Yahoo Finance

Yu Zhang

Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results of the third quarter of 2024.
We delivered a solid set of financial results in this quarter despite the industry headwinds, with revenue grew by 19% year-on-year to RMB1.9 billion. This growth was mainly driven by the continued expansion of our enterprise user base as we further penetrated into blue collar industries, lower-tier cities, as well as small-sized companies market, even facing a generally soft recruitment market.
Number of paid enterprise customers was 6 million in the trailing 12 months ended September 30, 2024, up by 22% year-on-year and 2% quarter-on-quarter. ARPU in this quarter remained stable sequentially. Notably, our overall operating cost and expenses were flattish quarter-on-quarter, even including several one-off or nonstructured expense items in this period. As one of our key focuses, being sustainable cost control, we are confident that our effective business model can continue to generate strong operating leverage in the future.
Looking at the detailed financial metrics, excluding share-based compensation expenses, our adjusted operating cost and expenses increased by 23% year-on-year to RMB1.3 billion, flattish quarter-on-quarter. Adjusted operating profit reached RMB605 million, up by 10% year-on-year with adjusted operating margin of 32%.
Cost of revenues increased by 17% year-on-year to RMB314 million in this quarter, mainly driven by higher server and bandwidth cost, payment processing costs, as well as employee-related expenses. Gross margin capped at the same level of RMB0.84 as last quarter. Sales and marketing expenses increased by 14% year-on-year to RMB522 million in this quarter, primarily driven by the marketing campaigns launched during the Paris 2024 Olympic Games and the Euro Cup 2024.
Excluding the sponsorship expenses, we witnessed the improved efficiency and business leverage in both our selling and marketing expenses. Due to our strong brand recognition and a powerful network effects inherent in our business. We are confident that the enhanced marketing efficiency, trends will continue to improve along with our top-line growth.
R&D expenses increased by 12% year-on-year to RMB464 million in this quarter. Excluding share-based compensation expenses, adjusted R&D expenses increased by 18% year-on-year to RMB361 million. The depreciation costs associated with our earlier investments in AI infrastructure has largely stabilized and is not expected to increase in the near future.
Our G&A expenses increased by 31% year-on-year to RMB286 million in this quarter, mainly due to higher employee-related expenses and some one-off expenditures that will not occur in the coming year.
Our net income was RMB464 million in this quarter up 9% year-on-year. And our adjusted net income in this quarter reached RMB739 million and increased by 4% year-on-year, which was affected by the decrease in the interest and investment income. Total share-based compensation expenses amounted to RMB275 million in this quarter, down by 9% quarter-on-quarter and 5% year-on-year.
As Jonathan just mentioned, we are expecting total share-based compensation expenses to continue the downward trend in 2025. Net cash provided by operating activities in this quarter was RMB812 million, relatively stable with that of the same period of last year.
As of September 30, 2024, our cash and cash equivalents, short-term time deposits and short-term investments totaled RMB14.6 billion. We launched an additional share repurchase program in August 2024, running concurrently with the March program, which allows us to buy back up to USD350 million of shares.
Since the announcement of the August program, as Jonathan has just mentioned, we have repurchased a total consideration of approximately USD130 million making the total buyback amount reached USD220 million this year, demonstrating our commitment in shareholders' return and long-term confidence of our business. And now, for our business outlook. For the fourth quarter of 2024, we expect the total revenues to be between RMB1.795 billion and RMB1.81 billion, a year-on-year increase of 13.6% to 14.5%.
That concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead with the queue.

Question and Answer Session

Operator

(Operator Instructions) Eddy Wang, Morgan Stanley.

Eddy Wang

(interpreted) Thank you, management, for taking my questions. I have two questions. The first one is that the government has launched some supportive policy since September end. Have you witnessed any signs of this policy has helped to boost the recruitment market and have witnessed any operating metrics improvements as well?
The second question is, given the uncertainty of the macro economy, which could sustain into 2025, how should we think we could maintain the revenue growth in 2025? Thank you.

Peng Zhao

(interpreted) Thank you for your question. About the first one regarding the supporting policy since the end of September, i have several observations to share with you. Firstly, we noticed that the newly added enterprise users every day has been improving on a year-on-year basis since the end of October.
And please note that November and December are traditionally relatively low season for recruitment. However, the newly added enterprise users improving on a year-on-year basis since October. My understanding is that this is a good news. And this trend has continued into November and December.
And the second thing about the job seeker to recruiter ratio, which I believe many of you are concerned, have been continuing to fall back. I have just discussed in our -- in my prepared remarks that during July to September, that number is high compared to the same period last year, and now it is lower than the same period last year, and reached a relatively low level within this year, which means the supply and demand and balance issue is improving.
And despite of the good new signs, my understanding is that this supporting policy need takes some time to transfer into actual improvement of economy and actual improvement of enterprise recruitment demand. So this should take some time, and we should stay patient and come.
About the second question, facing the uncertainty of macro, how we can guarantee our continued revenue growth trend, we have several key sectoral growth drivers for our revenue, which is still unchanged. The first thing is the user growth. Even though of all these uncertainties, we expect that we can still have at least 15% of overall user growth. The enterprise side might be slower, but still it can grow. And if the macro can stable at some level, then we expect enterprise side have better performance. So our user growth as the most important driver is still quite solid.
And the second important driver is our paying ratio and still maintained a stable level. If you're looking back, our paying ratio started at even like 0 or 5% and improved along this year's now reached impact like 20% to 30% level. And so the upward trend is unchanged.
And another opinion is that the increase of paying ratio has some connection with supply-demand balance, and as the sign of the supply-demand balance improving, we expect that the economy can be stable and our paying ratio can return to our growth trend. If the macro can actually go back to growth, then our paying ratio will experience a significant improvement.
And the third driver is our ARPU. As far as we have got the first and second driver, which is NAV, we are not in a hurry to aggressively increase ARPU, so it will keep a stable and slightly improvement trend. And I have an additional revenue growth driver reaches our blue-collar business. Our blue collar contributed more than 38% in the third quarter of our total revenue. This is a quite important retreat.
Several years ago, I have -- ideally it's a thought that I want to resolve the problem in the blue-collar manufacturing recruitment industry, which is the bad money driven on the good money and people with decent background cannot get good jobs. So we launched the Conch Hailou project in the hope of someday, one day, the top good college agents can agree with us to -- agree with our rules to do equipment business on our platform.
And now we have saw some real money coming back from this, which is our strength coming into the reality. That's my answer to your question.

Operator

Timothy Zhao, GS.

Timothy Zhao

(interpreted) My first question is regarding the more detailed breakdown into the third quarter, including the customer performance between the blue collar and white-collar sectors as well as different sectors -- subsectors as well. And as mentioned, that ARPU overall is relatively stable in the third quarter. Could you mention provide more color in terms of ARPU and revenue trends between SMEs and key accounts?
And second question is regarding the user growth. I think as management mentioned that -- I think in the first nine months of this year, they were already 40 million newly added verified users and in my calculation, the individual users should already reach or get close to 200 million share about the [quarter] room for the individual users to grow.
And as we are aiming for 15% or more than that growth into next year, how should we think about the sales marketing expenses or the marketing expenses into next year? Thank you.

Peng Zhao

(interpreted) First one, regarding different white-collar industries. Of course, the overall growth rate of blue collar still faster than white collar. As I just mentioned, the revenue contribution has further increased to over to 8%. However, compared to the same period last year, we have seen the blue-collar revenue growth rate has been significantly slowing down, which was mainly affected by the weak urban service industry performance. Compared to blue collar, white collar is relatively stable.
In terms of subsectors, as I just said, the urban service industry has been relatively weak since the second quarter. However, we covered a little bit in recent weeks. For the better performed industries, manufacture -- we have several highlight -- manufacturing industries, logistics and warehouse, automobile are three best-performing industries in the third quarter and the recent weeks.
For example, the manufacturing industry has a year-on-year revenue growth of more than 45% in the third quarter.
And about the different size of prices, we noticed it on the true end of the market. First one is hyper-sale enterprise with more than 10,000 employees performed the best in the third quarter. The second one is small micro-sized enterprises with employee less than 100 people. My understanding is that this is actually a quite good news because a majority of China's enterprises are small sized companies, which is of the main contribution for our new leaders, new enterprise users.

Yu Zhang

I'd like to add one point in regards to our key accounts breakdown. Key accounts recorded the highest revenue growth up more than 30% year-over-year. The overall ARPU up 5% year-over-year, flat quarter-over-quarter. Among all three segments, key accounts' ARPU improved the most.

Peng Zhao

(interpreted) And about your second question for our user growth potential, it's actually a quite good question. So we have actually started through several different channels on methodology that come to a conclusion that the number of China's marketable employees are more than 400 million, which means we have a double space to grow.
And on the enterprise side, the room of space is even bigger, but official number is that China has 40 million to 50 million enterprises, some fit even more than 50 million. No matter what, we have very strong advantage in terms of enterprise size because we model and are very suitable for small or even micro-sized companies and across different industries, which can support a very strong and large room for our enterprise users.
We are not planning to spending a lot of money on marketing or user acquisition. There are two reasons: first, due to a very strong double-sided network effect, the natural traffic has accounted for a very significant portion of our new users.
And the second, really technically speaking, there is no big events or marketing campaign, which we need to spending more money on. So as a result, we will keep our marketing spend at a relatively low level. And that's my answer to your question.

Operator

Wei Xiong, UBS.

Wei Xiong

(interpreted) My first question is on blue collar recruitment. Could management maybe share your future growth strategy for the blue-collar business around manufacturing and other verticals. Do we plan to build our offline service capabilities for the blue-collar recruitment? And also, have we observed any change in the competitive landscape here?
And second, just on the profitability outlook for next year. I understand the management has shown a very strong commitment to protecting profitability in light of the macro uncertainties. So if we just look at our profit goal for the next year, what do we see as the major drivers for profitability improvement? And is there any potential new investments that we should consider? Thank you.

Peng Zhao

(interpreted) We just talked about the improvement of the turn we have in the blue-collar manufacturing factory. So the importance of that is actually is idea or concept become reality, which is the factories, intermediaries, workers, and platforms. Those four parties can coexist under one co-recognized [game ] rules, which can allow everyone to be more efficient in [mining] with finite. And now that idea has come into the altitude.
So this is actually a very hard process. And I will talk again about essence, which is every player, the factories agents, workers, and platforms they are all battling against the short-term increased and long-term interest.
For example, one manufacturing worker who is quite clearly aware that he's working salary should be in the RMB6,000 per month range. However, if someone post a job of RMB150,000 per month, here is quite hard to resist attempt to submit their resume. So it is a fight for a potential job and secured working opportunity.
And just the example I just said is actually unreal -- or facing on the current market conditions. In a good season, that peak salary can raise to around RMB8,000 per month. So I control the related similar contrast of salary range is no more than RMB8,000. If we have that, that can have foundation to your two questions.
And the question about the competitive landscape. So if I continue to control the workers' salary range, which have job posting can be no higher than RMB8,000 per month. In short term, I may not be able to compete with the platform allows people to post jobs with over RMB150,000 per month.
But in the long term, a strong advantage because actually return the truth of this job position. And the second about how committed I will invest to do the offline placement because the (technical difficulty) [country] what we are doing is quite difficult and need a lot of input from every level. So I hope I can continue to do that, which we have already established a very clear advantages.
So in the short term, I won't invest heavily in the placement. I will continue our current game with those four participants. And hopefully, we can have good results. And the second question, I will give a short but a clear answer.
So facing all these difficulties, we need to find out which thing is definitely right to do and we believe to guarantee our price or profitability is to definitely track things. So we need to do and we're guaranteed on profit.
And in terms of managing our next year profit target, quite -- I have very strong confidence. I won't talk too much about our management details. But with one thing I can say is that we have very strong operating leverage. So as long as we can have, which will majority turn into our profit. This trend is quite clear.

Yu Zhang

Regarding our company's margin outlook in 2025, I offer some of our thoughts. Regarding the gross margin, we expect our gross margin will be flat or improved slightly next year. Sales efficiency improvement will leave additional leverage to selling expenses. Absolute amount of marketing spending will be kept at 2024 level or even decrease.
R&D head count likely will not increase. There's no near-term actual investment to AI hardware. So our -- and one more thing is our new business. We expect our new business spending will be with disciplined approach. So all in all, our operating margin will further improve -- as Jonathan said, will further improve along with our top line growth. So this is our view towards the margin profit.

Wenbei Wang

In light of the time constraint, I think we can take one last question.

Operator

[Yanan Shao], CICC.

Yanan Shao

(interpreted) I have two questions. My first question is how is our overseas business progressing and how can we balance our profit control goals with overseas business investment and my second question is, we've noticed that an industry-wide trend towards AI products like the interviews so how do you view the current application scenarios of AI in the recruitment field? And what potential new revenue or cost reduction opportunities might there be? Thank you.

Peng Zhao

(interpreted) Thank you for your question. About your first question of our overseas business in the relation with investment in relation with our profit target, so one thing is clear that next year, we won't have a very big investment in our overseas business. This has relation to our business developer methodology, which is we want to release the eagle until we see the rabbit which means we won't increase investment [heritage] before we have some certainty. So we have to do some very small environment with limited cost.
So in our plan, we won't expect -- we can clearly see that rabbit next year so that won't affect our profit capital next year.
In terms of AI application, actually now within the industry or actually other old industries, the reality is the high prospect of the technology and not [accretive] with real actual application scenario. So that's a very lightening but very small rent. So that's industry effect.
But I want to further explain our opinion during our industrial practice. The first one is, we will insist on the equality between job seekers and recruiters. We will not allow once an insight to use advantage of AI to have advantages over the other side.
And the second principle we insist is the right to know. So whenever a user are facing the potential counterparty of AI, and we should have that use. And the third part is the fact the current application scenario, which can be profitly done without large ramp model, there is no necessity to select RM to do it again, which is actually kind of waste.
And apart from other series, we have several unreal applications. So in terms of protecting the safety of our users, our AI technology has been quite useful. We disclosed in the past that we have over 900 people of our security team and this year, we increased more than tens of millions of users, but we did increase the total number of our security team. One important reason is we used our AI technology to assist with the reputation, it cannot increase our overall review efficiency.
So in the history of the [graphical] fighting with the platform, the first principle is actually the fighting of the cost. Whenever the (inaudible) to do things -- to do bad things on the platform, then he will not continue to do that. With the help of AI, we can actually increase our advantages over that. So it can create real value for our operation.
And that's my answer for your questions. And I think that's all the questions for tonight.

Operator

Thank you. Due to time constraint, that concludes today's question-and-answer session. At this time, I will turn the conference back to Wenbei for any closing remarks.

Wenbei Wang

Thank you once again for joining us today. If you have any further questions, please contact our IR team directly or TPG Investor Relations. Thank you.

Operator

Thank you for your participation. This does conclude the program. You may now disconnect. Good day.