BOSS Zhipin: Against the Barriers, showing the essence of "small but beautiful"

$Kanzhun(BZ.US) The quarterly report has been released, with performance and guidance being roughly in line with expectations. Key indicators show mixed results, but regardless, BOSS Zhipin itself has no issues (competitive advantages, corporate governance), so it mainly depends on the macro environment. Therefore, both the quantitative guidance from management and qualitative descriptions are more important than the current performance.

At the same time, the market hopes that even if the improvement in the environment is slow, BOSS Zhipin can adjust its internal operations to reduce Beta impact and provide better returns to shareholders.

Specifically:

1. Revenue reflects actual pressure: The revenue growth rate in the fourth quarter is 3%, showing a significant contraction compared to the third quarter. Although there is an impact from last year's high base, it also lags behind previous years' performance on a month-on-month basis, especially after September 24th, where the market would somewhat increase positive sentiment in expectations.

Therefore, the rapid decline in Q4 revenue is somewhat disappointing. Starting from this quarter, the company will no longer disclose revenue guidance, so we can only rely on third-party data. From SensorTower's iOS data, the online revenue growth in February was still decent (+30%), but there was a disturbance due to the Spring Festival (this year's Spring Festival is earlier than last year's). If we exclude the Spring Festival disturbance, the growth may still face some pressure (-5%). Management needs to provide some short- to medium-term outlook based on the platform situation since March.

2. Revenue guidance slightly exceeds expectations: There will be some interference factors in the confirmation between revenue and revenue. Theoretically, the company can make minor adjustments internally, so despite the poor revenue performance during the same period, revenue can still maintain a growth rate of 15%, and the revenue growth guidance for Q1 2025 also reached around 12%. Given the significant changes in some policies and industries at the macro level, we need to see the company's cautious/optimistic attitude towards this guidance during the conference call.

From a business perspective, the growth rate of paid job seekers is faster, driven by both volume and price, but the contribution from corporate recruitment, which has slowed down in growth, accounted for nearly 99% of revenue.

3. Profit target of 3 billion remains unchanged: In terms of profitability, the fourth quarter actually saw good growth, with core business operating profit increasing by 69% year-on-year. However, market expectations were also high, and the expenditure on costs was slightly more than the market anticipated, with the net profit beat being more from contributions of other operating profits unrelated to the core business.

But the issue is not significant; it was also emphasized during the preview that marketing will be reduced this year, and SBC will fall below 1 billion. This year's Non-GAAP operating profit is still set at 3 billion, implying a profit margin of about 37%, with the company's long-term profit margin target being a Non-GAAP OPM of 40%.

4. Seasonal decline in traffic: The fourth quarter is a slack season for job seeking, but monthly active users fell to 52.7 million, slightly below market expectations. However, considering that this year's Spring Festival was earlier, it is estimated that many users' willingness to seek jobs has also diminished. But this change in user activity is a common characteristic of the industry, and based on third-party data, BOSS Zhipin's user scale expansion speed has always been higher than its peersAt the end of 2022, the company set a target of a net increase of 40 million monthly active users over the next three years. According to the Q4 situation, the current progress is somewhat lagging. The company mentioned that there will be no large-scale sponsorship expenditures for events this year, and marketing investments will be more stable. Therefore, how to acquire customers within a controllable marketing budget to meet targets is a matter worth paying attention to.

However, Dolphin Research believes that BOSS Zhipin has basically formed a strong brand presence as the leading recruitment platform. As long as it continues to maintain a good product experience, whether the user scale meets the target is not a key issue. The focus should still be on how to expand more corporate clients, especially in industry sectors where BOSS Zhipin has not excelled in its past development history, as well as in emerging market sectors.

5. Slow Recovery of Small and Medium Enterprises: In the fourth quarter, corporate recruitment revenue grew by 15%, mainly due to the increase in paid corporate users, which rose from 5.2 million to 6.1 million, a growth of 17%. At the same time, Dolphin Research calculated that the average payment from enterprises over the past 12 months has also increased month-on-month, indicating that the proportion of large enterprises is still rising.

A higher proportion of large enterprises will alleviate some of the fluctuations during adverse periods for BOSS Zhipin. Due to business operational inertia, the recruitment demand of large enterprises is generally more stable compared to small and medium enterprises. In the face of short-term environmental changes, large enterprises are relatively counter-cyclical.

6. Room for Increased Buybacks: One positive aspect for BOSS Zhipin is its good business model and healthy cash flow. In the fourth quarter, revenue of 1.8 billion generated a net operating cash inflow of 900 million, and by the end of the year, the net cash on hand was 14.7 billion (2 billion USD).

Currently, the buyback amount is approved for a total of 350 million USD in two phases in March and August 2024. In the fourth quarter, 90 million USD was repurchased, and this pace has clearly accelerated. For the entire year of 2024 (9 months), the buyback amount is 230 million USD. If this level of buyback continues this year (which means a new buyback plan needs to be approved), it corresponds to a 4% return rate based on the current market value of 7.5 billion USD, which is not particularly high.

However, ample cash reserves also provide the company with flexibility for increased buybacks, including the fact that it revealed last year that it was considering a dividend plan. Therefore, it is worth paying attention to what shareholder return arrangements the management will discuss in the conference call.

7. Comparison of Core Performance Indicators with Market Consensus Expectations

Dolphin Research's Viewpoint

Since the beginning of the year, the revaluation of Chinese concept assets has continued, and BOSS Zhipin's rebound has underperformed the index. In addition to being dragged down by macro factors, there are also reasons related to its AI attributes, which have not attracted hot capital. Of course, as an application layer, it is entirely possible to leverage AI in the short term, such as the company's internal South and North Pavilion large model, which has already integrated with Deepseek, aiming to improve the matching efficiency between job seekers and positions, and to launch AI Agents for both recruiters and job seekers. However, one question is, from a medium to long-term perspective, if AI strengthens its effect of replacing human jobs, will it also impact the recruitment demand for positions in enterprises?In a horizontal comparison of valuations, at first glance, it seems that capital shows a slight "preference" for BOSS Zhipin compared to other Chinese concept stocks. However, if we consider the current growth expectations, the current valuation does not fully reflect BOSS Zhipin's potential for growth:

According to the company's guidance, the target for this year is to achieve a Non-GAAP net profit of 3 billion yuan (set at the beginning of the year, pay attention to whether there are updates in the conference call). Therefore, after a round of revaluation, a market value of 7.5 billion yuan corresponds to an 18x Non-GAAP P/E level, but this year's profit growth expectation exceeds 40%. Clearly, the "zeroing out" of the valuation premium in the second half of last year was due to the pressure of macroeconomic factors, leading the market to gradually lose sight of BOSS Zhipin's long-term growth trajectory.

After all, beyond AI, the broader domestic consumption environment, aside from the sectors revealed by management such as education, finance, healthcare, as well as manufacturing and logistics, is largely still in a bottoming process. Since the beginning of the year, during the comparable period of nearly a month after the Spring Festival, BOSS Zhipin's online iOS revenue has still been in negative growth (if we do not exclude the impact of the Spring Festival disturbance, in the earlier Spring Festival this year, February's revenue grew by 33% year-on-year).

However, while avoiding excessive optimism, Dolphin Research also believes that at this point in time, repeating pessimistic expectations is equally meaningless, unless the US-China rivalry brings about a larger global negative impact. The greater possibility is that the bottom of the domestic macro cycle is slowly approaching, and subsequent policies are expected to further accelerate this bottoming process.

During the oscillation period before the macro truly bottoms out and rebounds, based on BOSS Zhipin's excellent business model and reliable management team, Dolphin Research believes that BOSS Zhipin can continue to exert its Alpha capability, at least maintaining the pace of profit growth and actively increasing shareholder returns using abundant cash flow. Therefore, even if there is a short-term retreat in the enthusiasm for the revaluation of Chinese concept stocks, the valuation adjustment for high-quality assets like BOSS Zhipin is precisely the opportunity to bend down and pick up treasures.

The following is a detailed interpretation

1. C-end traffic: BOSS Zhipin's user mindset remains stable

In the fourth quarter, the end-of-year recruitment off-season led to a decrease in job seekers' activity, with BOSS Zhipin achieving 52.7 million monthly active users, a decrease of 5.3 million users month-on-month. This is slightly lower than market expectations. However, considering that this year's Spring Festival is relatively early, it is estimated that many users' willingness to seek jobs has also diminished. But this change in user activity is a common characteristic of the industry. According to third-party data, BOSS Zhipin's user scale expansion speed has always been higher than its peers.

Referring to QM data, when we compare BOSS Zhipin to the industry, BOSS Zhipin's MAU traffic expansion speed remains the highest. However, the advantage in user stickiness (DAU/MAU, average daily usage time per user) has somewhat diminished, mainly due to significant marginal improvements from 51Job, which can be continuously monitoredOverall, in terms of C-end traffic, BOSS Zhipin's user mindset remains relatively stable, and there is still significant room for competitive advantage.

At the end of 2022, the company set a target of a net increase of 40 million monthly active users over the next three years. Based on Q4 performance, the current progress is somewhat lagging. The company mentioned that there will be no large-scale sponsorship expenditures for major events this year, and marketing investments will be more stable. Therefore, how to achieve customer acquisition targets within a controllable marketing budget is a matter worth paying attention to.

2. B-end payment: Is there still "spring warmth" and "flower blooming"?

In the fourth quarter, total revenue was 1.82 billion, a year-on-year increase of 15%, slightly exceeding expectations. Among them, revenue from ToB online recruitment services was 1.8 billion, also a year-on-year increase of 15%. Management's guidance for total revenue in the next quarter is in the range of 1.9 to 1.92 billion, with a year-on-year growth rate of 11.5% to 12.7%, continuing to slow down compared to the previous quarter.

(1) From the perspective of BOSS Zhipin: Small and medium-sized enterprises are recovering slowly

In the fourth quarter, the number of paid enterprise accounts was 6.1 million, with the implied average payment amount per enterprise increasing by 1.7% quarter-on-quarter. This reflects not only a price increase for certain thriving industries at the end of last year but also a change in the revenue contribution structure from different enterprises, according to Dolphin Research.

Generally speaking, small and medium-sized enterprises (SMEs) have higher operational flexibility, allowing them to contract or expand more quickly in response to changes in the environment, resulting in significant fluctuations during marginal changes. In contrast, large enterprises tend to have a relatively "resilient" budget scale during economic downturns.

The revenue growth rate in the fourth quarter is 3%, showing a significant contraction compared to the third quarter. Although there is an impact from last year's high base, it also lags behind previous years' performance on a month-on-month basis. Especially after September 24, the market has somewhat increased positive sentiment in expectations, so the rapid decline in Q4 revenue is somewhat disappointing.

Since September 24, various economic stimulus policies have been implemented, and companies have indicated that after the Spring Festival, the manufacturing and logistics industries among blue-collar workers, as well as the education, healthcare, and finance industries among white-collar workers, are seeing a recovery. The order flow from employers in these industries on BOSS Zhipin has still shown growth compared to the high base of the same period last year;

However, it must also be acknowledged that we are still in a period of environmental pressure where policies have not yet been effectively transmitted, so most SMEs are still largely in a state of hibernation for the winter. As shown in the figure below, the negative growth of Sensor Tower's online revenue data and the continued decline in the job vacancy ratio for SMEs at the beginning of the year can confirm this.

(2) From an industry perspective: The effect of policy announcements is still on the emotional side

In the fourth quarter, the industry is still hovering at the bottom. The unemployment rate has seasonally decreased, but the number of new jobs has dropped by 7% year-on-year (partly due to the high base effect). In January of this year, the unemployment rate has already rebounded.

As we mentioned in our commentary last quarter, although there are policies from September 24 in the fourth quarter, they mainly remain at the emotional level, or the recruitment pace of a small number of companies brings a positive effect. However, the majority of difficulties observed (the accelerated freezing of recruitment demands by companies at the end of the year) are still challenging to change significantly in the short term, and it depends on the effectiveness of policy transmission.

!Chart, line chart description generated automatically

3. Why is BOSS Zhipin "small but beautiful"?

The overall environment Beta has certainly dragged down performance, but Dolphin Research has always emphasized that BOSS Zhipin has the hard power to carve out its own Alpha. On one hand, the high quality of the product determines the existence of user mindset, thereby reducing additional customer acquisition costs; on the other hand, the closed-loop logic of complementary CB traffic and the high gross profit business of pure traffic monetization also allow BOSS Zhipin to leverage cash flow advantages to provide more returns to shareholders.

In the fourth quarter, BOSS Zhipin's gross margin was 82.8%, which remained stable aside from seasonal factors. The operating profit of the core main business (revenue - cost - sales expenses - R&D expenses - administrative expenses) reached 370 million, with a profit margin of 20.1%, significantly optimizing by 6 percentage points compared to last year's 13.7%.

The company revealed that there will be no large-scale event sponsorship this year, indicating that the pace of marketing investment will return to stability. With a still significant competitive advantage, this year's marketing expenses are expected to be further optimized.

In addition, the deflation of AI computing power will save on subsequent R&D investments. As an application party, the computing power revolution brought by DeepSeek is also largely beneficial to BOSS Zhipin.

Regarding equity incentive expenses, the company has also mentioned a relatively clear contraction plan—SBC's proportion of revenue continues to decline (the ultimate goal is single digits, with another 10 percentage points of decline space), and the absolute value of SBC will decrease in 2025/2026. Among the three expenses, Dolphin Research believes that there is considerable room for optimization in management expenses related to SBC.

Ultimately, after excluding equity incentive expenses, the Non-GAAP operating profit was 646 million, with a profit margin of 35.4%. The profit beat was more due to contributions from other operating profits, unrelated to the main business. However, this is not a major issue, as it was emphasized during the Preview that this year's marketing will be reduced, and SBC will drop below 1 billion. **Guidance indicates that this year's Non-GAAP operating profit is still set at 3 billion, implying a profit margin of about 37%. The company's long-term profit margin target is a Non-GAAP OPM of 40%**

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May 24, 2023 Earnings Report Commentary: BOSS ZhiPin: "Industry BOSS" Status Remains, Waiting for the Wind to Come》

March 21, 2023 Conference Call: Platform Data Hits New High, Confident in Exceeding Expectations (BOSS ZhiPin 4Q22 Conference Call Minutes)》

March 20, 2023 Earnings Report Commentary: BOSS ZhiPin: Recovery Certain, but Pace Dragging》

November 30, 2022 Earnings Report Commentary: BOSS ZhiPin: Short-term Impact from Pandemic, Turning Point Comes After Economic Low》

August 25, 2022 Conference Call: BOSS ZhiPin: While Business Operations Recover, Continue to Spend Rationally and Prioritize Efficiency (2Q22 Conference Call Minutes)》

August 24, 2022 Earnings Report Commentary: After Dual Pressures, BOSS ZhiPin Countdown to Return to Growth》

June 25, 2022 Conference Call: Service Industry Demand Rebounds Most After Pandemic Ends, No Threats Seen Yet (BOSS ZhiPin Conference Call)》

June 25, 2022 Earnings Report Commentary: BOSS ZhiPin: Withstood Headwinds, Awaiting "Seal" to be Lifted》March 24, 2022 Conference Call: Continuing to Operate Existing Stock Refinement Before Unblocking (BOSS Zhipin Conference Call Minutes)

March 24, 2022 Financial Report Commentary: BOSS Zhipin: Accumulating Grain Now, Building Walls in the Future

November 25, 2021 Financial Report Commentary: BOSS Zhipin: Dual Pressure from Regulation and Macroeconomics, Make Money to Survive the Winter (Including Key Points from Conference Call Minutes)