The coronavirus pandemic isn’t over yet, but things are moving in the right direction. More vaccines are being administered each day, and more people are returning to work. In fact, the U.S. labor department reported 850,000 new jobs in June…
However, the upheaval created by COVID-19 has trigged “the great resignation,” causing many people to leave their jobs in search of better opportunities. In other words, it’s now more critical than ever for organizations to recruit and retain top talent. Fortunately, Paycom (NYSE:PAYC) can help. Here’s what investors should know.
The market opportunity
Paycom provides cloud-based human capital management (HCM) software. Its end-to-end platform extends beyond human resources (HR), helping clients handle all stages of the employee lifecycle, from hiring to retirement. This includes applications for recruitment, scheduling, benefits, payroll, and several other use cases.
Paycom believes most organizations currently rely on multiple providers, attempting to stitch together a complete HCM solution. However, this approach tends to be costly and complex since it’s often difficult to integrate disparate systems and data sets.
By comparison, Paycom’s solution is powered by a single system of record, eliminating the need to maintain multiple databases. Moreover, Paycom provides self-service technology for employees, which further reduces the burden on HR administrators. For instance, it just launched the industry’s first employee-driven payroll software, which automates the payroll process by allowing workers to sign off on their own paychecks.
According to Mordor Intelligence, the HCM market was worth $16.7 billion in 2020 but that figure is expected to grow at 6.7% per year, reaching $24.6 billion by 2026. To put those figures in context, let’s take a look at Paycom’s competition and financial performance.
According to the most recent G2 Grid report, Paycom ranks fourth in terms of HCM market share behind rivals Workday, Paylocity, and Automatic Data Processing (ADP).
However, Workday primarily targets large enterprises while Paycom focuses on small- and medium-sized businesses (those with 50 to 5,000 employees). So these two companies serve different niches in the market. Likewise, Paycom is growing more quickly than ADP and Paylocity, indicating that it’s gaining ground.
|Metric||Q1 2018 (TTM)||Q1 2021 (TTM)||CAGR|
So, what’s driving this growth? First, Paycom has established a good rapport with customers. As part of its retention strategy, it assigns a dedicated service specialist to each client, giving them access to personalized support. So far, that one-on-one strategy is paying off in a big way.
For instance, Paycom bills clients on a monthly basis (or more frequently), meaning there are no long-term contracts and clients can leave at almost any time. Even so, the average client sticks around for 10 years, according to management.
In fact, the company’s customer retention rate was 93%, 93%, and 92% in 2020, 2019, and 2018, respectively. That means Paycom kept retention rates consistent throughout the pandemic, despite widespread business closures and double-digit unemployment rates.
Investors should be encouraged by both of those metrics, as they show the value and stickiness of Paycom’s HCM platform.
Paycom’s current revenue represents less than 4% of its $16.7 billion market opportunity. However, not all of those dollars are up for grabs since the company focuses on small- and medium-sized businesses.
To build on that figure, data from the U.S. Census Bureau indicates that…
Continue reading at THE MOTLEY FOOL