BOSS Zhipin: Budgeting to Meet Goals (3Q24 Conference Call Summary)

The following is the summary of the Q3 2024 earnings call for $Kanzhun(BZ.US) For the earnings report interpretation, please refer to BOSS ZhiPin: No slack, truly facing strong headwinds . $BOSS ZHIPIN-W(02076.HK)

I. Core Information Review of the Earnings Report:

II. Detailed Content of the Earnings Call

2.1. Key Information from Executives:

2.1.1 Business Progress

1) Overall Performance

- Q3 revenue reached 1.91 billion RMB, a year-on-year increase of 19%.

- Net profit was 460 million RMB.

- Adjusted operating revenue (excluding stock-based compensation expenses) was 610 million RMB, a year-on-year increase of 10%.

2) Marketing Expenses

- Due to the simultaneous occurrence of the Olympics and the 2024 European Championship in Q3, the company increased resources for brand promotion, leading to an increase in marketing expenses.

- The equity incentive expenses, which previously accounted for a high proportion of revenue, have entered a phase of expected gradual decline, with this quarter's expenses decreasing both year-on-year and quarter-on-quarter.

3) User Growth

- The average monthly active users of the BOSS ZhiPin app reached 58 million, a year-on-year increase of 30%.

- More than 40 million new verified users were added in the first three quarters of 2024.

- The number of newly posted job positions increased by 18% year-on-year, mainly driven by user growth and market share expansion.

4) Payment Situation

- Affected by supply and demand, the growth of the short-term payment ratio has slowed down. However, the retention of enterprise users remains solid, and the number of paying enterprise clients has also seen considerable growth.

- The ratio of job seekers to enterprise users continues to rise, shortening the recruitment cycle for enterprises, which may temporarily affect the willingness of enterprise users to pay - As of September 30, 2024, the total number of paying enterprise customers reached approximately 6 million, a year-on-year increase of 22% and a quarter-on-quarter increase of 2%.

- Average revenue per paying enterprise customer (ARPU) remained stable.

2.1.2 Blue-collar Manufacturing Sector

- The company is committed to purifying the market environment, expanding the funding cycle, and achieving satisfactory growth.

- In the third quarter, the number of enterprises attracted by the "Conch Preferred" project increased by 45% quarter-on-quarter, and the value of signed contracts increased by over 40% quarter-on-quarter.

- The contribution of blue-collar business to total revenue further increased to over 38%.

2.1.3 Technology Investment

- The platform facilitates nearly 200 million successful interactions based on mutual agreement each month, demonstrating the continued growth in interactions between enterprise users and job seekers.

2.1.4 Financial Performance

1) Revenue

Third-quarter revenue grew by 19%, reaching 1.9 billion RMB, mainly benefiting from the continuous expansion of the enterprise user base, especially in the blue-collar sector, lower-tier cities, and market penetration of small companies.

2) Costs and Gross Profit

- Adjusted operating costs increased by 23% year-on-year, reaching 1.3 billion RMB, remaining flat quarter-on-quarter.

- Adjusted operating profit reached 605 million RMB, a year-on-year increase of 10%, with an adjusted operating profit margin of 32%.

- Operating costs increased by 17% year-on-year, reaching 314 million RMB, mainly driven by rising server and bandwidth costs, payment processing costs, and employee-related expenses.

3) Expense Side

a. Sales and Marketing Expenses

- Sales and marketing expenses increased by 14% year-on-year, reaching 522 million RMB, mainly due to marketing activities during the 2024 Paris Olympics and the European Championship.

b. R&D Expenses

- R&D expenses increased by 12% year-on-year, reaching 464 million RMB.

- Excluding stock-based compensation expenses, adjusted R&D expenses increased by 18% year-on-year, reaching 361 million RMB.

c. General and Administrative Expenses (G&A)

- General and administrative expenses increased by 31% year-on-year, reaching 286 million RMB, mainly due to employee-related expenses and some one-time expenditures.

d. Net Profit

- Net profit for the quarter was 464 million RMB, a year-on-year increase of 9%.

- Adjusted net profit was 739 million RMB, a year-on-year increase of 4%.

e. Stock Compensation Expenses

- Total stock compensation expenses for the quarter were 275 million RMB, a year-on-year decrease of 5% and a quarter-on-quarter decrease of 9% f. Cash Flow and Cash Equivalents

The net cash generated from operating activities for this quarter was 812 million RMB, which is basically flat compared to the same period last year.

As of September 30, 2024, the total amount of cash and cash equivalents, short-term time deposits, and investments was 16.6 billion RMB.

g. Stock Repurchase Plan

• Since the announcement of the plan in August, the company has repurchased approximately 130 million USD, bringing the total repurchase amount for this year to 220 million USD, accounting for 3.4% of the company's total share capital.

h. Business Outlook

• Total revenue for the fourth quarter of 2024 is expected to be between 1.795 billion and 1.81 billion RMB, representing a year-on-year growth of 13.6% to 14.5%.

2.2 Q&A Analyst Q&A

Q: Since the government introduced some supportive policies at the end of September, have you seen signs of these policies boosting the recruitment market and improving operational metrics?

A: The government launched some supportive policies at the end of September, and we have observed that since the end of October, the daily number of new enterprise users has improved year-on-year. Although November and December are typically off-peak months for recruitment, the number of new enterprise users continues to grow year-on-year, and this trend has persisted into November and December.

The ratio of job seekers to recruiters continues to decline, indicating that the supply-demand balance is improving. However, supportive policies take time to translate into actual improvements in the economy and corporate recruitment demand, so patience is needed.

Q: Given that macroeconomic uncertainty may extend into 2025, how do you plan to maintain revenue growth in 2025?

A: There are several key revenue growth drivers that remain unchanged:

First, user growth is expected to remain at least 15% overall, despite uncertainties. The enterprise side will also grow, albeit more slowly; if the macro environment stabilizes, the enterprise side will perform better, making user growth a relatively stable driver.

Second, the payment ratio remains stable, having increased from a low initial level to around 20% - 30% now, with an upward trend unchanged. If the macro economy recovers, the payment ratio is expected to increase significantly. Third, the Average Revenue Per Paying User (ARPU) is stable, and given the stability of the first two drivers, there is no urgency to significantly increase ARPU; it will remain stable with a slight improvement trend.

Fourth, the blue-collar business is also a revenue growth driver, contributing over 38% to total revenue in the third quarter. The launch of the Conch project is aimed at addressing the chaos in the blue-collar manufacturing recruitment industry, and we are already seeing results.

Q: We hope to provide more detailed classifications for the third quarter, including the performance of clients in blue-collar and white-collar industries as well as different sub-sectors. Given that the overall ARPU in the third quarter was relatively stable, can you discuss the ARPU and revenue trends between small and medium-sized enterprises and large clients?

A: Overall, the growth rate of blue-collar workers is still faster than that of white-collar workers, but compared to the same period last year, the revenue growth rate of blue-collar workers has significantly slowed down, mainly affected by the poor performance of the urban service industry, while white-collar workers remain relatively stable. In terms of specific industries, the urban service industry has been relatively weak since the second quarter, but there has been some improvement recently. Industries performing well include manufacturing, logistics and warehousing, and the automotive industry, for example, manufacturing saw a year-on-year revenue growth of over 45% in the third quarter.

From the perspective of enterprise size, large enterprises with over 10,000 employees and small micro-enterprises with fewer than 100 employees performed well in the third quarter, while most enterprises in China are small businesses, which is also the main source of new enterprise users. Revenue from large clients grew by over30%year-on-year,overall ARPU increased by 5% year-on-year, remaining flat quarter-on-quarter, withlarge clients experiencing the most significant ARPU increase among the three segments.**

Q: In the first 9 months of this year, 40 million new registered users have been added. Based on this calculation, the number of individual registered users is approaching 200 million. With plans for 15% or higher growth next year, how do you view user growth and marketing expenses for next year?

A: User Growth: It is estimated that the reachable user base in China exceeds 400 million, which means there is still significant room for user growth, especially on the enterprise side.

Marketing Expenses: We do not plan to invest heavily in marketing or user acquisition, firstly because of the strong bilateral network effect, where organic traffic accounts for a large proportion of new users; secondly, from the actual situation, there are no large-scale events or marketing activities that require significant spending, so we will keep marketing expenses at a relatively low level.

Q: Regarding blue-collar recruitment, can you share the future growth strategy for blue-collar business around manufacturing and other verticals? Are there plans to build offline service capabilities, and have you observed any changes in the competitive landscape?

A: The key to improving blue-collar manufacturing factory business lies in enabling factories, intermediaries, workers, and platforms to coexist under recognized rules to improve efficiency. In terms of the competitive landscape, in the short term, controlling worker salary ranges at reasonable levels may not allow us to compete with platforms that allow high salary recruitment, but in the long run, we have an advantage because we return to the real situation of the positions. In the short term, we will not heavily invest in offline human services, and will continue to advance with these four participants according to the existing model, hoping for good results.

Q: Regarding next year's profit outlook, given the macro uncertainty, the management has shown strong determination to safeguard profitability. What are the main driving factors for profit improvement next year, and are there any potential new investments to consider?

A: Performance Outlook: The company has a strong commitment to protecting profitability, and it is expected that the gross profit margin will remain flat or slightly improve next year.

Improvements in sales efficiency will provide additional leverage for sales expenses.

The number of R&D personnel may not increase, and there are no actual investments in AI hardware in the short term.

New business expenditures will be disciplined, and it is expected that operating profit margins will further improve with revenue growth.

Q: How is the progress of overseas business, and how to balance overseas business investment with profit control goals?

A: There will not be significant investment in overseas business next year. We will follow a business expansion approach that does not increase investment easily without seeing results, planning to conduct small-scale, low-cost business trials, so it will not affect next year's profit situation.

Q: Noticing the trend in the industry towards artificial intelligence products (such as applying AI in interview processes), how do you view the current application scenarios of AI in the recruitment field, as well as potential new revenue or cost reduction opportunities?

A: Currently, the prospects for AI technology in the industry are good, but actual application scenarios are limited. The company adheres to the principle of equality between job seekers and recruiters, ensuring that one party does not suppress the other by leveraging AI advantages; we uphold the principle of the right to know, allowing users to have the right to be informed when facing potential AI counterparts. From the perspective of actual application scenarios, there is no need to repeatedly use large models for tasks that can be effectively completed. In terms of protecting user safety, AI technology is very useful; the company's security team can improve review efficiency with AI technology and can also leverage AI to gain advantages in addressing platform misconduct, creating value for operations.

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