Robert Half Remains Well Positioned Relative to Peers and Shows Resilience in Facing Macro Headwinds

Senior Equity Analyst

Joshua Aguilar

Associate Equity Analyst

Yuyang Zhang

Robert Half is a leading global staffing firm in a highly fragmented industry. The firm’s pricing power should persist, given its deep penetration into the small-midsize-business market. Local and regional staffers can win business on the fringes, but Robert Half’s decades of industry knowledge and well-established client relationships are hefty barriers that should keep smaller competitors at bay. 

Robert Half has been shifting to a higher-margin business mix. For one, we expect Protiviti's contribution to continue increasing over the next decade and exceed one third of total revenue. At the same time, the contract staffing segment (the lowest-margin business) will decrease in proportion. Robert Half’s contract-to-hire model, where recruiters place candidates in short-term positions that could turn into permanent jobs at the end of the contract, aids its shift away from temporary hires to permanent placements. Operating margins for permanent placements are higher than for temporary placements because they require less direct costs to complete. In addition, Robert Half has been expanding its pool of full-time engagement professionals, or employees hired and trained by Robert Half, before being deployed to client companies as contractors. These professionals are usually higher skilled than free-agent contractors, enabling Robert Half to charge higher bill rates. 

Furthermore, we expect Robert Half’s exposure to higher-skilled occupations will propel the firm to stronger top-line growth, as employment in these professional end markets grows. The U.S. Bureau of Labor Statistics projects employment for IT-related jobs such as web developers and software developers to grow 23% and 25%, respectively, from 2021 to 2031. This is significantly faster than the national average of 5% for all occupations. The rising demand for information and data roles, concurrent with the persisting IT labor shortage postpandemic, allows Robert Half recruiters to charge higher placement fees, as clients may struggle to fill the roles on their own. We foresee Robert Half to remain in a advantageous position to charge premiums for both temporary and permanent placements.

Business Strategy & Outlook

Robert Half warrants a narrow economic moat. The firm exhibits strong elements of intangible assets and network effects. Despite the highly fragmented staffing industry, its brand strength and large networks remain attractive to its client base composed of mainly small and midsize businesses, or SMBs. The firm commands pricing power over its customers and consistently generates high gross margins and returns on invested capital throughout the economic cycle.

We believe that Robert Half’s well-known brand yields pricing power for its job placement services. With 75 years of industry expertise, the firm has built out 12 subsidiary brands tackling a spectrum of professions. Its operations reach nearly 30 countries across Asia-Pacific, Middle East, Europe, and the Americas, with a particularly strong presence domestically. Robert Half isn't the only firm with a strong brand presence; however, other multinational staffing companies (such as ManpowerGroup, Randstad, Adecco) don't elicit comparable pricing power over their customer bases of mainly large corporations. By contrast, Robert Half targets SMBs, which make up 70% of its customer base. These businesses usually contain 50 to a few hundred employees, so finding qualified candidates are higher-stake business decisions. Third-party studies of 3,500 U.S.-based SMBs in 2022 revealed that 90% of respondents complain about having few or no qualified candidates, compared with less than 50% of large U.S. companies reporting the same concern. Although labor shortage is a nationwide problem, smaller businesses are hit disproportionately. Consequently, we are not surprised that SMBs place a higher premium on service quality and are less price-sensitive, even during harsh economic conditions. Clients sign with Robert Half given its trustworthy brand name and successful track record of connecting companies with highly skilled jobseekers. Bill rates are rarely pivotal in the client acquisition process. 

Robert Half charges around a 25% higher markup for temporary hires compared with many of its competitors. The firm is the highest-margin supplier in most local markets relative to regional competition. In the past decade, its gross margin averages over 40%, which is nearly double the average gross margin of a U.S. recruiting firm. This demonstrates Robert Half’s ability to charge price premiums without deterring customers. Clients are also aware that despite their comparably higher contracted bill rate, Robert Half may still offer clients a lower total cost of ownership, when accounting for the time and resources saved. 

In addition, Robert Half has built a two-sided network effect, further bolstering its pricing power. For each candidate or employer added to its network, the probability of finding a job match increases. Robert Half’s large database of resumes makes it more likely clients will find ideal candidates more quickly. From the candidate perspective, Robert Half’s large network of employers equals more employment opportunities, which increase the probability and speed of being hired. Additionally, the firm offers career development resources that help refine candidates’ interview skills. These exclusive complimentary perks, plus Robert Half’s well-known brand and global presence, continually attract highly skilled candidates, which in turn, attracts more top employers. 

Over time, Robert Half’s network becomes increasingly proprietary and valuable. The firm’s exposure to SMBs gives the firm more bargaining power to enter exclusive contracts, unlike competitors who target large corporations and resort to signing mostly non-exclusive agreements. Exclusive contracts put Robert Half as the preferred and sole provider of recruitment services for some of the client companies. Robert Half gains access to unpublished jobs and can help candidates tap into new opportunities they otherwise would not have. 

Moreover, Robert Half collects post-placement performance reviews and other key insights to improve its services. The firm gathers data from its talent pool of 30 million candidates and boasts that no one else has more data on how accountants perform on contract hires (it owns the largest market share in finance and accounting staffing). Robert Half has been working with vector representations and natural language processing models to analyze performance data for over five years. The accumulated proprietary data feeds the firm’s machine learning applications. This creates a data flywheel where user data builds smarter AI/ML engines. These engines increase fit and precision in candidate-company matches. For example, Robert Half spotlights that the most predictive attribute of a candidate’s performance is how well their profile compares with Robert Half’s benchmark “high performer” profile. Resultingly, higher client satisfaction attracts more users who feed more data into the system. This indirect two-sided data network effect continually leads to better algorithms and results for all current and incoming candidates and employers.

Narrow

Economic Moat

Robert Half Int.

Robert Half International, Inc. engages in the provision of staffing and risk consulting services. It operates through the following segments: Temporary and Consultant Staffing, Permanent Placement Staffing and Risk Consulting & Internal Audit Services. The Temporary and Consultant Staffing segment offers staffing in the accounting and finance, administrative and office, information technology, legal, advertising, marketing, and web design fields. The Permanent Placement Staffing segment provides full-time personnel in the accounting, finance, administrative & office and information technology fields. The Risk Consulting and Internal Audit Services segment comprises business and technology risk consulting and internal audit services. The company was founded by Robert Half in 1948 and is headquartered in Menlo Park, CA.

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Robert Half Int. (RHI) reports robust Q4 growth and strategic acquisitions

Robert Half Int. (RHI) delivered strong financial performance in Q4 2022.
The company faces challenges in certain segments but sees opportunities in others.
Optimism remains high despite global macroeconomic uncertainty and tight labor markets.
Q1 guidance reflects a mix of challenges and opportunities for the company.

Robert Half Int. reports Q1 revenue decline, Protiviti growth

RHI's Q1 performance reflects revenue decline but strong Protiviti growth and positive bill rate trends.
Challenges include tight labor markets, client hiring caution, and margin pressure from macro conditions.
Opportunities lie in public sector tech work turnaround, international market bill rate adjustments, and risk consulting growth.

Robert Half Int. reports Q2 revenue decline amidst global uncertainty

Robert Half Int. faced revenue decline and reduced net income per share in Q2 2023, impacted by prolonged client hiring cycles and global uncertainty.
Strong cash flow and return on invested capital were highlights, while Protiviti's margins were affected by softer revenues in certain segments.
Client caution and project delays remain challenges, but opportunities exist in candidate sourcing strategies and future hiring potential.

Robert Half Int. reports Q3 revenue decline, eyes international growth

Robert Half International faced revenue declines in Q3 but demonstrated resilience with cost-saving measures and strong return on invested capital.
International markets outperformed the U.S., while AI investments and job openings present growth opportunities.
Challenges include client caution, margin pressures, and holiday impacts on hiring demand, but positive trends in Q3 offer optimism.
Q4 guidance remains conservative, reflecting recent improvements and cost actions, with a focus on future capacity needs and efficiency.

Robert Half Int. reports Q4 revenue decline, eyes margin growth

Robert Half Int. (RHI) faced revenue decline in Q4 2023, with a strong focus on cost management and margin improvement initiatives to drive profitability. Protiviti's performance was mixed, with margin improvement and revenue growth in key segments offset by challenges in Talent Solutions and economic uncertainties.
The company's strong return on invested capital and diversified revenue streams position it well for future growth opportunities, particularly in regulatory risk and compliance, technology consulting, and public sector engagements. Addressing challenges related to cost management and economic conditions will be crucial for sustained performance.
Overall, Robert Half Int. (RHI) remains resilient amidst market challenges, with a strategic focus on margin enhancement, revenue diversification, and operational efficiency. The company's ability to adapt to changing market dynamics and capitalize on growth opportunities will be key to driving long-term shareholder value.

Robert Half Int. reports Q1 revenue decline but anticipates sequential growth

Robert Half Int. faced revenue decline in Q1 but anticipates sequential earnings growth, focusing on cost control and AI investments for future success.
Challenges include industry-wide staffing issues and margin pressures from price competition, but opportunities lie in tailored client solutions and technology innovation.
Overall, the company remains cautiously optimistic about growth prospects and is adapting to market dynamics to drive profitability.
Investors should monitor how Robert Half Int. navigates margin challenges and leverages AI investments for competitive advantage.

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Robert Half, Inc. engages in the provision of talent solutions and business consulting services. It operates through the following segments: Contract Talent Solutions, Permanent Placement Talent Solutions, and Protiviti. The Contract Talent Solutions segment refers to the fields of finance and accounting, technology, marketing and creative, legal, and administrative and customer support. The Permanent Placement Talent Solutions segment focuses on accounting, finance, tax, and accounting operations personnel. The Protiviti segment solves problems in finance, technology, operations, data, digital, legal, human resources, governance, risk, and internal audit. The company was founded by Robert Half in 1948 and is headquartered in Menlo Park, CA.

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