Kanzhun Limited: Lockup Expiration Could Knock BZ Stock Off Balance

Dec. 02, 2021 6:02 PM ETKanzhun Limited (BZ)1 Comment
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Don Dion
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Summary

  • When the BZ IPO lockup expires on December 8th, pre-IPO shareholders and company insiders will be allowed to sell large blocks of currently restricted stock for the first time.
  • Significant sales of currently-restricted stock could flood the secondary market and cause a sharp, short-term decline in share price.
  • Aggressive, very risk-tolerant investors should consider shorting shares of BZ ahead of the IPO lockup expiration.

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Klaus Vedfelt/DigitalVision via Getty Images

December 18, 2021, concludes the 180-day lockup period of Kanzhun Limited American Depository Shares (NASDAQ:BZ).

When the lockup period ends for Kanzhun Ltd., its pre-IPO shareholders and company insiders will have the opportunity to sell their currently-restricted shares, which the six-month lockup period prevents. This group of pre-IPO shareholders and insiders includes numerous directors and 9 VC firms.

(Source: F-1/A - "subscription required")

We believe that these individuals and VC firms will be especially eager to cash in on some of their gains because shares of BZ have a more than 68% return from IPO. The potential for a sudden increase in stock flooding into the secondary market may negatively impact the share price of Kanzhun Ltd in the short term.

Aggressive, risk tolerant investors should consider shorting shares of BZ ahead of the IPO lockup expiration.

Warning About Shorting Stock

Investors interested in shorting shares of BZ should be aware of the risks of shorting stock, especially in shorting shares of a recent IPO like BZ. Shorting stock puts you at risk of losing assets in excess of your initial investment. BZ shares are depository shares, so the price of BZ could be impacted by events in both China and the US, making shares especially volatile. BZ shares have had a volatile trading history and concerns about liquidity and depth could impact investor's ability to cover short positions. Changes in analyst rating could also have a positive, short-term impact on share price.

We highly recommend that any investor that takes this recommendation be very risk tolerant.

Business Overview: Online Recruitment Platform In China

Kanzhun Limited operates a digital recruitment platform called BOSS Zhipin in the People's Republic of China. The platform connects employers and job seekers, and it enables instant chats between them. The company states that BOSS Zhipin uses proprietary algorithms and data insights to promote accurate matching results for greater efficiency.

Kanzhun has become the largest employment platform in China according to the average MAU last year. The company has a large pool of job seekers across all salary levels and employers from large enterprises to micro businesses and SMEs. The platform essentially eliminates many recruitment professionals from the process. Employers connect directly with job applicants. As of March 2021, 66% of their verified enterprise-level employers eschewed professional recruiters.

In addition, the company built the platform around its mobile app whereas older digital recruitment platforms began during the PC era and later adapted their software to mobile interface. Kanzhun believes this intuitive user experience is a key reason for their success. The BOSS Zhipin app also uses big data analysis to offer recommendations between employers and job seekers. Either party may initiate instant chat at any time. To prevent fraud, the company uses a screening and monitoring system that verifies the job opening.

Kanzhun offers many services free of charge such as browsing mini resumes, hosting audio and video interviews, posting jobs, and sending offers. Employers can subscribe to premium services if they desire. Through December 2020, Kanzhun had served more than 11.4 million enterprise-level employers across 5.5 million organizations. By the end of March 2021, those numbers had increased to 13.0 million and 6.3 million respectively. For the 12 months ended on March 31, 2021, they had 2.89 million paid employer customers, up from 2.23 million for the same period the previous year.

The company has approximately 3,400 employees and is headquartered in Beijing, People's Republic of China.

Financial Highlights

Kanzhun Ltd. reported third-quarter financial highlights for the period ending September 30, 2021:

  • Revenues totaled RMB1,211.8 million (US$188.1 million). This was an increase of 105.4% over the same quarter of 2020.
  • Calculated cash billings totaled RMB1,221.0 million (US$189.5 million). This represented an increase of 61.8% over the same quarter of 2020.
  • Average monthly active users (MAUs) totaled 28.8 million. This represented an increase of 28.6% over the same quarter of 2020.
  • Total paid enterprise-level clients for the twelve months ended September 30, 2021, grew from 1.9 million to 4.0 million for an increase of 110.5%.
  • Net income totaled RMB286.2 million (US$44.4 million), versus net income of RMB33.8 million for the same period the previous year.

Management

CEO and Chairman of the Board Mr. Peng Zhao is the founder of Kanzhun Ltd. His previous experience comes from senior executive positions at Quickerbuy, Zhaopin Ltd, and China Youth Volunteers Association. He earned a bachelor's degree in law from Peking University.

CFO and Director Mr. Yu Zhang has served in his position since September 2019. He was a managing director at UBS Asset Management. He also served as a deputy portfolio manager and analyst at China and Emerging Market Asia Equities. His other experience comes from positions at BDA and Ericsson. He graduated from Beijing University of Posts and Telecommunications.

Competition: Zhaopin, 51job, ChinaHR, And More

Kanzhun operates in a very competitive space. Other job search websites in China include Zhaopin, 51job, ChinaHR, ChinaJob, Monster.com (CHINA), ChinaHot, CareerEngine, MatchDragon, Wang & Li, and CJol.

Early Market Performance

The underwriters priced the IPO at $19 per share. The stock closed on its first day of trading at $38.26. The share price rose to $42.05 on June 25, but then began a decline to reach $29.46 on July 27. It rose again to $39.86 on November 16.

The Bottom Line

When the IPO lockup expires, pre-IPO shareholders and company insiders will be able to sell large blocks of currently-restricted shares for the first time. As mentioned above, we believe that BZ's more than 62% return from IPO is a compelling reason for many of these individuals and firms to cash in on at least some of those gains. We believe that large sales of currently-restricted securities could flood the secondary market for BZ when the IPO lockup expires and cause a sharp, short-term selloff.

Very risk-tolerant investors should consider shorting shares of BZ ahead of the IPO lockup expiration. Interested investors should cover short positions during the December 9th and 10th trading sessions.

This article was written by

Don Dion profile picture
12.68K Followers
Don Dion is the CEO of Inland Management, a company focused on acquiring, subdividing, developing and marketing large tracts of land on the fringes of major metropolitan markets. Inland Management has sold land in all 48 contiguous states totaling billions of dollars. As CEO, Don is responsible for helping to maintain and enhance the firm’s strong financial position and identifying opportunities for growth. In addition to his role at Inland Management, Don Dion is the Chief Investment Officer of DRD Investments, LLC. Based in Naples, FL. and Williamstown, MA., DRD Investments is a family office focused on managing a long/short hedge fund, real estate, venture capital and various other financial assets for the Dion family. Don also serves as the trustee of the Dion Family Foundation, which focuses on helping individuals with tuition assistance at Catholic Institutions for grammar school, high school, and college education. The foundation also helps individuals by supporting Massachusetts General Hospital. Don is on two leadership boards and advisory committees at Massachusetts General Hospital and the Home Base Program (a partnership between Mass General and the Red Sox Foundation). He consults with Saint Dominic's Academy and serves as a trustee of Saint Michael’s College. Previously, Don was the founder and CEO of Dion Money Management, a fee-based investment advisory firm for affluent individuals, families and non-profit organizations. Founded in 1996 and based in Williamstown, MA. and Naples, FL., Dion Money Management managed approximately one billion in assets for clients in 49 states and 11 countries. While at Dion Money Management, Don was responsible for setting investment policy, creating custom portfolios, and overseeing the performance of client accounts. Don sold the firm to NYC-based Focus Financial Partners (FOCS) on September 1, 2007 and no longer manages money for other families or institutions. Don remains a shareholder of Focus Financial Partners (FOCS). Don is also the retired publisher of the Fidelity Independent Adviser family of newsletters, which provided a broad range of investor commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With nearly 100 thousand subscribers in the United States and 29 other countries, Fidelity Independent Adviser published two monthly newsletters and one weekly newsletter. The flagship publication, Fidelity Independent Adviser, was published monthly for 16 years and reached over 60,000 subscribers. In 2011 Don and his daughter Carolyn co-authored the Ultimate Guide to ETFs, available on Amazon.com. Prior to founding Dion Money Management, Don co-founded Litchfield Financial Corp. (LTCH) with Summit Partners. Don served as Chairman and CEO of Litchfield, which was listed on the Nasdaq in 1992 and acquired by Textron Corp. (TXT) in 1999. Don was also the Executive Vice President, CFO and General Counsel for Patten Corporation (BGX) from 1986 to 1988, where he played a critical role in the company’s successful initial public offering on the New York Stock Exchange. From 1983 to 1985, Don was a corporate lawyer with the Boston Law Firm of Warner and Stackpole. Before joining Warner and Stackpole, Don worked as a C.P.A. for Ernst and Young from 1979 to 1983. Don graduated with honors from Saint Michael’s College in 1976 with a B.S. degree in Economics and Business Administration. He received his J.D. from the University of Maine Law School in 1979 and his LL.M. from Boston University Law School in 1982. Don can be reached at donalddion@gmail.com
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Disclosure: I/we have a beneficial short position in the shares of BZ either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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