Post-COVID Industry Performance Analysis
The year 2023 has been a downpour for the recruitment world. Many businesses wondered if they were caught without an umbrella. Small and mid sized businesses might have worried they were alone, but NO, even the staffing giants got soaked.
We have done an analysis of the top staffing giants and trends that they are witnessing: net incomes are shrinking, competition is fierce, and the fight for talent isn’t as lucrative as it once was.
Key Takeaways from Staffing Analysis Report
Competing profits away
Net incomes continued their downward march, shrinking by about 20% in Q4 2023. The rate at which net incomes are decreasing is also accelerating.
Running up to Q4 2022, net incomes outpaced the revenue growth. The quality of revenue (we define quality of revenue as the net income that you can generate per dollar of the revenue) kept getting better and better as employers fought fiercely to access the talent.
The tables have turned since then. The net incomes are falling at a higher pace then the revenue – indicating that the competition in the staffing industry has gotten fierce and they are competing away the margins.
Revenue decreased quite secularly across all the major staffing firms. This is also consistent with the data that we observe with the user base of Recruiterflow. The rate of decline of revenue is also increasing indicating that the competitive environment will persist.
Giggity on gig work
The temp and contract business has shown more resilience compared to the permanent business. Page Group reported that the temp business grew 5% compared to contraction of 14% in the permanent business. On the other hand, for Robert Half (one of the few firms that reports the contract and permanent number separately) we saw that the contract business shrunk by 17% for the year 2023 compared to 22% shrinkage in permanent revenue.
Spend even more to book more revenue
All of the staffing firms have decreased their headcount of revenue generators (recruiters!). Page group reported that they shrunk their revenue generators by 17.3% . One would reasonably expect that the layoffs happened in the segments that didn’t perform or the billing laggards. Despite that, the operating expense to gross profits ratio continues to climb – telling that even the high performance billers are finding it increasingly difficult to bill at these large staffing firms.
Market Cap Silver Lining
The market has rewarded the staffing and recruiting industry. While S&P 500 index was up 11% in Q4 2023, the staffing firms we analyzed saw an uptick of almost 13% in their market cap – a staggering 22% premium over the index. We are not stock analysts but it could be that the market expects good times are imminent and the pendulum will swing soon and the competition for talent will return to help the staffing industry.
Market cap to earning ratio provides us with more insight into the investor expectations of growth. Higher the ratio means higher the growth expectations. If you see how the ratio has trended, you will see that the ratio went higher in Q2 2023 compared to the peak of Q1 2022. It is now even higher in Q4 2023 – meaning that public investors expect the industry to grow faster than ever. Really encouraging signs if you are a founder or an operator.
