Seek plan pushes Zhaopin into red in Q2

02 Mar 2017

Zhaopin Ltd. (NYSE: ZPIN), operator of one of China’s three leading job sites, reported a net loss of RMB 5.2 million ($700,000 U.S.) in Q2 of FY2016/17, since the plan of a consortium headed by Australia-based Seek to delist Zhaopin (our report) changed Zhaopin’s tax situation in the eyes of the taxman.

The taxman levied a withholding income tax of RMB 86.9 million on undistributed earnings of Zhaopin Ltd. subsidiaries in Q2, on the ground that “Zhaopin’s intention to reinvest all of its profits indefinitely is no longer certain”.

If this tax wasn’t levied (if Zhaopin’s tax situation remained unchanged), its net profit would have been RMB 82 million in Q2 of FY2016/17, the company said.

The company’s financial year runs from July 1 to June 30.

Should the Q2 loss pull the share price of Zhaopin down, it’ll play in the hands of the consortium, which is trying to buy all Zhaopin shares it doesn’t already own.

In a very comprehensive presentation worth looking at (here the PDF), management showed that Q2 was actually a very good quarter for the company. In Q2 of FY2016/17 total group revenue climbed 24.4 percent to RMB 509 million ($73.3 million U.S.) from RMB 409 million in Q2 of FY2015/16.

Of that number, online recruitment services contributed revenue of RMB 395 million ($57 million U.S.), which was 23 percent more than in Q2 of FY2015/16.

The presentation gave a very interesting peek into the labor market of China. Some facts were not very appetizing. For instance, Zhaopin conducts surveys to determine how long (on average) a worker stays in a job. Here is the shocking result:

+ in the 70s jobs were changed on average every 4 to 5 years;

+ in the 80s jobs were changed on average every 2 to 3 years;

+ since the 90s jobs are changed on average every 18 months.

Consequently, job sites are visited very often: Zhaopin is visited on average 10.7 times by every user in a month. And Zhaopin receives about 80 million unique visitors per month.

Also, the part of the workforce which searches for jobs online, grows strongly. Zhaopin estimated 115 million people used the internet to search for jobs in 2014 and that the number will stand at 160 million by the end of 2017 and 178 million by the end of 2018.

In other words, the number searching online will grow by 45 million from 2014 to 2017. For context: Germany’s entire economically active population adds up to 41 million.

Zhaopin’s management listed major competitors. Among general classified sites were mentioned 58.com, Ganji.com, ChinaHR.com; among verticals were mentioned Liepin.com and Lagou.com, and LinkedIn was listed as a social media competitor.

Due to the pending buy-out and delisting of Zhaopin, the company refrained from an outlook statement. It did say, however, that it was on the look-out for acquisitions to accelerate growth.

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Don Gasper

Don Gasper joined the AIM team as a writer and analyst in 2005. Based in Hong Kong, he covers media-industry trends in the Greater China area. He specializes in business and legal developments concerning Chinese companies and has worked for several years as a reporter and editor for a number of daily newspapers in Hong Kong. He later moved on to work as a contributor and editor for various monthly publications and Web sites and has also lectured on journalism and communications at different universities. Don is particularly interested in the development of the Internet and how this is revolutionizing possibilities for business and social communication in China. He took part in the International Federation of Journalists mission to China in 2008 to investigate and advise on media arrangements for the Beijing Olympics. He graduated in Oriental Languages at Cambridge University and went on to study Political Science and Political Economy.