Earnings Call Transcript - BZ Q2 2025

Operator, Operator

Thank you for joining us for the Kanzhun Limited Second Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. I will now hand it over to Ms. Wenbei Wang, Head of Investor Relations. Please proceed, ma'am.

Wenbei Wang, Head of Investor Relations

Thank you, operator. Good evening, and good morning, everyone. Welcome to our second quarter 2025 earnings conference call. Joining me today are our Founder, Chairman, and CFO, 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 does not undertake any obligation to update this 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.

Peng Zhao, Founder, Chairman and CEO

Hello, everyone. Thank you for joining our company's Second Quarter 2025 Earnings Conference Call. On behalf of our employees, management team, and Board of Directors, I want to express our heartfelt gratitude to our users, investors, and supporters who have consistently believed in us. Today, I will discuss four topics. First, our quarterly performance was solid. Second, the supply-demand dynamics on our platform are improving. Third, we are making progress in AI. And fourth, I will touch on our recent share offering in Hong Kong and plans for shareholder returns. To start with our financial performance, in the second quarter, we achieved total revenue of RMB 2.1 billion, reflecting a 9.7% year-on-year increase. Our net income was RMB 710 million, showing a remarkable 70.4% growth year-on-year and a net profit margin exceeding 33%. When excluding share-based compensation and other income, our adjusted operating profit was RMB 880 million, up 33% year-on-year. Share-based compensation expenses decreased by nearly 10% compared to the previous quarter, totaling RMB 230 million, with a revenue ratio that narrowed by about 5 percentage points year-on-year. Our strong growth is supported by economies of scale and an efficient business model, leading to simultaneous improvements in both revenue and profit. From January to July, we added over 30 million verified new users. In the second quarter, the average number of verified active users on the BOSS Zhipin app reached 63.56 million, up 16.5% year-on-year, consistent with trends in user growth and penetration. Contributions to revenue from blue-collar jobs, lower-tier cities, and small to medium-sized enterprises also increased compared to last year. During the second quarter and graduation season, we noted significant improvements in job-hire demand on our platform. Job-seeking demand among graduates moderated, with the number of newly verified graduates declining by over 20% year-on-year in June and July; however, recruitment demand from employers for fresh graduates rose, with new job openings increasing by over 18% year-on-year for that same period. This aligns with the overall recovery in the recruitment market, as seen in July, where newly posted jobs on our platform grew by about 20% year-on-year. The supply-demand improvements led to a noticeable year-on-year decrease in the CB ratio for new users, driving positive changes in monetization. The total number of paid enterprise customers for the 12 months ending June 30 was RMB 6.5 million, up 10% year-on-year. Blue-collar manufacturing saw a short-term import slowdown due to tariffs but began to resume year-on-year growth starting in May, continuing to outpace other industries. The urban service sector also experienced accelerated year-on-year growth in the second quarter, and we saw a significant recovery in the Internet industry, with active job openings hitting a new high since 2021, particularly in product and technical roles. Moving on to our progress in AI, I will discuss three aspects: AI for consumers (job seekers), AI for businesses (enterprise users), and AI for management. In terms of AI for job seekers, our AI-interview training robot has made progress and is now used for recommending positions. With job seekers' consent, the data gathered during interviews helps us provide job recommendations, leading to increased efficiency. We are also enhancing AI-assisted user searches, allowing for better explanations, dynamic content summaries, job search strategies, and revenue optimization based on user queries. Additionally, we are using AI to identify risks for job seekers, such as recognizing aggressive language. We have also made early strides in detecting free content affected by AI, although this remains a long-term challenge. Regarding AI for enterprises, we assist leaders of newly established start-ups and junior HR teams in optimizing job postings through AI, facilitating the posting of tens of thousands of job positions daily. Balancing assistance with the integrity of placement is challenging but essential. For commercialization, we have integrated AI to better interact with clients, enabling them to select services that better fit their needs. This has resulted in more proactive purchases and increased repeat business. In management, we are utilizing AI in research and development; at our Beijing headquarters, 30% of coding is now AI-generated, while a new R&D department in another city has achieved 70% AI-generated code. This has significantly sped up our product development cycles. AI is also enhancing customer service, helping train new staff, inspect quality, and provide guidance for recognizing and responding to customer emotions, all of which improve user satisfaction and benefit customer service employees. Lastly, I would like to discuss our recent Hong Kong offering and shareholder return plans. We completed a secondary share offering in Hong Kong worth HKD 2.2 billion on July 4, aimed at enhancing liquidity in the local market and facilitating broader investor participation in our trading. The outcome has been positive, with trading volumes in Hong Kong increasing significantly compared to levels before the offering. Regarding shareholder returns, the Board of Directors has approved two proposals: an annual dividend policy with a planned payout of USD 80 million for this fiscal year, and a new share repurchase program targeting up to $250 million over the next 12 months starting August 29. We believe these actions demonstrate our commitment to rewarding shareholders and reflecting the benefits of our sustained growth. That concludes my remarks, and I will now hand the call over to our CFO, Phil, for a financial review.

Yu Zhang, Director and CFO

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results for the second quarter of 2025. We continue to achieve high-quality results in this quarter, represented by solid revenue growth and improved profitability. The revenue growth this quarter was primarily attributed to the continued expansion of our user base, with the number of paying enterprise customers increasing by 10% year-on-year to 6.5 million over the trailing 12 months ended June 30. As the recruitment market demand has gradually recovered since the beginning of this year, the job-seeker/recruiter ecosystem has improved, driving a rise in the willingness of enterprise clients to pay. Among them, the recovery in recruitment demand from small- and medium-sized enterprises has been more pronounced, contributing to a quarter-on-quarter increase in the revenue contribution from SMEs. The average revenue per paying user (ARPPU) maintained stable and modest growth, mainly benefiting from the expansion of payments from key accounts. Moving to the cost side, total operating costs and expenses decreased by 7% year-on-year to RMB 1.5 billion this quarter. Share-based compensation expenses dropped by 24% year-on-year and 9% quarter-on-quarter to RMB 230 million, shrinking for the fourth consecutive quarter. Excluding share-based compensation expenses, adjusted income from operations grew by 33% to RMB 881 million, and our adjusted operating margin in the quarter reached 41.9%, up by 7.5 percentage points year-on-year to hit a record high. Cost of revenues decreased by 3% year-on-year to RMB 307 million this quarter, mainly due to the decrease in operational employee-related expenses as a result of the improved operational efficiency as we continue to engage AI in our daily operations. Gross margin went up by 1.9 percentage points year-on-year to 85.4%. Sales and marketing expenses decreased by 23% year-on-year to RMB 420 million during this quarter, mainly driven by decreases in advertising and marketing expenses as well as employee-related expenses. However, our strong brand recognition and enhanced marketing efficiency, coupled with superior user engagement, guarantee that we can maintain robust user growth momentum. Our R&D expenses decreased by 6% year-on-year to RMB 416 million in this quarter, primarily driven by reduced public cloud service fees related to AI development. Our General and Administrative (G&A) expenses increased by 19% to RMB 311 million in this quarter, primarily due to an increase in employee-related expenses and investment in new initiatives. Our net income increased by 70% to RMB 711 million in this quarter, with adjusted net income increasing by 31% to RMB 941 million, and margins expanding significantly to reach a record high. Our net margin improved by 12.1 percentage points year-on-year to 33.8%, while our adjusted net margin reached 44.8%, up 7.3 percentage points year-on-year. Both of these margins have displayed sustainable improvement over the past three consecutive quarters. Net cash provided by operating activities reached RMB 1,052 million in this quarter, up 21% year-on-year. As of June 30, 2025, we maintain a strong cash position of RMB 16.0 billion. In July, we completed a share offering of RMB 34.5 million Class A ordinary shares at HKD 66 per share, comprising a Hong Kong public tranche and an international tranche. Net proceeds from this share offering amounted to approximately HKD 2.2 billion. This offering improved our liquidity in the Hong Kong market, broadened our shareholder base, and further strengthened our cash position, providing us with both strategic flexibility and financial capacity to pursue long-term growth initiatives and enhance our shareholder returns. One new initiative mentioned by Jonathan is that our Board of Directors approved the adoption of an annual dividend policy, with a dividend amount of USD 80 million for the fiscal year of 2025, combined with a renewed USD 250 million share repurchase program. Our commitment to shareholder returns continues to enhance. For our business outlook, as we previously communicated, we expect our revenue growth to re-accelerate starting this quarter in line with the recovery of recruitment market momentum. For the third quarter of 2025, we expect our total revenues to be between RMB 2.13 billion and RMB 2.16 billion, a year-on-year increase of 11.4% to 13%. This concludes our prepared remarks, and now we would like to answer questions. Operator, please go ahead.

Operator, Operator

And the questions come from Eddy Wang from Morgan Stanley.

Eddy Wang, Analyst

I have two questions. First, regarding the recovery in recruitment demand we observed on the BOSS platform in the second quarter and July, is there a different factor driving this recovery compared to previous times? For instance, has the competition in food delivery contributed to an increase in demand for blue-collar workers in the service industry? Do you believe that the recruitment demand seen in the second quarter is sustainable? What are your thoughts and outlook for the third quarter? My second question relates to your earlier comments about your R&D department, where most of the coding is being done by AI. How do you view AI's impact on white-collar recruitment, particularly concerning the demand for programmers?

Peng Zhao, Founder, Chairman and CEO

Thank you for your question. Regarding the recovery trend of the recruitment market, we have observed both a small and a significant improvement compared to before. The small improvement is that job postings in the Internet sector have reached a new high since 2021. The larger improvement is that smaller or micro-sized enterprises are recovering at a much faster rate. For instance, companies with fewer than 20 employees have seen their revenue contribution increase to nearly 20%, which marks our highest growth rate among all company sizes. Additionally, companies with fewer than 100 employees have shown a year-on-year growth rate of new job postings that significantly surpasses the overall level of the platform. In terms of the impact of food delivery competition, our findings suggest that its effect is minimal or slightly negative. Job postings for riders or food delivery personnel are quite low among all our listings, and we haven't seen any notable increase in revenue growth from these roles. Concerning the sustainability of this recovery, we maintain a positive outlook. We have previously noted that the poor job-seeker-to-recruiter ratio has improved since last November 2024, recovering to levels similar to November 2023. Since then, the dynamics of this ratio have continued to enhance, and we have observed a more substantial recovery in the second quarter. I am quite confident that our business growth rate in the third quarter will further accelerate compared to the second quarter.

Operator, Operator

And the questions come from the line of Wei Xiong from UBS.

Wei Xiong, Analyst

I have two questions. First, our margins have been increasing this year to a very high level. Given this strong base, how should we view the trend in margins for the next year and beyond? Additionally, with our healthy and stable margins and cash flow, what do we consider to be the most important investment areas moving forward? Second, it appears that some start-up companies are increasing their advertising spending recently. Does this have an impact on our marketing and user acquisition costs? How do we evaluate the effect on the competitive landscape in the blue-collar segment and the overall online recruitment market, as well as our competitive advantages?

Yu Zhang, Director and CFO

So thanks for the question. I'll answer the margin question first. You are right that our margin continues to improve. We think that this is mainly related to our business model because we run an online recruitment marketplace. The scale effect brought by our company's business model is significant. We believe this is the fundamental reason for the continuous improvement of our profit margins. In the past several quarters, we implemented effective cost control to ensure we focused on the high-quality part of growth, which kept our cost growth rate lower than that of revenue. So, with our steady revenue growth, the direction of gradual improvement of our profit margins is quite clear, and this is quite definite. However, we believe that margin improvement is a long-term process and should run steadily, not all of a sudden, and not grow too fast or too high in the short term. In terms of the areas that we would like to invest in, we will continue to invest in our business. Our future investment priorities remain consistent with our previous ones, mainly focusing on R&D innovation and new business initiatives, et cetera. You can see that we generated very healthy cash flow. In this quarter, we generated more than RMB 1 billion in operating cash flow, which is conservative for the last two quarters. In the first quarter, the operating cash flow was also above RMB 1 billion. So we have had two consecutive quarters with over RMB 1 billion of operating cash flow. With such healthy cash reserves, we will primarily use our cash for talent development, potential overseas expansions, and more importantly, shareholder return programs in the future. So that's my comment related to the margin and how we plan to use our cash in the future. I will hand it over to Jonathan to answer the second question.

Peng Zhao, Founder, Chairman, and CEO

Regarding the second question, we see that many of our competitors are increasing their advertising and marketing efforts in various cities, including both established companies and startups. However, the impact on us has been minimal so far. Currently, the competitive landscape for advertising is relatively low. I want to emphasize that while our marketing expenses as a percentage of revenues may vary, we still allocate the highest absolute amount towards marketing and advertising in the industry. Additionally, due to our strong two-sided network effect, we achieve high user acquisition efficiency, enabling substantial user growth while maintaining low user acquisition costs. Our performance in user acquisition is the best among our competitors. In summary, we have significant marketing investments, excellent user acquisition efficiency, and strong user retention, which is why I believe the competitive impact from emerging startups is quite limited at this stage. In response to Eddy's question about whether AI will replace programmers, we have seen a slowdown in hiring entry-level programmers, but we are still recruiting. Our focus is on attracting more talented individuals who can think critically and see the larger picture. This trend is echoed in many other tech firms as well. Consequently, I am investing more in recruitment to hire individuals with greater potential, which has led to increased hiring efforts. Traditionally, the structure involved one senior programmer leading a team of junior programmers handling simpler tasks. However, now we are moving towards a model where a senior programmer or technical expert collaborates with AI. It is important to note that the rising hiring costs for senior programmers are significant. In our sector, entry-level programmers account for less than 2% of total white-collar employees, so the overall impact of this shift on white-collar hiring is quite limited.

Operator, Operator

And the questions come from the line of Timothy Zhao from Goldman Sachs.

Timothy Zhao, Analyst

I have two questions. First, could management provide more details about the specific use cases for AI applications and features on the enterprise side, as well as the commercial products we are considering? I'm also interested in understanding which of the recently developed mini-programs or applications have the most commercial potential. Secondly, regarding your recent financing activities in the Hong Kong market, we appreciate the announcement of the share repurchase and annual dividend policy this year. Can management share insights on the future of capital markets, specifically your plans to enhance liquidity in Hong Kong and any detailed dividend plans you have in mind?

Peng Zhao, Founder, Chairman and CEO

We have made significant progress in AI product development and are eager to launch new products. One of our innovations is a recruitment agent called HAMR, which is currently utilized by around 500 recruiters daily. Recruiters can perform most of their tasks on our platform by interacting with HAMR through conversation. This process needs the job seekers' consent, and while some may decline, those who agree allow HAMR to gather revenue-related content or complete tasks on our platform. We plan to apply detailed metrics to refine HAMR, which not only validates existing technologies but also enhances online engagement. Our advancements with HAMR are noteworthy. Additionally, we have been working on a second product targeted at job seekers who are more receptive to such tools and recruiters seeking better negotiation opportunities. This product, designed for large state-owned enterprises, has just been launched, allowing for customized digital human advertisements, interview questions, and reports. It also includes AI-driven follow-up questions and multimodal candidate recognition, such as image recognition. We have successfully facilitated over 20 AI-powered interview events for recent graduates at more than ten large state-owned enterprises, attracting nearly 30,000 participants with positive feedback. There are many such examples, and their prevalence is increasing in other companies. The integration of AI technology with current product applications and daily operations is still in its infancy. As a result, integrating new technology with business metrics is expected to produce more innovative products from various brand initiatives. We remain patient and well-resourced while waiting for these applications to develop. AI is critical, and we are fully committed to it, maintaining a long-term approach as our core principle.

Yu Zhang, Director and CFO

Okay. I’ll address the second question. As you know, the company has a very healthy cash balance on hand, with more than RMB 16 billion in cash reserves. In terms of operating cash flow, we experience incremental inflows exceeding RMB 1 billion every quarter. Therefore, the company does not need to raise money from the market. Our capital activity and fundraising in July were primarily aimed at improving our liquidity in Hong Kong. In the past, we became publicly listed in Hong Kong without issuing new shares, which resulted in poor liquidity for our stock trading there. We sought to resolve this issue. We believe that addressing this problem benefits both the company and our investors, which is why we took the rare approach of launching a public offering in Hong Kong. The offer was very successful, and all participating investors made money; our Hong Kong liquidity started to improve following the offering. We consider shareholders as our partners, and shareholder return is a significant aspect for us. In the past, we mainly used share repurchase programs to return cash to our shareholders. We have launched four phases, amounting to a total of approximately USD 400 million. This time, the company renewed its share repurchase program and announced an annual dividend policy. We aim to make this a standard routine and annual process. Essentially, each year, we will assess our operating conditions and pay dividends to our shareholders. For the fiscal year of 2025, we announced USD 80 million for dividends. Regarding our Hong Kong liquidity, the public share offering raised HKD 2.2 billion, approximately USD 280 million. Compare this to our renewed share repurchase program of USD 250 million plus the USD 80 million annual dividend; the amounts we announced are indeed higher than what we raised in our earlier public offering. This demonstrates our commitment to shareholder returns. Moreover, we have been attentive to shareholder feedback regarding share-based compensation expenses, which have been perceived as too high. We have controlled these expenses, and you can see from the results that these costs have declined in total amount and as a percentage of revenues over the past several quarters. All of this shows our commitment to shareholder returns, which we consider very important and will continue to uphold in the future.

Wenbei Wang, Head of Investor Relations

Okay, so that's all of our answers to today's questions. Operator?

Operator, Operator

Due to time constraints, this concludes today's question-and-answer session. At this time, I will turn back the call to Wenbei for any additional or closing remarks.

Wenbei Wang, Head of Investor Relations

Thank you again for joining us today. If you have any further questions, please contact the company directly. Thank you.

Operator, Operator

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.