BZ: Extended Buyback and Earnings Upside Will Drive Enduring Shareholder Value

Key Takeaways

• AI-driven platform improvements and rising digital adoption are accelerating user and client growth, supporting stronger revenue and user engagement over time.
  
• Diverse sector expansion, operating efficiencies, and proactive capital returns are bolstering profitability and underpinning durable long-term shareholder value.
  
• Long-term growth faces threats from demographic decline, competitive pressure, automation disruption, earnings volatility, and challenges monetizing lower-tier and blue-collar market segments.

Catalysts

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

• Recent and ongoing advancements in AI-powered matching, candidate recommendation systems, and job posting optimization are expected to improve user experience and platform efficiency, likely driving higher user conversion rates and supporting steady revenue growth.
  
• Sustained increases in digital penetration and smartphone usage-particularly in lower-tier cities and among SMEs-are expanding Kanzhun's addressable market, accelerating user acquisition and employer adoption, which should enhance topline revenue and active user growth over the long term.
  
• The structural recovery in recruitment activity among SMEs and the continued expansion into blue-collar and service sectors point to diversified and durable demand, which supports recurring enterprise revenues and improves revenue predictability.
  
• Operating leverage through cost control, efficiency gains from AI integration across R&D and customer service, and a robust two-sided network effect are together driving margin expansion, suggesting continued improvement in net margins and profitability.
  
• Initiatives such as annual dividends, significant share buybacks, and the Hong Kong share offering-with strong liquidity and cash generation-enhance shareholder returns and financial flexibility, which are likely to support steady EPS growth and long-term value creation.

Kanzhun Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Kanzhun's revenue will grow by 12.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.1% today to 38.3% in 3 years time.
• Analysts expect earnings to reach CN¥4.5 billion (and earnings per share of CN¥9.81) by about April 2029, up from CN¥2.7 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CN¥5.3 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 23.2x on those 2029 earnings, up from 16.4x today. This future PE is greater than the current PE for the US Professional Services industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 6.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.98%, as per the Simply Wall St company report.

Risks

• Declining growth in new verified graduates-management noted a drop of over 20% year-on-year in new verified graduates for June and July-signals longer-term demographic headwinds and a shrinking talent pool, which could constrain candidate supply and impact future revenue growth.
  
• Intensifying competitive landscape and ongoing marketing battles among both mature recruitment platforms and new start-ups risk driving higher customer acquisition costs and potential margin compression over time, threatening Kanzhun's current high profitability.
  
• Rising automation and AI in HR processes-including Kanzhun's own deployment of AI-generated coding and recruiter tools-may reduce demand for traditional job postings and entry-level recruitment, introducing long-term challenges to sustaining user engagement and topline revenue growth.
  
• Reliance on transactional revenues tied to cyclical hiring trends and micro-enterprise performance-despite recent strong results from small companies-makes earnings vulnerable to macroeconomic slowdowns or sector-specific downturns, exposing Kanzhun to increased revenue volatility.
  
• Entry into lower-tier cities and blue-collar segments faces monetization challenges, as evidenced by management highlighting increased contributions but not corresponding ARPU growth, potentially limiting average revenue per user and constraining ongoing revenue and margin expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $21.58 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 $29.35, and the most bearish reporting a price target of just $15.89.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be CN¥11.7 billion, earnings will come to CN¥4.5 billion, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of $14.35, the analyst price target of $21.58 is 33.5% 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.