Employment Bigshot Kanzhun Eyes China’s Blue-Collar Workers as Shares Soar in IPO

Company looks for success as a publicly traded jobs specialist despite lackluster performance for other listed peers

Key points:

  • Job matcher Kanzhun gets seal of approval from investors as stock soars on New York trading debut
  • Company will need to leverage expertise to move into related areas or risk ending up like slow-growth listed peers

By Ben Livesey

The future of China’s post-pandemic economy may be clouded by mixed signals on growth, demand and supply, jobs and inflation. But that’s just fine with Kanzhun Ltd. (Nasdaq: BZ), an online recruitment platform that has become an overnight sensation with a blockbuster debut for its newly listed New York shares, followed by more gains on its second trading day.

The company is the largest internet-based recruiter in China, according to research firm China Insights Consultancy. Beijing-based Kanzhun’s average monthly active users (MAU) have been growing briskly, reaching 24.9 million in this year’s first quarter, up 71% from 14.5 million in the year-ago period, according to its prospectus. By the end of March it had 85.8 million verified job seekers. 

But the company’s status as a one-trick pony means it will need to find other growth venues to justify the rich valuation it has seen in its brief life as a listed company. Otherwise it could end up like some of its New York- and Hong Kong-listed Chinese peers, at least two of which ultimately privatized after investors lost interest.

Kanzhun listed its American depositary shares (ADSs) on the Nasdaq on Friday in the biggest New York IPO by a Chinese company since March. The stock soared to $37.20 on its first trading day, almost double its listing price of $19, as the company raised more than $900 million. The rally continued with an 8% gain on its second day, giving Kanzhun a market value of $16 billion.

Ahead of the listing the company got strong endorsements from a stable of A-list investors including UBS, Singapore’s GIC and Abu Dhabi sovereign investor Mubadala Investment Co. Those big institutions had indicated an interest in buying up to $350 million of the shares, representing more than a third of the total on offer.

Founded in 2014, Kanzhun’s business is centered on its Boss Zhipin mobile app that hooks up job seekers directly with employers. It higher-end services include features such as enabling employers to chat directly with candidates on the platform. Its VIP tier service also lets candidates access company leaders, while offering employers features such as the ability to screen out applicants.

Kanzhun says it’s meeting a demand head-on as China’s economy has outpaced the growth in labor supply and left employers finding offline recruiting inefficient and expensive. At the same time, job seekers are increasingly turning to mobile recruitment platforms, Kanzhun says, particularly younger people who tend to switch employers more frequently.

The penetration rate of online recruitment for job seekers is expected to reach 35% in 2025 from 18% in 2020, providing lots of room for growth, Kanzhun says in its prospectus, citing the CIC report which it commissioned.

But Kanzhun isn’t content to just provide services for white-collar and so-called elite “gold-collar” workers. The company, which is backed by Tencent, says it also sees huge potential in a “massive blue-collar market opportunity” among the millions of laborers and service industry workers that form the backbone of the country’s economy.

The online penetration rate for that segment is projected to triple to nearly a third of such workers by 2025 from 13% in 2020. Over that period, revenue for the blue-collar online market is forecast to grow even more briskly to 128 billion yuan ($20 billion) from 23 billion yuan, Kanzhun estimated. Like younger people, blue collar workers often switch employment and firms are using the company’s app to fill multiple openings in the segment.

Financial Fast Lane

All that job hopping has put Kanzhun into the financial fast lane. Revenue almost doubled to 1.94 billion yuan in 2020 compared with 2019. Sales in this year’s first quarter nearly tripled to 788.5 million yuan from a year earlier.

Despite seven years in the business and its recent rapid growth, the company remains unprofitable. Its net loss nearly doubled to 941.9 million yuan in 2020 from 502.1 million yuan in 2019, though the figure contracted to 176.2 million yuan in this year’s first quarter from 278.8 million yuan a year earlier.

Given its fast growth rates, Kanzhun would seem to be on track to emerge as a leader in China’s vast job recruiting market. Few of its competitors are publicly-listed, mostly after meeting with lackluster results during their brief tenures on Wall Street.

Rival Zhaopin listed in 2014, and 58.com, often dubbed the ‘Craigslist of China’, listed a year earlier. But both are back in private ownership after top management was unhappy with their stock performance.

Last month one of the few remaining names from the space 51job, which listed in 2004, also received a management-led takeover proposal worth more than $5 billion. That stock has done reasonably well during its 17 years as a listed company, rising by a factor of five over that time. But at its current market value it’s still just a fifth the size of Kanzhun.

One other peer, Hong Kong-listed Tongdao Liepin is an indirect competitor positioned at the mid-to high end talent acquisition market and offers multiple recruitment and HR services. But the stock has moved steadily downward since its 2018 IPO, despite the company posting relatively strong revenue growth over that time.

Kanzhun currently trades at a frothy price-to-sales (P/S) ratio of 53, compared to about 9 for 51.jobs and just 5 for Tongdao Liepin.

Kanzhun admits it could also face headwinds in the years ahead, including a slowdown in the Chinese economy or by pandemic-related restrictions. In March, China set a modest annual economic growth target at above 6%, and its recovery from the pandemic is proving to be a bumpy ride.

There’s also caution in the Chinese workforce, with more graduates seeking stability by opting for jobs at state-backed entities or postponing entry into the workforce in favor pursuing higher academic degrees, taking a gap year or working for themselves.

Given that Kanzhun’s growth is embedded in the blue-collar muscle of China’s juggernaut job market, these concerns don’t appear to be business threatening, at least for now.

But Kanzhun’s product could become commoditized and competition will increase, as often happens with such newly emerging leaders. That means investors will eventually want to see what other things the company has in mind to maintain its current strong growth, lest it end up like the many other disappointing job specialists that have come before it.

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