Kanzhun Ltd (BZ) 2024 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Kanzhun Limited second-quarter 2024 financial results conference call.

(Operator Instructions)

Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations.

Please go ahead, ma'am.

Thank you, operator.

Good evening and good morning, everyone.

Welcome to our second-quarter 2024 and 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.

We each have based on management's current expectations and observations that involve known and unknown 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 purposes only for a definition of non-GAAP financial measures and a 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 ir.zhipin.com/.

With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

(spoken in foreign language)

(interpreted) Hello, everyone.

Thank you for joining our company's second quarter 2024 any earnings conference call

(spoken in foreign language)

I'll start with our financial numbers.

In the second quarter, the company achieved calculated cash billings of RMB1.95 billion, up 20% year on year.

Our GAAP revenue reached RMB1.92 billion, up 29% year on year.

We recorded a net profit of RMB420 million.

Meanwhile, our adjusted net income, which excludes share-based compensation expenses, rose to RMB720 million, up 26% year on year.

In the second quarter, the average verified MAU on the BOSS Zhipin APP grew by 25% year-on-year to RMB54.6 million.

From January to June this year, the Company attracted around 28 million newly added verified users.

Total paid enterprise customers in the 12 months ended June 30, 2024, reached RMB5.9 million, representing 31% year-on-year growth.

(spoken in foreign language)

Our cash billings in the second quarter still have a decent year-on-year growth, however, weaker on a quarter-on-quarter basis, and are a little bit lower than our expectation.

This was mainly due to weaker demand from the recruitment side in the latter half of the second quarter.

There were relatively fewer enterprise users and more job seekers in the market, which is what we refer to as a high CB ratio.

So in this case, most enterprise users found it easier to hire.

For example, a project team that took three months to fill all the positions in the past now only takes two months, reducing enterprise users’ desire to spend more money on recruitment.

(spoken in foreign language)

We noticed that the growth trend of enterprise users is still good.

There are two proofs.

First, in the second quarter, the number of newly added enterprise users was higher than that of the same period last year.

Second, the average monthly active enterprise users increased by 17% year-on-year.

Investors who have long been following us know that user growth is the core growth driver for our revenue growth.

We still have a good growth of enterprise users in the second quarter.

This is a good news for the company.

(spoken in foreign language)

We believe the second quarter performance is a temporary situation.

Long-term structural growth opportunities remain strong.

Our confidence is grounded in three factors.

First, the Chinese market is a huge economy with the highest small and medium sized enterprise activeness and the largest number of enterprises.

Second, there is a persistent shortage of labor supply, particularly among younger generation, which is unlikely to change in the near future.

Third, our efficient service model is best suited to address the challenges presented by first two factors.

(spoken in foreign language)

Under the current situation, the company's management team believes we should do what is best suited for the moment.

Today, I will talk about three things.

(spoken in foreign language)

The first thing is to ensure the full-year profit target.

During challenging times, confidence is crucial for everyone, no matter core investors, core employees, or potential investors, and the prospective talent.

In tough times, confidence is more valuable than gold.

Ensuring profitability for the year will help to sustain confidence in the Company, which can be achieved through further refinement of our management.

(spoken in foreign language)

The second thing is to invest more resources on new growth driver.

For example, in the blue-collar manufacturing industry, there may be some new dollars.

(spoken in foreign language)

To briefly review the blue-collar manufacturing industry we have talked before.

The background is, the complex relationship between factories, workers, platforms and agents, in addition to many historical issues, have made it challenging for online platforms to serve the blue-collar manufacturing industry.

(spoken in foreign language)

The history is, three years ago, we started by purifying the job seeking and recruitment environment through what we call the “Conch Project

(Hailuo)”.

The original intention of this initiative has two, first is to protect the overall job seeking process of the job seeker.

Second was to help blue-collar agents and organization make money decently.

(spoken in foreign language)

The current situation is, after a tough game, the long-standing issue of bad or low quality agents driving out good ones across online recruitment platform is beginning to improve.

This positive shift has already happened.

“Good guys” who commit to treating jobseekers with integrity, posting authentic job details and salary information, are now receiving better results.

We have named these trustworthy agents as platform Certified “Conch Select”.

(spoken in foreign language)

The latest data is, our Conch Select project generated over RMB40 million in revenue in the second quarter, which is much higher than that in the first quarter.

These good signs make me feel that our strategy and the persistence in the past few years are correct.

(spoken in foreign language)

The third thing is our overseas business.

As we all know, economy are cyclical, and these economy cycles are often out of sync across different countries and regions.

Large companies with a strong global presence can effectively utilize this regional peak shift to support sustainable growth.

In particular, BOSS Zhipin has pioneered our current model globally.

This model is very likely to provide value and gain space for survival and development in various regional markets through localization, hybridization and evolution.

While we are seeing promising progress in Europe and Asia, it's still too early to report our results.

(spoken in foreign language)

Last but not least, it is important to address confidence again, particularly in terms of strengthening returns for our shareholders, who have consistently supported us since our IPO.

For example, we will continue to increase our share buyback efforts.

We have bought over USD88 million repurchased in the past four months.

These all will help to reinforce the valuable confidence of our shareholders and management.

(spoken in foreign language)

That concludes my part of the call.

I will now turn it over to our CFO, Phil, for the overview of our financials.

Thank you.

Thanks Jonathan, and hello, everyone.

And now let me walk you through the details of our financial results of the second quarter of 2024.

In this quarter, we delivered healthy and sustainable top-line and bottom-line growth.

Calculated cash billings and revenues grew by 20% and 29% year on year respectively, mainly driven by the growth of our enterprise users.

Average monthly active enterprise users in the quarter grew by 17% year on year.

We continued to penetrate into different categories of users, especially in blue-collar sectors, small, medium-sized enterprises and users from lower-tier cities.

As a result, revenue contributions from those sectors continue to increase.

Paid enterprise customers in the 12 months ended June 30, 2024, increased by 31% year on year to 5.9 million.

The paying ratio was higher than last year but sequentially kept stable.

We are happy to see that ARPPU (average payment per paying user) increased around 3% year on year and 3% sequentially, reaching the highest level in the past four quarters.

Part of the reason was that revenue from key accounts outgrew small and middle sized accounts, but more importantly was our effort to increase client usage by offering high quality and targeted product and services.

Moving to the cost and expenses side.

Excluding share-based compensations, adjusted operating cost and expenses increased by 20% year on year to RMB1.3 billion and led to adjusted operating profit of RMB660 million in the quarter, up 52% year on year.

Adjusted operating margin reached 34.4%, up by 5.3 percentage points compared to the same quarter last year and a hit an all-time high.

Cost of revenues increased by 17% year on year to RMB317 million in this quarter, representing a gross margin of 83.5%, continued its upward trend.

Sales and marketing expenses increased by 16% year on year to RMB545 million in this quarter.

This increase was mainly driven by our enhanced investment in customer acquisition as well as higher sales commissions.

R&D expenses increased by 21% year on year to RMB444 million in this quarter.

Excluding share-based compensation expenses, adjusted R&D expenses increased by 28% year on year to RMB334 million.

This increase was primarily driven by our earlier investments in AI infrastructure, which generated a higher depreciation cost.

Our G&A expenses increased by 29% year on year to RMB261 million in this quarter.

Adjusted G&A expenses increased by 21% year on year to RMB153 million, mainly due to increased employee-related expenses.

Our net income was RMB417 million in this quarter, up 35% year on year.

And our adjusted net income in this quarter reached to RMB719 million and increased by 26% year on year.

We expect that our share-based compensation expenses reached the peak level in this quarter and will gradually decline in the coming quarters.

We are now reviewing stock compensation scheme and studying some schemes which might even accelerate the process.

Net cash provided by the operating activities grew by 14% year on year to RMB869 million for this quarter.

As of June 30, 2024, our cash and cash equivalents, short-term time deposits and short-term investments totaled as RMB14.3 billion.

Notably, in the past four months, we have repurchased a total consideration of USD88 million, which demonstrated our commitment in shareholders return and long-term confidence of our business.

And now for our business outlook.

For the third quarter of 2024, we expect our total revenues to be between RMB1.9 billion and RMB1.92 billion, a year-on-year increase of 18.2% to 19.5%.

That concludes our prepared remarks.

And we would like to answer questions.

Operator, please go ahead with the query.

Thank you.

(Operator Instructions)

Timothy Zhao, Goldman Sachs.

(spoken in foreign language)

Thank you management for taking my questions.

I have two questions here.

The first is regarding your user growth and market share.

How does management team view the market share currently, and in the adverse macro environment currently are we considering to further accelerate the market share again?

And second, as we mentioned, to ensure the full year profit this year, could management share what is your detailed measured and what is your OpEx, including the SBC, trend for the rest of this year?

Thank you.

(spoken in foreign language)

Okay.

Thank you for your question.

For the first one regarding competition, the current competitive landscape is relatively stable or we’d rather say we have relatively good competitive advantages, and there are many third party data and our own data to prove that.

For example, we just mentioned our MAU and DAU all achieved historical high in the second quarter.

The user activities, for example, the DAU to MAU ratio still remain at a very high level.

It is the same case for the user usage time.

So all of those data prove that as a leading online recruitment platform, on every prospective, our comparative landscape is relatively stable and continued in a good trend.

(spoken in foreign language)

And in terms of guaranteed full-year profit target.

So we believe it's very critical for our core employees, for our management, to have this target.

This is part of our confidence that this firm is very stable and strong.

So on the strategic perspective, first one, our full year user growth target is 40 million to 45 million.

And in the first six months, the first half of this year, we have already achieved 28 million.

So there are only 12 million to 17 million left for us to grow.

It should be relatively easy to achieve.

So we can control our overall spending on marketing appropriately to achieve our profit target.

Second, under current circumstances, we want to better use our resources and to move the priority of those project with lower success rate and higher target, and to postpone their resource usage and prioritize the importance of reducing the overall cost.

And this can be achieved through internal management and, we believe, with high level of proficiency.

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

So regarding our bottom-line and the major cost and expenses item, I'll quickly mention our thoughts.

As Jonathan just mentioned, we would like to try our best to secure our operating profit.

Our target for full year of non-GAAP operating profit is set as RMB2.3 billion, which is roughly up 40% year over year on top of last year's adjusted non-GAAP adjusted operating profit.

So in terms of our gross margin, our gross margin will, in Q3 or following quarters, stay flat or slightly improve due to higher economy of scale.

And our marketing expenses, as Jonathan mentioned, will be controlled and at a relatively low level.

Our selling expenses and the G&A expenses, those core expenses items will all be moderate and in a reasonable situation.

And in terms of the R&D expenses, because we probably will shift our priority from some AI related infrastructure investments into other things.

So from third quarter or from second half, this part of the expenses will decrease.

So altogether, our operating margin will increase in the second half, and the full year operating margins versus last year will also be better.

(spoken in foreign language)

And for the market share which a lot of investors are concerned and have asked a lot about, after experiencing the years passed, we notice that on the current situation, every dollar we spend, there will be more jobseekers and less enterprise users.

So the CB ratio currently is a challenge for the platform which is based on the supply demand balance of both sides.

So from this perspective, to keep a balanced CB ratio, actually we don't need to spent money too aggressively.

That is my view to share.

In addition, to increase the dollar market share on enterprise user side, currently the overall paying desire of the enterprise are not that strong.

So the best and most effective way to enlarge our enterprise market share is to start a price war.

Currently, it is time to do that, but I'm not planning to take even more share by lowering our price.

I don't think this is a meaningful thing to do at current situation, and that's my view to share.

And thank you, let's move on to the next question.

Eddy Wang, Morgan Stanley.

(spoken in foreign language)

Thank you, management for taking my question.

We understand that the macro situation since second quarter has been relatively weak.

So just want to hear your view that have you witnessed any improvement in the recruitment demands in August versus June and July?

And how is the performance of different industries and the different enterprises with different scales?

And the second question, if the macro continues to be relatively weak, will we have any change in the business strategy to offsets the backwards impact.

Thank you.

(spoken in foreign language)

So first, we cannot talk about the macro, but we can share our own situation, which we observe from our website and APP.

First one is, in the second quarter, the overall willingness to pay from the recruiters was lowering.

And secondly, the blue-collar growth is still better than white collar, that one still stand.

(spoken in foreign language)

Further look into to blue-collar sector, there are several observation we can share with you.

The first observation is that the overall blue-collar recruitment demand reached a peak historical high in the Spring Festival recruitment season, but just fell back and fluctuated in the second quarter.

(spoken in foreign language)

Even in relatively faster fell back in the second quarter, we still see very good year-over-year growth in terms of blue collar revenue in the second quarter.

And among the detailed subsectors there is one highlight, which is the manufacturing industry continue to outperform all other industries, and after that is the logistics sector.

(spoken in foreign language)

And there are also other two observations worth sharing.

First, compared to the first tier cities.

The recruiter and enterprise user growth is better and faster in the second, third, and fourth tier cities.

And the second one is there is a continued trend, which we have already discussed in the last quarter results, that the larger size of the enterprise grew better, for example, big enterprises with over 10,000 employees have the fastest growth rate.

(spoken in foreign language)

And about recent situation in August.

And we'll continue to talk about the blue-collar.

So blue-collar overall supply and demand situation in August is better than the second quarter, and the enterprise to jobseeker ratio continued to see improvement.

And we observed that daily active enterprise user number continue to go up week by week, and manufacturing industries are still the best among all others.

(spoken in foreign language)

And the second question about what kind of monetization strategy we can use to against the macro headwinds.

The thing we are currently doing first, is to concentrate our resources to the business department which we - because its longer outlook, we give limited resources to, for example, on the blue collar manufacturing industry, from Hailuo Conch project to Conch Select to generate revenues.

We are currently enhancing our investment and the input on this area.

(spoken in foreign language)

I cannot be very certain to say that the Conch Select project will have very big revenue from our cooperation with blue collar manufacturing industry in the third and fourth quarter of this year.

But we believe this is the first real actual chance for the online recruitment platform to go into the blue-collar manufacturing industry and make some real money.

And that's my answer to your question.

Robin Zhu, Bernstein.

(spoken in foreign language)

So two questions.

One would management elaborate on recent developments in the company with regards to the W.D acquisition?

I'm wondering if management could give us more color on overseas and investments in AI.

And second, given the weakness in the company's shares in recent times and Could management share some thoughts on go-forward buybacks and whether the company will consider instituting a regular dividend.

Thank you.

(spoken in foreign language)

Thank you for your question.

The first one on Wodedagongwang, W.D. Technology.

I have mentioned that in our conference call before, because Jason, the CEO is a very respectable peers of ours.

And since their establish in 2015 until now, they are able to become the number one in their own area.

So to purchase the majority of the stake of W.D Technology is out of the recognition and respect of Jason, the CEO and his team’s work in this area and it is not just our further expansion into the area, is it more likely to add capabilities which is difficult to develop by ourselves.

(spoken in foreign language)

Jason and his team, we fully recognize his knowledge, and the industry fully recognize their knowledge and know-how and the model in the manufacturing industry.

Currently he is working with us for three things.

First of all, they are fully independently to lead the development of W.D Technology?

(spoken in foreign language)

And the second thing is to help the Company to push forward the overall environment improvement under the Conch Project and the monetization of the commercial plan under the Conch Select Project.

(spoken in foreign language)

And the third one, which is not suitable to discuss more details publicly at this moment, is that Jason is currently leading the operational team of W.D technology.

Part of our R&D team together combines the advantages of our traffic and their experience and know-how in the industry to combine together to published a new product or service which we are rather looking forward to that, but maybe in the next quarter.

(spoken in foreign language)

And for our overseas business, first, for our Hong Kong initiatives, we have made some progress and have initially to publish a MVP service to serve recruiters in Hong Kong.

And to see how the users might act behave on our platform, this may take two to three months, and we will decide whether we can accelerate the development of this business.

And in terms of the revenue, a decent revenue from Hong Kong business.

I think it is a little bit early, maybe take more than the next two to three years.

And in the Asia and Europe area, and some developed countries, we have one take quite a long time to explore, and at current stage what I can say is that I'm satisfied with the local team we have recruited, and we are confident.

(spoken in foreign language)

And the third one regarding the generative AI, I have shared some of our thought before and maybe add more here.

So there are two points.

First, in a scientific perspective, we are executing Taillight project, which is for our research guys, our test guys to understand, to know, what the most developed technology in this area is and what they are doing.

But we are not planning to invest more resources.

Actually we cannot afford to actually do that.

So we know what they're doing and kept up with the most advanced technology.

On the application level.

So our strategy is still: if something are not happening before the emerge of generative AI technology.

Then we give priority to that.

So under that strategy, we have some good application in the industry level.

We are using it internally.

(spoken in foreign language)

And about the shareholder returns, we have long been insist on providing the shareholder return to our shareholders, which I believe is basic for the company, and we always attach great importance to that.

So because it is a very true problem, very crucial point for the core shareholders and employees to maintain our strong confidence.

So it's very essential and important to do a good shareholder return project.

So we have a USD200 million share buyback program, and in the last four months, we have already bought USD 88 million.

This is a real number and a real act we have done for the Company of our size, and we will continue to do that.

(spoken in foreign language)

And about the dividends, I can say that for potential dividend payout plan, we are still under research.

And that's my answer to your question.

And given the time constraint, I think that's the last question on the call.

Operator.

Thank you.

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 once again for joining us today.

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

Thank you.

Thank you.

You may now disconnect.

Good day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.

The interpreter was provided by the company sponsoring this event.