KANZHUN Q2 2024 Earnings Call Transcript

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August 28, 2024

Key Takeaways

  • Q2 Financial Performance: Cash billings reached RMB1.95 billion (+20% YoY), GAAP revenue was RMB1.92 billion (+29% YoY), with net profit of RMB420 million and adjusted net income of RMB720 million (+26% YoY).
  • User Growth Momentum: Average verified MAU rose 25% YoY to 54.6 million, 28 million new verified users were added in H1, and paid enterprise customers grew 31% YoY to 5.9 million.
  • Second‐quarter cash billing growth weakened sequentially and fell below expectations due to softer recruitment demand in late Q2 and a higher enterprise‐to‐job seeker ratio.
  • Blue collar manufacturing market initiative delivered over RMB40 million in Q2 revenue through the COMT Select project, reflecting early success of the strategy to improve agent quality and service integrity.
  • Shareholder Returns: The company repurchased US$88 million of its shares in the past four months and plans to continue buybacks to reinforce shareholder confidence.
AI Generated. May Contain Errors.
Earnings Conference Call
KANZHUN Q2 2024
00:00 / 00:00

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the CanGen Limited Second 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

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

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to our Q2 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 unknown 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 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. Thank you for joining our company's Q2 2024 Earnings Conference Call. I will start with our financial numbers.

Speaker 1

In the Q2, 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 1,000,000. Meanwhile, our adjusted net income, which excludes share based compensation expenses, rose to RMB720 1,000,000, up 26% year on year. In the Q2, the average verified MAU on the bus shipping app grew by 25% year on year to 54,600,000.

Speaker 1

From January to June this year, the company attracted around 28,000,000 newly added verified users. The total paid enterprise customers in the 12 months ended June 30, 2024 reached 5,900,000, representing 31% year on year growth. Our cash billings in the 2nd quarter still have a decent year on year growth, however, weaker on a quarter on quarter basis and a little bit lower than our expectation. This was mainly due to weaker demand from the recruitment side in the later 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.

Speaker 1

In this case, most enterprise users found it easier to hire. For example, a project team that took 3 months to fill all the positions in the past now only takes 2 months, reducing enterprise users' desire to spend more money on recruitment. We noticed that the growth trend of enterprise users is still good. There are 2 proofs. First, in the second quarter, the number of newly added enterprise users was higher than that of the same period last year.

Speaker 1

2nd, the average monthly active user of enterprises 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 Q2. This is a good news for the company. We believe the 2nd quarter performance is a temporary situation.

Speaker 1

Long term structural growth opportunities remain strong. Our confidence is grounded in 3 factors. First, the Chinese market is a huge economy with the highest small and medium sized enterprise activity and the largest number of enterprises. 2nd, there is a persistent shortage of labor supply, particularly among younger generation, which is unlikely to change in the near future. 3rd, our efficient service model is best suited to address the challenges presented by the first two factors.

Speaker 1

Under current situation, the company's management team believes we should do what is best suited for the moment. Today, I will talk about 3 things. 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.

Speaker 1

Ensuring profitability for the year will help to sustain confidence in the company, which can be achieved through further refinement of our management. 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. 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. The history is 3 years ago, we started by purifying the job seeking and recruitment environment through what we call the Coach Project, Hai Luo.

Speaker 1

The orientation of this initiative has 2. 1st is to protect the overall job seeking process of the job seeker. 2nd was to help Blue collar agents and organizations make money recently. 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.

Speaker 1

Good guys who commit to treating job seekers with integrity, posting authentic job details and salary information and now receiving better results. We have named these trustworthy agents as platform certified contact. The latest data is our Quant Select project generated over RMB40 1,000,000 in revenue in the 2nd quarter, which is much higher than that in the Q1. These good signs make me feel that our strategy and the persistence in the past few years are correct. The third thing is our overseas business.

Speaker 1

As we all know, economies 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 big shift to support sustainable growth. In particular, Baustruti Ping has pioneered our current model globally. This model is very likely to provide value and gain space for survival and development in various regional market through localization, hybridization and evolution. While we are seeing promising progress in Europe and Asia, it's still too early to report on the results.

Speaker 1

Last but not least, it's important to address confidence again, particularly in terms of strengthening the returns for our shareholders who have constantly supported us since our IPO. For example, we will continue to increase our share buyback efforts. We have bought over US88 $1,000,000 repurchased in the past 4 months. This all will help to reinforce the valuable confidence of our shareholders and management. That concludes my part of the call.

Speaker 1

I will now turn it over to our CFO, Phil, for an overview 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 Q2 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.

Speaker 2

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, smallmedium 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 5,900,000. The paying ratio was higher than last year, but sequentially kept stable.

Speaker 2

We are happy to see that AR PPU average paying per paying user of paid users increased around 3% year on year and 3% sequentially, reaching the highest level in the past 4 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 products and services. Moving to the cost and expenses side. Excluding share based compensations, adjusted operating costs and expenses increased by 20% year on year to RMB1.3 billion and led to an adjusted operating profit of RMB660 1,000,000 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 hit an all time high.

Speaker 2

Cost of revenues increased by 17% year on year to RMB317

Speaker 3

1,000,000

Speaker 2

in this quarter, representing a gross margin of 83.5 percent continued its upward trend. Sales and marketing expenses increased by 16% year on year to RMB545 1,000,000 in this quarter. This increase was mainly driven by our enhanced investment in customer acquisition as well as higher sales commissions. R and D expenses increased by 21% year on year to RMB444 1,000,000 in this quarter. Excluding share based compensations expenses, adjusted R and D expenses increased by 28% year on year to RMB334 1,000,000.

Speaker 2

This increase was primarily driven by our earlier investments in AI infrastructure, which generated a higher depreciation cost. Our G and A expenses increased by 29% year on year to RMB261 1,000,000 in this quarter. Adjusted G and A expenses increased by 21% year on year to RMB153 1,000,000, mainly due to increased employee related expenses. Our net income was RMB470 1,000,000 in this quarter, up 35% year on year. And our adjusted net income in this quarter reached RMB792 million and increased by 26% year on year.

Speaker 2

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 4 months, we have repurchased a total consideration of US88 million dollars which demonstrated our commitment in shareholders' return and long term confidence of our business.

Speaker 2

And now for our business outlook. For the Q3 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 queue.

Operator

Thank you. Our first question comes from Timothy Zhao with Goldman Sachs. Your line is open.

Speaker 3

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?

Speaker 3

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

Speaker 1

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 that our own base has to prove that. For example, we just mentioned our MAU and DAU all achieved historical high in the Q2.

Speaker 1

The user activities, for example, the DAU and MAU ratio still remain at a very high level. So in the same case for the user usage time. So all of those data has proved that as a leading online recruitment platform, every perspective, our competitive landscape is pretty stable and continued in a good trend. 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 and is a testifier whether this firm is very stable and strong.

Speaker 1

So on a strategic perspective, the first one is our full year user growth target is 40,000,000 to 45,000,000. And in the 1st 6 months, the first half of this year, we have already achieved 28,000,000. So there are only 12,000,000 to 17,000,000 left for us to grow. It should be relatively easy to achieve. So we can control our overall spending on marketing to appropriately achieve our profit target.

Speaker 1

2nd, on the current circumstances, we want to better use our resources and to move the priority of those project initiatives with lower success rate and higher target to postpone its resource usage and prioritize the importance of reducing the overall cost. And this can be achieved through internal management and with we believe this will be very high level proficiency. In terms of detailed data, I think Phil can give you some more color.

Speaker 2

Regarding our bottom line and the major cost and the expenses item, I'll quickly mention our thoughts. As Johnson 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 3rd quarter or following quarters will stay flat or slightly improve due to higher economy of scale. And our marketing expenses, as Johnson mentioned, will be controlled and at relatively low level.

Speaker 2

Our selling expenses and G and A expenses, those expenses items will all be moderate and in a reasonable situation. And in terms of the R and D expenses, because of we probably will shift our priority from some like AI related infrastructure investments into other things. So from third quarter or from second half, this part, the expenses will decrease. So altogether, our operating margin will increase second half and versus the full year operating margins versus last year will also be better.

Speaker 1

Thank you. And for the market share, which a lot of investors are concerned and have asked a lot about, we actually after experiencing the years past, we noticed that on the current situation, every dollar we spend, there will be more job seekers and less enterprise users. So the CP ratio is currently is a challenge for the platforms who is based on the supply and demand balance of both sides. So from this perspective, to keep the balanced CV ratio, we actually we don't need to spend money too aggressively and that's my view to share. In addition to increase the dollar market share on the enterprise user side, currently the overall paying desire of the enterprise are not that strong.

Speaker 1

So the best and most effective way to enlarge our enterprise market share is to start a price war. And currently, it is a chance, it is a time to do that. But I'm not planning to take even more shares 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.

Speaker 1

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

Operator

Thank you. Our next question comes from Eddie Wong with Morgan Stanley. Your line is open.

Speaker 4

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 demand in August versus June July? And how is the performance of different industries and different the enterprise of different scales? And second question is, if the macro continue to be relatively weak, will we have any change in the business strategy to offset the macro impact?

Speaker 4

Thank you.

Speaker 1

First, we cannot talk about the macro, but we can share with our own situation, which we observed from our website and app. First one is, in the second quarter, the overall willingness to pay from recruiters are slowing. And secondly, the blue collar growth is still better than white collar. That's why it still stands. And let's further look into blue collar.

Speaker 1

There are several observations we can share with you. The first observation is that the overall blue collar recruitment demand reached peak historical high in the pre festival recruitment season, but just fall back relatively faster in the second quarter. Even relatively faster pullback in the second quarter, we still see a very good year on year growth in terms of the blue collar revenue in the Q2. And among the detailed subsectors, there is one highlight, which is the factory industry continue to outperform all other industries. And after that is logistics sector.

Speaker 1

And there are also other 2 observations worth sharing. 1st, compared to the 1st tier cities, the recruiter 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's results, that is a larger size of the enterprise growth grow better. For example, big enterprise with over 10,000 employees at the companies with the fastest or the faster growth rate. And about our recent situation in August, we'll continue to talk about the blue collar.

Speaker 1

So blue collar, the overall supply and demand generation in August is better than the Q2. And the enterprise to job seeker ratio continue to see improvement. And we observe the daily active enterprise user number continue to go up week by week. And manufacturing industries are still the best among all others. And the second question about what kind of monetization strategy we can use to against the macro headwinds.

Speaker 1

So since we are currently doing, 1st, is to concentrate our resources to the business and department, which we because it's faster a lot longer outlook, we give limited resources to. For example, on the blue collar manufacturing industry, we from high low point project to contact and to generate revenues, we are currently enhancing our investment and the input on this area. I cannot be so very certain to say that the Comte Select project will have very big revenue from our corporation with blue collar manufacturing industry in the 3rd Q4 of this year. But we believe this is the first real chance, 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.

Operator

Thank you. Our next question comes from Robin Zhu with Bernstein. Your line is open.

Speaker 2

In the company with regards to the WT acquisition? If management could give us more color on overseas and investments in AI? And second, given the weakness in the company shares in recent times, could management share some thoughts on go forward buybacks and whether the company will consider instituting a regular dividend? Thank you.

Speaker 1

Thank you for your question. The first one on what the download WD Technology, I have mentioned that in our conference call before. And because Jason, the CEO is very respectful peers of ours and CECL is actually in 2015 until now and they are able to become the number 1 in their own areas. So to purchase majority of

Speaker 4

the

Speaker 1

shareholder stake of WEE Technology is out of the recognition and respect of Jason Seo and his team work in this area. And it's not just our full extension into the area, it's more likely to add ourselves with some capabilities, which is difficult for me to develop ourselves.

Speaker 2

The more Jason say you're going

Speaker 4

to have a time to say,

Speaker 1

And Jason and his team, we fully recognize his knowledge and the industry actually has fully recognized their knowledge, know how and model in the manufacturing industry. And currently, he is working with us for 3 things. First of all, they are fully independently to lead the development of WTE Technology. And the second thing is to help the company to push forward the overall environment improvement under the COMT project and the monetization in commercial project commercial plan under the COMT Select project. And the third one, which not super to discuss more details publicly at this moment is that Jason is currently leading the operational team of WD Technology and part of our R and D team to together combine the advantages of our traffic and their experience and the know how in the industry to combine together to publish new product or service, which we can't we will rather looking forward to that, but maybe in the next quarter.

Speaker 1

And for our overseas business, first, for our Hong Kong initiatives, we have made some progress and have initially to publish the MVP service to serve the recruiters in Hong Kong and see how the users might act or behave on our platform. This might take 2 to 3 months and then we will decide whether we can accelerate the development of this business. And in terms of the revenue, which the decent revenue from Hong Kong business, I think, is a little bit early, maybe take maybe more than next 2 to 3 years. And in the Asia and the Europe area, we and some developed countries, we have 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 have positive.

Speaker 1

And the third one regarding the AF Generative AI, I have shared some of our thoughts before and maybe some parts and most here. So there are 2 points. 1st, in a scientific perspective, we are executing a tail light project, which is for our research guys, our tech 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 can we're not affordable to do that to actually do that.

Speaker 1

So we just know what they are doing and kept up with the most advanced technology. On the application level, so our strategy is still are, if something are not happening before the emerge of generative AI technology, so we give priority to that. So under that strategy, we have some good application in the industry level. So we are using it internally

Speaker 3

now.

Speaker 1

And about the shareholder returns, we have long been insist on providing shareholder return to our shareholders, which is basic ethic for the company and we always attach great importance to that. So which because it's a very true problem, very true, 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 US200 $1,000,000 share buyback program. And in the last 4 months, we have already bought $88,000,000 This is a real number and real act we have done for a size of our for a company of our size, and we will continue to do that.

Speaker 1

And about the dividend, I can say that for potential dividend payout plan, we are still starting to start on the research. And that's my answer to your question. And given the time constraints, I think that's the last question for our call operator.

Operator

Thank you. 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.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please contact our IHR team directory or GPD Financial Relations. Thank you.

Operator

Thank you. You may now disconnect. Good day.

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