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Trinet (TNET) - Fundamental Investment Case (Trade closed on 25 October 2019)


Publication Date: 19 Aug 2019 - By Robert Prather By Robert Prather

Equity Fundamental Equity USA Consumer

TriNet is a leading provider of human resource solutions for small and medium sized businesses.  The company is organized as a professional service organization or PEO.  Under the co-employment or PEO model, TriNet assumes certain responsibilities of being an employer and helps clients mitigate certain employer-related risks and manage many of the complex and burdensome administrative and compliance responsibilities associated with employment. The company offers a wide range of solutions including: Payroll Procession, Tax Administration, Employee Benefits (including health care), and Human Resource Technology Platform.  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.  TriNet was founded in 1988. As of FY18, the company has grown both organically and inorganically to $37.7bn in payroll payments processed. Worksite employees totaled 325,616 by the end of FY18, flat year over year. The average WSE was 317,104, down (2%). The decline was due to client migration from a legacy platform.

Vision Research previously initiated on TriNet Group (TNET) in August 2018.  We exited in December as the stock fell sharply compared to the S&P 500.  Given the recovery in the stock, Vision believes TNET is again a compelling opportunity.


Please download the full report for details on the Bear Case outlined below.


Qualitative Concerns:

  • TriNet faces intense competition from Insperity. A similar PEO stealing share in the market.
  • Justworks, a well funded start up, is expanding aggressively nationwide. The company has a comparable or better product at a fraction of the price according to price checks.
  • Large payroll processors (ADP and Paychex) continue to push into the PEO (professional employer organization) space.
  • Cloud based providers (like 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 the company enters the January and October time frames when firms switch.

Fundamental Concerns:

  • Competitive threats already hitting the business with revenue decelerating below market rates.
  • TriNet has lost worksite employees (WSEs) over the past few years as competitors gained share.
  • WSEs and net revenues have benefited from a positive macro environment (falling unemployment, rising wages, increased healthcare penetration). Some of theses benefits could be weaker going forward as competitor Insperity warned. 
  • Adjusted EBITDA margins has started to deteriorate after hitting an all time peak. 
  • Multiples appear at or above historical averages. 

Bottom Line: Business service provider facing intense competition, more difficult comps, and a more challenging macro environment.


Source: VR Fundamental

Pages: 44

Released: 19 Aug 2019

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The Author

Robert Prather

Equity Analyst

Technology, Consumer, Industrials, Telecom & Media



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