KANZHUN LIMITED：Corporate User Online Activity Reaches New Highs (4Q23 Earnings Call Summary)

Below is the summary of the earnings call for the fourth quarter of 2023 of $ Kanzhun.US . For an interpretation of the earnings report, please refer to Feeling a big difference? Kanzhun Zhipin "stamped" recruitment warming up .

I. Review of Core Financial Information:

II. Detailed Content of the Earnings Call

2.1. Key Points from Management's Statements:

1) User Coverage and Revenue Structure:

a) Significant user growth, with the annual user base expanding to over 100 million.

b) Blue-collar user growth is on par with white-collar users, contributing to 34% of the revenue.

c) Revenue contribution from second-tier and below cities exceeds 50%, with an increase in revenue contribution from small businesses.

d) Products and services cover various user types, benefiting from user demand research and technological investments.

2) AIGC Field Investments and Technological Applications:

a) Launched large-scale models designed specifically for the recruitment industry, achieving industry-leading levels in public benchmark tests.

b) Investment principles: tracking cutting-edge technologies, focusing on industrial applications, and avoiding blind investments.

c) Large models have gradually been applied to recruitment and job seeker scenarios, optimizing service experiences, such as providing fast job posting functions for startups and resume optimization functions for young people and fresh graduates.

3) Highlights of the Fourth Quarter Performance:

a) Cash flow reached a historical high, with a 61% year-on-year increase and a 9% QoQ increase, meeting expectations.

b) GAAP revenue increased by 46% year-on-year to 1.58 billion, remaining stable QoQ with lower seasonal factors.

c) Growth in revenue contribution from major clients and ARPU QoQ increase, with a clear recovery trend in medium and large enterprises.

d) Adjusted net profit was 630 million, exceeding expectations in performance.

4) Full-Year Financial Performance:

a) Cash revenue increased by 45% year-on-year to 6.65 billion.

b) Full-year GAAP revenue increased by 32% to 5.95 billion.

c) The number of paying customers increased by 44% year-on-year, reaching 5.2 million, with both the payment ratio and the payment rate of active users reaching new highs.

d) The adjusted operating profit margin increased to 27.5%, a 15 percentage point increase compared to 2022.

5) Cost and Expense Structure:

• In the fourth quarter, total operating costs and expenses decreased by 4% year-on-year to 1.4 billion yuan.

• The increase in revenue costs was mainly driven by server, bandwidth, and payment processing costs, rising by 36% year-on-year to 275 million yuan.

• Sales and marketing expenses remained around 2 billion yuan for the whole year, decreasing by 36% year-on-year to 433 million yuan.

• Research and development expenses increased by 46% year-on-year to 430 million yuan, with a 31% annual growth, mainly invested in talent and AI technology.

• General and administrative expenses decreased by 19% year-on-year to 225 million yuan, with a 13% annual growth, significantly dropping after excluding equity incentives.

6) Net Profit and Cash Flow:

• Net profit in the fourth quarter reached 331 million yuan, with an annual net profit of 1.1 billion yuan.

• Adjusted net profit increased from 59 million yuan in 2022 to 629 million yuan in 2023, and the annual figure rose from 799 million yuan to 2.2 billion yuan.

• Operating cash flow in the fourth quarter was 92.7 billion yuan, totaling 3 billion yuan for the whole year.

• The total amount of cash and cash equivalents, time deposits, and short-term investments was 12.9 billion yuan, with long-term investments at 2.3 billion yuan.

7) Shareholder Returns and Capital Operations:

• Paid out 563 million yuan in cash dividends.

• The board approved a new share repurchase plan, expanding to 200 million US dollars.

8) Business Trends and Outlook:

• Recruitment demand recovered after the Spring Festival, with user metrics reaching new highs, positively impacting the company's business.

• Recruitment demand increased for large enterprises and various industries, particularly in blue-collar sectors, accelerating growth in manufacturing, supply chain, and logistics industries.

• Significant growth in business-related positions, such as sales and human resources, with a noticeable rebound in growth rates.

• It is expected that cash revenue will increase by at least 12% in the first quarter of 2024, with total revenue estimated to be between 1.64 billion yuan and 1.67 billion yuan, a year-on-year growth of 28.3% to 30.7%.

2.1, Q&A Analyst Q&A

Q: How does the recruitment demand situation vary across different industries and enterprise scales compared to last year? What are the expectations or forecasts for revenue growth this year?

A: Recruitment demand on the enterprise side has shown a year-on-year increase, with a growth rate higher than that on the job seeker side, leading to a continuous improvement in the ratio between job seekers and enterprise users. In any specific industry, the balance between enterprise users and job seekers has always been sought.

Since this year's Spring Festival, the ratio between enterprise users and job seekers is gradually moving towards a relatively normal situation. Confidence in the market and the future is being restored by enterprises, with online activity reaching new highs and showing significant year-on-year growth. Recruitment demand in blue-collar-related industries such as manufacturing, logistics, and urban surveys has recovered well after the Spring Festival. Coastal cities and regions more closely related to foreign trade economies have shown better growth performance, implying a strong performance in export-related manufacturing.After last year's Spring Festival, small and micro-enterprises showed a good recovery trend, while the recovery trend of large enterprises was somewhat delayed. However, this year, large enterprises (with more than 1000 employees) have shown better growth compared to medium-sized enterprises. This situation has been ongoing since August last year and continues until after this year's Spring Festival, indicating a continuous recovery in white-collar recruitment.

Last year, the performance showed a trend of improvement quarter by quarter, from the first quarter to the fourth quarter, and extending into the first quarter of this year. The company hopes that this trend can be maintained. In the first quarter of this year, it is expected that the calculated cash billings will achieve a MoM growth of 12% compared to the fourth quarter of last year. We are confident that we will continue to achieve crucial growth in the second quarter.

Q: Competitors have increased marketing expenses after the New Year. What are the user growth and marketing strategies for this year? Any new changes in the competitive environment? Outlook on operating expenses and profit margins for this year?

A: Regarding the competitive environment, based on third-party data and company-owned data, no fundamental changes have been found. Some peer companies have increased marketing investment after this year's Spring Festival, possibly due to signs of revenue improvement, making companies more willing to invest more in marketing.

For user growth targets, the company still aims for an annual growth rate of at least 14% and will maintain reasonable marketing expenses to sustain a competitive advantage in user penetration and market share. Despite peers increasing marketing investment, the company will not excessively increase marketing expenses but will maintain reasonable investment to stay competitive. In terms of user acquisition, the company aims to maintain rapid user growth while controlling the proportion of marketing expenses to revenue, ideally slightly lower than the level in 2023.

Regarding gross margin trends, in the short term, the fourth quarter is a low season due to seasonal factors, so the gross margin may slightly decrease. The gross margin in the first quarter is expected to remain stable, mainly due to higher payment processing fees from high online revenue contributions. For the full year 2024, the company expects an improvement in gross margin, mainly benefiting from personnel cost optimization and rapid revenue growth.

In terms of other expenses such as research and development, sales, general, and administrative expenses, the company does not intend to significantly increase these expenditures, so operating profit and net profit will continue to show an upward trend.

Q: What is the company's commercialization strategy for this year? What are the expected trends in payment ratio and ARPU (average revenue per user)? How is the current progress in the blue-collar business, and what are the future planning directions?

A: The company's recent report indicated that in the latest quarter, there was a revenue of 5.2 million yuan from enterprise customers within the past 12 months, which is the highest level in history. The comprehensive ARPU in the previous quarter slightly decreased, mainly due to the increased contribution from small and medium-sized enterprise customers, leading to a slight decrease in comprehensive ARPU.

However, when observing small and medium-sized enterprise accounts and large enterprise accounts separately, their ARPU increased in the previous quarter. Compared to 2022, the overall payment rate in 2023 increased by 3 percentage points. The platform's payment rate is still at a relatively low level, indicating significant room for growth. The company expects it will take several years to gradually increase the payment rate.In the short term, the growth of paid enterprise customers mainly comes from user groups and the company's profit strategy. This year, the company will continue to rapidly acquire new users, bringing in new business users and paid enterprise customers. Looking ahead, the company expects the payment rate to continue to rise and benefit from the recovery of large enterprises. This will increase the payment rate and ARPU, supporting the company's long-term commercial growth.

The blue-collar business continues to grow healthily, with a 22% year-on-year increase in revenue. The proportion of blue-collar business in total revenue has increased from 28% to 34%, demonstrating its strong performance. The blue-collar business mainly includes urban services, manufacturing, construction, as well as warehousing and logistics. Although the number of users in each sector is less than white-collar workers, the overall number is still considerable.

In the four main areas of the blue-collar business (urban services, manufacturing, construction, warehousing, and logistics), there have been declines in certain aspects in two to three areas, which is actually a zero-sum game. At the same time, the industry situation in the manufacturing sector has been different from previous years in the past two to three years. The company will continue to focus on this area to improve the status of the blue-collar business.

Q: What are your views on future capital return policies? With nearly $2 billion in cash on the company's balance sheet, will the company commit to implementing a systematic capital return plan as revenue and cash flow grow? How does the company use artificial intelligence to capture more value and profit in the recruitment process? Are there any new ideas or specific plans for overseas expansion?

A: The company has clear goals and arrangements for cash distribution, primarily to optimize capital structure and enhance shareholder returns, which is the responsibility of the management team and CEO of a listed company.

With approximately $1.5 billion in cash on hand, the priority for using this cash is first for future development, user growth, and expanding the application scope of advanced models to cover more groups and industries.

The second priority is to provide returns to shareholders. The company is currently exploring various possibilities and considering continuing to pay dividends in cash after paying a special cash dividend for the first time last year. Regarding share repurchases, the company has approved a new $2 billion buyback plan, which has been and will continue to be executed to ensure shareholders' ownership percentage.

The company stays synchronized with the latest technology and teams to avoid knowledge gaps and continues to drive the implementation and application of AI in the industrial sector. When investing in AI, the company makes decisions based on whether a certain development must rely on AI. For areas that can operate well without AI dependence, the company invests cautiously.

The company's overseas business goals are clear, with profitability as the primary objective. The company chooses to invest in countries or regions ranked in the top five or six of GDP, where the business environment is mature, companies are accustomed to paying for services, and traditional business models can bring good returns. The company does not enter immature markets but focuses on targeting affluent populations for business expansion.

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