Kanzhun Works Investors Into Selling Frenzy With Talk Of 'Challenging Times'

Key Takeaways:

• Shares of Kanzhun fell more than 20% in New York after it issued quarterly results that barely met earlier guidance despite strong profit and revenue growth
• The company’s core business customers are less willing to pay for its recruitment services as job seekers flood the market

By Edith Terry

It almost looks like investors don’t like good news. At least that’s how it appeared when leading employment services provider Kanzhun Ltd. BZ announced its second-quarter earnings last week that looked like a winner by most standards.

The operator of China’s largest digital recruitment platform reported second-quarter revenue of 1.9 billion yuan ($264 million), up 28.8% from a year earlier. Its net income of 417 million yuan was also up by a healthy 34.8%, and average monthly active users, including both employers and job seekers, rose 25.2% to 54.6 million.

Despite those upbeat numbers, Kanzhun’s shares promptly tumbled in both Hong Kong the U.S. after the announcement, including a 21% drop in New York. Why the stampede for the exits?

One reason may be that Kanzhun’s revenue came in at the low end of its earlier guidance for between 1.91 billion yuan and 1.96 billion yuan. The second-quarter growth rate also represented a slowdown from the 33.4% growth in the first quarter, when the figure reached 1.7 billion yuan.

But coming in at the bottom end of guidance is only part of the reason for investor skepticism. The company has gone through its shares of ups and downs since its U.S. listing in June 2021 and Hong Kong IPO in December 2022. The stock more than doubled shortly after its U.S. listing, but has been on a steady downward track since then. It made its Hong Kong IPO amid fears of a potential U.S. delisting and a forced six-month pause in its new user signups after a tussle with China’s cybersecurity watchdog.

It’s quite possible that some investors were scared in these latest results by the cautious note sounded by Kanzhun founder Zhao Peng, who also uses the name Jonathan.

“During challenging times, confidence is crucial for everyone, no matter co-investors, co-employees, or potential investors, or prospective talent,” Zhao said on the company’s earnings call. “In tough times, confidence is more valuable than growth. Ensuring profitability for the year will help to sustain confidence in the company, which can be achieved through further refinement of our management.”

Investors were also likely concerned at Zhao’s observation that recruitment demand weakened in the latter half of the second quarter due to the growing number of job seekers in the market. “There were relatively fewer enterprise users and more job seekers in the market,” he said. “Most enterprise users found it easier to hire a project team that it took three months to fill all the positions in the past, and now only takes two months. This reduces the desire of enterprise users to spend money.”

Zhao also promised to expand Kanzhun’s $200 million share buyback program, announced in March. True to his word, the company announced a new $150 million buyback program the next day, helping the stock regain some of its earlier losses.

Strong Growth Targets

Kanzhun is targeting a full-year non-GAAP operating profit of 2.3 billion yuan, which would be up 40% year-on-year and come through greater economies of scale and cost management, CFO Zhang Yu said on the earnings call. The company is also aiming to sign up 40 million to 45 million new users for the year – a target that looks quite attainable after it signed up 28 million new users in the first half.

Like many companies in China, Kanzhun recorded steep losses during the pandemic in 2021 and 2022, as the recruitment industry cratered and job mobility all but stopped in the services industry and for new graduates. The unemployment rate for the latter rose to 19.9% in the summer of 2022, giving employers the upper hand ever since.

Kanzhun is China’s leader in its core business of selling employment services to businesses. In 2022 its BOSS Zhipin platform had 53.7% of the hiring market with employers, and 46.3% with job seekers, according to data platform Statista. As of the end of April 2024, it had served a cumulative 190 million verified users, including 14 million enterprises.

Online recruitment services to enterprise customers accounted for 1.89 billion yuan in the company’s second-quarter revenue, or nearly all of its total, while fees from job seekers made up the rest. Its number of paid enterprise users during the 12 months to June 30 increased by 31% year-on-year to 5.9 million.

Zhao said he would focus on new growth drivers to diversify the company’s business, including stepping up blue-collar recruitment and overseas business.

The pivot to more blue collar recruitment comes as China faces dire shortages of skilled manufacturing and logistics workers. The Ministry of Human Resources and Social Security estimated that nearly 30 million manufacturing jobs will go unfilled by 2025. And according to one source, the cost of finding and hiring such workers was more than 10,000 yuan per worker.

Despite its attempts to tap into that market, Kanzhun’s blue-collar strategy has gotten off to a rocky start. In March 2024, it acquired 77% of WD Technology Investment Group, which Zhao previously described as “the leading manufacturing talent delivery program in China.” In the first quarter, the number and growth rate of new blue-collar users for Kanzhun exceeded its white-collar segment.

But by the second quarter, Zhao described the situation as more complicated. “The complex relationship between factories, workers, platforms and agents has made it challenging for online platforms to serve blue collar” employers and job applicants, he said.

Part of the problem has been rogue agents who falsify information, which Kanzhun has addressed by introducing a system of identifying “trustworthy” agents. Seasonal issues also affect the business, with hiring reaching a height during the Lunar New Year early each year and then falling back after that.

Nonetheless, factory recruitment, followed by logistics, are outperforming all other industries, Zhao said. “We believe this is the first real chance for the online recruitment platform to go into the blue-collar manufacturing industry and make some real money,” he added.

With its trailing price to earnings (P/E) ratio of 28, Kanzhun is not cheap but is comparable to smaller peer Tongdao Liepin (6100.HK), which trades at 24. Global giants like Adecco (ADIA.F) and Kelly Services KELYA trade lower with P/E ratios of 17 and 16, respectively, showing the Chinese companies are still valued notably higher than their larger global peers. But the premium gap could narrow if Chinese companies rein in their spending on hiring as the nation’s economy slows.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.