Kanzhun Ltd (BZ) 2022 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited Fourth Quarter and Full Year 2022 Results -- 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.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our fourth quarter and full year 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 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 the nature 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.

[Interpreted] Hello, everyone. Welcome to our fourth quarter and full year 2022 earnings conference call. The past year has been a tough one for all of us. I would like to express our sincere gratitude to our users and investors and our employees.

First, I would like to share with you our performance for the fourth quarter and full year 2022. Over the past quarter, we recorded calculated cash billings of RMB 1.1 billion and GAAP revenue of RMB 1.08 billion, which is relatively flat compared with the same period of last year. Flat is not quite an ideal outcome primarily affected by the accumulated effect of the COVID-19 outbreaks over the past quarter. The epidemic resurgences, particularly the surge in last December, post great challenges to our normal operations during the fourth quarter.

In the fourth quarter, we achieved 2 significant milestones. On December 22, the company successfully completed our dual primary listing on stock exchange of Hong Kong by way of introduction. Secondly, we became an official partner of FIFA and sponsored the FIFA World Cup, Qatar for 2022. Although our sponsorship elevated our marketing expenses for the period, the broad exposure from this renowned event both effectively enhanced and expanded the influence of the company's brands. Despite this increase in expense, we were still able to achieve profitability in the fourth quarter. Our adjusted net income, which excludes share-based compensation expenses reached RMB 59.5 million.

For the full year of 2022, our GAAP revenues were RMB 4.51 billion. Our calculated cash billings reached RMB 4.61 billion and our non-GAAP adjusted net income, excluding share-based compensation expenses reached RMB 800 million. In terms of operations, the fourth quarter is the traditional off-season in the recruitment industry. Nevertheless, we maintained solid growth momentum with new users. Our MAUs for the fourth quarter reached 30.91 million, up 26% year-over-year. User activeness, or our DAU-to-MAU ratio remained stable.

Now let me share some details on the user growth and the business recovery following the spring festival, which many of you may be interested in. Alongside work resumption following the spring festival this year, we saw a resurgence in new users that drove an array of our core operating metrics to reach numerous record highs. During the first 2 months of 2023, our newly verified users quickly exceeded approximately 9 million. The average MAUs on our app for the first 2 months of the 2023 increased by more than 50% year-over-year. User activeness, which is again, the average DAU to MAU also hit a new record high.

And in February, our monthly active enterprise users soared to the highest level within our history with solid year-on-year growth. While the total number of our users is growing rapidly, we are still able to deliver an enhanced user experience on our platform, which we would like to guarantee. The average number of both job seekers and enterprise users' achievement, which is the average monthly number of times of mutual consent for a full resume, has continued to increase through February. To drive this growth, we are realizing new efficiencies within our platform's double-sided network from our continuously improving algorithm capabilities and the deep exploration and insights into our user experience and preferences that is affords us.

In terms of our robust user growth, we would like to share some keywords until now in this quarter. The first keyword is blue-collar. Among the new users following the spring festival, blue-collar users showed stronger adoption of our platforms than white-collar users in terms of both absolute numbers and their growth rate. The second keyword is lower tier cities. In terms of regions, the number of users from second and lower-tier cities grew much faster than the number users in first-tier cities, which is a testament to our ability to expand our penetration effectively and continually in low-tier markets.

The third keyword is a small and medium-sized enterprise. The recruitment demand from SMEs accelerated rapidly, which shows the faster recovery time of SMEs compared with large enterprises. The fourth key word is our cash. We have witnessed a quick recovery of our cash collection, and we expect our cash collection to reach an all-time high in the first quarter of 2023 with estimated over 45% growth sequentially and more than 25% growth year-over-year.

The fifth and last keyword is the urban service industry. The urban service industry characterized by face-to-face contact has been a bright spot in the first quarter of this year. Since the spring festival, we have seen more than a 40% year-over-year increase in the total number of new job postings.

Some other sectors also showed positive growth trends. Sectors including retail, transportation and high-end manufacturing such as new energy and automobile as well as the health care industry all performed well. Real estate and education also showed encouraging signs of stabilization and recovery after the spring festival. The number of open positions in sales, marketing, procurement and other functions that represent improving business activities of enterprises have all continued to show week over week improvement in the first quarter. The recruitment activities of medium and large enterprises also gradually pick up after the spring festival. All of these trends show us signs of overall economic revival and give us confidence in our growth potential for this year.

We remain committed to undertaking our social responsibility as a public company. In October 2022, the company was once again shortlisted for inclusion in the 2022 China's top 500 Enterprises in Philanthropy, straight for the second consecutive year. The company and the China Disabled Persons' Federation Employment Service and Administration Center jointly launched the "Barrier-free Job Search Assistance Service Plan for Persons with Disabilities", to provide service to a cumulative 121,000 disabled job seekers throughout 2022.

We also recently co-organized the "Onward Spring Recruitment Festival" with the Ministry of Education's 24365 Campus Recruitment Service, which is expected to offer hundreds of thousands of open positions for college students across more than 2,000 enterprises.

And one more thing to share with you. Today, our Board of Directors approved a new share repurchase program to repurchase up to $150 million over the next 12 months to support our long-term share price stability.

With that, I will turn the call over to our CFO, Phil, for a review of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Now, let me go through the details of our results for the fourth quarter and the full year of 2022. That may help you better understand our numbers. Before I begin, please note that all comparisons are on a year-on-year basis unless otherwise stated.

Our revenues and calculated cash billings reached RMB 1.08 billion and RMB 1.1 billion, respectively, this quarter, stayed at the same level with the fourth quarter of 2021 despite the COVID impact. For the full year of 2022, our revenues grew by 6% to RMB 4.5 billion.

Total paid enterprise customer number for 2022 was 3.6 million, down by 10% compared to 2021, mainly due to the decreases in small size accounts affected by the user registration suspension in the first half of the year as well as COVID outbreak in second quarter and fourth quarter, while the paying ratio and ARPU in each quarter stayed steadily at a healthy level. Revenues and the numbers of key accounts and midsized accounts maintained good growth momentum and both achieved a record high in 2022.

Now let's turn to the cost side. Total operating costs and expenses were RMB 1.4 billion in the quarter, up 70% year-on-year, mainly due to, number one, increased employee-related expenses, including share-based compensation related to Hong Kong IPO; and number two, 2022 World Cup sponsorship. For the full year of 2022, total operating costs and expenses decreased by 12% to RMB 4.7 billion.

Cost of revenues increased by 35% to RMB 202 million in this quarter, primarily driven by the increases in employee-related expenses and server and the bandwidth costs as our user base continues to expand on a higher security requirements.

Gross margin, excluding share-based compensation expenses, was 82.6% for the quarter, down by [1.1 ppts] (corrected by the company after the call) compared to last quarter, mainly because of the revenue growth in the quarter was impacted by the COVID situation while the majority of the cost was still relatively fixed.

For the full year of 2022, cost of revenues increased by 36% to RMB 755 million, with an 84.1% adjusted gross margin, down by 3 percentage points compared to 2021 due to similar reasons. We are expecting a gradual sequential recovery in gross margins this year along with our revenue growth.

Sales and marketing expenses increased by 83% year-on-year to RMB 682 million in the quarter, which was primarily due to the marketing campaign of 2022 FIFA World Cup. For the full year of 2022, our sales and marketing expenses were RMB 2 billion, up 3% year-on-year. Excluding the World Cup sponsorship expenses, we saw a 46% year-on-year decline in branding and customer acquisition costs in 2022, demonstrating our improved marketing efficiency as a result of stronger brand recognition and user satisfaction. For 2023, we will maintain this effective marketing strategy while expecting user growth continues to be robust. Our marketing expenses will be monitored and under good control.

Our R&D expenses in this quarter increased by 48% year-on-year to RMB 294 million, mainly due to the increased employee-related expenses. For the full year of 2022, R&D expenses were RMB 1.18 billion, up by 44% year-on-year for the same reason.

G&A expenses in this quarter increased by 108% year-on-year to RMB 248 million primarily due to increase of employee-related expenses and professional service fees related to our dual primary listing in Hong Kong.

Excluding share-based compensation and Hong Kong listing related fees, our adjusted G&A expenses in this quarter was RMB 123 million, up by 50% year-on-year. And for the full year of 2022, G&A expenses decreased by 64% primarily due to the one-off share-based compensation expenses of RMB 1.5 billion recognized in 2021 related to our U.S. IPO.

Our simple calculation shows that if we exclude the share-based compensation and World Cup sponsorship and the professional service fees related to our Hong Kong listing, our adjusted operating margin was 20% for this quarter and 19% for the full year 2022.

Net loss in this quarter was RMB 185 million. Excluding share-based compensation, our adjusted net income for this quarter was RMB 59 million. In 2022, we generated positive annual net income of RMB 107 million and adjusted net income of RMB 799 million.

Our net cash generated from operating activities was RMB 156 million for this quarter and RMB 1.0 billion for the full year. As of December 31, 2022, our cash, cash equivalents and short-term investments [increased] (corrected by the company after the call) to RMB 13.2 billion.

And now for our business outlook. For the first quarter of 2023, we expect our total revenues to be between RMB 1.25 billion and RMB 1.27 billion, a year-on-year increase of 9.8% to 11.6%. As Jonathan just mentioned, our calculated cash billing in this quarter is expected to increase by over 45% quarter-over-quarter and more than 25% year-over-year, which gives us a good start for the year. With our robust user growth and improving signs for the recovery of the economy witnessed so far, we are optimistic for the whole year outlook and feel confident to strive for an accelerating business growth.

With that, concludes my prepared remarks. Now we would like to answer questions. Operator, please go ahead.

(Operator Instructions)

And your first question is from the line of Wei Xiong from UBS.

(foreign language) My first question is about, could management share more color on the recovery trends post Chinese New Year. For example, how do you see the ratio between business user growth versus the job seeker user growth? And if we look at the recruiting budget recovery, how do we compare the difference between the KA customers versus SME customers?

And second, I also want to ask your thoughts on the competitive landscape in 2023. If we think about whether the competitors will raise or step up their investment in a reopen environment? And how do we balance the revenue growth versus the margin target for the whole year 2023?

[Interpreted] Thank you for your question. Regarding your concerns about the situation after the spring festival as I just discussed, we recorded historical highs for both our MAUs and DAUs, which have a very significant growth in the first quarter. And in terms of enterprise users, our active enterprise number has taken a historical high, which means not only recovery, but also a good information. And for the ratio of enterprise [users] (corrected by the company after the call) to job seekers, we still say at like 1 to 9 or 1 to 10, but the trend is improving.

In terms of the size of enterprises, we have witnessed that most SMEs is more flexible and their recovery speed will be faster. And of course, when the situation is bad, [their response is slower] (corrected by the company after the call). And for the large enterprises, their recovery is later than the SME sector but is still in the recovery process. I would like further to add that this is not all about capabilities. It's because that large enterprises, they are more prudent when making their decisions. I have a similar experience in 2008 and 2009. In that situation, the SMEs also recovered much faster.

And for your second question about the competition. Currently, the overall competitive landscape has not changed. As you have correctly predicted that along with the recovery of the economy, our peers, they are planning to spend more to acquire new users this year, and we have already feel that kind of pressure this quarter. But in terms of what we are planning to do and whether it will impact our profits, our strategy is that we will not follow. We will do things according to our own pace and strategy based on our high user retention and stickiness and reasonable growth strategy. We are still hoping to [reach] (corrected by the company after the call) new user growth target of 40 million to 45 million this year. I'm quite confident that we can achieve that target without overspending and won't affect our margin.

And the next question is from the line of Eddy Wang from Morgan Stanley.

(foreign language) I have 3 questions. First is about the unemployment rates in the February and January actually has been quite high, especially for the youth unemployment rates. So do you expect that -- I think in terms of the labor supply side, there's more of the university college graduate, but for the demand side, actually, the blue-collar jobs actually have quite a high demand. So this mismatch will impact on the overall landscape of the recruitment in China. And how Boss Zhipin will try to leverage on this mismatch and address our strategy in this year.

The second question is we heard that there is no longer the labor shortage after the Chinese New Year when more and more labor actually coming back to the Tier 1 or 2 cities. I'm not sure if this is what we also witnessed on the ground as well.

The third question is a little bit long term about the ChatGPT. People are talking about that in the longer term, it's a little bit lower or a little bit mid- to low the job of the white-collar could be replaced by the ChatGPT in the longer term. So what's your thoughts on this?

[Interpreted] Thank you for your question. Regarding your first question, there are 2 types of blue-collar users on our platform. The first one is urban service, and within the urban service industry, we have witnessed both fast growth in users as well as job postings. So there is no issue about lack of job posting for this sector.

And in terms of manufacturing, after the Chinese New Year festival until this week, which is 7 to 8 weeks after the spring festival, in the first, we saw that the job postings growth has been much slower compared to job seeker growth, but the situation has been improving recently. There is a quite interesting observations. There is a key metrics we look at on our platform, which is the achievement which means the mutual consent achieved between job seekers and enterprise users on our platform.

So within the manufacturing industry, what we have observed that compared to last year, the average achievement per person has slightly decreased, but not huge, but the effort for a job seeker to achieve same level of achievement has been much greater. This is the first time I have been talking about this metric publicly. So the result is that the overall achievement results has decreased a little bit, but the effort one job seeker need to put is much bigger. So the feeling of the severity of job seeking is much greater compared to the results they get.

So about the mismatching questions you asked, which is quite professional, that a normal job seeker cannot find a job and unless [there are] (added by the company after the call) job offerings, which under this situation is quite difficult for our platform. But in the past, we have seen that, especially within the blue-collar manufacturing urban service logistics sub sector, there is quite a lot of flexibility for the job seekers both in terms of their skills and ages and the job they're working. So we have seen adoption of the job seekers to switching between different kind of industries to satisfy their need for job seeking.

And regarding your last question on ChatGPT, which is quite an interesting question, it's still too early to comment for the actual application of this technology on platform. There's not too much to say, but we have been highly focused on this technology and the challenges and opportunities it might raise. So recently, we noticed that LinkedIn has already applied this technology to some scenario, for example, to generate a resume or personal advantages and et cetera. So our team has been seriously following and thinking on this.

So whether this will impose a challenge for some of the white-collar jobs which is a very valid concern, similar to the manufacturing industry, like moving elements within the warehouse, the robot has to take some of the physical works from the blue-collar worker. So with the new technology, some of the white-collar jobs might be also replaced by some of AI. So that's a potential trend.

I hope that we can -- in the not far future from now be able to tell our users, our investors that what kind of value we can create for our users based on the AIGC technology and I hope that they will not be far, and I'm quite confident.

This is from the line of Timothy Zhao from Goldman Sachs.

(foreign language) I have 2 questions. First is about technology innovation, including the recent AIGC GPT technologies and considering the R&D expenses account for around 20% of the revenue in 2022, how should we think about, in which areas that we are planning to invest in 2023 in terms of R&D investments? And what do we think about the impact from the technologies on the online recruitment model and on improving the efficiency of human capital allocation.

And secondly, as we understand the marketing campaign around the FIFA World Cup has finished, could management share anything that you have observed about the marketing outcome? And what is your pace on marketing and branding that we are thinking of for this year?

[Interpreted] About your first question regarding our R&D investment this year. As always, we will continue to enhance the technology investment this year, but we haven't taken too much into consideration of all these potential AIGC application scenarios and modeling training, et cetera. We are actively looking at that, but haven't done that for our annual budgeting. So in our normal plans, the major expense will be for better and more experienced engineers and computer scientists. And also, we will increase our input in hardware, which we will pay more notice into. But as I just said, we haven't considered too much about all those AIGC and any major technology.

But I'm confident to say that we have enough capability and ambitions to further invest into this technology as a [listed company with large market value] (corrected by the company after the call), and we are absolutely capable and we will do that.

And about your second question regarding our big event of the sponsor for FIFA World Cup, I can say that the result -- the outcome is in accordance of our expectation. So the very robust in user growth in the first 2 months of this year, we have witnessed with quite efficient within the digital marketing, which result in a very cheap customer acquisition cost per person. This is not because the market has offered a lower price, nor we have find out some new technology for marketing, but mainly because the very high exposure of our marketing campaign lasting for 1 month last year has been quite successful. So our brand recognition has been improved and this effect to reduce our digital market expense will continue to benefit us during this year.

Well, I'd like to add a little bit to this marketing expense question. So I think that's, first of all, in terms of user growth, 2023 would be -- we consider this would be a good year of the user growth. And you know that we use a branding vs performance-based traffic acquisition advertisement as an approach to acquire new users. And nowadays, we put more resources towards the branding over the performance ads. So the branding related expenses, their percentage continues to rise within our overall marketing expenses. And this trend will continue.

And we think that looking ahead for 2023, there is no other big branding events ahead. So overall, our user growth strategy or user growth target for 2023 won't affect our overall margin. And I also need to mention that our margin is more linear or more related to our top line growth. So we expect that if the revenue can grow higher and faster, then we would like to see further margin expansion for 2023. So, so far, we think that we are holding positive view towards this trend. So we would believe that margin should be improving for 2023.

Thank you. Due to time constraint, that concludes today's question-and-answer session. At this time, I will hand the conference back to Wen Bei 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 to the Investor Relations. Thank you.

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.

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