Author | Wuji

The main text totals 2840 words, with an estimated reading time of 9 minutes.

Kanzhun's performance surged, but can the BOSS afford it?

Recently, Kanzhun, the largest domestic recruitment website, released its Q3 2024 report. The Earnings Reports show that in the third quarter, Kanzhun's revenue was 1.912 billion yuan, a year-on-year increase of 18.98%, and the net income attributable to shareholders was 0.4684 billion yuan, a year-on-year increase of 10.02%. In the first three quarters, Kanzhun’s revenue reached 5.532 billion yuan, a year-on-year increase of 26.54%, and the net income attributable to shareholders was 1.135 billion yuan, a year-on-year increase of 47.8%.

As of the end of the third quarter, the number of new job postings on Kanzhun grew by 18% year-on-year. The average monthly active users (MAU) on the app reached 58 million, a year-on-year increase of 30%. During the reporting period, the number of paying corporate clients reached 6 million, a year-on-year increase of 22.4%.

According to reports from the Central Broadcasting Network, Zhao Peng, the founder, chairman, and CEO of Kanzhun, stated: "The essence of business growth is that a company's products and services have won more users or gained higher user recognition. To achieve growth, it is necessary to continuously shape the company's core capabilities. As long as the original intention of 'serving users' remains unchanged, enterprises can seek survival and evolution at any time."

Kanzhun’s impressive performance did not earn recognition from the Capital Markets. After the release of the Earnings Reports, on December 12, Kanzhun's stock price on the US market rose by 2% but fell for two consecutive trading days, down 1.35% and 5.28%, respectively. The day before the release of the Earnings Reports, the single-day drop was as high as 8.02%.

On complaint platforms such as Black Cat Complaints and Consumer Protection, Kanzhun has received numerous complaints, with some corporate users questioning the steep price increases, stating that they can hardly afford it. Among them, there were 4,253 complaints on Black Cat, with 2,831 resolved, a completion rate of less than 70%, with a low completion rate on Black Cat Complaints.

Why is Kanzhun's performance surging, while the bosses are saying they can't afford it?

Is the gross margin comparable to Moutai?

Kanzhun's net income growth of 47.8% far exceeds the 26.54% revenue growth, which is somewhat related to the improvement in its gross margin and net margin.

According to the Earnings Reports, Kanzhun's sales gross margin during the reporting period was 83.26%, an increase of 1.22 percentage points compared to 82.04% in the same period last year. The sales net margin during the reporting period was 20.30%, up from 17.57% in the same period last year, an increase of 2.73 percentage points.

In 2023, Kanzhun's revenue was 5.952 billion yuan, a year-on-year increase of 31.94%. This year, Kanzhun's attributable net income was 1.099 billion yuan, with a year-on-year growth rate of 924.97%. This is also attributed to the significant increase in the sales net margin. In 2023, Kanzhun's sales gross margin of 82.19% actually decreased by 1.08 percentage points compared to last year's 83.27%, but the sales net margin skyrocketed from 2.38% in 2022 to 18.47%, an increase of 16.09 percentage points.

Since 2019, Kanzhun's gross margin has consistently remained above 82%. During the same period, the highest gross margin for Liepin was only 78%, resulting in a difference of nearly 10 points at times; in 2023, Kanzhun's gross margin was 7.9 percentage points higher than that of Liepin.

Kanzhun's significant performance increase may be closely related to the current employment environment. Small and medium-sized enterprises are under increasing operational pressure, with many private companies facing survival challenges and a surge in unemployment. The unemployment rate among young people is also on the rise. According to data from the National Bureau of Statistics, although the urban survey unemployment rate in China has remained stable at around 5% since 2018, the unemployment rate for the 16-24 age group reached as high as 16.8%, indicating that the unemployment rate for graduates is significantly higher than the overall urban survey unemployment rate.

With the slogan 'Find a job and talk directly to the boss,' Kanzhun quickly seized the position of the number one player in the domestic recruitment market, leading to its excellent financial performance. Its extremely high gross margin has become the key to Kanzhun turning its losses into profits. Previously, software companies and Moutai were the representatives of high gross margins; now, Kanzhun has become one of the high gross margin companies.

In the first three quarters of this year, Moutai's gross margin decreased from 91.71% in the same period last year to 91.53%. Although the decline is small, it has shown a slight downward trend in recent years, with a gross margin of 91.96% in 2023. The net margin also fell from 53.09% in the same period last year to 52.19%, a drop of nearly 1 percentage point. In contrast, Kanzhun's net margin reached a historic high in the first three quarters.

More than 90% of enterprises are paying users.

For job seekers, being unemployed and spending money to find a job seems hard to accept. Kanzhun seems to understand this, which is why its primary paying clients are businesses. As long as there are enough paying companies, it is sufficient to support Kanzhun's high growth.

Since its establishment, Kanzhun's core model has been 'job seekers leverage companies', simply relying on the user base to make companies pay. The options for companies are quite limited because, following a crowded job market, after rigorous filtering, only a few remain. The Yingcai Network has declined significantly after frequent ownership changes, Lagou has become indistinguishable, and 58.com is no longer as prosperous. Now, the leading players left are Kanzhun, 51job, Zhaopin, and Liepin. With the delisting of Zhaopin and 51job, the recruitment market may form a monopoly led by Kanzhun.

The cost for companies to hire on Kanzhun is also apparent. Kanzhun's value-added services include various paid options such as direct beans, competitive job postings, access cards for top talents, urgent recruit cards, background checks, VIP accounts, VIP privilege packages, talent VIP, resume refreshing, competitive analysis tool, and preferential hiring packages, which have raised questions among business owners.

It is these paying enterprise users who are essential to Kanzhun's main revenue structure. Its prospectus shows that in 2021, the revenue from online recruitment services provided to enterprise clients accounted for as much as 99% of total revenue. The revenue from paid value-added services for C-end job seekers accounted for only about 1% of total revenue. In 2023, revenue from Other services (mainly including paid value-added services offered to job seekers) was 0.06 billion yuan, and the proportion was still only 1%.

According to a report by the Securities Times on July 10, 2021, titled 'Data Cross-border Faces Strong Regulation! Kanzhun and Four Other Platforms Have Been Investigated', it showed that Kanzhun faced scrutiny and new users could not register during the investigation. However, this year Kanzhun's performance was not adversely affected, with revenue reaching 4.259 billion yuan, a year-on-year surge of 119.05%, even surpassing the 94.69% increase in 2020. The reason for this situation remains unknown.

Profit generated by saving costs?

In 2019, Kanzhun invested a large amount of money in the FIFA World Cup, with annual marketing expenses reaching 0.9168 billion yuan, while its annual revenue was only 0.9987 billion yuan, making marketing expenses account for 92% of total revenue. In 2019, there was a net loss of 0.5021 billion yuan. In that year, Kanzhun's R&D expenses were 0.3256 billion yuan, accounting for 32.6% of total revenue.

In 2023, Kanzhun's marketing expenses were 1.991 billion yuan, accounting for 33.8% of total revenue of 5.889 billion yuan. During the same period, Kanzhun's R&D expenses were 1.544 billion yuan, accounting for 26.2% of total revenue. It can be observed that Kanzhun has moved away from the era of heavy marketing. In the first three quarters of 2024, Kanzhun's marketing expenses were 1.647 billion yuan, accounting for 30.1% of total revenue of 5.466 billion yuan, with R&D expenses of 1.375 billion yuan accounting for 25.2% of total revenue, both showing a downward trend.

It is noteworthy that Kanzhun's R&D expenses have significantly increased year-on-year. From 2020 to 2023, Kanzhun's R&D expenses were 0.5134 billion yuan, 0.822 billion yuan, 1.183 billion yuan, and 1.544 billion yuan, with year-on-year growth rates of 57.68%, 60.12%, 43.89%, and 30.51%, respectively. In contrast, the growth rates of marketing expenses during the same period were 46.98%, 44.17%, 3%, and -0.48%.

A careful study shows that Kanzhun's turnaround in 2022 may be related to "cost reduction and efficiency increase." The Earnings Reports indicate that the company's general administrative expenses decreased from 1.991 billion yuan in 2021 to 0.7197 billion yuan, a reduction of 1.271 billion yuan, while Kanzhun went from losing 1.071 billion yuan in 2021 to making a profit of 0.1072 billion yuan in 2022, resulting in a net change of only 1.178 billion yuan, meaning Kanzhun's cost savings were sufficient to cover expenses and still yielded an additional nearly 0.1 billion yuan. Signs of cost reduction are also reflected in the Earnings Reports. In 2023, Kanzhun had a total of 5,346 employees, a decrease of 256 from the previous year. The reduced positions included Operations, Administration, and R&D, with Operations seeing a reduction of 226 people.

After Kanzhun became profitable in 2022, the response from the Capital Markets was mediocre. Its stock price has fallen from a high of $44.78 in June 2021 to a decline of about 70% today. As of the market close on December 16, Kanzhun's Market Cap was $6.216 billion, which is a loss of $13.9 billion compared to its peak value of $20.16 billion.

In response to enterprise concerns regarding fees, Kanzhun has not made a direct response. However, the "People's Daily" published a joint notice from the Ministry of Human Resources and Social Security and the Central Cyberspace Affairs Commission in September this year, focusing on the current chaotic recruitment situation in the human resources market and proposing management measures to effectively safeguard the legal rights and interests of workers and employers.

Currently, Kanzhun has not disclosed any violations or irregular charges, but the above notice also clearly urges recruitment platforms to "explicitly state the fee standards."

Since its establishment, paid enterprises have always been the main source of revenue for Kanzhun. Returning to the question posed at the beginning, in a time when enterprises are increasingly struggling, when BOSS cannot afford it, who will support the growth of performance?