- Kanzhun Limited went public in June 2021, raising approximately $912 million in a U.S. IPO.
- The firm operates a large online and mobile-centric recruiting platform in China.
- BZ has grown revenue and users but faces numerous regulatory and economic risks in China, combined with the potential for a stock delisting in the U.S.
- I'm on Hold for BZ until we gain clarity on these substantial uncertainties.
A Quick Take On Kanzhun Limited
Kanzhun Limited ( BZ ) went public in June 2021, raising approximately $912 million in gross proceeds from an IPO that was priced at $19.00 per ADS.
The firm operates a large recruitment platform in China (Boss Zhipin) through its mobile application.
Interested investors may view BZ's many uncertainties as a buying opportunity, but I'm more cautious as there are so many risks facing the company that are outside of its control.
While management appears to be making the best of a cloudy situation, I'm on Hold for BZ until we gain more visibility into its future trajectory.
Kanzhun Overview
Beijing, China-based Kanzhun was founded to create its Boss Zhipin app which connects job seekers with employers looking for workers.
Management is headed by founder, Chairman and CEO Mr. Peng Zhao, who was previously Chief Executive Officer of Quickerbuy, a service e-commerce company.
The company's primary offerings include:
-
Native mobile app
-
Intelligent recommendations
-
Direct chat capabilities
The firm seeks to grow its two-sided platform by attracting job seekers via online marketing and businesses of all sizes.
Notably, a majority of its enterprise users are not human resource managers, but what the firm calls 'bosses' looking for workers directly.
Kanzhun's Market & Competition
According to a 2019 market research report by iResearch Global, the market for online recruitment grew by a strong 31% in 2018, reaching over 9 billion Yuan in value.
Since 2017, the industry has seen significant growth through the end of 2018.
The main drivers for this expected growth are below is a chart showing the historical and estimated growth path of the number of employers participating in the online recruiting industry in China, though 2020:
China Online Recruitment Industry (iResearch Global)
Also, the market likely saw a substantial rise in activity as a result of the COVID-19 pandemic, as is evidenced by Kanzhun's extremely strong revenue growth during 2020, although recent lockdowns have hampered the company's growth.
The company faces competition from niche vertical players, established headhunting firms, and professional networking websites that may have or develop online recruitment services.
Kanzhun's Recent Financial Performance
-
Total revenue by quarter has grown substantially, although unevenly in recent quarters due to COVID lockdowns and a user registration suspension period:
5 Quarter Total Revenue (Seeking Alpha)
-
Gross profit by quarter has grown but recently plateaued:
5 Quarter Gross Profit (Seeking Alpha)
-
Selling, G&A expenses as a percentage of total revenue by quarter have been highly variable:
5 Quarter Selling, G&A % Of Revenue (Seeking Alpha)
-
Operating income by quarter has also fluctuated greatly:
5 Quarter Operating Income (Seeking Alpha)
-
Earnings per share (Diluted) have reached breakeven or better in recent quarters:
5 Quarter Earnings Per Share (Seeking Alpha)
(All data in above charts is GAAP)
In the past 12 months, BZ's stock price has fallen 32.5% vs. the U.S. S&P 500 index's drop of around 7.1%, as the chart below indicates:
52 Week Stock Price (Seeking Alpha)
Valuation And Other Metrics For Kanzhun
Below is a table of relevant capitalization and valuation figures for the company:
Measure | Amount |
Enterprise Value | $8,730,000,000 |
Market Capitalization | $10,650,000,000 |
Enterprise Value / Sales [TTM] | 12.02 |
Price / Sales [TTM] | 11.97 |
Revenue Growth Rate [TTM] | 88.08% |
Operating Cash Flow [TTM] | $279,160,000 |
CapEx Ratio (Op C.F./CapEx) | 6.81 |
Earnings Per Share (Fully Diluted) | -$2.73 |
(Source - Seeking Alpha)
The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.
BZ's most recent GAAP Rule of 40 calculation was 104% as of Q1 2022, so the firm has performed extremely well in this regard, per the table below:
Rule of 40 - GAAP | Calculation |
Recent Rev. Growth % | 88% |
GAAP EBITDA % | 16% |
Total | 104% |
(Source - Seeking Alpha)
Commentary On Kanzhun
In its last earnings call (Source - Seeking Alpha ), covering Q1 2022's results, management highlighted the growth in its Daily Active Users to a peak of 9.7 million, or 8.2% year-over-year.
Also, the firm is seeking to expand its efforts to diversify its job listing and job seeker coverage into the blue-collar recruitment area in the manufacturing industry, which is quite large in China.
Additionally, the company wants to expand its high-income 'gold collar' user and job listing base as another targeted growth area.
As to its financial results, topline revenue grew 44% year-over-year, an impressive figure.
Cost of revenue grew by 66% as the firm increased headcount, especially with security-related staff.
Total operating costs increased 10% year-over-year, while sales and marketing costs dropped 16% due to a new user registration suspension period.
For the balance sheet, the firm finished the quarter with $1.86 billion in cash, equivalents, and short-term investments while BZ has generated $238.2 million in free cash flow over the trailing twelve-month period.
Regarding valuation, the market is valuing BZ at an EV/Sales multiple of around 12x.
The SaaS Capital Index of publicly-held SaaS software companies showed an average forward EV/Revenue multiple of around 7.5x on June 30, 2022, as the chart shows here:
SaaS Capital Index (SaaS Capital)
So, by comparison, BZ is currently valued by the market at a significant premium to the SaaS Capital Index, at least as of June 30, 2022.
The primary risks to the company's outlook are a potential macroeconomic slowdown or recession, which may slow job listings and the results of a Chinese regulatory security audit which would influence its ability to remain as a foreign stock listing.
Also, the company has been named on the SEC listing on the HFCAA, which means the firm could be delisted on U.S. markets if its auditor's working papers are not made available for inspection by the PCAOB within a three-year period.
Thirdly, a resurgence of the COVID-19 virus and related lockdowns in major cities in China is a continuing risk, as the recent lockdowns have reduced revenue by more than 50% in some cases.
A potential upside catalyst to the stock could include a benign outcome of the Chinese regulatory security review of the firm, although management has been silent on this matter.
The continued removal of COVID-19 lockdowns would also have a positive effect on its operations and stock price.
BZ is certainly a large player in the online recruitment space, but the firm has been buffeted by lockdowns and Chinese regulatory actions which have left the company in limbo.
Interested investors may view this situation as a buying opportunity, but I'm more cautious as there are so many uncertainties facing the company that are outside of its control.
While management appears to be making the best of a cloudy situation, I'm on Hold for BZ until we gain more visibility into its future trajectory.
For further details see:
Kanzhun Limited Strives For Growth Amid Myriad Risks