China's Aging Population And Rising Oversight Will Hamper Long-Term Performance

Key Takeaways

• Demographic decline, regulatory pressures, and domestic market concentration threaten future growth, revenue stability, and long-term earnings potential.
  
• Rising competition, evolving AI solutions, and shifting user preferences risk eroding market relevance, pricing power, and user engagement.
  
• Strong user growth, deeper blue-collar market penetration, effective AI deployment, and disciplined cost control are driving revenue expansion, market resilience, and margin improvement amid stable competition.

Catalysts

Provides online recruitment services in the People’s Republic of China.

• Kanzhun's growth outlook is threatened by China's aging population and a shrinking working-age demographic, which could structurally reduce the pool of job seekers and employers using online recruitment, suppressing future user growth and constraining long-term revenue expansion.
  
• Increasing government scrutiny and tighter regulation of internet and data-centric platforms in China may impose compliance costs and operational restrictions on Kanzhun, limiting its ability to innovate and monetize, while placing sustained downward pressure on net margins and long-term earnings.
  
• Heavy reliance on the domestic Chinese market makes Kanzhun vulnerable to local economic shocks and labor market cyclicality; faced with frequent macro volatility and little geographic diversification, revenue concentration risks will likely intensify, hampering consistent topline and earnings growth.
  
• Intensifying competition from larger internet players, emerging AI-powered rivals, and the commoditization of recruitment services are likely to drive higher customer acquisition and marketing expenses over time, eroding Kanzhun's pricing power and compressing net margins despite attempts to control costs in the short term.
  
• The rapid evolution of AI and automated job-matching may bypass traditional platforms altogether, as employers and candidates increasingly use direct, algorithmic solutions or social platforms, which could diminish Kanzhun's relevance and result in a secular decline in both user engagement and revenue per user.

Kanzhun Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Kanzhun compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Kanzhun's revenue will grow by 10.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 24.5% today to 23.8% in 3 years time.
• The bearish analysts expect earnings to reach CN¥2.5 billion (and earnings per share of CN¥5.4) by about August 2028, up from CN¥1.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 24.7x on those 2028 earnings, down from 38.0x today. This future PE is lower than the current PE for the US Professional Services industry at 26.3x.
• Analysts expect the number of shares outstanding to decline by 2.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.52%, as per the Simply Wall St company report.

Kanzhun Future Earnings Per Share Growth

Risks

• User growth momentum remains strong, with over 15 million verified new users added in the quarter and average monthly active users growing by 24 percent year-on-year, which directly supports robust revenue expansion and mitigates the risk of topline decline.
  
• Blue-collar user and lower-tier city penetration is accelerating, now comprising more than 45 percent of total new users and over 39 percent of revenue, which diversifies the customer base and increases the company's addressable market, thus helping sustain revenue growth and resilience.
  
• Significant operating leverage and disciplined cost control have resulted in expanding margins, with adjusted operating margin rising to 36 percent from 23 percent a year ago, indicating potential for further margin expansion and improved net profitability as revenues scale.
  
• Deployment of AI across job seeker, recruiter, and management functions is driving higher user engagement and operational efficiency, evidenced by a 25 percent increase in recruiter efficiency and potentially leading to new, high-value product offerings that could enhance average revenue per user and earnings.
  
• The competitive landscape has not experienced disruptive change from AI as of now, and Kanzhun has proactively invested over RMB 1 billion since 2023 in AI infrastructure and capabilities, better positioning the company to sustain market share and defend both revenue and earnings growth against emerging technological threats.

Valuation

• The assumed bearish price target for Kanzhun is $15.85, which represents two standard deviations below the consensus price target of $21.09. This valuation is based on what can be assumed as the expectations of Kanzhun's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $25.08, and the most bearish reporting a price target of just $14.01.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥10.3 billion, earnings will come to CN¥2.5 billion, and it would be trading on a PE ratio of 24.7x, assuming you use a discount rate of 7.5%.
• Given the current share price of $21.37, the bearish analyst price target of $15.85 is 34.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.