China’s leading online recruitment company reported its revenue rose 43% in the first quarter, but forecast a decline in the second quarter due to Covid disruptions
- Kanzhun reported strong first-quarter revenue growth, but predicted it would record its first-ever revenue contraction in the second quarter due to Covid disruptions
- No updates were provided on a government data security review that is reportedly nearing completion and has prevented the company from registering new users for nearly a year
By Doug Young
The latest earnings report from Kanzhun Ltd. (BZ.US) is filled with numbers and commentary, mostly pointing to a dismal second quarter but hopes for a swift rebound if and when China moves past the battle to control its latest Covid outbreaks. But the one thing missing, the proverbial “elephant in the room,” is any updates on the nearly yearlong government ban that has prevented China’s leading online recruitment services provider from registering new users.
Kanzhun was one of three companies slapped with new user registration bans a year ago, alongside trucking app operator Full Truck Alliance (YMM.US) and the Uber-like DiDi Global (DIDIY.US). The bans kicked off a year of turbulence for most U.S.-listed Chinese internet stocks, wiping out billions of dollars in market value as investors fretted about whether those companies might be forced to delist from Wall Street.
At the heart of the matter was data security concerns from Beijing, since all three companies operate apps with potentially sensitive data on millions of users around China. The new user registration bans were meant to be temporary while China’s internet regulator conducted data security reviews on the companies. Reflecting the belief that its continued U.S. listing would be considered too risky by the regulator, DiDi officially delisted from the New York Stock Exchange last month and now trades only over-the-counter.
The Wall Street Journal reported earlier this month that the data security reviews were nearing completion for all three companies. But none of the three has spoken publicly about the situation, most likely for fear of upsetting the regulator.
From our perspective, Kanzhun seems the least likely to be affected by the data security review since all of its data only involves China’s job market and thus isn’t too sensitive. What’s more, most of its customers are companies and not individuals, the latter of which tends to be more sensitive.
Still, Kanzhun made no mention of any new developments on that matter in its latest earnings results, except to note several times it hasn’t been allowed to register any new users for nearly a year. Company officials also notably ignored one analyst question on the topic during the regular earnings call after release of the latest quarterly data.
Despite the lack of an update on that critical matter, the company’s stock still rallied nearly 10% on Friday after the results came out. But the stock is still down 21% year-to-date, though it’s up 77% from an all-time low reached in late May. And its Friday close is up 44% from its IPO price of $19 from last June.
Investors still seem relatively upbeat on the company despite the uncertainty, with the stock now trading at a price-to-earnings (P/E) ratio of 66, based on analyst profit estimates for this year. That’s well ahead of the ratio of 14 for domestic rival Tongdao Liepin (6100.HK), and also well ahead of the 9 for U.S. recruitment giant ManPower Group (MAN.US).
The bottom line seems to be that investors are relatively upbeat on the company, but won’t completely relax until the data security review is complete and Beijing signals it can continue to trade in New York and resume registering new users.
All that said, the other major issue for Kanzhun, and for most companies in China, is the impact all are feeling from restrictive measures nationwide to stamp out the virus under the country’s “zero covid” policy. Those measures mostly date back to around mid-March, and culminated in April and May with the lockdown of the entire city of Shanghai, China’s commercial capital with 25 million residents.
“Since mid-March, with the resurgence of Covid-19 across major cities, we have also witnessed the decline in the overall recruitment demands,” Chairman Zhao Peng, who also uses the name Jonathan, said on the company’s earnings call. “The number of active enterprise users and job postings plummeted in the cities and areas with severe outbreaks.”
Kanzhun’s revenue actually rose 43% year-on-year in the first quarter to 1.14 billion yuan ($170 million), underscoring its status as China’s leader in online recruiting services despite the many headwinds it is facing. But things get decidedly worse in the second quarter, with the company forecasting a 6% year-on-year revenue decline for the period to about 1.1 billion yuan – its first-ever decline since going public a year ago.
Kanzhun is hardly alone in making such a glum forecast, since Shanghai was completely locked down for two of the quarter’s three months. But the company also noted that its business typically bounces back very quickly from such disruptions, unlike manufacturers whose operations often take much longer to return to normal due to supply chain problems.
“Since the beginning of June, the impact of the pandemic in Shanghai has been eased and we have seen operating data recovered to 80% of the pre-pandemic level two weeks later,” Zhao said on the call.
Kanzhun’s customer metrics looked relative strong for the first quarter, especially when one considers the ban on new customer registrations. Its average monthly active users rose slightly to 25.2 million from 24.9 million a year earlier, while its paying enterprise customers for the 12 months through March rose 41% to 4.1 million from 2.9 million in the previous 12-month period.
The company reported an adjusted first-quarter profit, which excludes stock-based compensation costs, of 121.1 million yuan, versus a 127.5 million yuan loss a year earlier.
In one other notable development, Kanzhun executives pointed out they were providing subsidies for the company’s services to cities and industries that had been “severely affected by the outbreak.” Anyone in China will know that even before the lockdowns, China was experiencing one of its weakest job markets in years as tech companies laid off thousands of workers under pressure from recent regulatory clampdowns combined with the effects of a sputtering economy.
Such public assistance won’t do anything to help Kanzhun’s revenue, and is probably a factor behind the dismal second-quarter forecast. But it will certainly win the company brownie points with government officials, which is critical for doing successful business in China. At the end of the day, the company looks well positioned to weather the current storm and resume its strong growth if it is allowed to resume signing up new users in the next few months.
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