Kanzhun Ltd (BZ) 2021 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Third Quarter 2021 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.

Thank you, operator.

Good evening, and good morning, everyone.

Welcome to our third quarter 2021 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 these 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.

(foreign language)

[Interpreted] Hello, everyone.

Welcome to our third quarter 2021 earnings conference call.

On behalf of our entire company, I would like to express our sincere thanks to our users and investors for your trust and support.

The third quarter is the first complete reporting period after our company went public, and it is also a special period.

As many of you already know, new user registration on the BOSS Zhipin app has been suspended since July 5, 2021, in compliance with the cybersecurity review.

As a company which has grown vastly since its establishment, the suspension of new user registration has brought great challenges to our team.

However, we have also taken this as an opportunity to focus on improving our service for existing users and reinforcing the development of our core competencies and have made some substantial progress over these last months.

I believe that the enterprise which aspires to grow big may not necessarily be able to become strong, but a company which can grow stronger definitely has a better chance to become bigger.

(foreign language)

[Interpreted] Let's start with our key numbers.

We managed to achieve decent results in the third quarter of this year.

We recorded total revenue of RMB 1.21 billion in the quarter, an increase of 105% year-on-year.

And our adjusted net income, excluding share-based compensation expense, was RMB 385 million.

In the third quarter, our average MAUs on the BOSS Zhipin app reached [28.8 million] (corrected by the company after the call), representing a year-on-year growth rate of 28.6%.

(foreign language)

[Interpreted] The suspension of new user registrations throughout the entire third quarter which indeed had an impact on our business.

However, we believe that the robustness and the effectiveness of our business model remains unchanged, which was proven by many of our key performance indicators.

Firstly, our monthly active user numbers remain relatively stable with MAUs decreasing only in mid-single digits quarter-over-quarter.

Secondly, both user activities and engagement on our platform, which is represented by DAUs as a percentage of our MAUs and our user retention rates remained stable.

We believe that the fundamental reason for this is the effectiveness of our service model, which was built and refined with mobile-native, recommendation and direct chat functionalities over the past 7 years and have truly delivered efficient and valuable job seeking and recruiting service to our users.

Especially for those SMEs and long-tail job seekers, BOSS Zhipin is a more effective platform for them in many cases.

(foreign language)

[Interpreted] I will briefly share with you the efforts we have taken to grow stronger through the suspension period for new user registrations.

In early July, we immediately initiated our business optimization program, the core of which is to provide better service to commercial customers.

We also launched an existing user protection plan, where we focus on 2 things.

The first was serving more senior job seekers who have greater work experience, a longer job-seeking cycle and higher job switching cost.

We devoted more resources to the core headhunter advisers, working together with them to better serve senior job seekers.

Second, we launched a project Puhui to help those relatively disadvantaged recruiters and job seekers in the market with better opportunities.

Leverage powerful support from our recommendation algorithms and industry research teams, we are pursuing the fairness of the bilateral resource allocation among job seeker and recruiters on our platform.

College students and small and micro enterprises are user groups who benefited the most.

All these endeavors not only improved our service capabilities but also enhanced our team's consensus and confidence to work together.

(foreign language)

[Interpreted] Meanwhile, we have achieved progress in one of our core strategic development areas, which is blue-color service.

We continue to enlarge our advantages in the urban service sector, resulting in its revenue contribution continuing to increase.

We also began to actively explore the manufacturing sector, focusing on making comprehensive improvements to job posting authentication and the governance around illegal intermediaries, optimizing our blue-collar job seekers' user experience.

We are increasingly confident that through our selected and classified management of blue-collar intermediaries and our continued investment in technology and off-line verification team, we will create a safe and reliable job seeking platform for blue-collar users.

(foreign language)

[Interpreted] We continue to invest heavily in our platform security infrastructure.

Our off-line security verification and review teams have expanded to cover 50 cities.

Combined with our online review algorithm, we are able to verify the authenticity for more than 90% of our enterprise traffic.

With our increasingly strong crackdown and restrictions of nonstandard offsite recruitment situations, we have effectively reduced the user complaint rates.

We firmly believe that protecting their safety and experience of job seekers is the lifeline of the online recruitment platform.

(foreign language)

[Interpreted] Let me now talk about the ongoing progress of the cybersecurity review.

We are actively cooperating with the regulator and maintain ongoing communication.

At the same time, we have strengthened our foundation on data security and privacy protection in accordance with the high standard of the industry as well as a series of recent laws and regulations on data security and personal privacy protection.

This work is extremely necessary for Internet platforms in any field.

The building of this kind of core competence is also extremely necessary for enterprise to resume responsibility for users, for society, for investors and responsibility for an era.

We can confidently say that during this period, the company has not only invested heavily in data security and privacy protection, but we have also greatly improved our capabilities in this area.

I believe these abilities will create sustainable value for the company's long-term development.

(foreign language)

[Interpreted] Dear users and investors, this quarter is the first complete reporting period after our listing.

During this quarter, we have been under cybersecurity review and we were not able to grow our user base.

Under such a special situation, as a public company, we have always been committed to leverage the power of technology to take the social responsibility and to make a valuable contribution for the development of individuals and the prosperity of enterprises we serve.

I and team both sincerely believe that this kind of internal reinforcement is necessary and meaningful.

I can see clearly that the effectiveness of our business model and technology capabilities continues to be validated.

The recruitment and training of our technical team, the security team and the sales team is still growing steadily, and we are full of confidence for the future.

(foreign language)

[Interpreted] With that, I will turn to our CFO, Phil, for the review of our financials.

Thank you.

Thanks, Jonathan.

Hello, everyone.

Thank you for joining our earnings call today.

I would like to give a brief overview of our third quarter 2021 financial results and then I will discuss our outlook for the next quarter.

Before I begin, please note that all [financial numbers] (corrected by the company after the call) are in RMB and all comparisons are on a year-on-year basis unless otherwise stated.

Our performance in the third quarter once again demonstrated our effective business model and improving leverage.

Despite the suspension of new user registrations, our total revenues reached RMB 1.2 billion in the quarter, up 105% year-on-year, beating the high end of our guidance range.

Our calculated cash billings increased by 62% to RMB 1.2 billion.

With online recruitment services revenue accounting for more than 99% of our total revenues.

We are pleased with the rapid growth of our paid enterprise customers, which reached a new record of 4.0 million in the 12 months ended September 30, 2021.

Moving on to the cost side.

Total operating costs and expenses were RMB 903 million for the quarter, an increase of 62%, resulting in a positive operating income of RMB 311 million.

Our cost of revenues increased by 125% to RMB 154 million in the quarter with gross margin remaining robust at 87%.

Sales and marketing expenses increased by 47% to RMB 416 million in the quarter primarily due to our increased headcount and enhanced brand advertising activities.

What is noteworthy is that our sales and marketing expenses represented 34% of our revenue in the quarter, down by 13.7 percentage points year-on-year, which was partially due to our continuing improvement in marketing efficiency.

But it was also a result of our reduced marketing expenses as we continued to be suspended from accepting new user registrations.

Research and development expenses increased by 50% to RMB 209 million.

General and administrative expenses increased by 84% to RMB 123 million, both primarily as a result of increased headcount and the share-based compensation expenses.

Our headcount for R&D and sales [teams] (added by the company after the call) continued to grow sequentially in the quarter.

We are firmly committed to continuing to invest in technology and top talent to further enhance our core competences.

Our net income reached RMB 286 million in the third quarter compared to RMB 33 million in the same quarter last year.

Excluding share-based compensation, our adjusted net income was RMB 385 million in the third quarter, translating to an adjusted net margin of 31.8% representing a 23 percentage point improvement.

Our numbers in the third quarter can showcase the healthy and robust margin profile of our core online recruitment business that we believe our business can achieve as our business matures in the future.

Our net cash generated from operating activities, which was RMB 269 million this quarter.

And as of September 30, 2021, we had cash and cash equivalents and short-term investments of RMB 11.9 billion.

Our cash reserve gives us great confidence in [cultivating] (added by the company after the call) our ability to execute the growth strategy, which we believe will yield considerable return in the long term.

And now for our business outlook, for the last quarter in 2021, we expect our total revenue to reach between RMB 1.02 billion and RMB 1.05 billion, representing a year-on-year growth rate of approximately 58% to 62%.

The cybersecurity review has had a real impact on our revenue, as revenue correlates directly to our users.

The guidance for the next quarter is based on the assumption that the review will last at least until the end of December.

As Jonathan just mentioned, our operating data shows that we still have a healthy user base and a healthy paying ratio, and our paid customer retention [rate] (corrected by the company after the call) also remains stable.

With the business and the monetization model still being effective, we have faith that we can get back on our previous growth track as soon as we resume our new user registration in the future.

That concludes our prepared remarks.

Now we would like to answer questions.

Operator, please go ahead with questions.

(Operator Instructions) Your first question comes from Eddy Wang from Morgan Stanley.

(foreign language) I have 2 questions.

Firstly is about the [slowdown of macroeconomics in China] (corrected by the company after the call).

Do you think there are any impact on the overall online recruitment segment and if there will be any impact on our business in the fourth quarter and in 2022?

And the second question is about do you have any visibility of when the cybersecurity investigation will be completed and when we -- it's likely to resume our new user registration time-line?

(foreign language)

[Interpreted] I will first answer your second question about when the cybersecurity review will finish or we can resume our new user registration.

The company doesn't have a clear time-line as of today.

But as I have just mentioned, there are 2 things we can do.

The first one is we cooperate and actively cooperate with the regulators to maintain proactive communication in hope of this review can end as soon as possible.

The second is that under the [guidance] (corrected by the company after the call) of the regulators, we are [actively] (corrected by the company after the call) enhance our data security and personal privacy protection according to the recent issued laws and regulations.

(foreign language)

[Interpreted] Okay.

To answer your first question, the macro economy would definitely have an impact on the recruiting business, the theory it's valid.

But I have several [my own opinions] (corrected by the company after the call).

The first one is that China is a society which has lots of small and micro enterprises.

There are tens of millions of companies and hundreds of millions of people, which one company normally hires no more than tens of people.

And for small and micro enterprises, their characteristic is that the macro impact on the company is relatively small.

They are quite strong.

I have been working in this industry for 15 years.

And I have seen the financial crisis in 2008 and the market has cooled down.

I need to use example to demonstrate my theory that if we put together 5 bowling balls and we use a 8-pound hammer to beat it, the balls will be damaged altogether.

But we put together 1,000 ping pong balls and we use the same 8-pound hammer to beat them, the top two ping pong balls might broke but the rest will be safe.

And that's the difference between [two economies] (corrected by the company after the call), which is comprised with big and key customers and the economy comprised with small micro enterprises.

So when the macroeconomic goes down, the latter will [be more safe] (corrected by the company after the call).

(foreign language)

[Interpreted] And for the market we are in, I have 2 more opinions.

The first one is if the economy continues to go down, an industry which the small and micro enterprise pick up the majority.

There is a certain level of delay.

So when the market can recover, the going down will relatively be smooth.

(foreign language)

[Interpreted] And my second opinion combined with the industry and ourselves, because we are offering a service which can suit the small and micro enterprise much better.

An average recruiter spending our platform is quite limited, for 1 month with no more than several hundreds of RMB.

So we have the best value for money.

Even in the current situation, when the macro economy goes down, many people want to cut down their recruiting budget.

As a platform with better value for money, we can still attract a lot of users to paying for our service.

And that's my opinion for this question.

Your next question comes from Wei Xiong of UBS.

(foreign language) First, I want to ask about the competition side.

Given that your ability to grow new users remains [un-impacted] (corrected by the company after the call) in the past few months, have we seen any changes in the competitive landscape in the online recruitment market?

And in the meantime, what are the areas that management has their focus on in order to maintain your competitive advantages in the longer term?

And second, just on the user growth outlook for next year.

If we assume that the new user growth can be resumed early next year, what would be your user growth target for the next year?

And associated with that, what is your user acquisition strategy and the impact on the margin and selling and marketing expenses next year?

Thank you for your question.

I would like to answer your first question -- the first part of your first question.

Then Jonathan can add more about what we have done with the competition.

So regarding for the competitive landscape, we think that from third-party data, you can see that basically in past quarter or a couple of months, there was no big change.

So our service is still ahead of peers with largest monthly active users and the daily active users.

So our gap with the peers is still large enough.

And so you can check with some third-party market research tracking data to find the facts.

And in terms of the user engagement level like time spent, like daily app using frequency, we are still highest among peers.

So basically, the company is still in a very healthy situation even we have been suspended with new user registration during the past quarter.

And thirdly, regarding for our user retention.

Our own data shows that we our users were not affected by the cybersecurity review.

The user retention ratio keeps very stable and healthy.

So all of those shows that we are still very healthy and robust in a very good situation.

(foreign language)

[Interpreted] Okay.

For your second part of question, during the cybersecurity review, I will break down into details for you.

For example, since we have provided our service, it has been 7 years, 4 months and 9 days.

And during all that time, we have been growing very fast.

For example, if I have $100, I will put $60 on the growth and $40 on our infrastructure.

And since we cannot grow our users for the entire quarter, so I put $100 in the infrastructure.

So what is infrastructure?

I have 2 parts for you.

The first one is we continue to improve our data security and personal privacy protection.

We are improving and investing heavily in technology, in experts in our overall system and capabilities for several months.

We have some achievements, and this still have long-term value for our company.

And second part is on the user end, who will be the easiest to lose from our platform.

We identified 2 kinds of users.

The first one is those who have a longer job seeking period.

So when they cannot find a job, they will go.

And they might have a longer working period and higher work switch cost and might have a higher income.

So those senior job seekers.

As I just said, we have put a lot of efforts and resources to work together with those headhunters to provide better service for those senior job seekers and to improve the NPS.

The second kind of user group are those job seekers and recruiters who is relatively disadvantaged in the market.

And under the circumstances, when we are growing very fast, we are not focused on our efforts on those people.

But currently, we can focus all our resources and all our efforts and our team has a better consensus to provide our service for those people.

This is the project Puhui and we do have some substantial progress on that part.

The premise is that all those 2 kinds of people do have some value.

For the senior job seekers, if we can provide better service for them, if they have a better ecosystem on our platform, so they can attract more enterprises who have a need for that kind of senior job seekers.

And the second group of users, they might not have a great economic value at this moment.

They are relatively disadvantaged.

But we believe that as a public company, we should show more social responsibilities for them, so they have more social value.

So we believe to do [the two things during this period we] (corrected by the company after the call) should have both economic and social values for ourselves and for the society.

And that's my answer for your question.

So regarding your second question, the user growth target for next year.

This question is hard to answer at this moment because we are not clear when we will be allowed to grow our users.

So we can only do it during our normal operation.

I think the plan is not [determined] (corrected by the company after the call).

But what I can say is that from the discussions above, you can understand that our business model is still valid and very effective.

And during the whole third quarter, we still serve the largest groups of job seekers and employers and users maintain a very healthy engagement level on our platform.

So they like our platform.

And since the beginning of cybersecurity review process, during the past 4 months, there were failed registration records from 17 million users.

So 17 million users as we recorded, so that was a huge number.

So a lot of users, they want to register on our platform, but they cannot do it during the past a couple of months.

So the only thing that we can say at this moment is that once we were allowed to grow our users, we will do it.

We will regain our lost users at full speed.

Your next question comes from Colin Liu of China Renaissance.

(foreign language) So I have 2 questions for management.

The first one is regarding the potential opportunities from senior job seekers and which we normally call gold-collar workers.

I just wanted to ask if there's any difference in terms of revenue model from this segment compared with other parts of the business?

The other question is about if the cybersecurity review continue to roll out to the first quarter next year, which will make the company to meet some very practical time windows such as Chinese New Year and Beijing Olympics, which will further impact new user acquisition.

I just want to check if the management has any other measures in plan to counter such negative impact.

(foreign language)

[Interpreted] Thank you for your question.

And regarding the gold collar, you do have a very sound understanding of our industry.

So we do call our senior job seekers as gold collars.

And in terms of what kind of revenue model, very coincidently, our team do have the same question, which is how we contract those kinds of service.

But we still have consensus internally.

The first one is currently, we will focus on how to provide better service for those senior job seekers, for headhunters, for the enterprises who will post those senior job openings to optimize our ecosystem.

The second one is that we don't have a clear revenue model as of now.

But in the past, and still ongoing, is that all those enterprises who are recruiting senior job seekers, they purchase the same standard products we provide currently, and this is continuing to happen.

And for the additional revenue model, we don't have a clear clue right now.

But we have a belief that if we can provide a good service for our users like what we have done for the past 7 years, we will create a price through our value to find the new revenue model.

And your second question is even harder to answer regarding how long we will resume the user registration.

If we cannot resume the new user registration after the Chinese new year festival and regarding the Winter Olympics, which we can regard as a marketing event opportunity, normally, the after spring festival is the peak season for recruiting.

If we cannot acquire new users by then, we currently are not thinking of any new ways to acquire new users if the review was not finished by then.

But what we will continue to do is that, I have think of that clearly, what we will continue to do is that we will continue to improve our infrastructure.

And one day, if the user registration resumes, I'm thinking we will not invest in the marketing in a very aggressive way.

We do it properly and do our service as normal, and that's my plan for now.

Due to 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.

Thank you, operator.

And thank you once again for joining us today.

If you have any further questions, please contact our IR team directly or our TPG Investor Relations.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may now all disconnect.