Kanzhun Ltd (BZ) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited First Quarter 2022 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. Wen Bei Wang], Head of Investor Relations. Please go ahead.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our First Quarter 2022 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 caution 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 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 First Quarter 2022 Earnings Conference Call. First of all, on behalf of the company, I would like to express our sincere gratitude to our users and investors for your ongoing trust and support.

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[Interpreted] In the first quarter of 2022, we achieved a solid performance. The company recorded GAAP revenue of RMB 1.14 billion with a year-on-year growth of 44%.

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[Interpreted] Our adjusted net income, excluding share-based compensation expenses, reached RMB 120 million with a sustained profitability in the first quarter, when typically, the highest level of expenses are booked throughout the year.

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[Interpreted] In the first quarter this year, without any new user registration, solely relying on the existing users, our average DAU increased by 8.2% year-over-year with peak DAU reached 9.7 million, surpassing that for the same period of last year.

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[Interpreted] Our average MAU reached 25.23 million with a year-on-year increase of 1.3%. To further talk about our users' activeness, our DAU-to-MAU ratio continued its encouraging growth trend.

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[Interpreted] Another important observation is that, for both job seekers and enterprise users in this quarter, their average achievement per MAU, which is the average number of times of mutual consent on contact information exchange with a counterparty in the first quarter, increased by more than 20% year-over-year.

(foreign language)

[Interpreted] In the past several earnings calls, we have made promise to you for several times that we will better serve our existing users. In today's call, the 20% year-on-year growth in achievements per MAU is a solid proof of our unremitting commitment.

(foreign language)

[Interpreted] The improvements of the abovementioned operating data, mainly coming from the increasing investment in technologies and products, cultivation of the in-depth user demand and the concentration on serving the existing users.

(foreign language)

[Interpreted] Taking this chance, I'm truly grateful to our product and R&D teams who have created value and solved problems.

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[Interpreted] We made solid progress in developing more targeted and comprehensive services to diversified user groups. I will elaborate it from 2 perspectives.

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[Interpreted] First of all, in terms of blue collar, we are talking about the manufacturing industry. It is encouraging to see that "Hailuo Project" has been progressing well. Hailuo Project is a campaign specifically undertaken to provide blue-collar workers in the manufacturing industry with credible job positions and a safe job-seeking experience, as well as to eventually establish an assessment and a verification system in line with the blue-collar recruitment ecosystem.

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[Interpreted] The number of blue-collar intermediary agencies and enterprises, who have signed up, in full, to our platform's requirements of information authenticity and integrity, increased exponentially since the beginning of this year.

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[Interpreted] The second group of users is the high-income, white and gold-collar users. Our headhunter consultant brand "Zhiliebang", we have been working on for almost 2 years, [also made remarkable progress.] (added by company after the call.) and we think it is time to tell you some progress.

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[Interpreted] Let me share 3 numbers with you. For headhunter enterprises, thousands of them have accepted and agreed to our user protection rules and signed cooperation agreements with us.

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[Interpreted] The second number is headhunter consultants. There are tens of thousands of monthly active headhunters working on our platform.

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[Interpreted] The third number is the high-income, white-collar and gold-collar users that the abovementioned headhunter consultants are serving. For job seekers of this kind, our platform providing services to more than millions of targeted users each month.

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[Interpreted] Next, I'd like to share some information about the pandemic's impact that everyone has been very concerned about.

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[Interpreted] Since mid-March, the resurgence of COVID-19 across major cities, we have also witnessed the decline in the overall recruitment demands. The number of active enterprise users and job postings plummeted in the cities and areas with severe outbreaks.

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[Interpreted] From the revenue perspective, Shanghai and Beijing are both important contributor to our revenues. From April to May, cash revenues in Shanghai dropped by more than 50% year-over-year. Beijing was also significantly impacted since May, which has generated a certain amount of pressure on our business in the second quarter.

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[Interpreted] However, our operating data shows that the impact is relatively short-lived. Overall, our observation is that the impact of pandemic, can recover rapidly.

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[Interpreted] For example, in the cities which have been affected [previously] (added by company after the call), like Shenzhen, Xi'an, Changchun and other cities, our revenue returned to almost the same level as those prior to the outbreak within 2 to 4 weeks once the situation were under control.

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[Interpreted] Since the beginning of June, the impact of the pandemic in Shanghai has been eased, and we have seen the operating data recover to 80% of the pre-pandemic level 2 weeks later.

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[Interpreted] And as of now, Beijing has also shown significant recovery. Such as for the urban service industry, our operating data has [demonstrated] (corrected by company after the call) a clear rebound.

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[Interpreted] Everybody knows that the current employment situation is quite challenging. As one of the major recruitment platforms, we are proactively responding to it.

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[Interpreted] Our major actions can be demonstrated from the perspectives of enterprise users and job seekers.

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[Interpreted] For enterprise users, we provided subsidies to cities and industries which have been severely affected by the outbreak.

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[Interpreted] For example, since March, we have opened over tens of thousands of job postings on our platform free of charge in 7 cities.

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[Interpreted] For job seekers, especially the fresh graduates, we held a "Spirit of Spring Recruitment Festival" for 6 weeks.

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[Interpreted] Together with nearly 1,000 enterprises, we have been providing tens of thousands of additional job openings for college students.

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[Interpreted] [Another] (corrected by company after the call) thing to add is that, we announced a repurchase program in March. Since then, we have executed this program in a reasonable price range, which have been reflecting our confidence in the sustainable development of our business and our commitment to delivering long-term value for our shareholders.

(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. Before I begin, please note that all amounts are in RMB, and all comparisons are on a year-over-year basis unless otherwise stated.

Despite the continued suspension of new user registrations, our solid financial performance in this quarter once again demonstrated our model resilience and sustainability. In this quarter, our total revenues increased by 44% to RMB 1.14 billion, beating the high end of our guidance range. Our calculated cash billings reached RMB 1.29 billion in the quarter.

Facing various macro uncertainties, we have been further focusing on providing better services to our users, which we believe will deliver increasing values in the long term. Continuing to benefit from sustainable growth of our user base, our paid enterprise customers for the 12 months ended March 31, 2022, grew steadily to 4.1 million.

Moving on to the cost side. Total operating costs and expenses for the first quarter increased by 18% year-over-year to RMB 1.15 billion. Excluding share-based compensation, total operating costs and expenses increased by 10% year-over-year to RMB 1.01 billion in the quarter.

Our cost of revenues expanded by 66% to RMB 177 million this quarter, mainly driven by the increased headcounts, especially security-related staff, as we continued to improve our platform's security capabilities as well as the higher server and bandwidth costs caused by the increased user traffic.

Sales and marketing expenses were RMB 522 million in the quarter, representing a year-over-year decrease of 16%, against the high base last year. Such decrease was mainly due to the reduced marketing activities during the new user registration suspension period.

However, as the Spring Festival is the traditional peak season for the recruiting, we undertook a marketing campaign to sponsor the Beijing Winter Olympics and Paralympic event, leading to higher brand-related sales and marketing expenses quarter-over-quarter. We believe this investment will help enhance our brand recognition and benefits us in the long run.

Research and development expenses increased by [78%] (corrected by company after the call) year-over-year to RMB 291 million in the quarter. And general and administrative expenses increased by 91% to RMB 156 million. The increases were primarily due to the increase of personnel costs, reflecting our commitment to strengthen our core competitiveness in technology.

Our net loss for this quarter was RMB 12 million, compared with net loss of RMB 176 million for the same period last year. Excluding share-based compensations, our adjusted net income for the quarter was RMB 121 million, compared with an adjusted net loss of RMB 128 million in the same period last year, representing an adjusted net margin of 11%.

Normally, first quarter every year is a low season for margin due to increased marketing and advertising activities around Spring Festival. We will see an improved margin in the coming quarters.

Our net cash generated from operating activities was RMB 294 million for the first quarter of 2022. As of March 31, 2022, our cash, cash equivalents and short-term investments totaled RMB 12.4 billion. We believe this healthy cash reserves and sustainable operating cash flows will provide us with a solid foundation for the long-term growth and generate sustainable returns for our shareholders.

For our business outlook. As Jonathan has just mentioned, the resurgence of the COVID-19 in many cities since late March and the corresponding control measures have adversely affected business activities, resulting to declined recruitment needs and impacted our business for the second quarter in short term. With regards to this, we expect our total revenues for the second quarter to be between RMB 1.09 billion and RMB 1.1 billion, representing a year-on-year decrease of approximately 6.7% to 5.8%.

However, we believe the impact is temporary. As we have witnessed a rapid recovery in previously affected cities, we are optimistic and confident in our business development in the long run, which is underpinned by our effective and resilient business model, massive and stable user base, as well as continually improving user experience.

That concludes our prepared remarks. Now we'd like to answer questions. Operator, please go ahead.

(Operator Instructions) Our first question from Eddy Wang with Morgan Stanley.

My first question is about the manufacturing blue-collar recruitment. You have launched the "Hailuo" platform for quite a long time. So we also noticed that other platforms, even some of the live-streaming platform, also initiated new business of the blue-collar recruitment. So I just want to hear your thoughts on, what's the real pain point in the blue-collar online recruitment sector?

Is it because not a lot of platform are trying to doing the difficult process to verify the real positions or enterprise? Or if there's any other pain points make blue-collar online recruitment penetration stay low, in the past few years?

The second question is about the competition. I think we have been suspended for new user registration for almost 1 year. At the same time, I think a lot of peers, they have been able to spend a lot on sales and marketing to acquire new job seekers. But at the same time, we witnessed that their revenue growth actually is sustainably lower than BOSS Zhipin.

So I just want to know, they have almost 1 year to collect more enterprise users, but it seems that the results so far are not so good. What's the differentiation? Can you tell us about the difference between BOSS Zhipin and other online platforms? And why cannot they increase that many of enterprise users during the past 1 year, when we are not able to increase new users?

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[Interpreted] First of all, thank you for your question. For your first question about the blue-collar manufacturing industry, I would like to explain it by 2 word and 1 number. The 2 words are complexity and firm. And the one number is 4, which I need to further elaborate on.

The number 4 means there are 4 parties. The first one is agencies, the second one is factory, the third one platform and the fourth one is workers. For a long time, the 4 parties have made this game very, very complicated.

(foreign language)

[Interpreted] You should know there is a very famous Chinese novel, "Three-Bodies", on which they have presented a very difficult math questions, where 3 planets, are spinning around each other is quite difficult to sort out. And we are facing a problem of 4 bodies, which is even more difficult.

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[Interpreted] I have thought for a long time on how to solve this problem, and I know how to do that. So the important thing is to find out who is the most important party in the 4 groups. [The answer] (added by company after the call) is the workers, and we need to do everything around workers.

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[Interpreted] [As a] (corrected by company after the call) Internet platforms, we stand together with workers, which is very naturally. That is what we have been saying: To put our users at first.

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[Interpreted] With the lack of newly increased young employees, it will be more and more difficult for the factory to recruit workers. And in the future, they will place the workers as the most important [asset] (corrected by company after the call).

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[Interpreted] When both platforms and factories choose to stand together with workers, there is no other way left for the intermediaries.

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[Interpreted] As I have just introduced, all those intermediaries who have agreed to our rules and requirements and fully signed up with our platform have been growing exponentially since earlier this year.

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[Interpreted] By finding the [key issue] (corrected by company after the call) of workers, I believe this problem can be solved in the short term. That's answer for your first question.

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[Interpreted] And for your second question, you mentioned a word about user growth. I believe that user retention, is key for growth. You can pay money to acquire new users, but it's not everything.

(foreign language)

[Interpreted] So regarding the competitive landscape, my observation is that nothing has been changed.

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[Interpreted] And that's my answer.

Our next question, from Timothy Zhao with Goldman Sachs.

(foreign language) I have 2 quick question. First one is concerning the impact of COVID resurgence and also the weaker macro in the second quarter. What is the latest trend in terms of the paying ratio and ARPU on the platform? And how does that compare to the previous quarters?

Especially considering that we have over 80% small and medium enterprise users on the platform, what is their trend in terms of paying ratio and ARPU, especially for those under the impact of the COVID resurgence?

And secondly, it's about the new business which we actually introduced, the business related to the high-income, white-collar and the gold-collar users of Zhiliebang brand. Could management share any outlook for this part of the business? And what is our differentiation versus competitors? And what kind of the revenue or margin outlook that we should have for this part of business?

Okay. Thank you. I'd like to answer the first question. So overall, during the pandemic and the weak macro conditions, we continue to see healthy operating metrics. And regarding the overall paying ratio and ARPU, those numbers also maintained at a stable situation as a whole.

I think the pandemic and macro impact mainly reflected at total number of active enterprise users. We see some declining trends during the pandemic stage. So compared with the large enterprises, smaller enterprises, they see stronger impact during the pandemic.

But we think overall, the total number of small enterprises, small- and medium-sized enterprises, are huge, and they are quite resilient in the economy. So we expect that overall, the SME, they will recover, backed by the better macro conditions, in upcoming probably like weeks or month. And we have already witnessed such kind of signs, the early signs.

And in terms of their paying ratio and ARPU. Like the large enterprises, their paying ratio and ARPU are also in a stable situation. So the impact was mainly due to smaller number of active enterprises from small-, medium-sized segment.

(foreign language)

[Interpreted] And for your second question regarding the development of our gold-collar business. During the past 2 years of development, we have been now increasing efforts in this area. So through this Zhiliebang brand, we have established a very good and healthy ecosystem for the headhunter enterprises, the headhunter consultant and gold-collar users. So currently, we have over 3,000 contracted headhunter enterprises, tens of thousands of active headhunters and more than 1 million active high-end [job seekers] (corrected by company after the call).

(foreign language)

[Interpreted] We can say that, as of today, BOSS Zhipin has established a user ecosystem surrounding gold-collar users and headhunter consultant.

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[Interpreted] Looking back to our own ecosystem development process, we truly believe that, with higher efficiency and higher value proposition to our users, we should have a better chance to explore a proper monetization model. Thank you.

Our next -- comes from Wei Xiong with UBS.

First, I want to follow up on the macro impact of our business. Could management maybe help to quantify the macro pressure we've seen on the second quarter revenue outlook?

And also, given the current macro trends, how should we think about the business growth in the second half of the year?

And second, just to revisit the topic of competition from a different angle, we've talked about other online recruitment platforms may have stepped up their marketing spend over the past year. So how could this affect our marketing or user acquisition strategy going forward? Any implications that might have on our margins?

Okay. So I'd like to answer the first question, and Jonathan will reply you for the second part.

And so basically, regarding our financial impact from the pandemic, we think that pandemic and weak macro, as I just mentioned, have some material impact into our business. It's reflected as, most of the businesses, during the pandemic and the weak macro conditions, they reduced their business activities and they reduced their recruiting [activities] (added by company after the call) as well.

So we did some analysis, and the number shows that pandemic and weak macro totally had around like 10% to 15% [impact] (added by company after the call) to our overall revenue in the second quarter of this year. So this is pretty much the overall impact in the second quarter.

And we think that, given we have seen some early signs of recovering in early June, we think that day by days, we have witnessed some improving situation. So we think that, in upcoming third quarter, things could improve. So we think that will support our business recovery as well.

So Jonathan can give you some color regarding the industry view towards the overall recruiting market demand.

(foreign language)

[Interpreted] Okay. I will share 3 numbers. The first one is, for the first 2 weeks of June, our DAU increased by [nearly] (added by company after the call) 10% month-over-month, which we have seen in this rapid recovery.

(foreign language)

[Interpreted] And the second number is 100. In July, for those enterprises has less than 100 [employees] (corrected by company after the call), we have seen that their recovery speed is much faster than the rest of enterprises.

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[Interpreted] And the third number is, for the first half of June compared to the latter half of March, which it's a traditional peak season, within the urban service industry, the newly posted jobs is 104% compared to the latter half of March.

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[Interpreted] From those 3 numbers, we believe that our customers, including big enterprises and SMEs, they are quite resilient and have a very strong power to recovery.

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[Interpreted] I will add to Phil's answers with these 3 numbers.

And also regarding the question related to the margin, so as just mentioned in the prepared remark, that first quarter, due to seasonality reason, it has a lower margin. In upcoming quarters, we would like to improve the situation. But having said that, because of second quarter has already been impacted from the COVID pandemic, so there will be a improving of margin, but might not be as high as third quarter or the fourth quarter last year.

Overall, for the margin of 2022, we think that we should be able to maintain our previously view regarding the yearly margins, so pretty much as close to 20% to our total revenue for the whole year. So we still believe this is the situation.

And I think for comparison reason, I probably need to update one number which I gave during the last earning call. So that is the total number of failed registrations, by the end of May 31, the total number of failed registration was 46 million.

And that's our answer to your questions. Thank you, Xiong Wei.

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 additional or closing remarks.

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.

This concludes today's conference call. Thank you for participating. You may now disconnect.