BOSS Zhipin: Large Enterprise Recruitment Further Recovery (1Q24 Conference Call Minutes)

The following is the summary of the first quarter performance conference call of $ Kanzhun(BZ.US) in 2024. For financial report analysis, please refer to BOSS 直聘：垂类小而美，轻松跨周期 .

I. Performance Indicators Summary

II. Management Report

In the first quarter, the company achieved cash revenue of 2.05 billion RMB, a year-on-year increase of 24% and a quarter-on-quarter increase of 15%. Our GAAP revenue reached 1.7 billion RMB, a year-on-year increase of 33% and a quarter-on-quarter increase of 8%. We achieved a net profit of 240 million RMB. Meanwhile, after deducting equity incentive expenses, our adjusted net profit was 530 million RMB, a year-on-year increase of 117%.

In the first quarter, BOSS 直聘's Monthly Active Users (MAU) reached 46.62 million, a 17% year-on-year increase. Among them, the growth rate of enterprise users this quarter was faster than the same period last year. In March, BOSS 直拼 APP's qualified Monthly Active Users exceeded 50 million for the first time, reaching 55 million, a 24% year-on-year increase. At the same time, the ratio of Daily Active Users (DAU) to MAU remained stable.

As of the end of April, our platform has accumulated over 190 million registered users and over 40 million certified companies, indicating that from January to April this year, the company added over 17 million certified users. As of March 31, 2024, in the past 12 months, approximately 5.7 million corporate customer accounts corresponded to over 3.5 million companies (an average of 1.6 accounts per company), engaging in paid recruitment activities with BOSS 直聘。

Although 3.5 million companies may seem very large in the global enterprise service market, even exceeding the total population of some countries, it accounts for less than 10% of the over 40 million companies in China. This indicates that there is still significant growth potential in the number of paying enterprises for online device services in China in the future.

Furthermore, it is evident that the average annual payment per company is less than 2000 RMB currently, but Chinese enterprises are gradually willing to pay for valuable additional services. This trend will continue to improve, leading to an increase in Average Revenue Per User (ARPU). Therefore, both for BOSS 直聘 and the entire online recruitment industry in China, we see significant growth potential in the number of paying enterprises and ARPUIn our last earnings conference call, we shared some key features of the pre-recruitment season this year. Today, we would like to provide more insights and updates on the latest trends.

1. Blue-collar Workers

The number of blue-collar users and the revenue from this segment continue to grow rapidly. In the first quarter, the number of new blue-collar users and their growth rate both exceeded white-collar users, with blue-collar user revenue contribution climbing to over 35%.

It is worth mentioning that compared to last year, this year has seen improved conditions in the manufacturing and logistics industries, maintaining a steady upward trend. From after the Spring Festival to mid-May, the daily number of new job positions in the manufacturing and logistics industries has increased by about 40% compared to the same period last year. At the same time, there is also a certain positive trend in the white-collar segment.

2. Company Size

Driven by the recovery in the white-collar industry, the recruitment demand of large enterprises has outperformed that of small enterprises year-on-year, showing further signs of recovery. Cash revenue contribution from major clients increased this quarter, growing by 1.5 percentage points compared to the same period last year.

3. City Tiers

The growth in users and revenue contribution from second-tier and below cities continues to increase. However, this year, first-tier cities have also shown a certain degree of recovery in recruitment demand compared to the same period last year, with sub-industries such as manufacturing, supply chain logistics, internet AI technology, finance, and procurement trade showing relatively good growth momentum recently.

In the first quarter, the number of active job positions on our platform exceeded 260,000, covering over 27 million job seekers. Therefore, we believe that with over 11 years of exploration and industry experience combined with the user base of BOSS Zhipin App and our exploration in blue-collar services, we should be able to continue exploring more services - more mature services in blue-collar manufacturing and our revenue.

Financial Metrics Changes Explanation

1. Gross Profit Margin:This quarter, revenue costs increased by 20% year-on-year to RMB 295 million. This growth was mainly driven by the increase in server and bandwidth costs, payment processing costs, and employee-related expenses. However, due to faster revenue growth, the gross profit margin increased by 2 percentage points compared to the same period last year.

2. Operating Expenses

(1) S&M:This quarter, our sales and marketing expenses decreased by 8% year-on-year to RMB 579 million. This decrease was mainly due to a reduction in advertising and marketing expenses, partially offset by an increase in sales commissions related to the growth in cash revenue. It is worth noting that despite strict marketing investments, we still achieved a record high in monthly active users and expanded the gap with industry peers.

(2) R&D:This quarter, our research and development expenses increased by 40% year-on-year to RMB 468 million. This increase has two main reasons. One is the increase in employee-related expenses, including year-end bonuses, stock incentives, etc. The other, larger reason is our increased investment in generative AI development, leading to higher depreciation costs related to servers.

(3) G&A:This quarter, our general and administrative expenses increased by 64% year-on-year to RMB 270 million, mainly due to the increase in employee-related expenses (including stock incentive expenses)3. Cash Flow: The net cash provided by operating activities in this quarter increased by 66% year-on-year to RMB 906 million, mainly due to an increase in cash bills. As of March 31, 2024, our total cash and cash equivalents, short-term fixed deposits, and short-term investments amounted to RMB 11.9 billion, with long-term investments in fixed deposits and wealth management products totaling RMB 3.4 billion. Now let's talk about our business outlook.

4. 2Q Guidance: For the second quarter of 2024, we expect total revenue to be between RMB 1.91 billion and RMB 1.96 billion, representing a year-on-year growth of 28% to 32%.

IV. Analyst Q&A

Q1: Could management share your observations on the recruitment demand situation for white-collar workers, blue-collar workers, key accounts (KA), and small and medium-sized enterprises (SMEs) in China compared to a year ago, as well as the company's expectations for the last quarter? Could you also share some thoughts on the recent business trends of BOSS Zhipin in the past few months?

A: If we observe the growth in new job postings and recruitment demand, we will find that overall it is better this year than last year. Therefore, every day we see, we continue to see active new historical highs - daily active bosses and daily active companies. Overall, we see that the activity of existing bosses has also increased compared to last year. In the first quarter, as we just mentioned, blue-collar workers have definitely performed better compared to other industries, as we just discussed the numbers. The highlights this year are still in manufacturing and logistics. Compared to industries with a higher base, the urban services industry is not as fast as the other two industries.

For companies of different sizes, based on our historical experience and estimates, we have discussed our different views on the recovery of companies of different sizes. So we see that smaller companies are recovering faster, while larger companies need more time. But once they start to recover, they will show different growth patterns compared to small companies.

Currently, we see that larger companies can sustain better and longer recoveries. Let me share some data with you, in April, companies with more than 500 employees saw a 10% increase in daily new positions compared to March.

We just talked about the increase in our corporate accounts (BOSS numbers), discussed the activities of existing bosses, highlighted the manufacturing and logistics sectors, discussed medium and large enterprises and the driving factors, all of which align with our observations and expectations.

Another driving force is the recruitment demand in lower-tier cities, which many other companies have also successfully proven. They start from first-tier cities and then further penetrate into lower-tier cities. So overall, this year's recruitment market, whether in terms of scale, industry, or region, we believe is relatively stable, balanced, and normal, consistent with what we have recently observed.

Q2: What are your thoughts on the remaining time in the second quarter, as well as the growth rate for the rest of the year? Will the intense competition in the local service industry affect the growth rate in the coming months?A: The performance in the first quarter was strong, much better than the same period in 2023. The cash billings guidance for the first quarter was announced during the mid-March earnings conference call. The final result, with a sequential growth of 15 percentage points, clearly outperformed the guidance of +12% qoq. At this moment, about 10 days before the end of May, it is still too early to provide guidance on cash billings for Q2. However, the outlook for full-year CCB growth remains unchanged at +25% to 30% year-on-year.

Total revenue is expected to continue to grow sequentially in the second quarter, following a high base in the first quarter. The quarter-on-quarter growth rate may be in the low single digits, with a year-on-year growth rate between 28% and 32%, faster than the first quarter.

Q3: We have noticed that the company's growth in paid enterprise users is very rapid. Could you share with us the trend of the proportion of paid users over the past few quarters? Additionally, could you share with us the details of ARPU, user growth, and the contribution of bills from enterprises of different sizes?

A: First, I will talk about our basic growth strategy for revenue. As of March 31, there are over 350 player enterprises paying to use our services, accounting for less than 10% of the total number of enterprises in China. We have also preliminarily verified and proven that our business model and service model can adapt to a wide range of different types of customers. Therefore, for us, our future growth strategy is to continue to attract more and more enterprises to pay for our recruitment services. This is my basic growth strategy.

Based on this premise, we will focus on improving - increasing the number of paid enterprises, as our penetration rate is still not high. We plan to be relatively friendly to companies that have not paid for recruitment services or online recruitment services before, which means that the priority for ARPU growth is not that high.

And based on the situation of Key accounts of large companies, once recruiters use our services, they will gradually purchase more accounts from us. The same goes for small and medium-sized enterprises. When there is a wide range of recruiters using our services, more and more people will purchase more accounts. This is the result of the first quarter, we see that from the perspective of cash income, whether it is large clients or small and medium-sized companies, their ARPU has increased, which means that on average, each company has more users using our services, also reflecting a better recovery trend for large companies.

There is also a factor related to our compensation ratio, which is that in an industry, for a specific position, compared to the supply of recruiters and the demand from job seekers, if the supply and demand continue to grow, we will gradually start charging, to maintain a balance between supply and demand for this type of growth. For example, for real estate agents, many companies are recruiting, but few job seekers are willing to work in this field. So for real estate agents, our payment rate is actually 100%Therefore, the rule of the conversion rate is that as the number of recruiters for specific jobs increases, the conversion rate will be higher, which will then drive up ARPU. Since we have been monetizing this type of business for some time and this model has been relatively successful, we will continue down this path. Therefore, we are discussing increasing the penetration rate of paying enterprise customers. If this happens, everything else will naturally follow.

Q4: Regarding the upcoming graduation season. We remember that if you look back at last year, the job search of summer graduates actually affected the supply and demand dynamics of the recruitment market. I just want to hear your thoughts on the upcoming graduation season. Do you think this situation will happen again?

A: The upcoming graduation season, last year was quite difficult because after the epidemic, we saw graduates from 2 or even 3 years ago coming out to look for jobs in the short term, so we will see very fierce competition among them. Last year, there were more graduates who did not want to come out to look for jobs compared to this year. There are two reasons: first, in the three years since the outbreak of the new crown epidemic, they have spent a lot of time at home and are just unwilling to come out. Secondly, job opportunities are relatively flat, and there are far fewer job opportunities that interest them, so they are not willing to actively go out to look for jobs.

We expect that the job search and recruitment situation for this year's graduation season should be better than last year. Firstly, the active recruitment information on our platform has reached the highest level in history this year, showing a significant improvement from last year. Secondly, the recovery of large companies, white-collar workers, and larger first-tier cities should greatly help graduates in employment.

I noticed a figure: From after the Spring Festival to mid-May, we saw bosses posting full-time job openings actively communicating with these graduates. The number of active recruitment information per day has increased by more than 30% year-on-year. In fact, BOSS Zhipin has done its best to help these newly graduated children. We will continue to do so and wish them all the best.

Q5: Regarding the blue-collar industry, especially after the company acquired "My Work Network" (a blue-collar recruitment website). Could management share your thoughts on how to develop the blue-collar business in the future?

A: The abbreviation of "My Work Network" is W.D, which is actually somewhat similar to BOSS Zhipin. We were both founded in 2013 and have been working in this industry for over 11 years. We started with a focus on white-collar platforms in the internet technology sector. WD, on the other hand, focuses on workers in manufacturing factories. So I have known WD for a long time, and I actually define them as long-term survivors.

WD is a pioneer in inventing some digital capabilities that are suitable for digitization and combining them with recruitment related to manufacturing. For example, they are one of the first to focus on or prioritize user experience for job seekers and help improve user experience. That's why today they can become a leading platform in certain regions.

So this is the first time BOSS has discussed our acquisition. So I also want to share that our acquisition strategy is we hope to be able to respect some core capabilities that we cannot accumulate on our own, which will help us reduce chasing and achieve better results together.**This is our consideration for cooperation with WD, for everyone's reference.

Q6: In the future, users from lower-tier cities will contribute more and more. What are your thoughts on how to serve these users in the future? I think the user growth so far this year has been very good, just wondering what your sales and marketing strategies are for the remaining time this year, especially considering the upcoming Paris Olympics? Can you share your marketing ideas around the Olympics?

A: Regarding user growth and marketing strategies. Basically, we will keep marketing expenses at a reasonable level and maintain disciplined user growth methods. This is something we have mentioned many times. We hope to leverage the Paris Olympics to enhance our brand, so we must also spend money appropriately.

In the current marketing environment, leading platforms like ours have leading traffic, higher economies of scale, and better marketing efficiency, which means that our user growth is still satisfactory without increasing spending. In the first 4 months of this year, our total new user growth reached 17 million, close to half of the annual target of 30 to 40 million new users. So in this situation, we do not need to be too aggressive in this area (marketing spending). So I hope my comments can answer your question.

Q7: Have you seen any changes in the competitive landscape after the spring recruitment?

A: For the first question about competition, this spring, we noticed that many peers, or most of them, were more active in marketing investments during the spring recruitment season this year. We noticed this and we are also making the same marketing investments, so marketing competition has become more intense, leading to an overall increase in spending. In the last earnings call, I also analyzed the reasons, because this year people feel there are various opportunities in the market, and they are willing to spend more money to increase income.

After the marketing competition in the first quarter, I think everyone has noticed that in the third-party data for April, our overall competitive landscape is very stable. Some of the past operational indicators, we may still be lower than our peers. But in April, we surpassed all competitors in all operational indicators.

Therefore, the conclusion drawn from the competitive situation in the first quarter is that we highly respect the active marketing activities of our peers. But we believe that in terms of "marketing strategy," continuing to improve our service to job seekers and recruiters is still effective, and may even be the only effective method. In terms of our numbers, whether it's MAU, DAU activity, user spending time, and all operational indicators, we continue to maintain a good momentum and advantage. That's my answer to the competitive question.

Q8: We have already mentioned this year's sales and marketing strategies. We have also noticed that internet companies are increasing their artificial intelligence capital expenditures, including AI-related expenses. Have we adjusted our profit margin expectations for this year?

A: This question is related to our annual profit situation. This way I can quickly review the main cost and expense items and mention our thoughts（1）Gross Margin: We believe that due to the improvement in economies of scale starting from the second quarter, the gross margin will slightly improve.

（2）Sales Expenses: We will maintain the level of marketing and promotional expenses at the current level, with a slight increase in absolute amount. In terms of percentage, it will remain stable or decrease. Regarding sales expenses, the main part is the sales personnel's salaries, and the proportion of this to revenue will remain stable or decrease. Therefore, by combining sales and marketing expenses, the total sales and marketing expenses as a percentage of revenue will be further optimized in 2024.

（3）Research and Development Expenses: This is related to expenditures on artificial intelligence. We have increased investments related to artificial intelligence, but this additional part may be offset by the full year's revenue. Therefore, in terms of the full year percentage, research and development expenses will remain stable, with a similar percentage compared to last year.

（4）General and Administrative Expenses: Therefore, the proportion of G&A to revenue for the full year will be higher than last year. It will temporarily increase in the first quarter, but we expect it to decrease in the second quarter. Therefore, in terms of percentage, the full year will be better than last year. So, the trend I just mentioned is the expenses in our GAAP data and adjusted non-GAAP data. In conclusion, with the continuous growth of our revenue, our operating profit margin in 2024 will actually increase.

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