Kanzhun Q1 2024 Earnings Call Transcript

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May 21, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Tianjin Limited First Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a Q and A session. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms.

Operator

Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to our Q1 2024 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao and our Director and CFO, Mr.

Speaker 1

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 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.

Speaker 1

In addition, a webcast replay of this conference call will be available on our website at ir.jipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO. Hello, everyone. Welcome to our company's Q1 2024 earnings conference call. On behalf of the company's employees, management team and Board of Directors, I would like to thank our users and investors who have always believed in us and supported us.

Speaker 1

Let me first introduce our financial performance. In the Q1, the company achieved a calculated cash billings of RMB2.05 billion, up 24% year on year and 15% quarter on quarter. Our GAAP revenue reached RMB1.7 billion, up 33% year on year and 8% quarter on quarter. We achieved a net profit of RMB240 1,000,000. Meanwhile, our adjusted net income, which excludes share based compensation expenses, was RMB530 1,000,000, up 117% year on year.

Speaker 1

In the Q1, the average verified MAU on the bus shipping app reached 46,600,000, representing a 17% year on year growth. The growth rate of enterprise users is faster this quarter compared with the same period last year. In March, the number of verified MAU on the bus checking app exceeded 50,000,000 for the first time reaching 55,000,000, up 24% year on year. At the same time, the ratio of DAU to MAU remains stable. As of the end of April, the cumulative number of verified users served by our platform exceeded 119,000,000 with the cumulative number of verified enterprise surpassing 40,000,000, which means from January to April this year, the company attracted more than 17,000,000 newly added verified As of March 31, 2024, approximately 5,700,000 enterprise customers across more than 3,500,000 enterprises conducted paid recruitment activities on bus Jiping during the past 12 months.

Speaker 1

In 12 months, there are more than 350,000,000 companies paid for our service. This number seems very large in terms of the global enterprise service market. It's even exceeding the total population of some countries. However, it only represents less than 10% of China's over 40,000,000 enterprises. So which means there is enormous growth potential in the number of paying companies for China's online recruitment service in the future.

Speaker 1

Furthermore, it is obvious to calculate that the average annual payment per enterprise is currently is less than RMB2000. As the vast pool of Chinese enterprises gradually becomes more willing to pay for valuable and mass path to be services, the situation will continue to prove, which means our pool will continue to rise. Therefore, for both bus stripping and the entire online recruitment industry in China, we see significant growth potential in both the number of paying enterprises and their ARPU. In our last earnings call, we shared some key characteristics of this year's pre recruitment season. Today, we would like to provide additional insights and updates on recent trends.

Speaker 1

First, still be blue collar segment. The number of blue collar users and this segment's revenue continue to grow rapidly. Among new users in the Q1, both the absolute amount and the growth rate of blue collar users surpassed that of the white collar users, with the blue collar users' revenue contribution climbing up to over 35%. It's worth mentioning that compared with last year, the manufacturing and the logistic industries have seen a good improvement in business sentiment this year, maintaining a steady upward trend. From the post spring festival to mid May, the number of daily average newly added job positions in manufacturing and logistic industries increased by approximately 40 percent compared with the same period last year.

Speaker 1

At the same time, the wide quarter sector has also shown some improvement trend. The second trend relates to enterprise size. Fruh them by the recovery in the white collar sector, the large companies recruitment demand has increased better year on year compared to that of smaller enterprises, showing the further recovery. And the third one is by city tiers. 2nd tierlowertier cities have showed continued increase in both user growth and the revenue contribution.

Speaker 1

However, the recruitment demand from 1st tier cities has also recovered to some degree this year compared to the same period last year. Manufacturing, supply chain logistics, Internet AI technology, finance and procurement trade subsectors have shown us to be better growth momentum recently. You may have noticed that we have recently acquired WD Technology, the leading manufacturing talent delivery platform in China for the DaqoWoS. At the same time, the Coint project, which we have been running for several years, have showed a very fast growing numbers of job proteins and enterprises. In the Q1, the Cote project number of active job position exceeded 260,000 covering more than 27,000,000 job seekers.

Speaker 1

So we believe that with Wodata Gongwang, more than 11 years of exploration and the industry experience combined with both Jatin apps, user scale and our exploration in blue collar service, we should be able to continue to explore more mature service in blue collar manufacturing industry and also in our revenue. That concludes my part of the call. I will now turn it over to our CFO, Phil, for the review of our financials. Thank you.

Speaker 2

Thanks, Jonathan. Hello, everyone. Now let me walk you through the details of our financial results of the Q1 of 2024. We are happy to report a solid start to the year, characterized by continuous expansion in our user base and engagement and sustained revenue growth. In this quarter, our revenues hit a new high and reached RMB1.7 billion in the quarter, representing a solid 33% year over year growth.

Speaker 2

Calculated cash billings reached RMB2.1 billion, up 24% year over year and 15% sequentially, showing a continued growth momentum. Our paid enterprise customers grew by 43% year over year to 5,700,000 in the trailing 12 months ended March 31. The faster growth rate of paid customers compared to that of total users indicates our increased paying ratio among enterprises and enterprise users. As Jonathan just mentioned, we noticed a recovery of recruitment demand from large companies. This trend is also demonstrated by the increased cash revenue contribution from key accounts in the quarter, which was up by 1.5 percentage points compared to the same period last year, while the downward trend of blended GAAP related ARPU due to the change of revenue structure mix has also been mitigated.

Speaker 2

Moving to the cost side, total operating costs and expenses increased by 17% year over year to RMB1.6 RMB1.6 billion in this quarter. Excluding share based compensation expenses, adjusted operating costs and expenses increased by 14% to RMB1.3 billion in this quarter, And our adjusted operating margin was 23%, doubled than that of 11% in the same quarter last year. Cost of revenues increased by 20% year over year to RMB295 1,000,000 in this quarter. This increase was primarily driven by increases in server and bandwidth costs, payment processing costs and employee related expenses. Gross margin went up by 2 percentage points compared to the same period last year, thanks to higher revenue growth.

Speaker 2

Our sales and marketing expenses decreased by 8% year over year to RMB579 1,000,000 in this quarter. This decrease was mainly due to decreased advertising and marketing expenses, partially offset by increased sales compensation associated with the cash revenue growth. Notably, despite the discipline in the marketing investment, we still achieved a record high MAU and enlarged GAAP with our industry peers. Our R and D expenses increased by 40% year over year to RMB468 1,000,000 in this quarter. This increase has two reasons.

Speaker 2

1 is the increased employee related expenses, including year end bonus and share based compensation. The other even bigger reason is the result of our increased investment in generative AI development, which led to higher depreciation costs related to servers. Our G and A expenses increased by 64% year over year to RMB RMB270 1,000,000 in this quarter, mainly due to increased employee related expenses, including share based compensation expenses. Our net income was RMB292 1,000,000 in this quarter compared to RMB33 1,000,000 for the same quarter last year. Our adjusted net income reached RMB 531,000,000, up 117% year over year and adjusted net margin for this quarter was 31%, up by 12% percentage points year over year.

Speaker 2

Net cash provided by operating activities grew by 66% year over year to RMB906 1,000,000 for this quarter, mainly contributed by increased cash billings. As of March 31, 2024, our cash and cash equivalents, short term time deposits and short term investments totaled RMB11.9 billion, and our long term investments in time deposits and wealth management products were RMB3.4 billion. And now for our business outlook. For the Q2 of 2024, we expect our total revenues to be between 1.91 billion and RMB 1.96 billion, a year on year increase of 28% to 32 percent. With that concludes our prepared remarks.

Speaker 2

And now we would like to answer your questions. Operator, please go ahead with queue.

Operator

Thank you. Our first question comes from the line of Robin Zhu from Bernstein. Please go ahead. Your line is open.

Speaker 3

So my question is, could management share your observations on the state of recruitment demand in China by white collar, blue collar, KA's versus SMEs, etcetera, by industry compared to a year ago and the company's expectations last quarter? And can you also share some thoughts on both stripping zone business trends in the more recent months? And looking forward to the rest of Q2 thoughts on growth rates in the rest of the year and whether high comps in the service industry will have an impact on growth rates in the coming months? Thank you.

Speaker 1

Thank you for your question. If we look at the new job postings and their growth of their recruitment demand, we saw that this year, it's overall better compared to the last year. So every day, we saw we continue to see the new historical high of daily active bosses and daily active enterprises. On an overall accumulated basis, we saw that for the existing bosses, their activity is also better compared to last year. In the Q1, as we have just said, Blue Collar definitely grew better compared to other sectors, and we have just talked about numbers.

Speaker 1

And the highlight this year is still manufacturing and logistics. Urban service compared to a high base is not as fast as the other 2 sectors. In terms of the different company size, based on our historical experience and estimate, we talked about our view on different on the recovery of different sized companies. So we saw that the smaller companies, it has a faster recovery seat and the larger companies, it takes more time. But once they started to recover, it will show a different performance pattern compared to smaller companies.

Speaker 1

And currently, we saw that, yes, the larger companies in this recovery can last better and longer. I will share with one number that in April, for the enterprises with more than 500 persons, the steady newly added dropoutings compared to March grew by 2% month over month. We just talked about our newly added bosses. We talked about the activities of our existing bosses, about highlight of manufacturing and logistics sector, about medium and larger size companies. And those drivers have in line with our observation and expectations.

Speaker 1

And also there is another driver, which is lower tier cities, which is also have been successfully demonstrated by many other companies where they started with the 1st tier cities and then further penetrate into lower tier cities.

Operator

Cities.

Speaker 1

So overall, this year's recruitment market in terms of both size industries and regions, we saw it as more stable and more balanced and more normal situation. Normal is more consistent with what we have

Speaker 2

been Q1 was a strong quarter, performed much better than the same period of 2023. Q1 CCB guidance was announced in the middle of March within our last earnings call. The final results of quarter over quarter 15 percentage points growth turned out to be clearly better affected by the momentum around the end of March. Around this moment, about 10 days before the end of May, 2nd quarter's CCP guidance is still a bit early to tell. We now estimate that on top of Q1's high base, Q2 will continue to see sequential growth.

Speaker 2

Magnitude will be likely in low single digit percentage points quarter over quarter. Its year on year growth rate will be in the range of 28% to 32%, faster than that of Q1. And our full year's outlook of CCP growth is unchanged. So this is our answers to the Q2 and full year outlook.

Speaker 1

Okay. Thank you for your question and let's move on to the next

Operator

question. Thank you. Please stand by. Our next question comes from the line of Eddie Huang from Morgan Stanley. Please go ahead.

Operator

Your line is open.

Speaker 4

Thank you for taking my question. I have two questions. The first one is about the paying ratio. We have noticed that the company has very rapid growth of the paying enterprise users. Could you please share with us the paying ratio trend in the past couple of quarters?

Speaker 4

And on top of that, if you can share us the breakdown of the ARPU user growth as well as different sized enterprise contribution on the billings? And my second question is about upcoming graduation seasons. We remember that if you look at last year, the surge of the graduates during the summer actually has hit on the supply demand dynamic in the recruitment market. Just want to hear your view on the upcoming the season. And do you see this will happen again?

Speaker 4

Thank you.

Speaker 1

Thank you for your question. First, I will talk about our basic growth strategy for our revenue. Until the end of March 31, there are more than 350,000,000 paid enterprise customers using our service, which is less than 10% of China's total number of enterprises. And also, we have initially verified, demonstrated that our business model, our service model can adapt to a variety of vast range of different type of customers. So for me, for us, our future growth strategy is that we will continue to attract more and more enterprises to pay for our service for their recruitment.

Speaker 1

That's my basic growth strategy. And based on these premises, we will focus on to improve the number of paid enterprises. But since we that will be our key target since our dollar market share is quite low. So based on that, we intend to be very cautious in dealing with companies who have not paid for recruitment service or American recruitment service before, which means the priority of ARPU increase is not that high. And based on those situations, for larger companies, key accounts when there is a recruiter using our service, he will add to buy more accounts with us.

Speaker 1

In the same case, it's for the smaller companies and SMEs. When there are 1 recruiter using us and they will be more buying more accounts. So that leads to the result in the Q1, we saw that in our cash revenue perspective, both large accounts, medium sized, small sized companies, there are poor increased. And that which means every on average basis in every company, more users are using our service and also demonstrates the better recovery trend of larger companies. And the factors which related to our paying ratio, which is within 1 industry for a particular role, the number of recruiters and compared to that the supply of job seekers, if the supply and demand continue to grow, then we will gradually starting to charge for that type of growth to maintain a balanced supply and demand.

Speaker 1

For example, for real estate agent, where a lot of people are recruiting, a lot of companies are recruiting real estate agents, but very little job seekers want to do their job. So for real estate agents, our payment ratio is actually 100%. So the principle for the pay ratio is that with more recruiters that we invite industry and particular role with the will be higher paying ratio and then related to the increased ARPU. Since we have been doing this type of monetization for quite a while and have been relatively successful with this model. So we will continue to go down this way.

Speaker 1

So we were sticking to increase our penetration of paid enterprise customers. And if that happened, everything else will naturally follow. About your second question, the coming graduation season, last year, the situation is relatively difficult because post COVID, we have seen 2 or even 3 years of graduation coming out starting to looking for jobs in a short period window, the summer graduation season. So we'll see the competing heavily with each other. Last year, also, graduates who doesn't want to come out looking for jobs, that portion is larger compared to this year.

Speaker 1

There are two reasons for that. 1st, of 3 years of the COVID, they spend a lot of time at home and they're just reluctant to come out. And secondly, the job opportunities is relatively flat and the job opportunities they find interesting also are too less. So they don't want to come out a lot looking for jobs actively. We expect this year the situation should be better compared to last year.

Speaker 1

First reason is that the active opening job postings on our platform, as we just discussed, have reached historical highs this year and obviously improved compared to last year. And secondly, the large companies, white collars, large 1st tier cities, their recovery should be largely helped with graduates to find a job. I noticed a number. So after the spring festival till the middle of May, we saw that the full time jobs, the bosses who post a full time job actively talking with those graduates, the daily active job posting number grew by more than 30% year on year. As a matter of fact, Baox Shipping has tried our best to help those newly graduated children.

Speaker 1

We will continue to do that and wish them all the best. And that's my answer to all your questions. And operator, let's move on to the next one.

Operator

Thank you. Please stand by. Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead. Your line is open.

Speaker 5

Thank you, management, for taking my questions. I have two questions. The first question is regarding the blue collar sector. Is it after the company acquired the WD technology? Could you imagine share your thoughts on how to develop the blue collar business going forward?

Speaker 5

User contribution from the lower tier cities becoming bigger and bigger going forward. What is your thoughts on how to serve this kind of users going forward? And secondly, I think as we see the user growth so far this year is pretty good. Just wondering what is your sales and marketing strategy for the rest of this year, especially given the Paris Olympics is a few months away. Could you share your marketing campaign thoughts around the Olympics?

Speaker 5

Thank you.

Speaker 1

So thank you for your question. For the which we will short for WD, actually somehow similar with foster team. So we both founded in container team and have been with this industry for more than 11 years. So both we started as white collar platform focusing on Internet technology companies and WD, they focused and started with manufacturing factory workers. And so I have known WD for quite a long time.

Speaker 1

So my definition for them actually they are survivor of what's So WD, they are the pioneer in inventing some capability which is suitable for digital life, which combined with manufacturing related recruitment. So for example, they are one of the first to concentrate or prioritize the user experience of the drug seekers and for the users, helping improve their user experience. So that's why today they can be the leading platforms for certain regions. So this is the first time both have to discuss about our acquisition. So I will also want to share that our acquisition strategy is we want to acquire some core abilities respectfully, which cannot be accumulated by our own and that will help us to cut the chase and work together to achieve better results.

Speaker 2

Well, I can comment in the second question regarding to the user growth and marketing strategy. So basically, we will keep marketing expenses at a reasonable level and maintain a disciplined user growth approach. This is the way we mentioned many, many times. So definitely, we will like to leverage Paris Olympic Games to enhance our brand, but we will have to spend appropriately. Within current marketing environments, leading platform like us, we believe in rise higher economy of scale and have a better marketing efficiency, which means at a not heightened spending, our user growth is still satisfactory.

Speaker 2

Our new user growth totally recorded as RMB17 1,000,000 in the 1st full month this year, close to half of our annual target of 30,000,000 to 40,000,000 new users. So with this situation, we don't need to be extra aggressive at this front. So hope my comment answers your question.

Speaker 1

Okay. That's all of our answers. And operator, let's move on to next question.

Operator

Thank you. Please stand by. Our next question comes from the line of Yang Bai from CICC. Please go ahead. Your line is open.

Speaker 6

I will translate for myself. The first one is, have we seen any change in the competitive landscape after the spring recruitment? And the second one is, we have mentioned sales and marketing strategies for this year before. We also noticed that Internet companies are increasing their AI CapEx, including our AI related expenses. Have we adjusted our outlook on profit margin this year?

Speaker 6

Thank you.

Speaker 1

Thank you for your question. So for the first one regarding competition, this year, we have noticed that this spring, many of our peers, they or majority of them have spending more aggressively this year during this preface the current season. So we noticed that when we was also doing the same marketing investment, so the competition is more fierce. And so the overall spending has increased. During the last earnings call, I have also announced why, because this year, people feel that there is opportunity in the market and that they would like to spend more to increase their revenue.

Speaker 1

And after the competition of marketing in the Q1, So I think you have already noticed that the 3rd party data in April, so our the overall competitive landscape is very stable. And some data some operating metrics in the past, we are still maybe a little bit below our peers. And in April, we have surpassed all of our competitors in all the operating metrics. And so to conclude of the Q1's competitive situation that we very value, highly respect our peers' active marketing events. We firmly believe that to continue to improve our service for both job seekers and recruiters is still the effective or maybe the only effective way in terms of mapping strategies?

Speaker 1

And on numbers, so both MAU, DAU activity and the user time spent and all the operating metrics, we continue to maintain good momentum and advantages. And that's my answer for the competitive question.

Speaker 2

And regarding your second question related to our margin profile for the full year. So I could quickly run through the major cost and the expenses item and mention our thoughts. Regarding the gross margin, so basically the line below the COGS, gross margin, we think that will slightly improve due to a higher economy of scale starting from Q2. And so mainly marketing expenses, we think we'll maintain at a current level. Absolute amount will increase a little bit.

Speaker 2

Percentage wise, it will be flat or decline. In terms of selling expense, which is mainly compensation of sales guys, as percentage to revenue will be flat or decline. So combined, the selling and the marketing expenses, the total selling and marketing expense is total percentage points to revenue will further improve in 2024. And then is R and D expenses, which is related to, you just mentioned, AI spending. You're right that we increased our investment related to the AI.

Speaker 2

And but that part could be offset by the revenue in the full year. So the full year, percentagewise, R and D expense would be flat, similar percentage points compared to last year. And then is G and A. So G and A percentage to revenue for full year will be improved compared with last year. In Q1, temporarily, it's increased, but we expect the 2nd quarter will drop.

Speaker 2

So the full year percentage rise will be better compared with last year. So the trend I just mentioned feeds both for our GAAP numbers and our adjusted non GAAP numbers. So all in all, our operating margin in 2024 would like to improve along with our continued revenue growth. So that's my comment to the most cost items and the overall margin for the company.

Speaker 1

And that's all of our answer to the question. Operator, please go ahead.

Operator

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.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please contact our lead director. Thank you.

Operator

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

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Key Takeaways

  • Revenue & profit growth: Q1 cash billings reached RMB2.05 billion (+24% YoY) and GAAP revenue RMB1.7 billion (+33% YoY), with adjusted net income up 117% to RMB530 million.
  • User & enterprise expansion: Verified MAUs rose to 46.6 million (17% YoY) and paid enterprise customers to 5.7 million, still under 10% penetration in China’s 40 million enterprises, indicating significant growth potential.
  • Blue‐collar acceleration: Blue‐collar users and revenues grew faster than white‐collar, now contributing over 35% of revenue, with manufacturing & logistics job postings up ~40% YoY.
  • Margin improvement: Adjusted operating margin doubled to 23% (from 11% last year), gross margin expanded by 2 pp, and sales & marketing expenses declined 8% YoY.
  • Upbeat guidance: Q2 revenue is projected at RMB1.91–1.96 billion (+28–32% YoY), outpacing Q1 growth, while full-year outlook remains unchanged.
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Earnings Conference Call
Kanzhun Q1 2024
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