Tongdao Liepin Looks For Work Amid Weak Economy, Rising Unemployment

Key Takeaways:

• Tongdao Liepin’s profit fell 72% in the third quarter to 32 million yuan, while its revenue fell about 13% to 559 million yuan 
• The company is expanding to Hong Kong and working more closely with headhunters as part of several new initiatives to jumpstart growth 

Lau Chi Hang

China’s National Bureau of Statistics caught everyone by surprise in August when spokesman Fu Linghui announced it would stop publishing youth employment data – which had reached record levels – as part of its efforts to “improve and optimize” its work.

The news sparked an immediate uproar, leading to speculation about the broader state of unemployment on the Mainland, especially for college graduates, and whether the decision to stop releasing new data was prompted by concerns that the situation would worsen.

Concerns about serious unemployment in China have been around for a while now, fueled by the country’s sharpest economic slowdown in the modern era. The youth unemployment rate exceeded 20% in the first half of the year. Given the important role of young workers in the job market, their high unemployment reflects weakness in the wider labor market.

That weakness shows up in the flagging performance of online recruitment platform Tongdao Liepin Group (6100.HK), reflecting the labor market’s weak state. The company’s latest results announced in late November show its revenue fell 12.9% year-on-year to 559 million yuan ($78 million) in the third quarter, while it net profit tumbled 72% to 32 million yuan. The latest revenue was also down by 5.2% from the second quarter, while its profit dropped 36.9% on that basis.

Tongdao Liepin’s shares fell nearly 4% the day after the announcement, as investors worried about the company’s sluggish performance.

The company explained that China’s economic development was facing an array of challenges, such as uncertainties created by the global environment, as well as China’s own industrial restructuring and lack of domestic demand. It added some time would be needed to rebuild business confidence and boost demand for labor. The weak demand for labor, resulting in decreasing demand for its employment services, were the main factors undermining its latest performance.

White Collar Focus

While the weak economy is indeed a good excuse for Tongdao Liepin’s woes, some might wonder if that was really the case when reading the latest results from racier rival Kanzhun BZ, operator of the popular Boss Zhipin platform. Last month, Kanzhun reported surprisingly impressive third-quarter results, including a doubling of its profit and distribution of a special $80 million dividend. Kanzhun boasts a forward price-to-earnings (P/E) ratio of 53 times, well ahead of Tongdao Liepin’s 34 times. That may lead some to wonder why only Tongdao Liepin is suffering from China’s anemic recovery, while Kanzhun is doing much better?

The answer lies in the very different clients that each company serves. Kanzhun is focused on blue-collar jobs in smaller cities, and benefited from strong demand for such workers as China reopened post-pandemic and got its manufacturing machine back on track. By comparison, Tongdao Liepin, whose name means headhunter, mainly targets gold- and white-collar jobs. Demand for such workers has plunged as China’s real estate, finance and tech industries continue to downsize after years of breakneck growth.

Tongdao Liepin is also acutely aware of weak demand in the high-end of the labor market. But rather than sit back and wait for things to improve, it said it plans to update its business strategies and rise to the challenges confronting it. It has already begun taking steps in that direction.

One of those is to tap new markets. Tongdao Liepin has begun expanding overseas, hoping other markets can offset some of its slowdown at home. In August this year, it became the first Mainland recruitment platform to partner with the Hong Kong government, giving the latter better access to Mainland talents. The company will launch its overseas Liepin brand in Hong Kong, with a focus on promoting two-way talent flow between the city and Mainland China.

The company is also exploring new business models and trying to work more closely with the headhunting industry. As part of that initiative, in September it unveiled its Duolie RCN collaborative headhunting network, which uses a software-as-a-service (SaaS) system powered by algorithms and big data to help headhunting companies digitally manage customers, talents and jobs. RCN allows the companies to choose a mode of cooperation based on their own strengths and capabilities, allowing for the most efficient use of resources.

Putting Idle Cash To Work

While new businesses will take some time to mature and contribute to its revenue, Tongdao Liepin is finding more immediate new revenue by leveraging its big pile of cash. By the end of September, its cash on hand and fixed bank deposits totaled 545 million yuan and 1.68 billion yuan, respectively. It has been investing some of that in interest-bearing products, and its previously released interim results show that proceeds from maturing wealth management products totaled 760 million yuan in the first half of the year. Many other cash-rich companies have reported similar strong investment income in the currently high interest rate environment.

Two months ago, Tongdao Liepin bought a one-year maturity wealth management product from Citibank’s financial subsidiary, bearing an annual interest rate of 5.8%. It stressed that the investment would provide a higher rate of return than time deposits at a commercial bank.

At the same time, the company is working to trim costs. In the first three quarters of this year, its spending on sales, marketing, administration and research and development fell by more than 5% to 1.37 billion yuan. It said it will continue to cut expenses going forward, use AI to empower product iteration and adjust sales strategies in timely manner based on market feedback. 

Even after taking all those steps, the company’s prospect are still quite cloudy since, at the end of the day, everything depends on whether China’s economy can improve for this kind of high-end recruitment platform. Tongdao Liepin said as much in its latest report: “The problems can only be resolved with the further recovery of the broader economy and continuous optimization of the industrial structure.”