2022-01-18

(22 Pages, 23 graphs and tables)

Listen to analyst’s audio summary

l  Recent step-up in monetization is a healthy catchup of Kanzhun (BZ)’s traffic share. Yet we believe BZ’s further increase in monetization and expansion to new markets will meet challenges;

l  BZ’s engagement of workgroup line management will increase usage frequency. Its recommendation information flow, chat-based interaction and item-based monetization will reduce S&M and drive margin expansion;

l  We initiate the stock @HOLD with TP of US$34 on valuation concerns.

 

Recent step-up in monetization filled the traffic-revenue gap

According to Questmobile, mobile recruiting apps had a total MAU of 73mn in August, among which BZ’s app BOSS ZHIPIN had 27mn, ~2x of competitor ZHAOPIN, ~3x of 51JOB and 4x of LIEPIN. We estimate BZ’s 2021 revenue market share in online job seeking to be 29%, up from 18% in 2020 and 9% in 2019. BZ’s revenue share is only catching up with its traffic share, in our opinion.

 

We are optimistic on BZ to further expand its margins

We view BZ as a mobile-Internet native company that has a disruptive business model in the online job seeking market. Its direct engagement of workgroup managers increases the usage frequency of online recruiting and shall serve to lower the S&M cost to reacquire users and drive margins.

 

We are less optimistic on BZ to succeed in new markets

We estimate online job seeking to have a market size of RMB15bn in 2021 and will double by 2024 and triple by 2026. We, however, are cautious on BZ’s market share beyond 40% for anti-monopoly reasons. We see BZ penetrating both upmarket to online headhunting and down market into RPO/staffing to be significantly margin and working capital dilutive. As a result, we forecast BZ’s 2030 gross margin at 53%, meaningfully below today’s level of 85-90%. 

 

Share count is a drag to valuation…Technology can unlock it

BZ had 407mn ADS outstanding following its IPO, plus 69mn outstanding ADS options and 73mn issuable under share option plan. Globally SaaS and online job seeking names have lofty valuation. We believe the key is technology advancement to take over market from legacy players at decent profit margins.

Click to download the full report