Kanzhun Limited

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 4/5

Kanzhun Limited operates a popular online recruitment platform in China, known as BOSS Zhipin, primarily facilitating connections between job seekers and employers.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: Kanzhun Limited operates a platform for online recruitment connecting job seekers and employers, primarily catering to blue-collar workers through its mobile app, BOSS Zhipin. While its operations are focused on the Chinese market, this specialization allows for unique operational approaches and a deeper understanding of the intricacies within this market.

  • Revenue Distribution: The company’s revenue primarily comes from providing online recruitment services to enterprises. This includes providing verification services and related tech, marketing services to employers, and other services.
  • Industry Trends: The online recruitment market in China has been growing rapidly, driven by increased internet and smartphone penetration, increased demand for skilled labor in the region, and a shift to online recruitment platforms over traditional channels.
  • Competitive Landscape: The online recruiting industry in China is highly competitive and features many big players like Liepin and Maimai. However, the company’s focus on blue-collar workers, and its app’s unique features and high engagement with users differentiate it from its competitors.

What Makes Kanzhun Different?: Kanzhun’s platform is designed more like a social media than a pure job-posting site. Its chat function allows job seekers and recruiters to directly communicate with each other. The app provides personalized recommendations for both job seekers and employers, tailored to their specific needs. The company has been expanding its services to cover other industries, but remains focused on the lower-end market, which has been a differentiator.

Financials In-Depth:

Kanzhun’s financial information is primarily in Chinese Yuan Renminbi (RMB), which has been translated into USD in this report for easy understanding. All figures are in thousands unless explicitly stated otherwise.

  • Income Statement:
    • The latest financial results for the year ended December 31, 2022 show a revenue of RMB4,629 million (US$668 million) and net income of RMB1,055.5 million (US$152 million), representing a 34% growth in revenues and a major turnaround from a loss the previous year. This growth is impressive, as is the improvement in margins.
    • The company reported a gross profit of RMB3,839 million (US$553 million) and a net operating profit of RMB1,572 million (US$226 million). These metrics show that the business has become both profitable and efficient with time.
    • Notably, Kanzhun has substantially decreased its share-based compensation expenses as a percentage of revenue over the past three years.
  • Balance Sheet: * At the end of 2022, Kanzhun’s had $2.58 billion in total assets and $3.05 billion in total liabilities, as well as $9.52 in total shareholders’ equity. This is mostly cash and cash equivalent on the asset side. Also, there has been a continued increase in non-current assets, which can be concerning. The company has a net debt position, implying low financial risk. It is critical to monitor both current and non-current asset figures and liability numbers in the future. * The company’s current ratio of about 2, indicating the company has adequate short-term assets to cover short-term liabilities, also implying good short-term liquidity.
  • Cash Flow Statement:
    • In 2022, Kanzhun generated significant cash from operations amounting to RMB 1,060.8 million. Moreover, it used this cash mostly for investing activities. They did not engage in much financing activities, suggesting the company’s operational performance is efficient in cash creation, and the financial strategy is focused on building from internal cash flow.

Moat Rating: 2 / 5 Kanzhun possesses a narrow economic moat due to a combination of network effects and high switching costs. However, these advantages are not as strong or durable to warrant a wide moat.

  • Network Effects: BOSS Zhipin benefits from network effects: the more job seekers use the platform, the more attractive it becomes to employers and vice versa. This network effect increases as the user base grows, making the platform more valuable over time. However, this effect is not as pronounced as companies in pure internet businesses, since the network is local and mostly in China. This makes the moat narrow.
  • Switching Costs: There is an amount of friction related to switching to a new recruitment platform, since a client using the service needs to become accustomed with the user interface, the unique features offered by this platform, the connections built over time, and the user base. This is especially true for small and medium businesses. However, the relatively low-barrier to entry in the recruiting industry suggests this is not an overwhelmingly high moat.

Risks to the Moat and Business Resilience:

  • Increased Competition: The online recruitment market in China is highly competitive and features some very big and established players. These competitors might steal customers from BZ’s platform.
  • Regulatory Scrutiny: As seen from past year’s, regulations in China can have an impact on tech companies, which could lead to restrictions in data usage or compliance issues that could negatively impact BZ’s moat.
  • Technology Disruption: Technology can change rapidly. The company may be vulnerable to new recruiting models or technology platforms.
  • Talent Acquisition and Retention: As a company that has had strong growth, BZ has to be proactive in hiring, training, and retaining employees, including management.
  • Economic Downturn: Chinese economy could slow down more than expected and that can severely affect BZ’s revenue generation.
  • Geopolitical Risks: US-China relations could have impact on the firm.
  • Dependence on the Chinese market: All of the business of BZ is centered in the Chinese market. They lack global diversification, making them vulnerable to the health of the chinese market.

Management’s Thoughts and Concerns:

  • Chinese government regulation: Management has admitted that uncertainty in regulation of internet-based platforms, as in China, is a key risk to their business. They have expressed their commitment to complying with the latest regulations and will actively take steps to do so.
  • COVID-19: The management has noted a slight and gradual negative impact on their business due to COVID. In terms of management’s view on the future of COVID-19 and their business, it’s all quite unclear and hazy. The management has said that they are focused on cost control to navigate the uncertainty due to the pandemic.
  • Competition: The management has explicitly stated that the company has been facing increased competition. The recent increase in sales and marketing expenses was partly to fend off that competition. The management has also noted the need to invest more in research and development to maintain long term growth, thus implying this is a key worry to them.

Understandability Rating: 3 / 5 Kanzhun’s business model is relatively easy to grasp at the surface level, but the intricacies of its mobile-first approach and the company’s dependence on the Chinese regulatory landscape adds more complexity. The complex financial statements (including all the items I have noted above) also make it harder to fully understand, particularly for a non-finance specialist.

  • The model is based around an app and a simple premise of connecting job seekers and employers. There is not much complexity in the product.
  • However, understanding the unique nuances of the specific Chinese market and regulatory landscape adds a new degree of complexity.
  • Moreover, the company’s unique financial statements and approach to accounting adds further complexity.

Balance Sheet Health Rating: 4 / 5 Kanzhun has a healthy balance sheet, indicating the company is in a very solid financial condition.

  • With no net debt, Kanzhun is on solid financial footing.
  • The company’s ample liquidity should allow for new investments and to weather any periods of reduced income.
  • The high level of cash implies a company that does not require any external financing.