Kanzhun Ltd Q2 FY2022 Earnings Call

Thank you, operator. Good evening and good morning, everyone. Welcome to our second quarter 2022 earnings conference call. Joining me today are our Founder, Chairman and CEO, Mr. Jonathan Peng Zhao; and our Director and CFO, Mr. 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 known and unknown risks, uncertainties and other factors not under the 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 these forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes 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. In addition, a webcast replay of this conference call will be available on our website at ir.zhipin.com. With that, I will now turn the call to Jonathan, our Founder, Chairman and CEO.

Hello, everyone. Welcome to our second quarter 2022 earnings conference call. On behalf of the company and our employees, I would like to express our sincere gratitude to our users and investors for your ongoing trust and support. First, I would like to share with you our performance for the second quarter. In this quarter, we recorded GAAP revenue of RMB1.11 billion. Our average MAU reached 26.5 million, representing a sequential increase of 5%, and this was achieved solely based on existing users. Major cities in China experienced a severe COVID-19 outbreak during the past quarter. And we have been under new user registration suspension for almost 4 quarters. These two factors have, to a certain extent, unfavorably affected both our users and revenue growth. However, our persistent efforts in improving our service capabilities have proved effective despite the headwinds as evidenced by the increasing user activation of DAU to MAU and average achievements per MAU. In terms of profitability, excluding share-based compensation expenses, our adjusted net income reached RMB257 million in the second quarter, continuously demonstrating our enhanced operating efficiency. Now I would like to share some updates on our new users, which many of you may care about. On June 29, we reopened the new user registration from that date until August 15, that is within 1.5 months. Our platform recorded more than 10 million new user registrations. The MAU and average DAU in July 2022 both reached record highs with MAU in July increasing by 15% compared with June. Let's look into the user type and region distribution. At the end of June and beginning of July, the proportion of newly registered student users was higher since fresh graduates graduated during that period. Starting end of July, blue-collar user numbers have gradually picked up, and the white-collar users grew steadily. From the perspective of the city tiers, the first- and second-tier cities continued to contribute to the majority of the user growth for this quarter. In terms of the scale of enterprise, the number of SMEs quickly proliferated following the COVID outbreak recovery. The average daily active users of blue-collar intermediaries in manufacturing industries and headhunting consultants selling high-end professionals increased by more than double digits in July on a sequential basis. With these metrics, on one hand, we see massive market growth potential. Moreover, on the other hand, they also proved that our innovative job-seeking and recruitment model has established a compelling influence and brand reputation among users. We have also seen clear improvements in monetization with a continuous growth in daily active enterprise users. In July, the number of newly posted jobs on our platform increased 15% on a sequential basis. In August, the overall recruitment environment revived further with better growth momentum in industries such as new energy, high-end manufacturing, real estate, media, medical and health, as well as positions, including sales and marketing that clearly indicate business expansion. Among all the industries, the blue-collar sector has shown a relatively more robust growth trend, especially in the urban service sector. The number of job postings in the urban industry during the first 2 weeks of August increased more than 20% on a sequential basis. As for the recent job hunting needs of a large number of fresh graduates, we made a great effort to create more job opportunities for them including holding various online job fairs through cooperating with our enterprise customers and participating in the live broadcast job fair initiated by CCTV news channel. Furthermore, for those college students looking for summer internships and part-time jobs, we explored more potential opportunities on our platform that may accept short-term employment by utilizing our optimized recommendation algorithm to improve their experience and achievements. In 2022, the Earth we inhabit has faced severe challenges, affecting both the natural environment and the lives of human beings. Extreme high temperatures have swept many parts of the world with water levels deep into rare and historical lows in the Danube River in Serbia, Europe and Poyang Lake in Jiangsu, China. The COVID-19 impact, which has persisted for 2.5 years is still creating uncertainties for all of us. However, by considering the present in the context of the longer view of our history, we may be able to more fully understand the periodicity of these changes as well as the loss of evolution. The more difficult the times are, the more deeply we should believe in the strength of ordinary people and the greater opportunity to test and prove the value of what we do. There is one number I would like to share with you. In July, job seekers and recruiters on our platform completed more than 100 million times of resume exchange following their one-on-one confirmation of initial intentions. Many of these people have since then been able to find jobs, support their families, and fulfill their dreams. These achievements have convinced the new and more than 5,000 employees that our efforts must be worthwhile. In July, our team of over 5,000 employees worked 100,000 days in aggregate, which means that each of us helped 100 individuals each day on average. Some ordinary people helping other ordinary people along life's journey. By leveraging the power of technology and the market, we, the few, can do such important things for so many others. This eases our minds, lifts our spirits, and makes us incredibly proud of the work we do. With that, I will turn to our CFO, Phil, for the review of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Thank you for joining our earnings call today. Before I begin, please note that all amounts are in RMB, and all comparisons are on a year-on-year basis unless otherwise stated. Despite the macro uncertainties and the resurgence of COVID-19, our total revenues for the quarter decreased slightly by 5% to RMB1.11 billion year-on-year, mainly due to the revenue decrease from small-sized accounts, partially offset by revenue increases from key accounts and mid-sized accounts, respectively. Calculated cash billings decreased by 32% to RMB979 million in the quarter, primarily due to the negative impact of the COVID-19 outbreak in several top-tier cities, which are also the main revenue contributors to our business. Total paid enterprise customers in the past 12 months increased by 5.6% to 3.8 million, while decreased by 7% quarter-over-quarter due to the same reason. However, we believe the decline will be just temporary and expect it to bottom out starting in the second half of this year. Moving on to the cost side. Total operating costs and expenses for the second quarter decreased by 60% year-over-year to RMB1.04 billion. Excluding share-based compensation, total operating costs and expenses decreased by 4% year-over-year to RMB892 million in the quarter. Cost of revenues increased by 22% to RMB174 million, mainly driven by the headcount increase in the second half of last year, especially for security-related staff as well as higher server and bandwidth costs. Our gross margin remained stable at 84%, the same as last quarter. Sales and marketing expenses decreased by 25% year-over-year to RMB400 million in the quarter due to the decline in customer acquisition costs resulting from the reduced marketing activities. But meanwhile, our quarterly MAU held up at a healthy level quarter-over-quarter, up by 5%. R&D expenses increased by 23% year-over-year to RMB308 million as we continue to invest in hiring R&D-related talents. G&A expenses decreased by 90% to RMB160 million, which was mainly attributable to the one-off share-based compensation expenses related to the issuance of Class B ordinary shares to Tech Wolf Limited recorded in the second quarter of 2021. Excluding share-based compensation expenses, our G&A expenses increased by 34% year-over-year, resulting from the increased headcount. Looking ahead for our overall headcount budget, with the reopening of user registration and gradual recovery of recruiting industries, we are confident of our future business growth and we will continue to invest in critical areas like algorithm engineers and high-profile product managers with other personnel-related costs showing more operating leverage. Having said above, at the same time, we will pay attention to our overall HR efficiency. Despite the decrease in revenue, we achieved a net income of RMB107 million compared with a net loss of RMB1.41 billion for the same period last year. Excluding share-based compensation, our adjusted net income for the quarter was RMB257 million, representing an adjusted net margin of 23%, which once again proved the resilience of our business model. The net cash generated from operating activities was RMB187 million for this quarter. As of June 30, 2022, our cash, cash equivalents, and short-term investments increased to RMB13 billion, an increase of RMB3 billion, which will support our sustainable growth in the long term. Before we go into the outlook for the next quarter, I would like to take some time to discuss the difference between our cash revenue and GAAP revenue. Being a fast-growing enterprise service company, the nature of our business is to receive cash payments before starting our service, while GAAP revenue will be recognized later on an accrued basis. As a result, management views cash collections as a main operating metric and reflects the company's growth momentum in a timely manner following our user growth. So for the third quarter, we expect our total cash collections to be around RMB1.3 billion, or RMB1.22 billion as calculated cash billings, which is after business tax. We expect these cash collections and calculated cash billings to show a 25% sequential quarter-over-quarter growth and return to the same level as the third quarter last year. Our GAAP revenue, affected by the lower cash collection from the previous 4 quarters is estimated to be between RMB1.15 billion to RMB1.16 billion, a slight year-on-year decrease of 5.9% to 4.3%. Lastly, we are pleased to be back on track with our user growth being a key business driver. We expect the good trends we witnessed recently to continue in the following quarters this year. No matter how the external environment changes, we believe that our superior user experience and an efficient business model will drive the continued growth of our user scale and further strengthen our monetization capabilities. We are confident in our long-term development. With that, I will conclude our prepared remarks. Now we would like to answer questions. Operator, please go ahead.

We will now take the first question. Please stand by. The question comes from Timothy Zhao from Goldman Sachs.

I have two questions. First question will be on sales and marketing expenses in the second half of this year. Could management share our strategy, how to acquire customers? And what is our strategic focus in customer acquisition? And how should we look at the sales and marketing expenses versus the pace of customer acquisition in the second half? And secondly, about live streaming recruitment. Could management share some outlook or some thoughts about how live streaming can play a role in the recruitment industry, especially in entry-level, white-collar, and blue-collar jobs? And how is our live streaming different from other platforms in terms of format or monetization?

Thank you for your question. Regarding your first question on marketing expenses, we have not spent too much or more than June compared with June on marketing expenses. Overall, we are expecting more than 25 million newly verified users in the latter half of this year, and we are expecting to achieve that under normal marketing expense or input. In terms of our revenue, we are seeing gradual recovery from July and August, and we feel confident that we can meet the market expectation with what we promised in our earnings and what we just discussed, but we will achieve that on a very reasonable expense. We won't spend extra money to acquire users or to boost our revenue. Regarding your second question on live streaming in the recruitment industry, the one-person-to-multiple-person pattern has existed since the web's inception and has increased in the form of live streaming. Essentially, the one refers to the recruiter, and the multiple refers to the job seekers. I believe this will be effective for certain jobs with common requirements for candidates and certain brands with a strong reputation. However, I predict that in the future, one-on-one communication will be more suitable according to the recruitment industry trend because job seekers will become more precious and rare over time. Consequently, technology based on recommendation will be increasingly utilized under these circumstances, where mutual consent and agreement between recruiters and job seekers will be essential for successful hiring. That is my opinion regarding live streaming.

I'll add one point regarding the marketing expenses. Since the resumption of user registrations, in most of our time in July, we did not spend extra marketing dollars, but we achieved very healthy new user registration numbers in July and early August. When we say 'most of the time in July,' we did not spend actual marketing dollars. We want to focus on overall efficiency as an important criteria. Our key message is that we would like to spend money wisely, and we won't overspend in the second half.

We will now take the next question. Please stand by. It comes from the line of Wei Xiong from UBS.

My first question is around the user growth trends post the resumption of user registration. It seems like when we first resumed user growth, job seeker growth was faster than enterprise user growth. Have we seen similar trends entering August? And what's our strategy to accelerate the growth of enterprise users as well as the conversion of paying users? Secondly, regarding blue-collar recruitment, what's our near-term and long-term strategy and goals for this business? If we want to achieve rapid growth in this business over the next few years, what contribution can we expect from blue-collar users in terms of users and revenue?

Thank you for your question. You are quite smart and sensitive to observe that at the current state, when we first opened user registration, job seekers returned quicker. In the current macro environment, fewer people want to hire, but we have witnessed a decent recovery of our enterprise users. As discussed, the number of newly posted jobs in July increased by 15% compared to June, and enterprise users posting those jobs increased by 23%, indicating clear recovery. As for the higher ratio of job seekers to enterprise users, we have a large user pool we can leverage to enhance both user experience and achievement. Regarding strategies for accelerated growth of blue-collar revenue, we must maintain a suitable ecosystem that regulates all blue-collar intermediary agencies before pursuing meaningful revenue growth. If monetization is pursued too early, we may face potential issues long established in the blue-collar labor market where users have friction during transactions. Therefore, we need to establish a clearer environment before expanding revenue.

We will now take the next question. Please stand by. And it comes from the line of Natalie Wu.

Congratulations on the results and resumption of user registration. I have two questions. The first one is regarding the 12-month total paid enterprise customers decline, which has dropped to 3.6 million from 4.1 million in the first quarter. How much of the decline is attributable to pandemic lockdowns and how much is related to non-lockdown macro issues, including real estate? Could you also share with us the changes in this metric for June, July, and August, so we can get a better sense? You mentioned the 15% job posting month-over-month growth in July. Is the same growth seen within the paid enterprise customer number? My second question pertains to the industry mix regarding paying enterprise customers. Which industries have you seen the highest growth recently, and what are the related contributions? Also, what is the latest contribution from Internet and real estate-related paying customers?

Thank you, Natalie, for the questions. I will answer your first question regarding the paid enterprise users' decline. If you look at the paid enterprise users versus the overall verified enterprise users, the paying ratio in the second quarter showed a slight decrease. However, the situation was not as you might think. Our paying ratio for online active business users remained stable over time. The decline in paid enterprise users in the second quarter is mainly due to the total online business user drop. The COVID outbreak inhibited some enterprise users from participating on the platform. We were also undergoing a cybersecurity review, which prevented new user registration, meaning no new business users could be added to our platform. Therefore, online business users dropped, causing the overall paid customer decline. Post-second quarter, starting from June 29, we resumed user registration, and we have seen business user numbers steadily increasing.

I will answer your second question regarding recovery in the recruitment industry. First, the Internet sector's recovery aligns with our overall growth. We are observing a quicker recovery for blue-collar users such as those in manufacturing, logistics, and particularly urban services. This subsector has a healthy growth momentum, which we aim to build on. Additionally, emerging industries like new energy, electric vehicles, healthcare, and high-end electronic manufacturing have also shown more substantial growth, while traditional sectors like real estate and consumer are recovering more gradually. That's our view regarding the industry trends for enterprise customers.

We'll now take the next question. One moment, please. And it comes from the line of Tian Hou from TH Capital.

It's a much larger picture question. When we look at the job market, it's much more related to the cycle of the economy. Today, economies are in downturn; we have this balance in business-to-consumer ratio. I wonder what else the company can do to add value to those job seekers' lives beyond simply matching them with jobs. Does the company have any plans for business expansion?

Thank you for your question. I would like to emphasize that we firmly believe in using the power of technology to solve human development challenges. Currently, we are focusing on the career development of people, which our 5,000 employees are working diligently to improve. Despite our large team and heavy investment in technology, focusing our capabilities on helping job seekers resolve critical issues in their search remains paramount. This year, there are 10.76 million fresh graduates, many of whom are uncertain about their career paths. We are leveraging our technological capabilities to better match them to potential sectors based on their personal skills and social relationships. This helps them explore suitable job opportunities through our platform. We are encouraging recruiters to post entry-level jobs to support fresh graduates, particularly in areas severely impacted by COVID-19 like Beijing, Shanghai, and Jilin. We are turning many job postings in these regions into free opportunities to increase job supply. Additionally, we are connecting fresh graduates with experienced professionals to guide them in their job searches. Although this approach is still operational, it does not significantly increase our revenue, but we are continually exploring ways to help job seekers secure employment.

That concludes the conference for today. Thank you for participating. You may all disconnect.