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Intense tussle with rivals to weigh on TriNet's stock price

Publication Date: 29 Aug 2019 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav S.

Equity Fundamental Equity USA Technology


The share price of TriNet (NYSE:NET ) – a cloud-based provider of human resource solutions for small and medium sized enterprises (SMEs) – might well be up a tad on a 12-month assessment basis but there are bearish clouds on the horizon, according to fresh equity research

The New York-listed company is a market leader in its sphere and is set up as as professional service or employer organization (or ‘PEO’). Under the co-employment or PEO model, TriNet assumes certain responsibilities of being an employer, helps clients mitigate several employer-related risks, and manages many of the complex and burdensome administrative and compliance responsibilities associated with employment. 

However, its market leading position is under threat owing to rising competition from like-minded and similarly structured rivals, notes US-based Vision Research (VR), in its latest assessment of TriNet’s fundamentals. 

The company has clients and then "employees" in a co-employment framework. The "employees" are the employees of their clients. These individuals are referred to as worksite employees (or WSEs). Therefore, effectively the number of customers TriNet services is the number of WSEs.  

As of full-year 2018, TriNet has grown both organically and inorganically to $37.7bn in payroll payments processed. WSEs totalled 325,616 by the end of FY18, flat year-over-year, but the average WSE was 317,104, down 2% due to client migration from a legacy platform.

VR previously initiated on TriNet in August 2018, but exited in December as the stock fell sharply compared to the S&P 500. Given the recovery in the stock, VR believes TNET is again a “compelling opportunity” albeit one facing a “challenging macro environment” and “intense competition.”

Among its fierce competitors is Insperity, a similar PEO stealing share in the market. Additionally, Justworks, a well funded start-up, is expanding aggressively. VR’s verdict is that Justworks has a "comparable or better product at a fraction" of the price of TriNet's, according to price checks.

“Large payroll processors [example - ADP and Paychex] continue to push into the PEO space. Cloud based providers [example – Gusto] continue to roll out competitive all in one offerings.”

The next few quarters could create an interesting catalyst as WSE comps get more difficult and TriNet enters the January and October time frames when firms switch. VR flags an inescapable fact that competitive threats are already hitting the company's business with revenue decelerating below market rates. Adjusted EBITDA margins have started to deteriorate after hitting an all time peak. 

Furthermore, WSEs and net revenues have benefited from a positive macro environment in the US but that could change going forward, something TriNet’s competitors have also cautioned about. Overall, the company has potential, but faces several short-term challenges. 

For more, download and read Vision Research's full report on the fundamental investment case for TriNet, via ReachX’s research marketplace.


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