BOSS Zhipin: No price war, focus resources on advantageous areas

The following is the summary of the second quarter financial report conference call for $Kanzhun(BZ.US) in 2024. For the financial report analysis, please refer to BOSS 直聘：终于，“小而美” 也扛不住贝塔的 “大锤” 了 》

I. Review of Core Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1) Business Progress

① User Growth and Market Dynamics

a. In the second quarter, average verified monthly active users of Kanzhun increased by 25% to 54.6 million.

b. In the first half of 2024, 28 million new verified users were added, and the total number of paying enterprise customers reached 5.9 million, a year-on-year increase of 31%.

c. The average monthly active users of enterprise users increased by 17% year-on-year, indicating that user growth remains the core driver of revenue growth.

d. Average revenue per paying user increased by 3% year-on-year and quarter-on-quarter, reaching the highest level in the past four quarters.

② Changes in Recruitment Demand

In the latter half of the second quarter, recruitment demand weakened, leading to cash income performance slightly below expectations. The recruitment efficiency of enterprise users improved, with recruitment time reduced from 3 months to 2 months, reducing costs for companies in recruitment.

③ Blue-Collar Manufacturing Industry Strategy

Advancing business expansion in the blue-collar manufacturing industry, purifying job search and equipment environment through the "Coach Project" to enhance job seekers' experience and agent integrity.

④ Expansion of Overseas Business

Actively expanding in European and Asian markets, showing potential growth opportunities despite initial progress. Future plans involve expanding global markets through localization and hybridization.

2) Financial Performance

① Revenue a. Cash-based revenue in the second quarter increased by 20% year-on-year to RMB 1.95 billion; GAAP revenue was RMB 1.92 billion, a 29% year-on-year increase.

② Gross Profit a. Gross profit margin for this quarter was 83.5%, reflecting high profitability. b. Net cash generated from operating activities this quarter was RMB 869 million, a 14% year-on-year increase

③ Expenses a. Sales and marketing expenses increased by 16% year-on-year to RMB 545 million, mainly used for customer acquisition and market promotion. b. Adjusted operating costs and expenses increased by 20% year-on-year to RMB 1.3 billion.

④ Profits a. Adjusted operating profit was RMB 660 million, a 52% year-on-year increase, with an operating profit margin of 34.4%. b. Net profit was RMB 420 million, adjusted net profit was RMB 720 million, a 26% year-on-year increase.

⑤ Cash and Stock Repurchase a. As of June 30, 2024, the total amount of cash and cash equivalents, short-term time deposits, and short-term investments was RMB 14.3 billion. b. Repurchased over USD 88 million worth of stocks in the past 4 months.

⑥ Future Outlook a. It is expected that total revenue for the third quarter of 2024 will be between RMB 1.9 billion and RMB 1.92 billion, with a year-on-year growth of 18.2% to 19.5%.

2.2 Analyst Q&A

Q: Regarding user growth and market share. How does management view the current market share, and in the current unfavorable macro environment, are we considering further accelerating market share growth?

A: Regarding the first question, in terms of competition, the current competitive landscape is relatively stable, or we would rather say we have relatively good competitive advantages. Many third-party data and our own data have proven this. For example, we just mentioned that our MAU and DAU reached historical highs in the second quarter. User activity, such as the ratio of DAU to MAU, remains at a very high level. These data prove that, as a leading recruitment platform, from all aspects, our competitive landscape is very stable and continues to trend well.

Regarding market share, many investors are concerned and have asked many questions. In fact, in the past year, we have noticed that in the current situation, for every dollar we spend, there are more job seekers and fewer business users. Therefore, the current CB ratio is a challenge for the platform. From this perspective, to maintain a balanced CB ratio, we actually do not need to spend too aggressively, which is a point I would like to share. In addition, in terms of expanding the market share of business users, the overall willingness of companies to pay is not strong. So the most effective way is to expand market share through price wars. And currently, although there is an opportunity, I do not intend to gain more market share by lowering prices, I don't think it makes sense in the current situation.

Q: Ensuring this year's full-year profit target. Can management share some specific measures? How are operating expenses and stock-based compensation trends for the remaining time this year?

A: Ensuring the full-year profit target is crucial for our core employees and management team. It is a part of our confidence and validates the stability and strength of the company. From a strategic perspective, our first goal is a full-year user gross profit target of RMB 40 to 45 million, and in the first half of this year, we have already achieved RMB 28 million. Therefore, we only have RMB 12 to 17 million left, which should be relatively easy to achieve. As a result, we can control overall marketing expenses to appropriately meet our profit target.

Secondly, in the current situation, we hope to better utilize our resources by postponing the priority of product plans with low success rates and high targets, and prioritizing the importance of reducing overall costs, which can be achieved through internal management, and we are very confident about this.

We aim to make every effort to ensure our operating profit. Our full-year non-GAAP operating profit target is set at RMB 2.3 billion, representing a year-on-year growth of approximately 40% compared to last year's non-GAAP adjusted operating profit. Regarding our gross profit margin, in the third quarter or subsequent quarters, our gross profit margin will remain stable or slightly improve, benefiting from greater economies of scale. We will control marketing expenses and keep them at a relatively low level.

Our sales expenses and administrative expenses, these expense items will be kept moderate and at a reasonable level. As for research and development expenses, as we may shift priorities from some areas such as AI-related infrastructure investments to other areas, this expense will decrease starting from the third quarter or the second half of the year. Overall, our operating profit margin will increase in the second half of the year, and the full-year operating profit margin will also be better than last year.

Q: The macro situation was relatively weak in the second quarter, did you see any improvement in recruitment demand in August? How did different industries and companies of different sizes perform?

A: Firstly, we cannot discuss the macro economy, but we can share what we have observed from our website and application. Firstly, overall willingness to pay by recruiters decreased in the second quarter. Secondly, the growth of blue-collar workers continues to outperform white-collar workers. This still aligns with our expectations.

Taking a closer look at blue-collar workers, we can share a few observations. The first observation is that overall blue-collar recruitment demand reached a historical peak during the hiring season. However, it rapidly declined in the second quarter, and despite the rapid decline in the second quarter, we still see very good year-on-year income growth for blue-collar workers in the second quarter. In terms of specific sub-industries, it is worth noting that the manufacturing industry continues to outperform all other industries, followed by the logistics industry.

Additionally, there are two deviations worth sharing. Firstly, recruiting enterprise user growth in second and third-tier cities is better and faster compared to first-tier cities. The second is a consistent trend that we have discussed in the results of the previous quarter, namely that large-scale enterprises are growing faster For example, large enterprises with over 10,000 employees are growing faster. Regarding the latest situation in August, the overall supply and demand situation for blue-collar workers is better than in the second quarter, we have observed an increase in the number of corporate users every week, and the manufacturing industry continues to outperform all other industries.

Q: If the macro situation continues to be relatively weak, will we change our business strategy to counteract the macro impact?

A: Our current strategy is to focus resources on businesses and departments that we believe have faster growth potential and longer-term prospects. For example, in the blue-collar manufacturing sector, we have expanded from products to contracts and have started generating revenue. We are increasing our investments and resource allocation in this area. While I cannot say for certain that we will generate substantial revenue from collaborations in the blue-collar manufacturing industry in the third and fourth quarters of this year, we believe this is a real opportunity for the online recruitment platform to generate substantial revenue in the blue-collar manufacturing industry for the first time.

Q: Could management provide detailed information on the recent progress of the WD acquisition? Additionally, could you share more information about overseas and AI investments? Considering the recent weakness in the company's stock price, what are management's thoughts on future buybacks? Is the company considering regular dividends?

A: Regarding the progress of the WD (MyDagong) acquisition, as I mentioned before, the acquisition of most of WD's shares was out of recognition and respect for Jason's team's work in this field. Jason and his team's achievements in the sensor field are widely recognized. This acquisition is not only part of our further expansion but also adds some capabilities that are difficult for us to develop on our own. Currently, Jason is independently leading the development of WD, helping the company drive environmental improvements and implement business plans through projects. Although I cannot discuss more details publicly, Jason is collaborating with our R&D team to launch new products or services by leveraging our traffic advantages and their industry experience.

Regarding overseas business, especially in Hong Kong, we have launched MVP services to provide services to recruiters in Hong Kong, and we are observing user responses, which may take 2 to 3 months. It may take 2 to 3 years for revenue from the Hong Kong business to materialize. In some developed countries in Asia and Europe, we have been preparing for quite some time and are currently satisfied and confident with our local recruitment teams.

Regarding Generative AI, our current strategy is to keep up with the most advanced technologies in the field but not to invest too many resources, prioritizing strategic applications we already have before Generative AI technologies emerge.

Regarding shareholder returns, we have implemented a $200 million share buyback plan and repurchased $88 million in the past 4 months. We believe shareholder returns are crucial for the company and will continue with share buybacks. As for potential dividend payment plans, we are still under study.

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