenues derived from its online business.

Even with all this, the job-recruitment business is very sensitive to any fluctuations in the economy. Jobs are the very embodiment of how an economy performs, so as the Chinese economy goes, so goes this company. And there is no shortage of competitors, both in print and online, that look to eat into 51job's market share. One of 51job's early rivals, Zhaopin.com, led the industry until the untimely exit of its founders in 2000. Though Zhaopin.com still exists, its clueless hodge-podge of executives over the years have given a boost to 51job's chances of beating down the competition. There are also vertical industry job portals in China dedicated to hospitality, technology, and marketing that can eat into 51job's market share.

And there is one particularly vexing item that shows up in 51job's recently-filed preliminary prospectus: EBIDTA (Earnings before Interest, Depreciation Taxes and Amortization) shows up at various points in the filing. At best, EBITDA is just a marketing number for investment bankers and does not belong in a serious document like a prospectus. Essentially, this calculation implies that interest and taxes are not real expenses and should be ignored in a calculation of the value of the company.

If the company truly believes that this should be ignored, I have an offer to make. Send any cash that the company plans to use for interest expense and taxes to me–it's not a real expense so the company shouldn't mind. For the full year 2003, the company incurred income tax expenses of US$386,000, so I look forward to a nice check.

But maybe we should give them the benefit of the doubt, perhaps the EBITDA was just inserted by an enterprising banker at Morgan Stanley (its lead underwriter), hoping to attract a higher valuation for the company. Let's hope that including this number is not an omen of financial shenanigans to come.

So, with the winds of government encouragement and Chinese economic growth at its back, 51job stands in an enviable position. It is a company that is focused on only one business and has already penetrated deep into China. In this case, being a jack of all trades (jobs) is a very good thing indeed.

About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.

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