Trinet Group Inc - Fundamental Investment Case

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  outside of their core NY market into cities like LA and  Dallas. 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 space.
• Cloud based providers (like Gusto) continue to roll out  competitive all in one offerings.

Fundamental Concerns

• Competitive threats already hitting the business with revenue decelerating below market rates.
• TriNet is losing worksite employees (WSEs), the life blood of the business, while competitors are gaining share.
• Margins  appear elevated and unsustainable due to aggressive price increases and mix benefits in the service fee and health insurance business.
• Despite a weakening growth profile and negative WSEs, the company has cut SG&A as a percent of revenue to an all-time low.
• Multiple appears close to historical  averages but the growth profile is now lower and of less quality.