User Growth And Hailuo Conch Expansion Will Propel Earnings Growth

Key Takeaways

• Kanzhun's growing user base and rising enterprise customers demonstrate potential for revenue and profit growth through enhanced engagement and monetization.
  
• Strategic investments, cost management, and operational efficiency initiatives are key to improving margins and increasing attractiveness to investors.
  
• Economic and recruitment cycle uncertainties, rising operating costs, and potential market saturation could pressure Kanzhun's revenue and profitability growth prospects.

Catalysts

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

• Kanzhun's ongoing user growth, with average monthly active users increasing by 30% year-on-year, indicates a strong potential for future revenue growth as this expanded user base can drive higher engagement and monetization on the platform, positively impacting revenue and earnings.
  
• The steady rise in the number of paid enterprise customers, which grew by 22% year-on-year, shows potential for increased revenue as enterprise customers are key to sustained income, and enhanced retention rates suggest potential improvements in net margins over time.
  
• Kanzhun's investment in blue-collar recruitment and the expansion of their Hailuo Conch project, which saw significant contract value growth, presents an opportunity for increasing the contribution from this segment to overall revenue, thus expanding earnings.
  
• The continuous reduction in share-based compensation expenses will likely improve Kanzhun's operating margins and net income, potentially making the company more attractive to investors by providing greater earnings predictability.
  
• With efforts to enhance efficiency in marketing expenses and maintain stable ARPU (average revenue per paid enterprise customer), Kanzhun is positioned to achieve improved operating leverage and profit margins, aiding earnings growth in an uncertain macroeconomic environment.

Kanzhun Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kanzhun's revenue will grow by 14.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.6% today to 30.0% in 3 years time.
• Analysts expect earnings to reach CN¥3.2 billion (and earnings per share of CN¥6.9) by about December 2027, up from CN¥1.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 3.0x on those 2027 earnings, down from 29.5x today. This future PE is lower than the current PE for the US Interactive Media and Services industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 1.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.82%, as per the Simply Wall St company report.

Kanzhun Future Earnings Per Share Growth

Risks

• The challenging recruitment market environment and the slower growth of the company's paying ratio could potentially affect revenue growth, especially if enterprise users' willingness to pay diminishes due to improved recruitment cycles.
  
• The increase in operating costs and expenses, despite stable quarter-on-quarter figures, could pressure net margins if revenue growth does not sufficiently outpace these costs.
  
• The company's reliance on user growth as a primary revenue driver may become unsustainable if China's employment market reaches saturation, which could limit revenue potential.
  
• Fluctuations in blue-collar market performance—particularly where urban services are underperforming—may affect overall revenue growth if these sectors do not recover.
  
• Economic and policy uncertainties, alongside macroeconomic conditions, may impede the expected growth in revenue and profits, especially if economic improvements take longer to materialize.

Valuation

• The analysts have a consensus price target of CN¥16.51 for Kanzhun based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CN¥19.93, and the most bearish reporting a price target of just CN¥11.98.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CN¥10.6 billion, earnings will come to CN¥3.2 billion, and it would be trading on a PE ratio of 3.0x, assuming you use a discount rate of 7.8%.
• Given the current share price of CN¥13.66, the analyst's price target of CN¥16.51 is 17.2% higher.
• 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.