Recruit Holdings (6098)

Asia Pacific/Japan Equity Research Consumer Internet (Internet (Japan)) / OVERWEIGHT Rating NEUTRAL* [V] Price (13 Nov 14, ) 3,925 Target price ( ) 3,700¹ Chg to TP (%) -5.7 Market cap. ( bn) 2,216.42 (US$ 19.15) Enterprise value ( bn) 1,930.52 Number of shares (mn) 564.69 Free float (%) 52-week price range 3,960-3,330 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix). Share price performance 4000 3800 3600 3400 10-14 Price (LHS) Research Analysts Yuki Nakayasu 81 3 4550 9966 yuki.nakayasu@credit-suisse.com Rebased Rel (RHS) The price relative chart measures performance against the TOPIX which closed at 1389.51 on 13/11/14 On 13/11/14 the spot exchange rate was 115.76/US$1 102 Performance Over 1M 3M 12M Absolute (%) Relative (%) 97 92 Recruit Holdings (6098) INITIATION With domestic shares already high, await flowering of potential Domestic spending on advertising and recruitment could slow near-term: Recruit Holdings' profits hinge on corporate spending on such items as advertising/promotions, marketing, and recruitment and, therefore, tend to correlate closely with Japanese macroeconomic indicators, such as ad spending and the jobs-to-applicants ratio. Market share is already high across all domestic business segments and, while we see potential for the market to expand and also for the company s overseas operations to grow, we also think this could take time. Hence, we initiate coverage of Recruit with a NEUTRAL rating and 3,700 target price (potential return 5.7%). Segment views: Japan s human resources market remains beset by a tight supply demand balance caused by demographic trends, with any increase in supply requiring systemic change and demand a function of macro trends. Against this backdrop, our focus is on Recruit s pursuit of M&A with the aim of the becoming the global leader in HR services by 2020. As for marketing media, users are already paying high unit prices, and we see risk of Recruit losing market share to highly cost-effective consumer generated media (CGM) as they gain more media power. Risks: Upside risks are that Recruit (1) raises its advertising unit prices by increasing job-matching accuracy in its staffing business, (2) is successful with measures to increase value added in its marketing media business by tapping customer needs for reservation and settlement services as well as advertising and promotional services, and (3) accelerates expansion into fee-based consumer services. Downside risks: (1) suppressed hiring by corporations amid a global economic downturn, (2) deterioration in the marketing media business market position due to higher CGM user numbers, and (3) slow earnings improvements at overseas staffing subsidiaries. Valuations: We use our FY3/16 forecasts and a sum-of-the-parts (SOTP) approach to value Recruit. We assign the marketing and HR media segments a P/E of 25x, the average valuation for other listed companies in those businesses (Gurunavi, Next, and Ikyu). Similarly, we assign the staffing segment an EV/EBITDA of 10x, the average for listed staffing companies in Japan and overseas (Adecco, Randstad, Temp Holdings). Financial and valuation metrics Year 3/14A 3/15E 3/16E 3/17E Sales ( bn) 1,191.6 1,311.0 1,416.0 1,506.0 Operating profit ( bn) 117.4 118.0 129.0 136.0 Recurring profit ( bn) 122.0 123.0 134.0 141.0 Net income ( bn) 65.4 64.3 70.2 74.0 EPS ( ) 115.9 113.8 124.3 131.0 Change from previous EPS (%) n.a. IBES Consensus EPS ( ) n.a. 171.8 197.1 225.8 EPS growth (%) -8.9-1.8 9.2 5.4 P/E (x) 34.5 31.6 30.0 Dividend yield (%) 1.1 1.2 1.3 EV/EBITDA(x) 10.3 9.1 8.3 P/B (x) 3.2 3.0 2.8 ROE(%) 13.6 10.3 9.7 9.7 Net debt/equity (%) net cash net cash net cash net cash Source: Company data, Thomson Reuters, IFIS, Credit Suisse estimates. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

Table of contents Table of contents 2 Key charts 4 Summary 5 Recruit is a cyclical stock; marketing and staffing/recruiting businesses both correlate closely with macro indicators 5 Overall industry leader with top share - urgent need to expand size of industry 5 With user spend already high in marketing media, rise of CGM poses risk 5 In staffing, aiming to be the human resources department for Japan s corporations by raising job-matching accuracy 5 Earnings forecasts: Domestic profits hinge on macro trends; EBITDA margin likely flat including overseas 6 Initiating coverage with NEUTRAL rating and 3,700 target price 7 Business overview 9 Recruit's business portfolio map 11 Media sector industry map 12 Correlation with Dentsu and macro economy 13 Competitive edge 14 Marketing media customer transfer capacity = Active users X Close rate 14 Per-user prices 15 Client company count X Unit prices 17 Source of competitiveness: Per-employee metrics 17 Catalysts and risks 18 Upside 18 (1) Raising ad unit prices in human resources segment by improving accuracy of jobmatching technology 18 (2) Boosting value added in marketing media segment by expanding business into the booking and settlement as a result of advertising and promotional spending 18 (3) Accelerated development of fee-based consumer services 18 Downside 18 (1) Slowing in corporate hiring in response to macroeconomic retreat in Japan and overseas 18 (2) Decline in relative standing of promotional media segment amid CGM user growth 18 (3) Slower-than-expected earnings improvement in overseas human resources/temp staffing business due to cultural differences 19 Peer analysis and valuation 20 Marketing media segment valuation approach 20 Human resources media/staffing segment valuation approach 20 Peer valuations overview 22 Human resources recruitment and staffing market 24 Correlation with macro changes 24 Employment trends 24 Market size estimates 26 Upside potential 27 Overseas market 29 Marketing media market 31 Advertising spend in Japan 31 Media map: Information providers vs. CGM 32 Points 35 M&A activity 37 Domestic and overseas acquisition strategy 37 Key M&A deals by competitors (Internet/temporary staffing) 38 Earnings forecasts 39 Recruit Holdings (6098) 2

FY3/15 16 forecasts by segment 39 Marketing media 39 Human resources media 39 Staffing business 39 Profitability 39 Company overview 45 Corporate culture 45 Medium-term objectives 45 Dividend policy 45 Shareholders 46 Supplementary data: Labor 47 HOLT analysis 57 Recruit Holdings (6098) 3

3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15E 3/16E 3/17E 14 November 2014 Key charts Figure 1: Cyclical stock Close correlation with macro environment changes 40% 15% 30% 10% 20% Figure 2: Industry leader by sales Segment (Market size) Housing (9%) Market Share 10% 0% -10% 5% 0% -5% Bridal Travel Dining Beauty (14%) (5%) (23%) (71%) Ads Sales and promotion Fees -20% -30% -40% -50% Parent sales YoY Consolidated RP YoY Job to applicants ratio YoY Japan total ad expense YoY (RHS) -10% -15% -20% HR media Staffing (7%) (45%) Note: figures in brackets indicate market share Hiring cost Outsourcing Source: MHLW, Dentsu, company data/estimates, Credit Suisse estimates Note: Market share is based on Credit Suisse estimates as of latest FY financial results. Source: MoF, MHLW, company data, Credit Suisse estimates Figure 3: Unique visitor count and unit prices by site: Unit price higher for various Recruit media (information sites) from early stages of operations Revenue per unique visitor per month (JPY) 2,500 2,000 1,500 Zexy SUUMO <Informational media> Mainly coprorate spending on advertising and marketing Travel Wedding Housing Dining-out <CGM> Income sources increase due to 1,000 Home's Jalan higher media power; prices also have substantial upside potential Rakuten Travel Ikyu 500 Hot Pepper Gurunavi Weddingpark Minnano Wedding Yahoo Travel Unique visitor per month tabelog (visitors) 0 0 2,000 4,000 6,000 8,000 10,000 12,000 Source: Company data, comscore, Credit Suisse estimates Figure 4: Human resources media market currently around 500bn, with scope for growth by improving job-matching accuracy Unit price 1,350k High income Pay-per-performance few Low income Pay-per-ad Many Mid-career introduction 150bn 125k Mid-career ads 100bn 128k Grad ads 50bn 70k Part-time ads: 200bn Upside scenario Current curve 0.11mn 0.80mn 0.39mn 2.85mn No. in employment Source: MHLW, Credit Suisse estimates Recruit Holdings (6098) 4

Summary Recruit is a cyclical stock; marketing and staffing/recruiting businesses both correlate closely with macro indicators Recruit s main revenue source correspond to corporates specific expense items as follows: (1) marketing media revenue sourced from advertising expense, sales promotion expense, and sales commissions, (2) human resources (HR) media revenue sourced from recruiting costs, and (3) staffing revenue sourced from outsourcing costs. All these segments are highly susceptible to change in the macro economy, making Recruit a cyclical stock. Economic sensitivity is particularly acute in the case of staffing and recruiting operations where fallout is most immediate in rates for part-time workers, which in turn spills over to outsourcing and mid-career personnel. Fundamentally, Recruit s earnings direction depends on advertising spending in Japan, the ratio of job offers to job seeks, and Japan's GDP growth rate. Overall industry leader with top share urgent need to expand size of industry Recruit is the clear industry leader, with dominant share in every media market in which it operates. It is particularly strong in bridal (over 70% by our estimate) and human resources media (over 40%). With little scope remaining to expand share, we see future growth hinging on expanding the size of the industry itself. This means increase in corporate spending. This can be achieved by raising value added, and in this regard we look for gains from: (1) lateral development of marketing media revenue, sourced currently from corporate spending on advertising and promotion, to include bookings and settlement services, and (2) increasing ad unit prices by improving job-matching accuracy in human resources. With user spend already high in marketing media, rise of CGM poses risk Earnings in the marketing media business equate to number of users multiplied by average amount spent. Recruit does not have a dominant position in every media segment in terms of actual user numbers. In fact, its relative standing has actually declined since the early 2000s amid explosive growth in CGM. We expect that as the presence of CGM grows, it will become increasingly difficult for the company to maintain the high unit prices it has enjoyed since first launching operations. In staffing, aiming to be the human resources department for Japan s corporations by raising job-matching accuracy The annual job turnover rate within the total working population remains stable at around 15%. We estimate personal referrals in the human resources market average 1.35mn (equal to about 30% of annual salary) but are fairly low for ad-based recruitment at 120,000 130,000 for recent university graduates and mid-career workers and 70,000 for part-time workers. While it is impossible to successfully recruit all job changers through referrals, there does appear to be scope for raising ad-based unit prices by improving the accuracy of job-matching technology. Recruit currently has a roughly 270,000-person customer base in the domestic market and has the objective to become the human resources department for Japan s corporations. We intend to pay attention to the company s potential to expand its customer base and raise unit prices. Recruit Holdings (6098) 5

Figure 5: Sales breakdown Figure 6: OP breakdown Overseas 21% Marketing Housing media 7% Bridal 27% 4% Travel 4% Dining 3% Beauty 3% Others 6% HR media Staffing 36% 51% Marketing Domestic media 30% 59% Domestic 19% Overseas 2% Others 1% HR media 22% Staffing 5% Source: Company data (as of FY3/14) Source: Company data (as of FY3/14) Earnings forecasts: Domestic profits hinge on macro trends; EBITDA margin likely flat including overseas We base our forecasts for Recruit s marketing media business on growth in Japan s ad spending, which has tended to be a strong correlate. With the Internet making ad spending more cost-effective, we expect overall growth in spending to be a bit slower than GDP growth: +0.8% in 2014 and +0.3% in 2015 vs. Credit Suisse Economist forecast for nominal GDP growth of 1.6% in FY14 and 1.1% in FY15 (FY13 actual: +1.9%). On this basis, we look for revenue growth in marketing media to slow from +5% in FY3/15 to +4% in FY3/16 (FY3/14 actual: +9%). Our forecasts for the company s HR media and staffing businesses are meanwhile based on the ratio of job offers to job seekers and nominal GDP, both of which are again strong correlates. We expect the HR market s supply demand balance to remain tight, with the jobs-to-applicants ratio now at a 20-year high of around 1.1 and possibly set to reach 1.2 over the next year or two in our view. We look for Japan s unemployment rate to decline to 3.5% over the same period from the current 3.6% but see scope for 3.0% by end-2016 if the second consumption-tax hike is postponed (for details, please see our 13 November report, Japan Economic Adviser: Impact of postponing the second VAT hike). We think overseas M&A could lend further upside to sales in these businesses but expect the accompanying increase in goodwill to keep the EBITDA margin flat. We look for HR media s EBITDA margin to weaken temporarily in FY3/15 due to a delay in sales bookings for new-graduate media but anticipate a recovery thereafter. On this basis, we expect EBITDA to advance 2% for HR media and 12% for staffing in FY3/15 and a respective 19% and 8% in FY3/16. Recruit Holdings (6098) 6

3/10 3/11 3/12 3/13 3/14 3/15E 3/16E 3/17E 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15E 3/16E 3/17E 14 November 2014 Figure 7: Assumptions for key macro indicators and Recruit s earnings 3/14 3/15E 3/16E 3/17E Nominal GDP YoY 1.9% 1.6% 1.1% 1.1% Total Ad expense YoY 1.4% 0.8% 0.3% 0.3% Job to applicants ratio 0.98 1.09 1.15 1.18 Unemployment rate 3.9% 3.7% 3.6% 3.5% Sales YoY 14% 10% 8% 6% Marketing media YoY 9% 5% 4% 2% HR media YoY 28% 15% 13% 12% Staffing YoY 11% 11% 8% 6% EBITDA YoY 6% 4% 10% 7% Marketing media YoY 9% -1% 2% 2% HR media YoY 22% 2% 19% 11% Staffing YoY 8% 12% 8% 5% Source: MHLW, MIC, Dentsu, Company data, Credit Suisse estimates Figure 8: Assumptions for HR media and staffing segment forecasts Figure 9: Assumptions for marketing media segment forecasts 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% 25% 18% -30% -49% -43% -16% 24% 23% 18% 22% 20% 19% 8% 5% 12% 4% 4% 9% 5% 3% 5% 3% -1% 2% HR media (Japan)YoY Staffing (Japan) YoY Job to applicants ratio YoY 15% 10% 5% 0% -5% -10% -15% 12% 1% 0% -5% -5% -12% 0% 6% -1% -2% 12% 9% 5% 4% 2% 3% 1% 1% 0% 0% Marketing media YoY Japan total Ad expense YoY Source: MHLW, Company data, Credit Suisse estimates Initiating coverage with NEUTRAL rating and 3,700 target price Source: Dentsu, Company data, Credit Suisse estimates We initiate coverage of Recruit with a NEUTRAL rating, primarily because we expect a slowing in advertising and staffing expenditure as economic expectations begin to ease. We think this negative will outweigh any positive impact from a potential increase in unit prices at the HR media business. We base our target price on our FY3/16 forecasts and an SOTP method that values the marketing and HR media businesses at an industry average P/E of 25x and the staffing business at an industry average EV/EBITDA of 10x. As a result, our initial TP is 3,700. Recruit Holdings (6098) 7

Figure 10: Assumption for target price calculation: Valuation of marketing and HR media on P/E, staffing on EV/EBITDA (SoTP approach) Marketing media and HR media Staffing 160 140 120 100 80 60 40 20 0-20 EPS Staffing HR media Marketing media 50 44 42 53 60 77 77 74 75 76 3/13 3/14 3/15E 3/16E 3/17E 450 400 350 300 250 200 150 100 50 0 49 102 EBITDA per share Staffing HR media Marketing media 43 53 119 123 58 148 61 165 150 158 157 161 165 3/13 3/14 3/15E 3/16E 3/17E 100 0-100 -200-300 -400-500 -600-700 -800 Net debt per share 36 40 44 48 51-61 ( 42) - 155 ( 116) - 309-329 - 355 ( 241) ( 302) ( 357) Staffing HR media Marketing media 3/13 3/14 3/15E 3/16E 3/17E EPS 25 EBITDA 10- Net debt 4,500 4,000 3,500 3,000 2,500 2,000 3,700 460 Staffing HR media Marketing media 1,260 1,110 Target Price 3,400 3,400 390 480 1,060 3,700 530 1,320 4,000 560 1,500 1,500 1,000 500 1,930 1,930 1,840 1,860 1,890 0 Source: Company data, Credit Suisse estimates 3/13 3/14 3/15E 3/16E 3/17E Recruit Holdings (6098) 8

Clients (companies) Users (individuals) 14 November 2014 Business overview Mediating between users and companies, Recruit provides a platform that connects the two using a ribbon-type model. The platform provides users with information to help with the decision-making process and companies with a resource to attract customers. Operations can be divided into three main segments: marketing media, human resources media, and staffing. In marketing media, it focuses on providing information related to major events in people s lives, such as marriage and housing, as well as daily consumption like travel, food and beauty. Human resources media comprises both domestic and overseas recruitment operations, providing job placement advertising and other recruiting-related services. Staffing comprises both domestic and overseas operations, covering dispatch of clerical, manufacturing, and light-duty workers, as well as staff in various specialty areas. Also included in this segment are operations related to R25, a magazine and website for 25-and-over businessmen. Figure 11: Recruit s business model Recruit Holdings Ad fees Dispatch fees Deliver customers Marketing media Human resources media Info supply Some individual fees, such as subscription fees Referral fee Personal referral Dispatch fees Labor dispatch Human resources placement (Human resources media segment) Staffing services Info supply Employment Source: Company data, Credit Suisse The monetization approach of the company s different segments are as follows. (1) Marketing media Advertising fees (B2B) Customer transfer fees (B2B) Subscription fees (B2C) (2) Human resources media Advertising fees (B2B) Human resources personal referrals (B2B) (3) Staffing business Dispatch fees (B2B) Member stores X Post unit price Viewers X Click-through rate (CTR) X Cost per click (CPC) OR Viewers X CTR X Action rate X Cost per action (CPA) Purchasers X Purchase unit price Member stores X Per-store posts X Post unit price Hires X Successful placement fee (about 30% of annual salary) Staff number X Staffing fee Recruit Holdings (6098) 9

Figure 12: Recruit s business segment sales breakdown and competitor sites Business segment Operations / main fields Sales FY3/14 YoY % of Total Sales Main business companies, products, services Peers, sites Housing and Real Estate 86,600 10% 7% - Recruit Sumai Company ("SUUMO") NEXT(2120) "Home's" Yahoo Japan(4689) "Yahoo! Real Estate" At Home "at home" CHINTAI "Chintai.net" Life Event Bridal 53,300 2% 4% - Recruit Marketing Partners ("ZEXY") Ateam(3662) "Sugukon Navi" Minnano Wedding(3685) "Minnano Wedding" Others 37,900 10% 3% - Recruit Marketing Partners ("Car Sensor", "Rikunavi Shingaku", etc.) Proto Corporation(4298) "Goo-net" Carview(2155) "carview" Marketing Media Travel 48,400 9% 4% - Recruit Lifestyle ("Jalan net") Rakuten(4755) "Rakuten Travel" JTB "Rurubu" TripAdvisor(TRIP) "Trip Advisor" Lifestyle Dining 33,500 6% 3% - Recruit Lifestyle ("HOT PEPPER Gourmet") Beauty 33,900 23% 3% - Recruit Lifestyle ("HOT PEPPER Beauty") Kakaku.com(2371) "Tabelog" Gurunavi(2440) "Gurunavi" OpenTable(OPEN) "Opentable" Rakuten(4755) "vi-vi-vi.com" istyle(3660) "ispot" Starts Publishing(7849) "Ozmall" Others 28,900 12% 2% - Recruit Lifestyle ("Ponpare", etc.) Groupon(GRPN) "GROUPON" Intelligence(acquired by Temp Holdings(2181) DIP(2379) HR Media Domestic Recruiting Operation 226,500 18% 19% - Recruit Career ("Rikunavi", "Rikunavi NEXT", "Recruit Agent", etc.) - Recruit Jobs ("Hatalike", "FromA navi", etc.) En-Japan(4849) SMS(2175) JAC Recruitment(2124) ZIGExN(3679) "Tenshoku-EX" Livesense(6054) "Jobsense" Overseas Recruiting Operation 24,900 621% 2% - Indeed, Inc. '- Recruit Management Solutions '- RGF Hong Kong Limited LinkedIn Seek Career Builder Temp Holdings(2181) Staffing Domestic Overseas 358,600 4% 30% 253,800 21% 21% - Recruit Staffing '- Staff Service Holdings - The CSI Companies,Inc. '- Staffmark Holdings,Inc. '- Advantage Resourcing America, Inc. Advantage Resourcing Europe B.V. Pasona Group(2168) Human HD(2415) Will Group(6089) ADECCO SA RANDSTAD Holding NV ManpowerGroup Cross-media promotions, digital content planning and Others 2,800-15% 0% distribution, other '- Media Shakers ("R25", etc.) Source: MOF Statistics of Corporation, MHLW, Company data, Credit Suisse Recruit Holdings (6098) 10

Recruit's business portfolio map Recruit s main revenue source comprises corporates specific expense items as follows: (1) marketing media revenue sourced from advertising expense, sales promotion expense, and sales commissions, (2) human resources media revenue sourced from recruiting costs, and (3) staffing revenue sourced from outsourcing costs. We estimate the market size of each of these sub-segments based on overall Japanese corporate earnings. Recruit is the clear industry leader, with dominant share in every media market in which it operates. It is particularly strong in bridal, with over 70% of the market, and human resources media, with an over 40% share. By our estimates, it also has over 10% share in beauty and travel. We discuss market growth potential more below, but if the current market (amount of corporate spending) does not grow, we believe it will be difficult to boost share without boosting media presence. Areas in which the competitive environment is fairly intense include dining, travel, and housing. In FY3/14, Recruit's Hot Pepper had a 9% share of the dining segment, while competing websites Gurunavi had 4% and Tabelog had 1%. Similarly, in travel, Recruit s Jalan website had a 14% share, compared with 10% for Rakuten Travel (we exclude travel agencies like JTB that have brick-and-mortar outlets). In housing, Recruit s SUUMO website had a 9% share, compared with 1% for HOME s by NEXT and 1% (our estimate) for Yahoo! Japan Real Estate. Figure 13: Share of marketing media, human resources media, and staffing industries in FY13 (estimated): Recruit the sales leader in each area Segment (Market size) Market share Expense items at client Housing( 1,000bn) SUUMO 86.6bn 2 nd : HOME s 14.7bn 3 rd : Yahoo! Real Estate 10.0bn 4 th : At Home 5.0bn Bridal( 75bn) Travel( 350bn) ZEXY: 53.3bn Jalan 48.4bn 2 nd : Rakuten Travel 34.7bn 3 rd : Ikyu.com 4.5bn excluding brick and mortar travel agency 2 nd : Sugukon navi 1.2bn 3 rd : Minnano Wedding: 0.7bn 4 th : Gurunavi Wedding 0.6bn Ads Sales and promotion Fees Dining( 700bn) Hot Pepper 33.5bn 2 nd : Gurunavi 27.7bn 3 rd : Tabelog 7.7bn 4 th : Ikyu Restaurant 0.8bn Beauty( 150bn) Hot Pepper Beauty: 33.9bn 2 nd : ispot 0.5bn 3 rd : vi-vi-vi.com 0.4bn 4 th : KamiMado 0.3bn HR media ( 500bn) Recruit HD: 226.5bn Temp HD: 89.3bn (former Intelligence) Mynavi 55.6 En-Japan 16.8 Hiring cost Staffing (gross profit 1,600bn) Recruit HD 107.6bn Temp HD 82.0bn Pasona 62.6bn Outsourcing Source: MoF Statistics of Corporation, MHLW, Company data, Credit Suisse estimates Recruit Holdings (6098) 11

Media sector industry map Japanese consumer websites began to take off in earnest in the latter half of the 1990s. In addition to comprehensive media malls like Yahoo! and Rakuten, the initial growth stage saw a number of information sites come online in various specialty categories, such as restaurant search site Gurunavi in 1996, women s portal OZmall, offering a customized online version of the leisure information magazine OZ Magazine, in 1996, and real estate and housing information site HOME s in 1997. CGM began to appear soon after, including Kakaku.com, specializing in price comparisons for PCs, audiovisual equipment, and other consumer electronics, in 1997 (its original website name was CORE PRICE ), and cooking recipe and information exchange site Cookpad (originally kitchen@coin) in 1998, though dramatic growth in user volume was not seen until the early 2000s. Gourmet site Tabelog, which asks users to grade the nation s restaurants on a 5-point scale, launched in 2005 and is now by far the country s largest gourmet site with 60.75mn monthly active users. Monetization approaches for information sites and CGM are different. Information sites generate revenue mainly through ad placements, making corporate advertising and promotional spending an important source of income. By contrast, CGM sites are useroriented, making it difficult to sell ad space to companies, leaving premium membership subscriptions (that offer such perks as discount coupons and the ability to sort ranking orders) as the chief source of income. Figure 14: Industry site map Ad-based sites (information media) took off in early days, while performance-based remuneration sites (CGM) began to gain popularity in early 2000s Ad placement Revenue from corporate spending on ads and promotion Category Specialized Performance based Main source of revenue is membership subscription and fee income from users SUUMO (1976) ZEXY (1993) Gurunavi (1996) COOKPAD (1998) tabelog (2005) niconico (2007) Informational Rikunavi (1996) Home s (1997) Ikyu (2000) GILT (2009) Yahoo! Japan (1996) Ozmall (1996) Rakuten (1997) Hot Pepper (2000) LUXA (2010) Kakaku.com (1997) TripAdvisor (2000) Minnano Wedding (2008) Retty (2011) Wikipedia (2001) Facebook (2004) Yelp (2004) YouTube (2005) Twitter (2006) Consumer Generated Media (CGM ) Comprehensive Source: Company data, Credit Suisse Recruit Holdings (6098) 12

3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14 3/15E 14 November 2014 Correlation with Dentsu and macro economy Recruit and Dentsu have an advertising agency and client relationship, but the companies also share similar business models. Dentsu mainly targets national clients corporations that run nationwide advertising and marketing campaigns focused primarily on mass marketing activities to serve as an intermediary between them and mass media outlets. Recruit, meanwhile, targets small and midsized businesses with regional operations, from which it collects and organizes information in order to disseminate it. While they differ in terms of the size of their clients, the companies have similar business models in that they both rely on corporate spending on advertising and promotions. There has long been a high correlation between ad spending and the macro environment, so it is no surprise that parent sales at both Dentsu and Recruit closely correlate with changes in the industrial production index. Figure 15: Dentsu s clients mainly national, Recruit s mainly regional Dentsu Companies: national clients Spending: ads, marketing Figure 16: Close correlation between industrial production index and parent sales (YoY) at Recruit and Dentsu, confirming both are cyclical stocks 40% 30% 20% 10% 0% Recruit Companies: regional SMEs Spending: ads, marketing, recruiting Source: Credit Suisse -10% -20% -30% Recruit parent sales YoY -40% Dentsu parent sales YoY Industrial production index YoY -50% Source: METI, Company data, Company estimates, Credit Suisse estimates Recruit Holdings (6098) 13

Jalan 4T+yoyaQ Rurubu (JTB) Ikyu TripAdvisor Expedia Hot Pepper Tabelog Gurunavi Ozmall Yelp Opentable SUUMO Home's at home CHINTAI net door chintai Zillow Trulia Car Sensor carview! Goo-net Rikunavi JobSense en-japan Intelligence(an) Dip G Indeed LinkedIn ZEXY M Wedding W Park Sugukon Navi Ponpare Groupon 14 November 2014 Competitive edge In our view, Recruit's competitive edge lies in its ability to deliver customers in the areas of marketing media and human resources media, as well as its ability to dispatch workers in the area of staffing (competitiveness in staffing equates to dispatch quality, scale, and revenue-generating capacity). Marketing media customer transfer capacity = Active users X Close rate The ability to deliver customers in promotional media is a function of the number of active users and the close rate. Close rates can be hard to measure, so we compare monthly unique visitor counts and global page view counts from third-party research companies. While data are incomplete in either case, it is clear to us that Recruit does not have a dominant position in promotional media from a volume perspective. Figure 17: Recruit s magazine circulation and monthly unique visitor counts by segment strong in housing, close in other areas Category Service Online ratio to total ad revenue Travel Jalan 90% 880 5,060 Marriage Zexy less than 20% 520 510 Magazine circulation Monthly unique visitors (2013, in 000) (2013, in 000) Recruit HD Peers Rakuten Travel : 4,760 Yahoo! Travel : 4,000 Ikyu : 660 Minnano Wedding : 350 Wedding Park : 250 Housing SUUMO just below 60% 370 (Free) 2,500 Dining out Hot Pepper just below 80% 3,540 (Free) 4,550 Home's : 1,570 athome : 120 Tabelog : 9,450 Gurunavi : 5,780 Beauty Hot Pepper Beauty just below 50% 3,540 (Free) N/A N/A Source: Company data, comscore Figure 18: Web viewer ratings (global share of page views in last six months): Recruit is not holding a dominant share in any media 5,000 (10^-7%) 4,568 40,840 4,500 4,000 3,500 3,519 3,642 3,000 2,500 2,626 2,000 1,500 1,000 500 0 755 333 252 134 1,102 1,188 373 411 37 377 330 348 212 32 27 1,408 297 461 315 344 201 73 62 60 23 25 13 0 201 1,379 Travel Restaurant Housing Car Human Resources Bridal Coupon Source: Compiled by Credit Suisse based on ALEXA Recruit Holdings (6098) 14

Page view counts at major sites correlate closely with the market capitalization of the companies operating the sites. According to ALEXA, Google s share of global page views is 15.6%, and Facebook s is 6.0%. In the domestic market, Yahoo! Japan has 0.6% share, Rakuten has 0.1%, and Recruit is at 0.06%. Note that Recruit s page view count reflects the combined total for all its major sites (domestic sites Jalan, Hot Pepper, Suumo, Car Sensor, Rikunavi, and Ponpare, and overseas site Indeed.com). Figure 19: Page views and market capitalization correlation: Market cap growth requires traffic growth $1,000,000 (mn USD) Alibaba Group Facebook Inc. Tencent Holdings Google Amazon com Inc. $100,000 Ebay Baidu LinkedIn Yahoo Inc. Twitter Recruit HD Rakuten Yahoo Japan $10,000 Expedia TripAdvisor NetEase.com Groupon Inc. Yelp Qihoo 360 Zillow Start Today Opentable Kakaku.com Sina Corporation MonotaRO CyberAgent Trulia Sohu.com $1,000 Cookpad Ateam Dip Enjapan Gurunavi Dwango Ikyu Next ZIGExN Proto Corp Livesense $100 Carview Istyle Minnano Wedding GDO $10 Starts Publishing (ALEXA Global Pageviews %) $1 0.0% 0.0% 0.0% 0.0% 0.1% 1.0% 10.0% 100.0% Source: ALEXA, Thomson Reuters Per-user prices Revenues per unique visitor are over 1,700/month in the housing and bridal segments, where consumer pricing is high, 717 in travel, and 491 in food, where consumer pricing is relatively low. These are high levels compared with rival sites. This may reflect differences in active rates, or the rate at which a visit ends in a purchase (with higher rates at Recruit sites), but given that Recruit is not a clear volume leader in any segment, achieving continued growth in revenues per visitor will likely be difficult in the future. Recruit Holdings (6098) 15

Figure 20: Unique visitor count and revenue per UV by site: Relatively high revenue per UV for Recruit across all media Category Web site Unique visitors/month ('000) Sales (FY13, Y bn) Online ratio Revenue per unique visitor/month Jalan 5,060 48.4 90% 717 Travel Rakuten Travel 4,760 34.7 100% 607 Yahoo Travel 4,000 5.0 100% 104 Ikyu 660 4.5 100% 568 Zexy 510 53.3 20% 1,742 Bridal Minnano Wedding 350 0.7 100% 167 Weddingpark 250 1.0 100% 333 SUUMO 2,500 86.6 60% 1,732 Housing Home's 1,570 14.7 100% 780 athome 120 5.0 100% 3,472 Hot Pepper 4,550 33.5 80% 491 Dining tabelog 9,450 7.7 100% 68 Source: Company data, comscore Gurunavi 5,780 27.7 100% 399 Figure 21: Unique visitor count and revenue per UV by site: Revenue per UV higher for various Recruit media (information sites) from early stages of operations Revenue per unique visitor per month (JPY) 2,500 2,000 1,500 1,000 500 0 Zexy Ikyu Home's SUUMO Rakuten Travel Hot Pepper Weddingpark Minnano Wedding Yahoo Travel Jalan Gurunavi tabelog Travel Wedding Housing Dining-out Unique visitor per month ('000 visitors) 0 2,000 4,000 6,000 8,000 10,000 12,000 Source: Company data, comscore, Credit Suisse <Informational media> Mainly coprorate spending on advertising and marketing <CGM> Income sources increase due to higher media power; prices also have substantial upside potential Recruit Holdings (6098) 16

Facebook Yahoo Japan Kakaku.com Google CookPad TripAdvisor Alibaba G Tencent HD Rakuten Opentable Baidu Recruit Yahoo Inc. CyberAgent Adecco Gurunavi Hakuhodo En-Japan Expedia Dip Omnicom G Publicis G Dentsu Tem HD Randstad Havas Interpublic G WPP LinkedIn Pasona G Groupon Amazon.com NHN Ent ADK Yelp Trulia Zillow Twitter Facebook Yahoo Japan Kakaku.com Google CookPad TripAdvisor Alibaba G Tencent HD Rakuten Opentable Baidu Recruit Yahoo Inc. CyberAgent Adecco Gurunavi Hakuhodo En-Japan Expedia Dip Omnicom Publicis G Dentsu Tem HD Randstad Havas Interpublic G WPP LinkedIn Pasona G Groupon Amazon.com NHN Ent ADK Yelp Trulia Zillow Twitter 14 November 2014 Client company count X Unit prices The human resource media segment generates the bulk of Recruit's client company count. In FY3/14, human resource media clients totaled 270,000 companies (+10% YoY, for 14.8% average growth over the past two years). In other areas, it had transactions with only about 5% of the 4 5mn companies in Japan, suggesting there is still considerable scope for growth. Figure 22: Client company count and monthly billings by segment: Considerable scope for growth in human resources media unit prices and volume Monthly billing (JPY '000) 600 500 Life Event (marketing media) 400 300 Staffing 200 HR media 100 Lifestyle (marketing media) Source: Company data 0-50 0 50 100 150 200 250 300 350 no. of clients('000) ( 100) Source of competitiveness: Per-employee metrics Recruit s competitiveness as a company lies in our view in its ability to deliver customers in promotional media and to dispatch temporary staff. However, like any service business, the ultimate source of its competitiveness is its employees. Headcount at end-fy3/14 totaled 27,395. According to Thomson Reuters, the measure of operating income per employee, the global leader is Facebook at 38mn, followed by Yahoo! Japan at 31mn, Kakaku.com at 25.5mn, Google at 25.5mn, Cookpad at 15mn, and TripAdvisor at 12.6mn. Recruit ranks 12th globally in per-employee OP, 5th domestically behind Yahoo! Japan, Kakaku.com, Cookpad, and Rakuten. Figure 23: Per-employee OP (FY3/14): Recruit in 12th place globally (5th place domestically) 45 (Y mn) 40 35 30 25 20 15 10 5 0 Figure 24: Per-employee market capitalization (FY3/14): Recruit s relatively low 1,400 3,454 (Y mn) 1,200 1,000 800 600 400 200 0 Source: Thomson Reuters, Company data Source: Thomson Reuters, Company data Recruit Holdings (6098) 17

Catalysts and risks Upside (1) Raising ad unit prices in human resources segment by improving accuracy of job-matching technology The Japanese human resources market, excluding temporary staffing, is about 500bn in size by our estimate. The annual job turnover rate within the total working population remains stable at around 15%. We estimate personal referral prices in the human resources market average 1.35mn, equal to about 30% of annual salary, but are fairly low for ad-based recruitment at 120,000 130,000 for recent university graduates and mid-career workers and 70,000 for part-time workers. While it is impossible to successfully recruit all job changers, there does appear to be scope for raising ad-based unit prices by improving the accuracy of job-matching technology. Recruit s objective in the domestic market is to leverage the roughly 270,000 companies with which it does business to become the human resources department for Japan s corporations. We believe the company s potential to expand its customer base and raise unit prices is worth noting. (2) Boosting value added in marketing media segment by expanding business into the booking and settlement as a result of advertising and promotional spending User unit prices are already relatively high across all of Recruit s promotional media. Even so, since in addition to attracting customers Recruit also provides IT-based business support services, there is a possibility that spending among corporate clients could increase. These services include Salon Board, which handles reservations for beauty salons and nail shops, and AirRegi, a free POS cash register app that supports accounting services for restaurants and other retail businesses. Salon Board s monthly reservation bookings topped the 2mn mark in March 2014, while AirRegi accounts totaled about 40,000 in March. We expect that once volume reaches a critical mass, ARPU will begin to rise in response to enhanced media power. (3) Accelerated development of fee-based consumer services Recruit s promotional media revenue model centers on ads, but we see significant upside potential for fee-based consumer services. Of particular interest is the success of Charisma Professor, a web-based prep school (cram school for university entrance exams) to which users can gain unlimited access for a monthly fee of 980. As of March 2014, the service had 280,000 members. Downside (1) Slowing in corporate hiring in response to macroeconomic retreat in Japan and overseas The human resources market is particularly susceptible to macroeconomic changes. The impact is most immediate in rates for part-time workers, which in turn spills over to outsourcing and mid-career personnel. Note that the impact is fairly limited in the case of new college graduates. (2) Decline in relative standing of promotional media segment amid CGM user growth The number of users of CGM has grown very rapidly since the early 2000s. This has come at the expense of traditional information media, which has seen a gradual decline in position. Given how high they are already, there is a risk that unit prices in Recruit s information media segment could come under pressure as the presence of CGM grows. Recruit Holdings (6098) 18

(3) Slower-than-expected earnings improvement in overseas human resources/temp staffing business due to cultural differences Recruit s ultimate goal is to become the human resources department for the world s corporations. To this end, we believe it will need to understand the cultural (including religious) values and business practices of different regions. Since expertise developed in domestic operations often may not apply, there is a risk that earnings improvement at overseas subsidiaries could take longer than expected. Recruit Holdings (6098) 19

Peer analysis and valuation In view of differences in the markets for marketing media and human resources media/staffing, we use a sum-of-the-parts approach in valuing Recruit s segments. Marketing media segment valuation approach Within the scope of the marketing media business, the information media sites launched in the 1990s, when the Internet first began to take off, and the CGM sites that began to gain popularity in the early 2000s have different growth rates and thus require different approaches to valuation. Sales growth at information sites like Gurunavi and Ikyu slowed dramatically in 2010 11, but has since recovered to around 15% YoY amid heightened expectations surrounding Abenomics. At the same time, growth rates at major CGM sites like Kakaku.com and Cookpad have remained consistently high throughout, reflecting their near lack of susceptibility to economic fluctuations. In our view, it makes more sense to use information media P/Es in valuing Recruit s promotional media business. Figure 25: Information media and CGM sales growth rates and P/Es CGM growth not reliant on the economy, while information media correlates with the economy 70% Informational media growth YoY 60% Informational media PER (RHS) CGM sales growth YoY CGM PER (RHS) x70 x60 50% x50 40% x40 30% x30 20% x20 10% x10 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E x0-10% Note: Information media consists of Gurunavi and Ikyu, CGM consists of kakaku.com and Cookpad. Source: Thomson Reuters, Company data, I/B/E/S estimates, Credit Suisse estimates Human resources media/staffing segment valuation approach In the case of human resources media like En-Japan and DIP, or staffing companies like Temp Holdings and Pasona Group, valuations correlate closely with the ratio of job offers to job seekers, a key macro indicator for the human resources industry. As Japan s labor force continues to shrink, supply and demand in the human resources market should remain tight, and for this reason we believe P/Es of around 25x for human resources and a little under 20x for temporary staffing are appropriate. Since capital spending is not required in either human resources media or temporary staffing, there is little use of funds other than to grow through acquisitions. In fact, putting aside Temp Holdings acquisition of Intelligence Holdings, all companies in the industry are net cash positive. This being the case, using EV/EBITDA to value domestic businesses raises Recruit s valuations due to its aggressive M&A policy. At the same time, overseas peers (Adecco, Randstad, ManpowerGroup) have also been aggressively acquiring companies, so we believe EV/EBITDA is an appropriate basis for making comparisons in this area. -x10 Recruit Holdings (6098) 20

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Adecco Randstad Dentsu WPP Omnicom G Havas Trulia Temp HD Interpublic G Expedia Manpower Pasona G Publicis G Alibaba G Dip Naver Recruit Amazon.com TripAdvisor Gurunavi Baidu Groupon En-Japan ADK Hakuhodo CyberAgent 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 14 November 2014 Figure 26: P/E (FY basis) at domestic companies 25x for human resources media, just under 20x for staffing x90 x80 x70 x60 x50 x40 x30 x20 x10 x0 HR media Staffing Jobs-to-applicants ratio (RHS) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Figure 27: EV/IBTDA (FY basis) at domestic companies 7 8x for staffing x45 x40 x35 x30 x25 x20 x15 x10 x5 x0 HR media Staffing Jobs-to-applicants ratio (RHS) 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Note: HR media consists of Dip and Enjapan, Staffing consists of Temp Holdings, Pasona group, JAC recruitment, and Human Holdings. Source: Thomson Reuters, MHLW, Company data, Credit Suisse estimates Note: HR media consists of Dip and Enjapan, Staffing consists of Temp Holdings, Pasona group, JAC recruitment, and Human Holdings. Source: Thomson Reuters, MHLW, Company data, Credit Suisse estimates Figure 28: EV/EBITDA (FY basis) at overseas companies 7 10x x30 Randstad Adecco x25 Monpower G x20 x15 x10 Figure 29: Per-employee net interest-bearing debt highest in temporary staffing and advertising companies (based on latest financial results); Recruit net cash positive 8 (Y mn) 6 4 2 0-2 -4-6 -8 x5 x0-10 -12-14 Source: Thomson Reuters, Company data, Credit Suisse estimates Source: Speeda, Company data, Credit Suisse estimates Recruit Holdings (6098) 21

Peer valuations overview Figure 30: Valuation comparison with peers Region Category Company Mkt Cap Price Performance PER EV/EBITDA PBR USD mn -3month -1year 2014 2015 2016 2014 2015 2016 2014 Recruit Holdings 19,158 N/A N/A 33.9x 33.6x 31.6x 11.5x 10.9x 10.1x 4.1x Japan Job media SMS 462-2.2% 27.8% 38.7x 31.5x 25.1x 23.5x 19.7x 13.9x 8.8x En-Japan 390-20.7% -26.7% 16.2x 19.9x 18.4x 7.7x 6.9x 6.4x 2.6x Dip 378-28.8% 464.0% 46.5x 26.3x 23.4x 17.5x 10.0x 8.6x 9.0x ZIGExN 352-15.5% N/A 76.0x 64.7x 45.8x 41.4x 30.7x 22.0x 19.8x Livesense 194 3.2% -68.4% 22.5x 22.5x 11.2x 11.2x 11.2x 7.5x 7.3x Average 355-12.8% 99.2% 40.0x 33.0x 24.8x 20.2x 15.7x 11.7x 9.5x Internet Media Yahoo Japan 21,600 0.7% -6.8% 20.0x 19.4x 18.1x 11.8x 11.4x 10.5x 4.0x Rakuten 18,272 19.9% 20.8% 38.3x 29.2x 23.5x 16.0x 13.4x 11.4x 5.9x Kakaku.com 3,348 3.8% -3.8% 42.7x 35.1x 27.7x 25.5x 21.3x 16.9x 15.1x Cookpad 1,050 13.6% 17.3% 87.4x 40.6x 29.6x 49.7x 24.5x 14.3x 13.4x Gurunavi 739 1.7% 53.3% 35.3x 27.5x 22.4x 12.8x 11.1x 9.6x 5.0x Ateam 425-22.1% 109.6% 60.8x 19.7x 12.8x 28.3x 11.4x 7.6x 11.7x Ikyu 357-8.7% -1.4% 33.9x 33.1x 27.3x 15.8x 20.7x 13.8x 6.6x Next 334-12.6% -36.9% 28.9x 27.4x 21.7x 10.9x 10.7x 8.8x 3.8x Proto 292 6.5% 8.9% 12.9x 10.5x 10.1x 5.0x 4.6x 4.5x 1.3x Istyle 63 8.1% -33.3% 523.8x 66.7x 48.9x 6.7x 5.9x 5.3x 1.7x Average 4,648 1.1% 12.8% 88.4x 30.9x 24.2x 18.2x 13.5x 10.3x 6.9x Staffing Temp Holdings 2,161-4.6% 30.0% 25.4x 19.7x 16.9x 11.8x 9.5x 8.3x 2.9x JAC Recruitment 317 43.9% 49.7% 25.5x 20.3x 17.5x 15.8x 11.9x 10.4x 6.9x Pasona Group 192-0.7% -32.0% 42.2x 37.0x 26.2x 3.4x 3.9x 3.4x 0.9x Average 890 12.8% 15.9% 31.0x 25.7x 20.2x 10.4x 8.4x 7.4x 3.6x Advertising Dentsu 11,130 6.4% 12.5% 33.2x 29.3x 22.2x 12.4x 9.5x 8.8x 1.5x Hakuhodo DY Hldg 3,869 11.2% 56.2% 23.9x 22.2x 20.5x 11.7x 11.1x 10.6x 1.9x Asatsu-DK 1,091 6.6% 23.0% 44.7x 34.2x 31.6x 34.1x 19.7x 17.8x 1.0x Average 5,363 8.1% 30.5% 33.9x 28.5x 24.8x 19.4x 13.4x 12.4x 1.5x Global Internet Media Facebook 208,308 1.5% 53.4% 46.1x 37.8x 28.2x 24.8x 19.0x 13.8x 7.5x Google 185,724-4.6% N/A 10.5x 9.1x 5.2x 6.6x 5.5x 4.7x 1.7x Tencent 156,440-0.6% 64.9% 39.3x 30.6x 24.2x 28.1x 21.6x 17.1x 15.1x Amazon.com 144,231-6.6% -12.6% -394.2x 299.1x 83.2x 22.7x 16.9x 13.0x 13.0x Baidu 87,589 14.2% 63.3% 40.0x 29.0x 21.2x 30.4x 21.0x 14.5x 1.7x Priceline Group 60,785-8.6% 3.3% 21.7x 18.4x 15.5x 17.6x 14.0x 10.4x 7.5x Yahoo! 47,936 38.7% 44.2% 23.2x 44.7x 38.5x 30.4x 30.5x 28.6x 1.4x LnkIn Corp 28,701 5.1% 4.7% 127.0x 77.9x 48.5x 51.0x 35.2x 25.7x 9.8x Twitter 26,992-5.0% -0.1% 414.5x 113.1x 50.6x 100.4x 46.6x 27.6x 8.1x Naver 22,929-3.9% 27.2% 49.2x 30.2x 23.3x 27.0x 19.5x 15.4x 11.6x Expedia 11,024 2.0% 41.1% 20.5x 17.9x 15.3x 10.6x 8.9x 7.3x 4.7x TripAdvisor 10,059-27.5% -19.5% 35.4x 26.6x 20.8x 21.1x 15.7x 11.7x 9.4x Groupon 5,438 35.0% -21.3% 164.9x 45.1x 33.7x 18.0x 12.1x 10.3x 7.0x Yelp 4,393-20.8% -9.3% 472.7x 136.6x 58.9x 58.9x 33.0x 19.7x 8.5x Zillow 4,318-23.5% 28.6% 274.3x 95.2x 47.3x 82.5x 47.9x 31.4x 7.8x Trulia 1,698-24.0% 13.4% -120.2x 143.0x 55.6x 70.2x 29.6x 19.1x 6.2x Average 62,910-1.8% 18.7% 76.6x 72.1x 35.6x 37.5x 23.6x 16.9x 7.6x Staffing Adecco 11,753-3.7% -9.3% 14.3x 12.3x 11.0x 9.6x 8.2x 7.1x 3.0x Randstad Hldg 8,001 4.9% -23.1% 14.0x 11.7x 10.2x 8.9x 7.2x 6.2x 2.0x ManpowerGroup 5,321-11.1% -18.3% 12.4x 11.9x 10.8x 6.3x 5.8x 5.3x 1.6x Average 8,358-3.3% -16.9% 13.6x 12.0x 10.7x 8.3x 7.1x 6.2x 2.2x Advertising WPP 26,018 3.5% -4.1% 15.0x 13.7x 12.6x 10.0x 9.3x 8.6x 2.1x Omnicom Group 18,216 2.5% 5.2% 16.9x 16.0x 15.2x 9.0x 8.6x 8.2x 5.8x Publicis Groupe 15,385 3.2% -11.3% 15.4x 14.1x 13.2x 9.3x 8.4x 7.5x 2.2x Interpublic Grp 8,122-2.0% 14.0% 19.1x 16.7x 14.9x 8.6x 7.8x 7.5x 3.6x Havas 3,460 15.6% 19.0% 18.3x 16.5x 15.4x 9.4x 8.6x 8.0x 1.9x Average 14,240 4.5% 4.6% 17.0x 15.4x 14.3x 9.3x 8.5x 8.0x 3.1x Source: Speeda, Company data, Credit Suisse estimates Recruit Holdings (6098) 22

Figure 31: Assumption for target price calculation: Valuation of marketing media and HR media on P/E, staffing on EV/EBITDA (SoTP approach) Marketing media and HR media Staffing 160 140 120 100 80 60 40 20 0-20 EPS Staffing HR media Marketing media 50 44 42 53 60 77 77 74 75 76 3/13 3/14 3/15E 3/16E 3/17E 450 400 350 300 250 200 150 100 50 0 49 102 EBITDA per share Staffing HR media Marketing media 43 53 119 123 58 148 61 165 150 158 157 161 165 3/13 3/14 3/15E 3/16E 3/17E 100 0-100 -200-300 -400-500 -600-700 -800 Net debt per share 36 40 44 48 51-61 ( 42) - 155 ( 116) - 309-329 - 355 ( 241) ( 302) ( 357) Staffing HR media Marketing media 3/13 3/14 3/15E 3/16E 3/17E EPS 25 EBITDA 10- Net debt 4,500 4,000 3,500 3,000 2,500 2,000 3,700 460 Staffing HR media Marketing media 1,260 1,110 Target Price 3,400 3,400 390 480 1,060 3,700 530 1,320 4,000 560 1,500 1,500 1,000 500 0 1,930 1,930 1,840 1,860 1,890 3/13 3/14 3/15E 3/16E 3/17E Source: Company data, Credit Suisse estimates Recruit Holdings (6098) 23

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 14 November 2014 Human resources recruitment and staffing market Correlation with macro changes The human resources market is highly influenced by changes in the macro economy. Parttime and temporary staffing not surprisingly have particularly high exposure to economic conditions, but personal referral of management-level workers with relatively high salaries is affected along nearly identical lines due to changes in job mobility. For further details on unemployment rate, please refer to Economics Research by our Economist, Japan Economic Analysis Issue No. 53: Japan's unemployment rate will hardly drop further in the coming 18-24 months (14 July 2014). Figure 32: Close correlation between nominal GDP growth and personal referral, temporary staffing, and job placement human resource markets 60% 3% 50% 2% 40% 1% 30% 0% 20% Figure 33: Close correlation between jobs-to-applicants ratio and real GDP growth 600 500 400 (Y bn) Others (%) Recruit (HR media) Unemployment rate (RHS) 3.0 3.5 4.0 10% -1% 300 4.5 0% -10% -20% -30% -40% Referral Staffing No. of job placement ads Nominal GDP growth (RHS) -2% -3% -4% -5% 200 100 -- 5.0 5.5 6.0 Source: Cabinet Office of Japan, MHLW, Zenkoku Kyujin Joho Kyokai, company data, Credit Suisse estimates Employment trends Source: Cabinet Office of Japan, MHLW, Credit Suisse estimates Japan s workforce (combined total of all employed and unemployed people 15 years or older) totaled 65.77mn in 2013 as per MHLW statistics. Of this number, 55.45mn were employed. Among the employed, regular employees (defined as those hired for a period exceeding one month) totaled 45.93mn. The number of people hired during the year was 7.49mn (4.26mn general, 3.23mn part-time), accounting for 16.3% of regular employees. Historically, about 15% of all workers change jobs in a given year. Recruit Holdings (6098) 24

Figure 34: New hires vs. displaced workers: 12 13% mobility rate Fresh grads 810,000(2.4%) Mid-career, others 3.45mn(10.2%) Displaced workers 4.20mn(12.4%) Figure 35: Part-time new hires vs. displaced workers: 25 27% mobility rate Hired 3.23mn(26.8%) Displaced workers 2.98mn(24.7%) General 33.85mn(100%) General 33.91mn(100.2%) Part-time 12.08mn(100%) Part-time 12.33mn(102.1%) (2013/1/1) (2014/1/1) (2013/1/1) (2014/1/1) Source: MHLW Source: MHLW The main hiring channels for new college graduates are their schools and advertisements, while for existing workers ads are the main channel. On an overall basis, ads account for 36% of all new hires currently and the weighting of this channel is growing year by year. Meanwhile, HelloWork (the Japanese government's employment service center) is gradually declining as a channel. The proportion of hires stemming from personal connections has remained unchanged for the last four years. Figure 36: Main hiring channels for new college graduates school and ads Figure 37: Main hiring channels for existing workers ads, HelloWork, and personal connections Personal referrals 8% Others 8% School 34% Private recruit agency 3% Others 12% Ad 33% Hello work (incl. on-line) 17% Personal referrals 25% Ad 33% Hello work (incl. on-line) 27% Source: MHLW "EMPLOYMENT REFERRALS FOR GENERAL WORKERS Sep 2014" Source: MHLW "EMPLOYMENT REFERRALS FOR GENERAL WORKERS Sep 2014" Recruit Holdings (6098) 25

2004-4 2004-10 2005-4 2005-10 2006-4 2006-10 2007-4 2007-10 2008-4 2008-10 2009-4 2009-10 2010-4 2010-10 2011-4 2011-10 2012-4 2012-10 2013-4 2013-10 2014-4 14 November 2014 Figure 38: Main hiring channels for new hires overall ads growing in prominence year by year 100% 90% 15.2% 21.2% 21.1% 20.4% 2.7% 80% Others 2.0% 2.4% 2.6% 70% 21.8% 21.4% 21.3% 20.5% Private recruit agency 60% 50% 40% 30% 20% 10% 26.2% 24.2% 24.3% 24.5% 29.2% 31.0% 32.2% 35.8% Personal referrals Hello work (incl. on-line) Ad 0% Source: MHLW 2010 2011 2012 2013 Looking at job placement by medium, recruitment sites are seeing significant growth and online has already surpassed print. That said, free job classified ad papers still account for 31% of hires, having since recovered after dipping sharply during the global recession that hit in 2008. Figure 39: Job placement ad numbers by medium Recruitment sites seeing dramatic growth 600 ('000) Magazines Free job classified ad papers 500 Inserts Recruitment sites 400 Figure 40: Job placement ad numbers by medium Online now surpasses print Magazines 5% Inserts 11% 300 200 100 0 Free job classified ad papers 31% Recruitment sites 53% Source: Zenkoku Kyujin Joho Kyokai Source: Zenkoku Kyujin Joho Kyokai (as of August 2014) Market size estimates We estimate the size of the human resources media and personal referral markets based on various sources including the data from MHLW. Excluding temporary staffing, the human resources market is about 500bn in size, with part-timer employment ads accounting for the lion s share at about 200bn (2.85mn hires X 70,000/hire). Among adbased hires, mid-career hires account for about 100bn (800,000 X 125,000), and new college graduate hires account for about 50bn (390,000 X 128,000). Performancebased commissions for personal introductions/referrals of mid-career employees with relatively high salaries account for about 150bn (110,000 X average annual salary of 4,500,000 X performance-based commission of 30%). Recruit Holdings (6098) 26

Figure 41: Human resources media market currently around 500bn, with scope for growth by improving job-matching accuracy Unit price 1,350k High income Pay-per-performance few Low income Pay-per-ad Many Mid-career introduction 150bn 125k Mid-career ads 100bn 128k Grad ads 50bn 70k Part-time ads: 200bn Upside scenario Current curve 0.11mn 0.80mn 0.39mn 2.85mn No. in employment Source: MHLW, compiled by Credit Suisse Upside potential The upside scenario for the human resources media and personal referral business hinges on raising the accuracy of matching job seekers to job openings, as this would help to (1) boost unit prices and (2) broaden the base of the performance-based referral business. Looking separately at the number of employed people and unit prices, about 15%, or 7.5mn, of Japan's total employed population of 50mn change jobs annually (excluding temporary, contract and other non-regular staff). Assuming a performance-based commission of 1.12mn, which is 30% (the norm) of the average annual salary of 3.75mn, raising job-matching accuracy could potentially expand market size by 3.4x to 1.7tn (assuming 40% of ads lead to staff introductions). That said, we believe that for companies to justify raising total spending on hiring, which after all is a cost like any other, would require simultaneous increases in labor productivity and per-employee sales. Recruit Holdings (6098) 27

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 November 2014 Figure 42: Upside potential for HR media/staffing business: Greater matching accuracy could expand market by 3.4x Unit price Avge. Annual income 3.75mn Total pay: 188tn Pay-perperformance price 1.12mn ( 3.75mn 30%) Potential = 1.7tn ( 188tn job turnover rate 15% ratio of ads leads to hiring 40% commision 30% share of performance fee 50%) Current 500bn Source: MHLW (FY2013), MoF, Credit Suisse estimates No. that change jobs 7.5mn (50mn 15%) No. employed Total employed 50mn ( Excl. temps, contract, part-time, etc.) The ratio of job offers to job seekers is higher than in 2006 07, when the export-led economy was running strong, and is now at its highest point since the 1990s. As the labor force continues to shrink, supply/demand can be expected to come under pressure, potentially driving up advertising unit prices. Despite a recent modest rise, the job advertising unit price is currently low at just 380,000, down from 550,000 in 2007. Without an accompanying increase in per-employee sales and productivity, it is hard to expect corporate spending on hiring, including ad placement, to rise significantly. Peremployee sales for Japanese companies as a whole were 31mn in 2013, down about 10% from their 2007 peak of 34mn. Nominal labor productivity is similarly down about 5% from peak. Figure 43: Per-employee sales and nominal labor production at Japanese corporations in gradual slide since 1990s 35 (Y mn) (Y mn) 34 33 32 31 30 29 28 Sales per employee 27 Nominal labor production (RHS) 26 Source: MoF Statistics of Corporation 8.1 8 7.9 7.8 7.7 7.6 7.5 7.4 7.3 7.2 Figure 44: Unit price of advertisement: Virtually correlates with the economy, but unlikely to improve in the absence of productivity gains 600 (JPY '000) Advertisement unit price 500 QoQ(RHS) 400 300 200 100 0 1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q3Q1Q 2007 2008 2009 2010 2011 2012 20132014 Source: Company data, Credit Suisse 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% Recruit Holdings (6098) 28

Overseas market Economic activity is beginning to pick up throughout the world after the 2007-08 financial crisis, in both advanced economies and emerging markets alike. However, labor markets have yet to rise from their lows, and global unemployment remains steady at 6% as reported by the IMF. The fact that 202mn people looked for work in 2013 (IMF) shows that growth in hiring has not kept pace with growth in the labor market. In addition to weak capital spending, this owes to insufficient consumption in both the public and private sectors, which undermines the speed of job creation and unemployment mitigation. Record-low interest rates, particularly in advanced countries, have had little effect in terms of job creation, fueling financial investment rather than real investment. Like the domestic market, overseas labor markets show a close correlation to macroeconomic indicators (the global industrial production index). Figure 45: Global industrial production index and YoY change in major temporary staffing companies sales show close correlation with economic trends 30% 6% 20% 5% 10% 0% -10% -20% 4% 3% 2% -30% Staffing sales, yoy% Global IP (RHS) 1% -40% 0% 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Note: Staffing sales is the total sales of 6 companies - ManpowerGroup, Robert Half International, Kelley Services, On Assignment, TrueBlue, and Kforce Source: IMF, Company data Recruit Holdings (6098) 29

Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 14 November 2014 Figure 46: Regional labor markets: Asia the main driver through 2050, after which employee numbers and unit prices in Africa should begin to rise 80 GDP per Capita (Thousands) 70 Australia 60 50 40 30 UK Canada Japan Italy Spain USA Germany France Japan Non Japan Asia North America South America Europe Africa Oceania S.Korea 20 Brazil Mexico Argentina Russia Columbia China 10 South Africa Employment Ukraine Thailand Indonesia (mn people) Philippines India 0 Egypt 0 100 200 300 400 500 600 700 800 900 Note: Size of each bubble indicates 2012 nominal GDP Source: ILO, OECD, UNECE, Credit Suisse Indeed.com, acquired by Recruit in 2012, is a search engine for job information like a Google specializing in job search. Unlike Rikunavi, which asks companies to register information, Indeed collects and indexes information automatically through Web crawling. Monthly unique visitors totaled 140mn in January 2014, and the service was operating in more than 50 countries. In the US, external hiring channels are led by personal connections and corporate website recruitment pages, followed by job search sites. As business steadily moves online, the number of users of job search sites can be expected to continue to grow. Figure 47: Indeed site views and monthly unique visitors 40% annual growth, like a Google specializing in job search 0.050% (mn) 160 0.045% 140 140 0.040% 120 0.035% 100 0.030% 100 0.025% 80 Figure 48: Share of hires through job search sites by channel Craigslist, Glassdoor, 1.2% 1.9% Dice, 2.8% JobsCentral, 2.9% Simply Hired, 3.6% Others, 12.0% Indeed, 31.2% 0.020% 0.015% 0.010% 0.005% 0.000% Monthly Unique Visitors (RHS) Alexa Global Pageview % 60 40 20 0 Monster, 11.1% CareerBuilder, 13.2% Linkedin (JobBoard), 20.1% Source: Company data, ALEXA Source: CareerXRoads 2014 Source of Hire Report Recruit Holdings (6098) 30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Thousands 14 November 2014 Marketing media market Advertising spend in Japan Overall advertising spend in Japan totaled 6tn (+1.4% YoY; Dentsu estimates) in 2013. After four consecutive years of YoY decline following the collapse of Lehman Brothers, advertising spend grew YoY in 2012 and 2013. However, it has yet to regain the heights attained in the past. The Internet started contributing from the late 2000s on PCs and from 2012 on smartphones, and its growth rate is currently gaining momentum. Media categories other than Internet are rebounding from the trough since the post-lehman slump, but are still some way off from a recovery. Figure 49: Advertising spending in Japan: Declining sensitivity to nominal GDP 10% Ad sales (RHS) Nominal GDP yoy (Y tn) Ad Sales yoy 5% 8.0 7.0 6.0 Figure 50: Advertising spend by media category: Growth only in Internet (Y bn) Newspaper Magazines Radio TV 3000 Satellite media Internet Sales Promotion 2500 0% -5% -10% -15% 5.0 4.0 3.0 2.0 1.0 0.0 2000 1500 1000 500 0 Source: Dentsu, Cabinet Office of Japan, Credit Suisse estimates Source: Dentsu, Credit Suisse estimates After peaking out in 2001, the total advertising spend to sales ratio of Japanese businesses is on a downtrend due to the growth of the Internet. Owing to the Internet s interactive nature, it is easier for companies to measure the effectiveness of ad spend there. Since companies are able to earmark budgets according to performance, the Internet can essentially be termed as a relatively deflation-resistant medium (versus TV, which is inflation-proof). A comparison of advertisement amount per user based on TV viewership and PC/smartphone user base shows the amount per user for TV is seven times that for PC. We believe that although the salient features of the media categories differ TV equates to branding while the Internet stands for pay-per-performance this gap will gradually shrink. Recruit Holdings (6098) 31

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014E 2016E 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 14 November 2014 Figure 51: Total advertising spend to sales ratio of Japanese businesses: Reciprocal numbers represent cost-benefit performance; spread of the Internet delivers improvement in cost efficiency 0.55% 0.50% Advertising expenses to sales ratio of Japanese companies Nominal GDP YoY (RHS) 10% 8% 6% Figure 52: Monthly advertisement amount per viewer/active user: Ample room to shrink the gap between the Internet and TV 3500 3000 2500 0.45% 0.40% 0.35% 4% 2% 0% -2% -4% 2000 1500 1000 500 PC TV Smartphone TV remains at high level; still 7x higher than PC 0.30% -6% 0 Source: Dentsu, Cabinet Office of Japan, MIC, Credit Suisse estimates Source: Dentsu, MIC, Video Research, Credit Suisse estimates Media map: Information providers vs. CGM A look at the number of unique visitors and unit prices of major websites shows that Recruit s various websites enjoy a higher unit price than comparable websites (Rakuten Travel, HOME s, Gurunavi). Since the information providers revenue is generated from advertisements and promotional spend of the companies advertising with them, such sites can operate profitably from high unit prices even if they have few unique visitors. Conversely, CGMs such as Tabelog that are highly user-oriented tend to be disliked by businesses and stores and therefore lack modes of monetization while they have fewer unique visitors. However, once they attain a critical mass, businesses and stores can no longer afford to overlook such sites, which then see more numbers of ways to monetize such as ad revenues, and paid premium content. Recruit Holdings (6098) 32

Figure 53: Unique visitor count and unit prices by site: Unit price higher for various Recruit media (information sites) from early stages of operations Revenue per unique visitor per month (JPY) 2,500 2,000 1,500 1,000 500 0 Zexy Ikyu Home's SUUMO Rakuten Travel Hot Pepper Weddingpark Minnano Wedding Yahoo Travel <Informational media> Mainly coprorate spending on advertising and marketing Jalan <CGM> Income sources increase due to higher media power; prices also have substantial upside potential Gurunavi tabelog Travel Wedding Housing Dining-out Unique visitor per month ('000 visitors) 0 2,000 4,000 6,000 8,000 10,000 12,000 Source: Company data, comscore, Credit Suisse A look at the sales trends for each medium shows CGM attaining higher growth rates historically than media that provide information. Compared with TV or magazines, the Internet tends to display a deflation-resistant character, and within Internet media, we see a stronger deflation-resistant tilt in CGM than in media providing information. CGM is thus less reliant on economic conditions. Indeed, the growth rate for information media fell sharply as the overall ad spend saw negative growth from 2008 11 before swinging to negative growth from FY2011. However, the growth rate of information media recovered sharply as the overall ad spend turned positive in FY2012, supported by companies setting aside larger ad budgets in anticipation of boosts from Abenomics in end-2012. Growth slowed for CGM as well in 2011, but as the recovery in 2012 was not significant, it appears the onset of inflation exposed its relative weakness. Figure 54: Sales growth and advertising market size of information media and CGM (YoY): CGM growth not reliant on the economy, while information media correlates with the economy 70% 60% 50% 40% 39% 65% 49% 39% Information media sales growth YoY CGM sales growth YoY Ad market growth YoY 47% Total Ads : -2.3% YoY +3.2% (+5.5pt) Information provision: 2% YoY +15% (+17pt) CGM: +19% YoY +26% YoY( +7pt) 37% 36% 30% 20% 10% 24% 19% 19% 26% 15% 15% 29% 23% 24% 11% 12% 0% -10% 3% -2% 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E -20% Note: Information media consists of Gurunavi and Ikyu, CGM consists of kakaku.com and Cookpad. Source: Thomson Reuters, company data, I/B/E/S estimates, Credit Suisse estimates Recruit Holdings (6098) 33

Figure 55: Travel business: Monthly unique visitors and unit price per unique visitor Figure 56: Bridal business: Monthly unique visitors and unit price per unique visitor Source: Company data, comscore Source: Company data, comscore Figure 57: Housing business: Monthly unique visitors and unit price per unique visitor Figure 58: Dining business: Monthly unique visitors and unit price per unique visitor Source: Company data, comscore Source: Company data, comscore Recruit Holdings (6098) 34