Kanzhun Ltd

NASDAQ:BZ

Earnings Call Analysis

Steady Growth and Future Prospects

In the second quarter of 2024, the company reported a 29% year-on-year increase in revenue, reaching RMB 1.92 billion. Net profit rose to RMB 420 million, with adjusted net income at RMB 720 million, up 26%. Average monthly users grew by 17%, and the number of paid enterprise customers increased by 31% to 5.9 million. The adjusted operating margin improved by 5.3 percentage points, reaching 34.4%. For the third quarter, the company expects revenue between RMB 1.9 and 1.92 billion. The firm remains confident in its long-term growth, bolstered by robust results from blue-collar sectors and strategic investments in AI infrastructure.

Strong Financial Performance

In the second quarter of 2024, the company showcased impressive financial growth with a 20% year-on-year rise in calculated cash billings, reaching RMB 1.95 billion, and a 29% increase in GAAP revenue, amounting to RMB 1.92 billion. Net profit stood at RMB 420 million, while adjusted net income, excluding share-based compensation, increased by 26% year-on-year to reach RMB 720 million.

Growing Enterprise User Base

The company experienced significant growth in its enterprise user segment. The average verified monthly active users on the BOSS Zhipin app grew by 25% year-on-year, reaching 54.6 million. Moreover, the total number of paid enterprise customers in the 12 months ending June 30, 2024, saw a 31% year-on-year growth, totaling 5.9 million. This indicates a healthy increase in platform use and user engagement.

Operational Efficiency and Profitability

On the operational side, the company reported an adjusted operating profit of RMB 660 million in the quarter, marking a 52% year-on-year increase. The adjusted operating margin also reached an all-time high of 34.4%, up by 5.3 percentage points from the same quarter last year. This was accompanied by an increase in cost efficiency, with sales and marketing expenses rising by 16% and R&D expenses growing by 21% year-on-year.

Strategic Investments and AI Infrastructure

Investment in AI infrastructure has been a key focus, leading to a 28% year-on-year increase in adjusted R&D expenses, mainly due to higher depreciation costs from earlier investments. The company's ongoing efforts in AI are seen as crucial to maintaining its competitive edge and enhancing service offerings.

Cash Flow and Shareholder Returns

The net cash provided by operating activities grew by 14% year-on-year to RMB 869 million, with cash and cash equivalents totaling RMB 14.3 billion as of June 30, 2024. In a strong show of commitment to shareholder returns, the company repurchased USD 58 million worth of shares and plans to continue increasing share buybacks as part of a USD 200 million program.

Market Challenges and Strategic Adjustments

The latter half of the second quarter saw a decrease in recruitment demand, affecting cash billings. Despite this, the company remains optimistic about long-term structural growth opportunities, particularly in the blue-collar and manufacturing sectors. Management plans to reallocate resources towards high-growth areas and maintain tight cost controls to ensure profitability.

Future Outlook and Revenue Guidance

Looking ahead, the company predicts third-quarter 2024 revenues to be between RMB 1.9 billion and RMB 1.92 billion, representing a year-on-year increase of 18.2% to 19.5%. The management aims for a full-year non-GAAP operating profit target of RMB 2.3 billion, reflecting a 40% year-over-year growth.

Global Expansion and Technological Advancements

The company is making strides in its overseas operations, with promising progress in Europe and Asia. However, it acknowledges that substantial revenue contributions from these regions may take another 2-3 years. Additionally, while the company keeps abreast of advancements in generative AI, it remains cautious about heavy investments in this area, focusing instead on practical applications that can enhance its current offerings.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Second Quarter 2024 Financial Results Conference Call. [Operator Instructions]. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am.

[Wenbei Wang, executive]

Thank you, operator. Good evening, and good morning, everyone. Welcome to our second quarter 2024 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao; and our Director and CFO, Mr. Phil Yu Zhang.

Before we start, we would like to remind you that today's discussion may contain forward-looking statements which are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and do not undertake any obligation to update its forward-looking information except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

[Peng Zhao, executive]

[Interpreted] Hello, everyone. Thank you for joining our company's Second Quarter 2024 Earnings Conference Call.

I will start with our financial numbers. In the second quarter, the company achieved calculated cash billings of RMB 1.95 billion, up 20% year-on-year. Our GAAP revenue reached RMB 1.92 billion, up 29% year-on-year. We recorded a net profit of RMB 420 million. Meanwhile, our adjusted net income, which excludes share-based compensation expenses rose to RMB 720 million, up 26% year-on-year.

In the second quarter, the average verified MAU on the BOSS Zhipin app grew by 25% year-on-year to 54.6 million. From January to June this year, the company attracted around 28 million newly added verified users. The total paid enterprise customers in the 12 months ended June 30, 2024, reached 5.9 million, representing 31% year-on-year growth.

Our cash billings in the second quarter still have a decent year-on-year growth. However, weaker on a quarter-on-quarter basis and a little bit lower than our expectation. This was mainly due to weaker demand from the recruitment side in the later half of the second quarter. There were relatively fewer enterprise users and more job seekers in the market, which is what we refer to as a high CPL ratio. In this case, most enterprise users found it easier to hire. For example, a project team that took 3 months to fill all the positions in the past now only takes 2 months, reducing enterprise users' desire to spend more money on recruitment.

We noticed that the growth trend of enterprise users is still good. There are 2 proofs. First, in the second quarter, the number of newly added enterprise users was higher than that of the same period last year. Second, the average monthly active user of enterprise users increased by 17% year-on-year. Investors who have long been following us know that user growth is a core growth driver for our revenue growth. We still have a good growth of enterprise users in the second quarter. This is a good news for the company.

We believe the second quarter performance is a temporary situation. Long-term structural growth opportunities remain strong. Our confidence is grounded in 3 factor. First, the Chinese market is a huge economy with the highest small- and medium-sized enterprise activities and the largest number of enterprises. Second, there is a persistent shortage of labor supply particularly among younger generation, which is unlikely to change in the near future. Third, our efficient service model is best suited to address the challenges presented by the first 2 factors.

On the current situation, the company's management team believe we should do what is best suited for the moment. Today, I will talk about 3 things. The first thing is to ensure the full year profit target during challenging times, confidence is crucial for everyone, no matter co-investors, co employees or potential investors and prospective talents. In tough times, confidence is more valuable than gold. Ensuring profitability for the year will help to sustain confidence in the company, which can be achieved through further refinement of our management.

The second thing is to invest more resources on new growth drivers. For example, in the blue collar manufacturing industry, there may be some new dollars.

To briefly review the blue-collar manufacturing industry we have talked before. The background means the complex relationship between factories, workers, platforms and agents. In addition to many historical issues have made it challenging for online platforms to serve the blue-collar manufacturing industry.

The history is, 3 years ago, we started by purifying the job-seeking and recruitment environment through what we call the Conch project Hailuo. The intuition of this initiative has two. First is to protect the overall job seeking process of the job seeker. Second was to help blue-collar agents and organizations make money decently.

The current situation is after a tough day, the long-standing issue of bad or low-quality agents, driving out good ones across online recruitment platform is beginning to improve. This positive shift has already happened. Good guys who commit to treating job seekers with integrity, posting authentic job details and salary information are now receiving better results. We have named this trustworthy agent as platform-certified [indiscernible].

The latest data is our [indiscernible] project generated over RMB 40 million in revenue in the second quarter, which is much higher than that in the first quarter. These good signs make me feel that our strategy and the persistence in the past few years are correct.

The third thing is our overseas business. As we all know, economies are cyclical. And this economy cycles are also out of sync across different countries and regions. Large companies with a strong global presence can effectively utilize this regional big shift to support sustainable growth. In particular, BOSS Zhipin has pioneered our current model globally. This model is very likely to provide value and gained space for survival and the development in various regional markets through localization, hybridization and evolution. While we are seeing promising progress in Europe and Asia, it's still too early to report on the results.

Last but not least, it's important to address confidence again, particularly in terms of strengthening the returns for our shareholders, who have constantly supported us since our IPO. For example, we will continue to increase our share buyback efforts. We have bought over USD 88 million repurchased in the past 4 months. This all will help to reinforce the valuable confidence of our shareholders and management.

That concludes my part of the call. I will now turn it over to our CFO, Phil for an overview of our financials. Thank you.

[Yu Zhang, executive]

Thanks, Jonathan. Hello, everyone. Now let me walk you through the details of our financial results of the second quarter of 2024.

In this quarter, we delivered a healthy and sustainable top line and bottom line growth. Calculated cash billings and revenues grew by 20% and 29% year-on-year, respectively, mainly driven by the growth of our enterprise users. Average monthly access enterprise users in the quarter grew by 17% year-on-year. We continued to penetrate into different categories of users especially in blue-collar sectors, small medium-sized enterprises and users from lower-tier cities. As a result, revenue contributions from those sectors continue to increase.

Paid enterprise customers in the 12 months ended June 30, 2024, increased by 31% year-on-year to 5.9 million. The paying ratio was higher than last year, but sequentially kept stable. We are happy to see that ARPPU average paying per paying user of paid users increased around 3% year-on-year and 3% sequentially reaching the highest level in the past 4 quarters. Part of the reason was that revenue from key accounts outgrew small and middle-sized accounts, but more importantly, was our effort to increase client usage by offering high-quality and targeted products and services.

Moving to the cost and expenses side. Excluding share-based compensation, adjusted operating cost and expenses increased by 20% year-on-year to RMB 1.3 billion and led to adjusted operating profit of RMB 660 million in the quarter, up 52% year-on-year. Adjusted operating margin reached 34.4%, up by 5.3 percentage points compared to the same quarter last year and hit an all-time part.

Cost of revenues increased by 17% year-on-year to RMB 317 million in this quarter representing a gross margin of 83.5%, continued its upward trend. Sales and marketing expenses increased by 16% year-on-year to RMB 545 million in this quarter. This increase was mainly driven by our enhanced investment in customer acquisition as well as higher sales conditions. R&D expenses increased by 21% year-on-year to RMB 444 million in this quarter. Excluding share-based compensation, expenses, adjusted R&D expenses increased by 28% year-on-year to RMB 334 million. This increase was primarily driven by our earlier investments in AI infrastructure, which generated a higher depreciation cost. Our G&A expenses increased by 29% year-on-year to RMB 261 million in this quarter. Our adjusted G&A expenses increased by 21% year-on-year to RMB 153 million, mainly due to increased employee-related expenses.

Our net income was RMB 417 million in this quarter, up 35% year-on-year. and our adjusted net income in this quarter reached RMB 719 million, an increase by 26% year-on-year. We expect that our share-based compensation expenses reached the peak level in this quarter and will gradually decline in the coming quarters. We are now reviewing stock compensation scheme and selling some schemes which might even accelerate the process.

Net cash provided by the operating activities grew by 14% year-on-year to RMB 869 million for this quarter. As of June 30, 2024, our cash and cash equivalents short-term time deposits and short-term investments totaled as RMB 14.3 billion. Notably, in the past 4 months, we have repurchased a total consideration of USD 58 million which demonstrated our commitment in shareholder return and long-term confidence of our business.

And now for our business outlook. For the third quarter of 2024, we expect our total revenues to be between RMB 1.9 billion and RMB 1.92 billion, year-on-year increase of 18.2% to 19.5%. That concludes our prepared remarks, and we would like to answer questions. Operator, please go ahead with the queue.

[Operator]

[Operator Instructions]. Our first question comes from Timothy Zhao with Goldman Sachs.

[Timothy Zhao, analyst]

[Interpreted]. I have two questions here. The first is regarding your user growth and market share. How does management team view the market share currently and in the adverse macro environment currently, are we considering to further accelerate the market share again? And second, as we mentioned, to ensure the full year profit this year, could management share what is your detailed measure? And what is your OpEx including the SBC trend for the rest of this year?

[Peng Zhao, executive]

[Interpreted]. Okay. Thank you for your question. For the first one regarding competition, the current competitive landscape is relatively stable or we'd rather say we have a relatively good competitive advantages. And there are many third-party data and as of now our own data have to prove that.

[Timothy Zhao, analyst]

[Interpreted]. For example, we just mentioned our MAU and DAU all achieved a historical high in the second quarter. The user activeness, for example, the DAU and MAU ratio still remain at a very high level. So is the same case for the user usage TAM. So all of those data proved that as a leading online recruitment platform on every perspective, our competitive landscape is really stable and continued in a good trend.

[Peng Zhao, executive]

[Interpreted]. And in terms of guarantees, the full year profit target, so we believe is very critical for our core employees for our management to have this target. This is part of our confidence and testify whether this firm is very stable and strong. So on a strategic perspective, the first one is our full year user gross target is RMB 40 million to RMB 45 million. And in the first 6 months, the first half of this year, we have already achieved RMB 28 million. So there are only RMB 12 million to RMB 17 million left for us to grow, it should be relatively easy to achieve. So we can control our overall spending on marketing to appropriately achieve our profit target.

Second, on the current circumstances, we want to better use our resources and to move the priority of those product initiatives with lower success rate and higher target to postpone its resource usage and prioritize the importance of reducing the overall cost, and this can be achieved through internal management and we believe it's very high level of [indiscernible].

In terms of detailed data, I think Phil can give you some more color.

[Yu Zhang, executive]

So regarding our bottom line and major cost and the expenses item, I'll quickly mention our results. as Jonathan just mentioned, we would like to try our best to secure our operating profit. The target -- our target for full year of non-GAAP operating profit is set at RMB 2.3 billion, which is roughly up 40% year-over-year on top of last year's adjusted -- non-GAAP adjusted operating profit. So in terms of our gross margin, our gross margin will in third quarter or following quarters will stay flat or slightly improve due to higher economy of scale. And our marketing expenses, as Jonathan mentioned, will be controlled and at a relatively low level.

Our selling expenses and the G&A expenses, those expenses items will all be moderate and in a reasonable situation. And in terms of the R&D expenses, because of -- we probably will shift our priority from some like AI-related infrastructure investments into other things. So from third quarter or from second half, this part, the expenses will decrease. So altogether, our operating margin will increase second half and versus the full year operating margin versus last year will also be better.

[Peng Zhao, executive]

[Interpreted] And for the market share, which a lot of investors are concerned and I have asked a lot about, we actually -- after experiencing the year's past, we noticed that on the current situation every dollar we spend, there will be more job secrets and less enterprise users. So the CP ratio is currently is a challenge for the platforms who is based on the supply and demand balance of both sides. So from this perspective, to keep the balanced CP ratio, we actually don't need to spend money too aggressively, and that's my view to share.

In addition, to increase the dollar market share on the enterprise user side, currently, the overall paying desire of the enterprise are not as strong. So the best and most effective way to enlarge our enterprise market share is to start a price war. And currently, it is tough, it is time to do that. But I'm not planning to take even more shares by lowering our price. I don't think this is a meaningful thing to do at current situation. And that's my view to share.

[Operator]

Our next question comes from Eddy Wang with Morgan Stanley.

[Eddy Wang, analyst]

[Interpreted]. We understand that the macro situation since second quarter has been relatively weak. So just want to hear your view that have you -- when is an improving -- improvement in the recruitment demand in August versus June and July? And how is the performance of different industries and different -- the enterprise different skills?

And the second question is, if the macro continues to be relatively weak, will we have any change in the business strategy to offset the macro impact?

[Peng Zhao, executive]

[Interpreted]. First, we cannot talk about the macro, but we can share this our own situation, which we observed from our website and app. First one is, in the second quarter, the overall willingness to pay from recruiters are lowering. And secondly, the blue-collar growth is still better than white collar. That's why it's still fair.

And let's further looking to blue-collar. There are several observations we can share with you. The first observation is that the overall blue-collar recruitment demand reached peak historical high in the spring festival recruitment season. But just a fallback relatively faster in the second quarter.

Even relatively faster fall back in second quarter, we still see a very good year-on-year growth in terms of the blue-collar revenue in the second quarter. And among the detailed subsectors, there is one highlight, which is the factoring industry continue to outperform all other industries. And after that is logistics sector.

And there are also other 2 observations worth sharing. First, compared to the first tier cities, the recruiter enterprise user growth is better and faster in the second, third and fourth tier cities. And the second one is there is a continued trend, which we have already discussed in the last quarter's results that the larger size of the enterprise grow better. For example, big enterprise with over 10,000 employees at the companies with the fastest or the faster growth rate.

And about a recent situation in August, we'll continue to talk about the blue-collar. So blue-collar, the overall supply and demand situation in August is better than the second quarter. And the enterprise [indiscernible] ratio continue to see improvement. And we observed fairly active enterprise user number continued to go up week by week. And the manufacturing industries are still best among all others.

And the second question about what kind of monetization strategy we can use to -- against the macro headwinds. The things we are currently doing, first is to concentrate our resources to the business and department, which we -- because it's faster longer outlook, we give limited resources to. For example, on the blue-collar manufacturing industry, we from Hailuo Conch project to contract and to generate revenues, we are currently enhancing our investment and input on this area.

I cannot be so very certain to say that the [indiscernible] project will have very big revenue from our corporation with blue-collar manufacturing industry in the third and fourth quarter of this year. But we believe this is the first real chance actual change for the online recruitment platform to go into the blue-collar manufacturing industry and make some real money. And that's my answer to your question. .

[Operator]

Our next question comes from Robin Zhu with Bernstein.

[Robin Zhu, analyst]

[Interpreted]. So I have 2 questions. One, would management elaborate on recent developments in the company with regards to the W.D acquisition. If management could give us more color on over the seas and investments in AI. And second, given the weakness in the company's shares in recent times, could management share some thoughts on go-forward buybacks. And whether the company will consider instituting a regular dividend.

[Peng Zhao, executive]

[Interpreted]. Thank you for your question. The first question was on the W.D technology. I have mentioned that in your conference call before and because Jason the CEO is a very respectful peers of ours and [indiscernible] in 2015 until now, and they be able to become the #1 in their own areas. So to purchase the majority of the shareholder stake of W.D technology is out of the recognition and the respect of Jason, CEO; and his team work in this area. And it's not just our further expansion into the area is more likely to add ourselves with some capabilities which is difficult for me to develop ourselves.

And Jason and his team, we fully recognize his knowledge and the industry actually has fully recognized their knowledge, know-how and model in the manufacturing industry. And currently, he's working with us for 3 things. First of all, they are fully independently to lead the development of W.D technology. .

And the second thing to help the company to push forward the overall environment improvement under the Conch project and the monetization, the commercial project -- commercial plan under the [indiscernible] project. And the third one, which is not simple to discuss more details publicly at this moment is that Jason is currently leading the operational team of WD technology and part of our R&D team together combine the advantages of our traffic and their experience and the know-how in industry to combine together to publish new product or service, which we were rather looking forward to that, but maybe in the next quarter.

And for our overseas business, first our Hong Kong initiatives, we have made some progress and have initially achieved -- published [indiscernible] service to serve the recruiters in Hong Kong and see how the users might react, behave on our platform. This might take 2 to 3 months, and then we will decide whether we can accelerate the development of this business. And in terms of the revenue, which a decent revenue from Hong Kong business, I think it's a little bit early, maybe take more than the next 2 to 3 years.

And in the Asia and Europe area, we -- and some developed countries, we have take quite a long time to [indiscernible]. And on the current date, I can say is that I'm satisfied with the local team we have recruited, and we are confident.

And the third one regarding the generative AI. I have shared some of our thoughts before and maybe some as a mood here. So there are two points. First, in a scientific perspective, we are excluding a tail light project, which is for our research guys, our tech guys to understand to know what the most developed technology in this area is and what they are doing. But we are not planning to invest more resources. Actually, we can -- we're not affordable to do that to actually do that. So we just know what they are doing and kept up with the most advanced technology.

On the application level, so our strategy is still are if something are not happening before the emerge of generative AI technology, then we give priority to that. So under that strategy, we have some good application in the industry level. So we are using it internally now.

And about the shareholder returns, we have long been insisted on providing shareholder return to our shareholders, which I believe is a basic asset for the company, and we always attach good importance to that. So which -- because it is a very true problem -- we are at a crucial point for the core shareholders and the employees to maintain our strong confidence.

So it's very essential and important to do a good shareholder return project. So we have USD 200 million share buyback program. And in the last 4 months, we have already bought $88 million. This is a real number, and we act we have done for our size of -- for a company of our size, and we will continue to do that.

And about [indiscernible], I can say that for a potential dividend payer plan, we are still start on the research. And that's my answer to your question. And given the time constraints, I think that's the last question for call operator.

[Operator]

Thank you. Due time constraints, that concludes today's question-and-answer session. At this time, I will turn the conference back to Wenbei for any additional or closing remarks.

[Wenbei Wang, executive]

Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or TPG Investor Relations.

[Operator]

Thank you. Thank you. You may now disconnect. Good day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]