Kanzhun Limited (BZ) Q1 2025 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Kanzhun Limited First Quarter 2025 Financial Results Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our first quarter 2025 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 this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose 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. Now I will turn the call to Jonathan, our Founder, Chairman and CEO.

[Interpreted] Hello, everyone. Thank you for joining our company's first quarter 2025 earnings conference call. On behalf of the company's employees, management team and Board of Directors, I would like to extend our sincere gratitude to our users, investors and friends who have continuously believed in and supported us. In response to key investor concerns, I would like to report on a few main topics. First, we have remained focused on driving profitability with encouraging results. Second, regarding the ongoing tariff war, which is a concern for many. My observation is that its impact on our business has not intensified. Third, we have continued to make solid progress on the AI front. Let me start with an overview of our financial performance. In the first quarter, the company achieved a GAAP revenue of RMB 1.92 billion, up 13% year-on-year. Our net income reached RMB 510 million, reflecting a 112% year-on-year growth. The various uncertainties of recent years have promoted the company to formulate a strategy, which is to focus intensely on very few high-impact priorities to enhance operational certainty. Based on this, at the end of last year, we clearly proposed to guarantee profits. Excluding other income such as wealth management income, our adjusted operating income was RMB 690 million for the first quarter. Adjusted operating margin was 36%, up 13 percentage points year-on-year compared to 23% in the same period last year. Overall, this achievement demonstrated the company's capability to implement strategic goals and exceptional operational leverages. Increasing profitability involves both cost control and revenue growth. With respect to cost, there are 2 things worth mentioning. First is the decrease of SBC expenses. Our share-based compensation expenses this quarter were down by 10% quarter-on-quarter. As a proportion of revenue, this represents a narrowing of nearly 4 percentage points year-on-year. We have previously predicted that the longer-term passes since the IPO as well as the growth of our revenue, the impact of SBC expenses on profits will decline in both absolute value and percentage. This trend will continue. Second is the improvement of marketing efficiency. From January to April this year, the company added over 15 million verified new users. In the first quarter, the average verified and monthly active users on the BOSS Zhipin app reached 57.56 million, up 24% year-on-year. Post-Chinese New Year, monthly active users in March approached 65 million. The average number of achievements per user continuing to increase both quarter-on-quarter and year-on-year. We maintained robust user growth despite the decrease in marketing expenses benefiting from the 2-sided network effects of our model and our continued focus on improving user satisfaction. Our core revenue growth drivers are still the growth of users and the increase in penetration rate. Therefore, revenue growth and user growth showed a highly correlated structural change. First, blue-collar new users accounted for over 45% of our total users in the first quarter, driving their shares of revenue up to more than 39%. Second, alongside with the higher growth rate of new users among Tier 3 and lower tier cities, the revenue contribution from Tier 3 and below goes up by 3 percentage points to over 23%. Third, revenue from enterprises with fewer than 100 employees hit a record high contribution for the period due to the higher growth rate of the smaller size companies. Many people are concerned about the impact of the tariff war. We also take it seriously. So far, our overall conclusion is with regard to the job seeking and equipment supply and demand relationship, no severe impact of the war has been observed so far. In general, we observed that hiring demand from enterprises has continued to show recovery trend since Chinese New Year. From January to April, average new job postings grew 17% year-on-year, while the paying ratio improved sequentially, boosting total paid enterprise customers in the 12 months ended March 31 to 6.38 million, up 12% year-on-year. From industry perspective, recruitment demand for blue collar workers represented by urban service sectors such as catering and retail has been continuously and steadily rebounding since April. Manufacturing recruitment has demonstrated resilience despite the impact of tariffs with the number of new job postings maintaining year-on-year growth in April. Meanwhile, recruitment demand for white collar has also stabilized and begun to recover with industries such as advertising, professional services, Internet, finance and automotive leading in year-on-year growth rate. Since last quarter, market has been very concerned about AI. We also attach great importance to AI in our own daily operations in the recent 3 years. In this quarter, in terms of products and services, we continue to deepen application of AI technology and expand the scale and the penetration rate of AI testing users. Now allow me to spend on our AI developments. We'll break it down into 3 key aspects: AI 2C to job seekers, AI 2B to recruiters and AI to Management. First, AI 2C. The first item is the gray scale testing also known as phased rollout we mentioned in our last earnings call, which is after our user conduct their search, we do not only need to give the result, but also provide an explanation by AI, why the result is what it is. Initial outcomes showed promising results and we have now rolled out to all users. The second thing of AI 2C, which we also mentioned during our last call, is our AI-powered interview robot designed to help users practice interview skills. Our experiments have shown that it can meaningfully enhance recommendation systems understanding of individual user behaviors and the outcome is quite significant. Now we have officially launched it for all students and young people with up to 3 years of work experience. Moving on to AI to recruiters. One is the application of AI technology which has, to some extent, supported our exploration in closed-loop services. The result is in the first quarter, the number of enterprises we provide like placement services grew by about 30% quarter-over-quarter. We are now starting to see some [indiscernible]. The other one is an agent, which can interact with the users That agent can guide enterprise users to convey their personalized recruitment demand and proactively search for suitable candidates across the platform. The agent is still evolving, but we have witnessed that this agent can effectively improve the matching accuracy. Enterprise users who have used the agent are seeing a 25% increase in achieve their efficiency -- recruitment results. That said, we remain extremely cautious about broadly expanding the robots role of allowing it to somehow -- even somehow partially replace human recruiters. Our current strategy is as follows: First, we placed no limits on building the core member capabilities. Second, we are extremely prudent about when and how readily we will deploy the robot. Third is AI to Management. First thing -- are 2 things to talk about. First thing, the reformation of weekly reports. Now after one finished their weekly report, we have our proprietary AI system to help create a concise summary version, which can still be revised by you. That way, you have 2 reports sent to your hirer. One is the summative AI plus modified. The other one is your original merger. The -- until now, the supervisor's behavior is trying to check the contract for the first, then move on to the longer one. So that's just some basic applications today. The value to help realize the value is, the AI will start your historical weekly reports and also read across weekly reports from related departments. If there are too many projects that have not closed the loop or the content is empty or there are too many big words that AI will remind you. This is a supplement to human capabilities. The second thing on AI tool Management is the use case for talent evaluation. When we merely rely on humans for performance appraisal even so-called 360 degrees, there might be interference from 2 noisy sources. The first thing is forgetfulness, for example, a person's previous contributions will be downplayed and the recent performance will be more important, it's quite human natural, but this might not be appropriate as a long-term evaluation. The second thing is also quite according to human nature. So homo sapiens will see what others want you to see, while superior may consciously or unconsciously future and change their subordinates information before presenting it upward. However, AI is objective under the premises of protecting employees' privacy and dignity, AI can see the objective changes in past performance data. AI will not like an employee because it likes his character or will not evaluate him badly because it dislikes the employee. So AI is neutral and impartial in terms of human resource applications. To sum up, for the AI to job seekers to enterprise users and to management, these 3 aspects, our exploration and the research are equally important. To sum up, the first quarter of 2025 was solid. On the whole, we are positive for the year ahead, and we will continue to work hard. That concludes my part of the call. I will now turn it over to our CFO, Phil for the interview -- for the review of our financials.

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results. of the first quarter of 2025. We are delighted to report a solid start to the year, characterized by continuous expansion in our user base and engagement and sustainable revenue growth. In this quarter, our revenues reached RMB 1.9 billion, representing a 13% year-on-year growth. We experienced a decent spring recruitment season with continuous improvement in enterprise hiring demand, evidenced by the growth of our cash collections, which has bottomed out from the last quarter. Revenues from key accounts and small-sized accounts both contributed to higher growth rates in the quarter. Our paid enterprise customers grew by 12% year-on-year to 6.4 million in the trialing 12 months ended March 31, primarily driven by the growth of enterprise users. Paying ratio among active enterprise users increased on a sequential basis, as the supply demand situation of the labor market improved from previous quarter. ARPPU increased by 5% year-on-year, mainly due to the expansion of paying amounts from key accounts. Moving to the cost side. Total operating costs and expenses decreased by 8% year-on-year to RMB 1.5 billion in the first quarter. Share-based compensation expenses dropped by 13% year-on-year and 10% quarter-over-quarter to RMB 252 million, shrinking for the third consecutive quarters. Excluding share-based compensation expenses, adjusted operating costs and expenses decreased by 6% year-on-year to RMB 1.2 billion. And our adjusted operating margin reached 36%, up by 13 percentage points year-on-year. A showcase of our disciplined cost control and high operating leverage, despite Q1 normally having the lowest margin within the full year due to seasonality. Cost of revenues increased by 5% year-on-year to RMB 311 million this quarter. Gross margin went up by 1.1 percentage points to 83.8% compared to the same period of last year. As a testimony of our AI arbitration to improve our operating efficiency. Sales and marketing expenses decreased by 15% year-on-year to RMB 491 million during this quarter, primarily due to decreases in advertising and marketing expenses and employee-related expenses. However, our strong brand recognition enhanced the marketing efficiency and superior user engagement guaranteed that we can still maintain robust user growth momentum. Our R&D expenses decreased by 9% year-on-year to RMB 424 million in this quarter and was relatively stable sequentially. This decrease was primarily driven by lower employee-related expenses and reduce the public cloud expenses related to AI. Our G&A expenses were RMB 266 million in this quarter, remaining relatively stable, both year-on-year and quarter-over-quarter. Our net income reached RMB 512 million in this quarter, up 112% year-on-year, while adjusted net income increased by 44% to RMB 764 million. Net margin improved to 26.6%, up 12 percentage points year-on-year, while our adjusted net margin increased to 39.7%, up 8.6 percentage points year-on-year. Net cash provided by operating activities reached RMB 1.0 billion in this quarter, up 11% year-on-year. Our cash position totaled RMB 14.8 billion as of March 31 2025. Our strong cash generation and robust cash position provides financial flexibility to execute growth initiatives and enhance shareholder returns. And now for our business outlook. For the second quarter of 2025, we expect our total revenues to be between RMB 2.05 billion and RMB 2.08 billion with a year-on-year increase of 7.0% to 8.5%. Please note, this growth rate will also bottom up this quarter, driven by continued improvement of cash direction growth in the year. That concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead.

[Operator Instructions] We will now take our first question from the line of Eddy Wang from Morgan Stanley.

[Foreign Language] I have 2 questions. The first one is that would you please give us the brief of how the hiring demand evolved over the past months from the start of the tariff war till it eases? And have we seen any signs of the recovery in current demand recently? And the second question is that, if I remember correctly, after May last year, macro weakness coincided with a graduation season has led to a deterioration of recruitment demand. How does the current recruitment demand trend in April and May compared with the same period last year? And have we seen different trends among different industries and different sizes of the enterprises? Will such trend continue into the gradual season in June and July?

[Interpreted] Thank you for your question. About the first one, which is tariff war concerning. We are still looking from the supply and demand perspective of job-seekers posting job expectations and recruiters post the job postings. So this is the -- has the most importance to our platform. In general speaking, the improvement, the recovery of recruitment trend, continued recruitment trend is still the case that is undoubtfully. The view we talked during our prepared remarks, which is quite serious that in general speaking, the tariff war impact on our overall supply and demand relationship is still quite limited. Objectively speaking, we have a quite diversified industry and location distribution. So the export-related industries, both in terms of revenue and numbers of job posting contribution are quite low. If we look at the detailed numbers, for example, in April and May, the total number of new job postings and active job postings have kept a good growth rate. We haven't been seeing any significant pull back compared to March. For industries which affected bigger by the tariffs, such as export-related jobs, so we saw some slowing in terms of growth rate in the beginning of April, but it has recovered after mid-May. The second question regarding the overall recruitment market. So the overall supply and demand ratio has continued to improve in this year. Let's take a detailed look after the day -- after May compared to the same days after the spring festival. So this year, we saw better growth trend compared to last year between -- after May, especially after Labor Day holiday and after spring festival. Let's look at some detailed numbers. So in April till today, since April till today, the newly -- number of newly posted jobs and number of recruiters who posted jobs -- the sequential trends are better compared to last year. Among which the blue collar sector, especially urban service blue collar sector, the year-on-year growth rate continue to enlarge from March to May. And about our prediction for June and July graduation season, it's hard to say we can predict precisely. But according to my personal feeling, it could be okay. We see this coming. And that's my answer to your question, Eddy. And operator, let's move on to the next one.

Our next question comes from the line of Timothy Zhao from Goldman Sachs.

[Foreign Language] Two questions here from my side. First, we understand that the company has been internally testing the AI features for both enterprises and the job seekers. Could management share what is the feedback so far? And what is the plan for the company to launch the AI monetization features. Secondly is considering the latest macro environment as well as the monetization rate as well as user growth. Just wondering how does management see the RMB 3 billion non-GAAP operating profit target for this year? And into the second half, what are our leverage to make sure this RMB 3 billion target is achievable and what is the longer-term margin expansion I think, room for the company? And additionally could management share about our plan for capital allocation?

[Interpreted] Thank you for your question. I will take the first one regarding AI and our CFO will answer the second question regarding the margin. So about AI, it's good to summarize that our series of phased out AI product testing has quite positive feedback, we have just mentioned. And this is based on that we have been continued to be very cautious in terms of using AI. And I think analysts and the investors who are familiar with us knows our views. And we just mentioned that some of our testing products have already opened to all of our users, it's a gradual process. And regarding the monetization, I would like to share 2 data with you. For the recruiters who have great scale used our AI recruitment function, efficiency of achievement increased by 25% under the same amount of conversations. The AI communication assistant have accumulatively served over 9 million conversations during our massive gray scale test. So the job seekers who have been responded by the AI communication assistant, chief achievement rate increased by 15%. So in principle, the AI products can improve the efficiency, increase your user experience and saving some time. But in reality, we are still quite cautious. So my view is we might be relatively gradually and slowly on the AI adoption of monetization, but it must be some [ remnant ].

So I'd like to answer the profitability and margin question. So as Jonathan mentioned in the prepared remarks earlier, even under current conditions with many external uncertainties. The company's overarching goal for this year is to secure a solid bottom line growth first, then try our best to grow faster with our business. In first quarter, we had a good start, and we managed to reduce cost to improve overall efficiency for most cost and expenses items. Our marketing fees dropped in absolute amount versus last year, but we still achieved satisfactory new user growth. We had higher revenue but our sales guide -- number of our sales dropped. Headcount for R&D, administrative cost and operation functions kept stable. Our internal AI tools kicked in for the platforms operation and verification jobs, which leads to improvement of our gross margin. You should know that our margin in the first quarter is the lowest due to the seasonality with all the measures mentioned above. There is still room to improve in second quarter -- second half of the year. So we are confident with our RMB 3 billion non-GAAP operating profit target for the full year. This is a comment for the profitability and margin. And regarding the shareholder return topic, the company currently has more than USD 2 billion cash and equivalents on hand. We consider shareholder returns a very important topic, and we like to do whatever fits us. Currently, our share repurchase program is still ongoing, and we definitely will continue. At the same time, we are studying and doing some assessment for other means, other measures to increase our shareholder return. So please stay tuned. We would like to do it step by step.

Okay. That's our answer to those 2 questions, and operator, let's move on to the next question.

Next question comes from Wei Xiong from UBS.

[Foreign Language] First, with the wider adoption of AI in human resources industry, are we seeing any changes or expecting any potential changes in the competitive landscape? And can we leverage AI to actually further expand our service offerings. And secondly, could management share more updates regarding our blue collar recruiting business. What are the key KPIs for this year? And how is our progress in the new businesses, such as placement services.

[Interpreted] About your first question of how AI will impact the competitive landscape. My view is relatively conservative. So my assessment is for this generation of AI technology and all the AI application we can observe from the market, we haven't seen any revolutionary or disruptive changes. So the competitive landscape is relatively stable. But I also have some predictions that if globally amongst the human resource industries, there is a new generation of AI products can change the overall landscape, then there must be pushed by the new generation of AI technology, which may be like the 1.5 or 2.0 generation. And no, we haven't observed any revolutionary changes of the industry, and we still place very high importance of AI and AI-related investment. For example, last year, since -- actually since 2023, we have bought more than RMB 1 billion of chips, which is enough for us to conduct self-drive research and small-scale influence. In terms of AI science, we still maintain a small-scale lab for us to be able to conduct pretraining of our own model and replicate all those open source models. In fact, we are actually quite confident that in terms of using AI science for AI application, our business scenario are actually quite suitable to applicate the power of AI, for AI to have some impacts on our business. Compared to the first emergence of ChatGPT, when we felt a little bit panic or curious at that time. Now we have more certainty on the AI technology can actually help with our business and with more real feelings. And the more topic of view to share that a lot of online recruitment platform have long been pursuing the closed loop placement service. Now with the health of AI technology, we have more certainty to confirm that whether we can achieve cost closed-loop service in a big scale or not. And with blue collar sector user, new user contribution more than 45%, revenue contribution more than 39% and increased the revenue contribution from third tier and below cities. So this aspect actually are becoming more and more important for our daily operations. And if we want -- one word to summarize our future efforts to serve the blue collar and the lower-tier city users is our service and products will be more simple and clear. And in terms of placement business, especially on the blue collar placement, we have been spending a lot of resources and time. The key point is to guarantee the efficiency and reliability of your results. So if AI application can really help with those 2 aspects, then we do feel some confidence in this prospect, and that's why we want to further invest in this area. And that's my answer to your question.

Operator, I think that's the last one due to the time constraint.

Thank you. Yes. Due to time constraint, that concludes today's question-and-answer session. So at this time, I'll turn the conference back to Wenbei for any additional or closing remarks.

Thank you, operator, and thank you, everyone, for joining our call today. And if you have any further questions, please contact our IR team directly or TPG Investor Relations.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]