Kanzhun Ltd

NASDAQ:BZ

Earnings Call Analysis

Kanzhun Limited Reports 19% Revenue Growth and Positive Outlook

In Q3 2024, Kanzhun achieved revenue of RMB 1.91 billion, reflecting a 19% year-on-year increase. Net income rose to RMB 460 million, while adjusted operating income grew by 10% to RMB 610 million. Notable user growth led to 58 million active users, boosting enterprise customer retention by 22%. Despite increased marketing expenses during major sports events, the company anticipates maintaining its annual profit growth target. For Q4, Kanzhun expects revenues between RMB 1.795 billion and RMB 1.81 billion, projecting a growth of 13.6% to 14.6%. Guidance confirms ongoing investments in business infrastructure while aiming for stable margins and reduced share-based compensation.

Strong Revenue Growth Underlines Robust Business Model

Kanzhun Limited reported a significant year-on-year revenue increase of 19%, amounting to RMB 1.91 billion for its third quarter of 2024. This growth, driven largely by a successful expansion of enterprise users particularly in the blue-collar sectors and lower-tier cities, reflects the company's adaptability within a challenging recruitment market.

Net Income and Operating Profit Show Positive Trends

The company reported a net income of RMB 460 million for the quarter, representing a year-on-year increase of 9%. In addition, adjusted operating income, which excludes share-based compensation, reached RMB 610 million, marking a year-on-year growth of 10%. This highlights Kanzhun's operational efficiency even amid rising marketing expenses connected to recent major sporting events.

Investment in Marketing Linked to Long-Term Growth Potential

Kanzhun's marketing expenses increased due to investments made for brand promotion during events like the Paris 2024 Olympic Games. This was deemed a one-off expense, underscoring the company's strategy of maintaining brand visibility during critical periods while still keeping an eye on profitability.

User Growth as a Core Driver for Future Success

Significantly, the average monthly active users on the BOSS Zhipin app reached 58 million, indicating a substantial 30% increase year-on-year. The filing reported over 40 million new verified users from January to September 2024, marking a strong user acquisition pipeline essential for future revenue generation and competitive positioning.

Enterprise Customer Growth and Pricing Stability

As of September 30, 2024, there were approximately 6 million paid enterprise customers, reflecting a 22% increase from the previous year. The average revenue per user (ARPU) maintained stability throughout the quarter. Retention of enterprise customers remains solid, even though growth rates for new enterprise users experienced slower growth due to oversupply in the job market.

Guidance on Future Revenue and Profit Expectations

Management has provided guidance for the fourth quarter of 2024, anticipating revenues between RMB 1.795 billion and RMB 1.81 billion, signifying a year-on-year increase in the range of 13.6% to 14.5%. They expect overall user growth to remain strong at around 15% despite macroeconomic uncertainties.

Navigating the Competitive Landscape and Economic Pressures

Despite ongoing market challenges, particularly in the recruitment sector, Kanzhun is optimistic about the potential for stable demand rebound, attributing this to a significant addressable market within China. The company aims to grow sustainably without excessive marketing expenditures, capitalizing on the natural growth driven by increased brand recognition and platform effectiveness.

Share Buybacks Indicate Strong Confidence in Future Performance

Kanzhun has actively repurchased around USD 220 million worth of its shares in 2024, equating to 3.4% of its total shares. This buyback strategy signifies the management’s confidence in the company’s long-term growth prospects and commitment to delivering value to shareholders.

Outlook for Profit Margin and Operating Efficiency

Looking ahead to 2025, the company expects to maintain or slightly improve its gross margin, emphasizing sustainable cost management and improvements in operational effectiveness. They forecast continued profitability driven primarily by enhanced sales efficiency and a disciplined approach to new business expenditure.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Third 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 third 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 this 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 a 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 third quarter 2024 earnings conference call. On behalf of the company's employees, management team and the Board of Directors, I would like to extend our sincere gratitude to our users and investors who have continuously believing us and supported us.

Let's talk about financial numbers for this quarter first. The company achieved a revenue of RMB 1.91 billion, up 19% year-on-year, and a net income of RMB 460 million. Additionally, our adjusted operating income, which excludes share-based compensation expenses, reached RMB 610 million, reflecting a 10% year-on-year growth.

During the third quarter, which coincided with Olympic Games and the Euro Cup 2024, the company allocated additional resources to brand promotion, which led to an increase in marketing expenses. It was a one-off expenditure. Our annual profit growth target remains firmly on track. Additionally, it is worth mentioning that as the company listed on NASDAQ for 3.5 years and with a secondary primary listing on Hong Kong Exchange for 2 years. Our share-based compensation expenses, which have historically accounted for a relatively high proportion of our revenue, have entered anticipated phase of gradual reduction. In this quarter, these expenses demonstrated a decline both on a year-on-year and quarter-on-quarter basis.

Reflecting on the third quarter, our efforts can be summarized into two sentences. While the overall recruitment market environment remains challenging, the company's unwavering focus on key growth drivers continue to yield positive results. Now let's take a look at the few notable highlights from the third quarter. First, our user growth continued to demonstrate strong growth momentum. As we all know, user growth has always been an important growth driver for us.

In this quarter, the average monthly active users on our BOSS Zhipin app reached 58 million, representing a 30% year-on-year increase. From January to September 2024, newly added verified users exceeded 40 million. Compared to the job seeker side, recruitment demand from enterprises showed a more moderate but steady upward trajectory. The number of newly posted job positions in the third quarter increased by 18% year-on-year. This growth is mainly driven by the user growth and market share expansion fueled by our relatively efficient business model.

The second thing, in the third quarter, the growth of short-term paying ratio affected by supply and demand has been slowed down, despite the retention of enterprise user remains solid, and the number of paid enterprise customers experienced a decent growth. From July to September, the ratio of job seeker to enterprise users continued its upward trend since the second quarter with the gap compared to the same period last year continuing to widen.

Relatively more job seekers has shortened the recruitment cycle for enterprises. That is the time it takes for enterprises to fill a right kind of position is reduced. In the short term, this may affect the enterprise users' willingness to pay, leading to a slower growth of the company's paying ratio.

However, we have observed that the retention rate on the enterprise side remains solid. This is definitely a good news in the long term. Investors and analysts who focus on enterprise service market should have recognized that when the number of annual paying enterprise customers reaches a scale of million, the retention of enterprise customers become decisive and it is a prerequisite for sustained growth. The total number of paid enterprise customers for the 12 months ended September 30, 2024, reached around 6 million, up 22% year-on-year.

The third thing that is the average revenue per paid enterprise customers, namely ARPU, has remained stable. Fourth, in the blue collar manufacturing sector, we are committed to purifying the market environment while striving to expand our fund cycle and continue to achieve satisfactory growth. Our strategy focused on providing high-quality recruiting customers with greater opportunities to connect with candidates, leveraging a combination of innovative products, refined algorithms and robust operational capabilities. In terms of data on our platform, in the third quarter, the accumulated number of enterprises joining Hailuo Conch project grew by 45% quarter-on-quarter and signed contract value increased by over 40% quarter-on-quarter. This also helped -- as a result, this also helped the revenue contribution from overall blue-collar business in terms of total revenue further increased to more than 38%.

Fifth, the company continues to invest in technology to create greater value. In the third quarter, our platform facilitated an average of nearly 200 million monthly mutual achievements demonstrating a continued rise in the number of successful interactions based on mutual consent between enterprise users and job seekers on a per capita basis. As an entrepreneur, I and my friends, all view this data as a testament to the value of our company poised to the world, and this has always been the goal that our company will long pursue.

Last, regarding shareholder returns, the company has repurchased around $130 million worth of shares since our last earnings call bringing the total repurchase for this year to approximately 220 million -- USD 220 million, representing 3.4% of our total shares. This underscores the company's confidence in our long-term growth prospects and our commitment and concern to delivering sustained returns to shareholders in any circumstances.

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

[Yu Zhang, executive]

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results of the third quarter of 2024. We delivered a solid set of financial results in this quarter despite the industry headwinds with revenue grew by 19% year-on-year to RMB 1.9 billion. This growth was mainly driven by the continued expansion of our enterprise user base as we further penetrated into blue collar industries, lower-tier cities as well as small-sized companies market, even facing a generally soft recruitment market.

Number of paid enterprise customers was 6 million in the trailing 12 months ended September 30, 2024 up by 22% year-on-year and 2% quarter-on-quarter. ARPU in this quarter remained stable sequentially. Notably, our overall operating cost and expenses were flattish quarter-on-quarter, even including several one-off or nonstructured expense items in this period. As one of our key focus is being sustainable cost control, we are confident that our effective business model can continue to generate strong operating leverage in the future.

Looking at the detailed financial metrics. Excluding share-based compensation expenses, our adjusted operating cost and expenses increased by 23% year-on-year to RMB 1.3 billion, flattish quarter-on-quarter. Adjusted operating profit reached RMB 605 million, up by 10% year-on-year with adjusted operating margin of 32%. Cost of revenues increased by 17% year-on-year to RMB 314 million in this quarter, mainly driven by higher server and bandwidth cost, payment processing costs as well as employee-related expenses. Gross margin kept at the same level of 84% as last quarter. Sales and marketing expenses increased by 14% year-on-year to RMB 522 million in this quarter, primarily driven by the marketing campaigns launched during the Paris 2024 Olympic Games and the Euro Cup 2024.

Excluding the sponsorship expenses, we witnessed improved efficiency and business leverage in both our selling and marketing expenses. Due to our strong brand recognition and a powerful network effects inherent in our business, we are confident that the enhanced marketing efficiency trends will continue to improve along with our top line growth.

R&D expenses increased by 12% year-on-year to RMB 464 million in this quarter. Excluding share-based compensation expenses, adjusted R&D expenses increased by 18% year-on-year to RMB 361 million. The depreciation costs associated with our earlier investments in AI infrastructure has largely stabilized and is not expected to increase in the near future. Our G&A expenses increased by 31% year-on-year to RMB 286 million in this quarter, mainly due to higher employee-related expenses and some one-off expenditures that will not occur in the coming year.

Our net income was RMB 464 million in this quarter, up 9% year-on-year. And our adjusted net income in this quarter reached RMB 739 million and increased by 4% year-on-year, which was affected by the decrease in the interest and investment income. Total share-based compensation expenses amounted to RMB 275 million in this quarter, down by 9% quarter-on-quarter and 5% year-on-year. As Jonathan just mentioned, we are expecting total share-based compensation expenses to continue the downward trend in 2025. Net cash provided by operating activities in this quarter was RMB 812 million, relatively stable with that of the same period of last year.

As of September 30, 2024, our cash and cash equivalents, short-term time deposits and short-term investments totaled RMB 16.6 billion -- RMB 14.6 billion. We launched an additional share repurchase program in August 2024 running concurrently with the March program, which allows us to buy back up to USD 350 million of shares. Since the announcement of the August program, as Jonathan just mentioned, we have repurchased a total consideration of approximately USD 130 million making the total buyback amount reached USD 220 million this year, demonstrating our commitment in shareholders' return and long-term confidence of our business.

And now for our business outlook. For the fourth quarter of 2024, we expect the total revenues to be between RMB 1.795 billion and RMB 1.81 billion, a year-on-year increase of 13.6% to 14.5% (sic) [ 14.6% ].

That concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead with the queue.

[Operator]

[Operator Instructions] Our first question comes from Eddy Wang with Morgan Stanley.

[Eddy Wang, analyst]

[Interpreted] I have 2 questions. The first one is that the government has launched some supporting policy since September end. Have you witnessed any signs of this policy has helped to boost the recruitment market and have you witnessed any operating metrics improvements as well? The second question is, given the uncertainty of the macro economy, which could sustain into 2025, how should we think we could maintain the revenue growth in 2025?

[Peng Zhao, executive]

[Interpreted] About the first one, regarding the supporting policy since the end of September. I have several observations to share with you. Firstly, we noticed that the newly added enterprise users every day has been improving on a year-on-year basis since the end of October. And please note that November and December are traditionally relatively low season for recruitment. However, the newly added enterprise users are improving on a year-on-year basis since October. My understanding is that this is a good news, and this trend has continued into November and December.

And the second thing about the job seeker to recruiter ratio, which I believe many of you are concerned, has been continuing to fall back. I have just discussed in our -- in my prepared remarks that during July to September, that number is high compared to the same period last year, and now it is lower than the same period last year and reached a relatively low level within this year, which means the supply and balance -- supply and demand and balance issue is improving.

And despite of this good news, good signs, my understanding is that this supporting policy takes some time to transfer into actual improvement of economy and improvement -- actual improvement of enterprise recruitment demand. So this should take some time, and we should stay patient and come.

About the second question, facing the uncertainty of macro, how we can guarantee our continued revenue growth trend, we have several key factor growth drivers for our revenue, which is still unchanged. The first thing is the user growth. Even though of all these uncertainties, we expect that we can still have at least 15% of overall user growth. The enterprise side might be slower, but still it can grow. And if the macro can stable at some level, then we expect enterprise side have better performance. So our user growth as the most important driver is still quite solid.

And the second important driver is our paying ratio is still maintained at a stable level. If you're looking back, our paying ratio started at even like zero or 5% and improved along this year's now reaching at like 20% to 30% level. And so the upward trend is unchanged.

And another opinion is that our -- the increase of paying ratio has some connection with supply and demand marriage. And as the sign of the supply and demand balance improving, we expect that the economy can be stable and our paying ratio can return to our growth trend. If the macro can actually go back to growth, then our paying ratio will experience a significant improvement.

And the third driver is our ARPU. As far as we have got the first and second driver, which is NAV, we are not in a hurry to aggressively increase ARPU. So it will keep at a stable and slightly improvement trend. And I have some additional revenue growth driver, which is our blue-collar business. Our blue collar contributed more than 38% in the third quarter of our total revenue. This is quite important trend.

Several years ago, I have idea -- it's a thought that I want to resolve the problem in the blue-collar manufacturing recruitment industry, which is bad money driven on the good money and people with decent background cannot get good jobs. So we launched the Conch Hailuo project in the hope of someday, one day, the top good college agents can agree with us to agree with our rules to do equipment business on our platform. And now we have saw some real money coming back from this, which is our strength coming into the reality. That's my answer to your question.

[Operator]

Our next question comes from Timothy Zhao with GS.

[Timothy Zhao, analyst]

[Interpreted] My first question is regarding the more detailed breakdown into the third quarter, including the customer performance between the blue collar and white collar sectors as well as different sectors -- subsectors as well. And as management mentioned that ARPU overall is relatively stable in the third quarter, could management provide more color in terms of ARPU and revenue trends between SMEs and key accounts?

And second question is regarding the user growth. I think as management mentioned that I think in the first 9 months of this year, they were already 40 million newly added verified users and in my calculation, the individual users should already reach or get close to 200 million. Could management share about the growth room for the individual users to grow? And as we are aiming for 15% or more than that growth into next year, how should we think about the sales marketing expenses or the marketing expenses into next year?

[Peng Zhao, executive]

[Interpreted] First one, regarding different blue and white collar industries, of course, the overall growth rate of blue collar is still faster than white collar. As I just mentioned, the revenue contribution has further increased to over 38%. However, compared to the same period last year, we have seen the blue collar revenue growth rate has been significantly slowing down, which was mainly affected by the weak urban service industry performance. Compared to blue collar, white collar is relatively stable.

In terms of subsectors, as I just said, the urban service industry has been relatively weak since the second quarter. However, we covered a little bit in recent weeks. For the better performed industries, manufacture -- we have several manufacturing industries, logistics and warehouse, automobile are three best-performing industries in the third quarter and the recent weeks. For example, the manufacturing industry has a year-on-year revenue growth of more than 45% in the third quarter.

And about the different size of prices, we noticed this on the true end of the market. First one is hyperscale enterprise with more than 10,000 employees performed the best in the third quarter. The second one is small micro-sized enterprises with employee less than 100 people. My understanding is that this is actually a quite good news because a majority of China's enterprises are small-sized companies, which is also the main contribution for our new leaders -- new enterprise users.

[Yu Zhang, executive]

I'd like to add one point in regards to our three accounts breakdown. Key accounts recorded the highest revenue growth, which is up more than 30% year-over-year. The overall ARPU up 5% year-over-year, flat quarter-over-quarter. Among all three segments, key accounts' ARPU improved the most.

[Peng Zhao, executive]

[Interpreted] And about your second question for our user growth potential, actually it's a quite good question. So we have actually started through several different channels methodology that come first to a conclusion that China's marketable employees -- the number of China's marketable employees are more than 400 million, which means we have double space to grow. And on the enterprise side, the room of space is even bigger, but official number is that China has 40 million to 50 million enterprises, some channel says even more than 50 million. No matter what, we have very strong advantage in terms of enterprise serve because we are a model and very suitable for small or even micro-sized companies and across different industries, which can support a very strong and large room for our enterprise users.

And we are not planning to spending a lot of money on marketing or user acquisition. There are two reasons. First, due to a very strong double-sided network effect, the natural traffic has accounted for a very significant portion of our new users. And second really technically speaking, there is no big events or marketing campaign, which we need to spending more money on. So as a result, we will keep our marketing spend at a relatively low level. And that's my answer to your question.

[Operator]

Our next question comes from Wei Xiong with UBS.

[Wei Xiong, analyst]

[Interpreted] My first question is on blue collar recruitment. Could management maybe share your future growth strategy for the blue collar business around manufacturing and other verticals. Do we plan to build our offline service capabilities for the blue collar recruitment? And also, have we observed any change in the competitive landscape here?

And second, just on the profitability outlook for next year. I understand the management has shown a very strong commitment to protecting profitability in light of the macro uncertainties. So if we just look at our profit goal for the next year, what do we see as the major drivers for profitability improvement? And is there any potential new investments that we should consider?

[Peng Zhao, executive]

[Interpreted] We just talked about the improvement. The churn we have in the blue collar is manufacturing sector. So the essence of that is actually is idea or concept become reality, which is the factories, intermediaries, workers and platforms, those four parties can coexist under one co-recognized game rules, which can allow everyone to be more efficient and minding these business. And now that idea has come into reality. So this is actually a very hard process. And I will talk again about essence, which is every player, the factories, agents, workers and platforms they are all battling against the short-term interest and long-term interest.

For example, one manufacturing worker who is quite clearly aware that his working salary should be in the RMB 6,000 per month range. However, if someone post a job of RMB 150,000 per month, he is quite hard to resist or tempt to submit their resume. So it's a fight for a potential for job and secure working opportunity. And the example I just said is actually unreal workers facing on the current market conditions. In a good season, his salary can reach to around RMB 8,000 per month. So I confirm the related similar kind of salary range is no more than RMB 8,000. If we have that, that can have -- I hope I have answered your two questions.

And the question about the competitive landscape, so if I continue to control the workers' salary range, which have job posting can be no higher than RMB 8,000 per month, in short term, I may not be able to compete with the platform allows people to post jobs with over RMB 150,000 per month. But in the long term, I have a strong advantage because actually return the truth of this job position.

And the second about how committed I will invest to do the offline placement because I assume on Conch, what we are doing is quite difficult and need a lot of input from every level. So I hope I can continue to do that, which we have already established a very clear advantages. So in the short term, I won't invest heavily in the placement while continuing our current game with those four participants. And hopefully, we can have good results.

And the second question, I will give a short but a clear answer. So facing all these difficulties, we need to find out which thing is definitely right to do and we believe to guarantee our profit or profitability is to definitely the correct thing. So we need to do and we will guarantee our profit. And in terms of managing our next year profit target, quite -- I have very strong confidence. I won't talk too much about our management details. But one thing I can say is that we have very strong operating leverage, so as long as we can have, which will majority turn into our profit. This trend is quite clear.

[Yu Zhang, executive]

Regarding our company's margin outlook in 2025, I can offer some of our thoughts. Regarding the gross margin, we expect our gross margin will be flat or improved slightly next year. Sales efficiency improvement will leave additional leverage to selling expenses. Absolute amount of marketing spending will be kept at 2024 level or even decrease. R&D head count likely will not increase. There's no near-term actual investment to AI hardware. So our -- and one more thing is, our new business, we expect our new business spending will be with disciplined approach. So all in all, our operating margin will further improve -- as Jonathan said, will further improve along with our top line growth. So this is our view towards the margin profit.

[Wenbei Wang, executive]

In light of the time constraint, I think we can take 1 last question.

[Operator]

Our last question comes from [ Yanyan Zhao ] with CICC.

[Unknown Analyst]

[Interpreted] I have two questions. My first question is how is our overseas business progressing and how can we balance our profit control goals with overseas business investment? And my second question is, we've noticed that an industry-wide trend towards AI products, like AI interviews. So how do you view the current application scenarios of AI in the recruitment field? And what potential new revenue or cost reduction opportunities might there be?

[Peng Zhao, executive]

[Interpreted] About your first question of our overseas business in relation with investment in relation with our profit target, so one thing is clear that next year, we won't have a very big investment in our overseas business. This has in relation to our business developer methodology, which is we won't release the [ goal ] until we see the rabbit, which means we won't increase investment heavily before we have some certainty. So we have to do some very small experiment with limited cost. So in our plan, we won't expect -- we can clearly see that rabbit next year, so that won't affect our profit next year.

In terms of AI application, actually now within the industry or actually other industries, the reality is the high prospect of the technology is not related with real actual application scenario. So that's a very loud frightening, but very small rent. So that's industry effect. But I want to further explain our opinion during our industrial practice. The first one is, we will insist on equality between job seekers and recruiters. We will not allow once in any sight to use advantage of AI to have advantages over the other side.

And the second principle we insist is the right to know. So we're never a user facing the potential counterparty of AI, and we should have that use now. And the third part is the fact the current application scenario, which can be preferably done without large language model, there is no necessity to use LLM to do it again, which is actually kind of waste.

And apart from other series, we have several real applications. So in terms of protecting the safety of our users, our AI technology has been quite useful. We disclosed in the past that we have over 900 people of our security team and this year, we increased more than tens of millions of users, but we didn't increase the total number of our security team. One important reason is, we used our AI technology to assist with the reputation, which increased our overall review efficiency.

So in the history of the rapid fighting with the platform, the first principle is actually the fighting of the cost. Whenever the [Technical Difficulty] to do things -- to do bad things on the platform, then he will not continue to do that. With the help of AI, we can actually increase our advantages over that, so it can create real value for our operation. And that's my answer for your questions. And I think that's all the questions for tonight.

[Operator]

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

[Operator]

Thank you for your participation. This does conclude the program. You may now disconnect. Good day.

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