Kanzhun Limited (BZ) Q3 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to Kanzhun Limited Third 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 Third 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 may 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 third quarter 2025 earnings conference call. On behalf of the company's employees, management team and Board of Directors, I'd like to extend our sincere gratitude to our users, investors and friends who have continuously believed and supported us. I will briefly walk through our key operational results and business progress this quarter, focusing on 3 areas: first, recovery in demand driven accelerated growth in our third quarter performance. Second, the evolving characteristics for equipment demand across different industries; third, progress in integrating AI into our product, technology and overall business operations. Let's start with the financial performance. In the third quarter, we generated a total revenue of RMB 2.16 billion, up 13.3% year-on-year with growth accelerating from the previous quarter. Excluding share-based compensation expenses and other income, such as investing gains, our adjusted operating profit reached RMB 900 million, up 49.3% year-over-year. Our GAAP net profit was RMB 780 million up 67.2% year-on-year, with a net profit margin of 35.8%. Part of this improvement was attributable to a decrease in share-based compensation expenses, which was RMB 220 million this quarter, marking the third consecutive quarter of sequential decline and a year-on-year drop of 21%. The growth in the third quarter was driven by 2 key factors. The first and most important driver was continued user growth, supported by our increasing penetration and expanding market share. From January to October, we acquired over 40 million newly verified users. In the third quarter, the average verified monthly active users, which is MAU on the BOSS Zhipin app reached 53.82 million. While the user base growing, user activity is also strong. According to third-party data, our DAU to MAU ratio has maintained a high industry-leading level. The second driver was the rebound in enterprise side demand, which also has helped the number of improvement of data in the monetization side. In the third quarter, the newly posted job positions increased 25% year-on-year, while both the number of recruiters posting new jobs and the average number of posts per recruiters grew steadily compared to the previous quarter and the same period last year. From July to September, the average number of daily active enterprise users grew at a faster pace sequentially than job seekers, marking the first time this has happened in 3 years. The supply-demand balance on our platform, meaning the ratio of enterprise users to job seekers continued to improve. By September 30, the number of paid enterprise customers in the 12 months grew 13.3% year-on-year to 6.8 million. Over the entire quarter, the paying ratio among quarterly active users increased both year-on-year and quarter-on-quarter. The second agenda item focuses on observing enterprise client demand in this quarter from multiple perspectives. From an industry perspective, blue-collar revenue growth continued to lead with its revenue contribution reaching a record high in the third quarter. Manufacturing industries remains the most robust sector, topping the industry in revenue growth for 5 consecutive quarters. Taking this opportunity, I would like to do a brief review. 3 years ago, the company's strategy for serving manufacturing job seekers and recruiters was divided into 3 stage in terms of priority. The first stage is to improve the online job search environment for blue-collar workers. Between the pathway of [ profit ] first and managed second or managed first and profitable second, we choose the second path. The second stage is to develop a user scale of a double-sided users on the platform and the third stage is to pursue commercial benefits in a reasonable scale. In 2022, we launched the Conch project to purify the job search environment for blue-collar workers, pursuing the authenticity of recruiters, job positions and compensation, combating false information and increasing user trust. Over the past 3 years, the process has been extremely challenging and the results have gradually emerged. Meanwhile, transportation, logistics and warehousing and service industries also delivered solid overall performance. Among the white-collar sectors, industry such as artificial intelligence, Internet service, lifestyle service, new retail and gaming are experiencing leading growth. One thing worth mentioning among the white-collar segment, which we have noticed a notable increase in participation from small- and medium-sized enterprises in the white-collar industry with paying user numbers growing quickly, while the average spending per customer remained stable, which is an opposite trend to previous patterns. This in certain level reflecting a revival of the white-collar entrepreneur ecosystem. From the perspective of city tiers and company-wide, demand in Tier 1 cities is rebounding. Tier 2 cities remain stable and the revenue contribution from Tier 3 and Tier 3 below cities continue to rise. Among enterprises of different sizes, mid to large enterprises, which means employees between 500 to 9,999 are growing the fastest, followed by small and micro enterprises and very large enterprises. The third agenda item reviews the progress we made since AI was integrated into the company's business from product and technology perspective. On the job seeker service side, there are 2 things worth mentioning. First, after a period of continuous iteration an AI job search assistant have been fully launched for all job seekers. Currently, it can recommend position for users, answer questions and also provide suggestions on how to optimize their revenues. In the third quarter, not only with the full rollout of this product has been achieved, but the number of interactions per user with this AI job search assistant also showed a significant quarter-on-quarter increase. And then we have also been continuously optimizing the AI interview content feature. In the third quarter, number of job seekers who completed the mock interviews showed further improvement and also their activity level and conversion rates continue to improve compared to the previous quarter. On the recruiter service side, multiple AI products have been gradually launched to provide services. There are 4 aspects to mention. First, the AI communication assistant feature is being gradually integrated into existing commercial value-added products. As a result, the average mutual achievement conversion ratio of these products have increased by 7%. Second, a product called AI Quick Hiring, after continuous optimization is currently under phased rollout. Experiments shows that this product will not only help the platform better understand recruiter intentions, but also allows for comparison among all job seekers on the platform, thereby improving matching accuracy. Currently, the reuse rate among recruiters participating in the phased rollout testing is steadily increasing. Third, we have extended the AI interview feature to a number of well-known customers from the campus recruitment side. For example, the AI interview can support multiple rounds of follow-up questions and customized interviewer profile. This has very strong appeal to students, leading to a high volume application in the short term, which increasing significant pressure for recruiters during the campus recruiting activities. The development in AI services have alleviated this pressure. Fourth, we are cautiously exploring AI-hosted recruitment service and AI-powered bulk placement solutions in diverse recruitment scenarios such as high-end white collar and gold collar positions, blue-collar roles in the teaching and manufacturing industries. These initiatives are gradually generating benefits. Among all those enterprised AI services, we have been quite cautiously, which will allow the job seekers to know whenever they are communicating with an AI service, and they have an option to pause the service they have the button. And sometimes someone might choose to close and someone choose to continue the communication, and we are continuously collecting related examples. We not only simply provide the option for job seekers whether we can communicate with AI or not to guarantee their interest, but also we are continuously to observe with the intervention of AI, what kind of impact will affect the mutual matching, not only on an individual job seeker recruiter perspective, but also from a scalable double-side situation. And what kind of impact of this will have to our ecosystem from a job seeking and recruitment perspective, we are continually observing and collecting data. In summary, in the third quarter, we delivered a high-quality growth with solid progress across user growth, commercialization and AI technology implementation. In October, the company completed an annual dividend payment of approximately USD 80 million. Looking ahead, we will continue to focus on strengthening our core business capability while actively fulfill our commitment to shareholders. That concludes my part of the call. I will now turn it over to our CFO, Phil, for the review of our financials. Thank you.

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results for the third quarter of 2025. In this quarter, we delivered high-quality and sustainable top line and bottom line growth. Our revenue reached RMB 2.2 billion this quarter, with growth accelerating to 13% year-on-year. The faster revenue growth this quarter was primarily driven by higher enterprise user growth as well as improved monetization level due to the recovering hiring demand. Our commercialization strategy grounded in ecological balance enable us to effectively and sustainably improve user payment ratio within a relatively better hiring environment. The growth in paid enterprise customers, which grew by 13% to 6.8 million for the 12 months ended September 30, demonstrates our capability and potential to enhance monetization level. Revenue from middle-sized -- revenue from small-sized accounts showed continued growth momentum with revenue contribution in this quarter up by 2.2 percentage points, while key accounts growth remained stable. As a result of the structural mix shifting, the overall ARPPU maintained stable. Moving to the cost side. Total operating costs and expenses decreased by 7% year-on-year to RMB 1.5 billion in this quarter. Share-based compensation expenses dropped by 21% year-on-year and 6% quarter-on-quarter to RMB 216 million, shrinking for the third consecutive quarters on both absolute amount and the percentage of revenue. Excluding share-based compensation expenses, adjusted income from operations grew by 49% to RMB 904 million, and our adjusted operating margin reached 41.8%, up by 10.1 percentage points year-on-year and relatively flat quarter-on-quarter. Cost of revenues decreased by 2% year-on-year to RMB 308 million in this quarter, mainly due to the decrease in operational employee-related expenses as a result of improved operational efficiency as we continue to engage AI in our daily operations. Gross margins went up by 2.2 percentage points year-on-year and 0.4 percentage points quarter-on-quarter to 85.8%. Sales and marketing expenses decreased by 25% year-on-year to RMB 394 million during this quarter. As we don't have sports events, marketing campaigns this year, even if we exclude the sports sponsorship costs, our adjusted sales and marketing expenses in this quarter decreased 15% year-on-year, while we still maintain a robust user growth. This double confirms our sustainable increase of marketing efficiency due to our strong brand recognition and network effect. Our R&D expenses decreased by 12% year-on-year to RMB 408 million in this quarter. Excluding share-based compensation expenses, our adjusted R&D expenses decreased by 8% year-on-year to RMB 331 million in this quarter and stayed relatively flat sequentially. Our G&A expenses increased by 28% to RMB 367 million in this quarter, primarily due to a one-off impairment of intangible assets, partially offset by a decrease in employee-related expenses. Excluding the impairment, our G&A expenses decreased both year-on-year and sequentially. Our interest and investment income in the quarter increased by 43% year-on-year to RMB 228 million in this year, primarily due to a partial disposal of an equity investment and increased interest from HKD 2.2 billion share offering proceeds in early July. Our net income increased by 67% to RMB 775 million in this quarter, with adjusted net income increased by 34% to RMB 992 million. Net margin improved by 11.6 percentage points year-on-year to 35.8%, while adjusted net margins reached 45.8%, up 7.2 percentage points year-on-year. Both of them have maintained sustainable improvement over the past 6 consecutive quarters. Net cash provided by operating activities reached RMB 1.2 billion in this quarter, up 45% year-on-year. As of September 30, 2025, we continue to maintain a strong cash position of RMB 19.2 billion. And now for our business outlook. For the fourth quarter of 2025, we expect our total revenue to continue the growth momentum and reach between RMB 2.05 billion and RMB 2.07 billion with a year-on-year increase of 12.4% to 13.5%. With that concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead with the call.

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

[Interpreted] I have 2 questions. First is what's the overall recruitment demand recently. We noticed that the unemployment rate in September and October is improving. Do you think this is mainly due to the seasonal factors or the improving trend is a leading indicator of macro recovery? What are the driving factors behind BOSS accelerating growth in the third quarter? My second question is that as we are approaching the end of the year, what's your perception of the [ aka ] renewal willingness right now? Are there any noticeable trends in customer renewal rates or the renewed amount?

[Interpreted] From our data perspective, the recruitment activities from enterprises indeed recovered in the third quarter. The growth rate of monthly active users on enterprise side is faster compared to job seeker side. The pressure from the job seeker side to our platform have been alleviated. If we can recall that back in 2021 and 2022, it was a little bit difficult for the fresh graduates to find a job. And in 2023, the reopening, which everybody was expecting was not happening as we expected. So people -- young people, especially young people, it's a little bit difficult to find a job. This year take July, for example, the fresh graduates, their expression for job seeking demand compared to the same period last year have declined by double digits. Meanwhile, from the enterprise side, the company who have posted job opening to fresh graduates increased by double digits. So from the situation from both job seeker and recruiter side, especially from the fresh graduates as an example, that we quite clearly felt that the pressure, which have been accumulating for several years is released a lot in the third quarter. In the third quarter, not only the ratio between job seekers and recruiters among active users improved compared to last year, the newly added user ratio also improved. And also the third quarter is better than the second quarter, which gives us continued confidence. So it's quite easy to understand that based on the trend -- improving trend of supply and demand balance, which is the recovery of the enterprise side and the improvement of the paying ratio and it also helped with our overall business operation. So the third quarter last year was a relatively low base. So from a cautious perspective, we also compared it to 2023 same period. It was worth mentioning that the recovery of the white collar for example, the newly added number of job posting for the white collar position in the third quarter increased significantly compared to the fourth quarter compared to 2023, same period of 2023. So based on all the observations and comparisons, I have the confidence to conclude in my prepared remarks that the improved hiring demand drove our accelerated revenue growth, and that's where my confidence come from. And now Phil will give you answers regarding the retention [indiscernible].

So Eddy, companies renews their annual contract individually at different point of time, not only at the year-end. Starting from the year, we have witnessed improving contract renewal rate improving continuously, particularly in third quarter, in the past -- actually for the first time in the past 2 years, company level net dollar retention rate started to bottom out. This signals a potential turning point from previous downward trajectory. We believe this is driven primarily by improved company retention rate and their higher renewal spending. And we observed this situation not only at key account customers, but also at the small, medium-sized enterprises. So simply speaking, that the company's renewal -- annual contract renewal situation improved sequentially and annually. So this once again proved that the hiring demand in the economy has been recovering healthily.

And that's our answer to your question, Eddy.

Our next question comes from Wei Xiong from UBS.

[Interpreted] Firstly, we observed that our company has continued outgrowing peers for the past few years. So if we look at the enterprise recruiting budget allocation, how much more share can we continue to gain over peers? And how do we sustain that above peers' growth going forward? And looking at next year, if the macro situation improves, will we continue to solidify our leadership? Or is it possible to see higher competition pressure because the peers may step up investments? And secondly, on margin side, given the high base this year, how do we think about the trend for our margin next year? What are the major investment areas, for example, in terms of sales and marketing, how do we think about the spending plan there? And previously, given the macro uncertainty, we said we want to prioritize profitability. So looking at next year, are we going to continue prioritizing that profitability or leaning towards investing a little bit for growth?

[Interpreted] I would like to start with our number of paid enterprise customers, which grew by 13.3% to 6.8 million in 12 months. And a matter of fact, majority or maybe over 80% of paid enterprise customers are small and micro enterprises, which will use our own business model and go-to-market strategy developed over the years. By mentioning this, I would like to clarify on 2 concept. Firstly, majority of our main paid enterprise customers are developed by our own rather than gaining shares from our peers. The second concept is that this public data that China has over 40 million small and medium-sized enterprises and our paid enterprise -- number of paid enterprise customers is still a small percentage of that. That's why even on the relatively tight macro situation, we still have ample room to grow in terms of our market share. And the logical conclusion is that when the market recover, when the weaker demand improves, we can enjoy revenue and business growth rate. But on a competitive landscape perspective, we need to admit that for the customers, both we and our peers are serving, especially under economic pressure situation, then the client normally will turn to service provider who have better ROI and higher service capability, and we do have some advantages over that. And about the profitability, which you concerned a lot, which the current profit margin you observed, which is actually a strategic selection from our company level. Last year, we decided that facing all of these uncertainties, we want to make sure the [indiscernible] which is guaranteed profit. And this year, you have seen our very strong implementation capabilities and realized profit number. Essentially, this very strong margin profile actually reflects our effective double-sided network effect, our further penetration into user mindset and very efficient and smooth internal management and operation and all those result in this high margin profile. As a result, I can predict that with the profit -- the margin for next year will continue to improve but we will not sacrifice our revenue growth to achieve this profitability. So for the next year, we still want to guarantee at least 35 million newly verified users. Our pursue in better serve users in higher revenue growth actually has higher priority compared to our pursuing of profitability. That's our strategic level view on our profitability, and we hope you and our investors can better understand what is profitability means to us and for your reference. And that's all of our answer to your questions.

Our next question comes from Timothy Zhao from Goldman Sachs.

[Interpreted] Congrats on the solid results. Two questions from my side. First, as Zhao just mentioned that we are going to explore more in the different verticals within the recruitment industry. Could management share more progress and updates on this? And what are the potential impact to our services and amortization into the longer term? Secondly, is an AI-related question. We noticed that OpenAI recently announced to enter the recruitment industry and some other AI start-ups like Mercor also has been evolving its business model. Could management share your view on the competitive landscape between the traditional recruitment platforms as well as Conch and the general AI companies in the recruitment industry?

[Interpreted] So when we are trying to combine AI and human activities, we have some very interesting findings under our scientific experiment. For example, when a customer who is quite angry and cannot contain his temper, when he's facing a customer service people, normally they could be quite aggressive. But when the customer know that the counterparty is AI, nobody will take -- talk very harsh words. So the biggest companion from the customer journey is your [ Mercor AI ]. And the second example is for our AI interview coaching products. So a lot of job seekers who have used this service repeatedly to train their interview skills once and once again. But we found out that when the job seeker his second scoring is below the first one, then they will stop this repeat. So you can see some very interesting findings I can show in our daily experiment. So people can control -- well control his temper when they're facing an AI and also people who do not want to bother a real human coach very frequently, but he can do that through an AI. All these results is telling us that when we are applying AI technology to very anxious people and job matching the superior and subordinate matching for this scenario, we need to be very cautious while using the new technology. So now more than 2 years, this very exciting large language model technology haven't been able to generate a killer level of application in our industry. Actually, we are not in a hurry and it actually gave us more time to find a way to how coexist with all this new development and the new technologies. So I just mentioned that on certain placement scenario, both in blue-collar and white collar-recruitment such as full cycle hosted recruitment service or semi cycle hosted recruitment service, we have been very actively to try out new services, but also quite cautiously. So far, we have some achievement but still not in a stage to massively rollout this new features. So we also noticed that some leading technology companies who have been empowered by AI who have expressed their interest in entering into recruitment industry. So new technology combined with old industry questions possibly can generate revolutionary level industry check, just like the mobile network and recommendation technology combined with the traditional recruitment demand have generated positive impact in this new generation of online recruitment model. Up today, my thinking of that the combination of AI and the recruitment service, the key bottleneck is actually not computing power. Mercor, who is getting a lot of professionals to do the tagging actually show the value of the high-quality data. If the high-quality data is very critical, it's very important then with BOSS Zhipin, we'll have a serious -- our industry actually have some certain level of advantages. Just to answering your question, I want to express some observations we noticed from our daily operations.

And that all our answer to questions, Timothy.

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

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

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.]