As we approach the twilight of 2024, it is apparent that while economic positivity remains on the horizon, hurdles along the journey persistEnterprises are undergoing structural transformations and pivoting their business strategies, a trend that echoes throughout the talent marketAn overwhelming majority of companies are adopting a conservative stance on recruitment expansion as they seek to optimize costs and enhance efficiencies.

The performance of recruitment platforms serves as a litmus test for these evolving market conditionsA recent financial report from Headhunt, a leading player in the mid-high-end talent market, published on November 29, showcases a revenue of 5.02 billion RMB during Q3 of 2024—marking a 10% decrease year-on-yearHowever, the platform experienced a remarkable 48.5% increase in net profit, amounting to 0.6 billion RMB.

While revenue might have declined, the noteworthy enhancement in profitability illustrates that Headhunt has adeptly navigated through the pressures of the external environment

Consequently, since the announcement of these financial results, Headhunt's stock price has surged, accumulating nearly a 27% increase over three days, settling at 3.16 Hong Kong dollars per share.

This impressive performance ratio has attracted positive attention from investors; however, it poses the question: which crucial variables are they betting on?

Demand Pressure on Mid-high-end Talent Markets, Headhunt Gaining Momentum in Adversity

An analysis of Headhunt’s revenue reveals the company has not entirely escaped the challenges posed by market headwindsNevertheless, key indicators such as user growth, meticulous cost management, and a focus on Frontier Technology's empowerment in the human resources sector demonstrate an upward trajectory for the company.

To begin with, in the third quarter, Headhunt recorded a positive growth in user numbers across its enterprise, individual, and headhunter segments

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As of September 30, 2024, the platform validated 1.4 million enterprise users—a year-on-year growth of 10.9%. The number of registered individual users skyrocketed to 103.4 million, revealing a 12.2% year-on-year increase, while validated headhunter users reached 211,000, up 0.2% from the previous year.

However, the rise in user numbers did not result in an overall increase in revenue due to a decline in B-end enterprise revenue, which accounts for a substantial portion of total incomeIn more precise terms, enterprise user revenue fell to 4.26 billion RMB—down 14.3%. Headhunt noted that while the number of paid enterprise users continued to grow, a decline in customer pricing impacted overall revenue.

In an intriguing contrast, personal users on the platform not only increased in numbers but also contributed positively to revenueIn Q3, C-end (customer side) revenue reached 76.78 million RMB—a boost of 23.7% on a year-on-year basis.

This trend signifies a phenomenon within the talent market: as companies continuously aim to curtail costs and augment efficiency, recruitment budgets tighten, accompanied by escalating demands regarding hiring prerequisites

Consequently, C-end users have developed a growing demand for professional recruitment services.

This year has seen an increasing mismatch in the labor market, with youth employment under pressureAt the same time, recruitment for mid-to-high-end talents remains highly correlated with macroeconomic fluctuations, creating a cumbersome environment for such hiringAs the leading entity in the mid-high-end talent market, Headhunt's altering revenue structure aptly reflects this realityNevertheless, certain data hints at a silver lining: platform user engagement continues to improve, with average monthly active users rising by 11.5% year-on-year, signaling budding recovery signs in the mid-high-end talent market.

This resurgence can be traced back to fresh demand catalyzed by the emergence of new productivity sectorsFrom analyzing trends in newly posted job openings on the Headhunt platform, it is clear there is a notable divergence across industries

Noteworthy increases in job vacancies were observed in sectors aligned with new productive capacities, such as electronics and telecommunications, semiconductors, and the electric vehicle industry.

Consequently, Headhunt's recognition and responsiveness to these emerging industry demands—accompanied by incremental improvements in user scale and engagement—position the company to accumulate growth momentum even amidst these challenging conditions, as it awaits a comprehensive market recovery.

Cost Reduction and Efficiency Enhancement Fuel Profitability Improvements

Despite witnessing a decrease in revenue stemming from adverse factors, Headhunt's operational caliber is demonstrating consistent enhancement, as evidenced by the company's profit growth.

Recruitment platforms typically feature high gross margins paired with elevated operational cost ratios, making the interplay between these two variables instrumental in determining profitability

Delving into the reports, Headhunt's gross margin exhibits an upward trend, and significant reductions in operating costs have contributed to commendable profit increasesThe changing gross margin indicates effective operational enhancements within HeadhuntAlthough the average transaction price for B-end users has seen a dip, the advantages offered by differentiated product offerings and a heightened proportion of lightweight products have bolstered the company's marginIn the three quarters leading into 2024, Headhunt's gross margin escalated to 77.57%, improving by 2.1 percentage points, while maintaining high figures across each of these quarters.

The company continues to implement a diversified sales strategy, leaning toward lightweight product promotion for constrained small and medium customer budgets, while employing differentiated custom strategies for larger enterprises to precisely excavate user needs

Simultaneously, Headhunt is making substantial progress in innovation, driving deep integration of their Multi-Talented Remote Collaboration Network (RCN) with other headhunter-related service products within the company, enhancing its service efficiency through a collaborative model that combines Multi-Talented SaaS + RCN.

Moreover, amidst prevailing industry cyclical pressures, Headhunt is sharpening its cost management prowess

In Q3 of this year, Headhunt implemented refined segmentation within its sales teams, intensifying results-oriented practices while amplifying the exploration of sales leads targeting prospective clientsThe organization exercised operational flattening by narrowing management levels, enabling a more prompt and effective adjustment of sales strategies, consequently enhancing sales performance.

Through measures to streamline the sales and R&D team structures, tighten budgetary controls, and finely manage acquisition channels, Headhunt successfully reduced operational expenses by 14.9% year-on-year in Q3, resulting in adjusted operating profits of 85 million RMB—an impressive year-on-year growth of 28.3% and underlining positive profitability growth.

The favorable changes in profits driven by cost reductions and efficiency enhancements undoubtedly instill greater confidence among investors

However, it is crucial to keep in mind that the proportions of interest and investment income still remain significantly high in the company’s profit structure, implying room for growth in core business profitability.

Taking a closer look at the unaudited comprehensive income statement, Headhunt reported roughly 75 million RMB in operating profits, accounting for about 14.8% of revenueOf this, other income contributed approximately 46 million RMB—amounting to around 9.1% of revenueBy eliminating these other income sources, the operating activities operationally generated a profit of around 29 million RMB, representing about 5.7% of income.

The profitability of Headhunt's core operations remains heavily influenced by the high operating expense ratioIn the third quarter, while maintaining a robust gross margin of 76.6%, the operating expense ratio escalated to 70.9% (with the difference standing at 5.7%).

In their Q3 report, Headhunt upheld their guidance for a year-on-year decline of 10% to 15% in total operating costs for the entirety of 2024, suggesting that positive operating profit growth is achievable by the time annual results are released

There is hope that the company continues with its trend of cost management and efficiency enhancement to bolster profits further.

AI Investments Continue to Enhance Efficiency, Driving Valuation Restructuring

Another major factor with substantial implications on Headhunt’s valuation, aside from improving profitability, lies in the application of artificial intelligence (AI) technology.

Amidst 2024, the paradigm shift in talent recruitment is underscored by the transformative influences of AI and automationEven though only 27% of talent professionals affirm having utilized or experimented with generative AI, 62% of recruiting strategists harbor a favorable outlook towards AI's application in recruitment processes.

In alignment with this trend, Headhunt has steadily interwoven AI technologies into its recruitment servicesAs disclosed by the company, Headhunt operates under the core philosophy of “AI + Service,” actively innovating its product offerings by bolstering the tie between human services and algorithmic models, paving the way for more efficient and precise communication channels among recruiters and job seekers.

For instance, the AI-driven intelligent interview product “Multi-Face” participated in offline job fairs, enabling a seamless and efficient interview experience for both job seekers and employers through AI interview interfaces

A Headhunt representative expressed, “The Multi-Face AI interview amalgamates advanced assessment techniques and artificial intelligence, providing HR with essential evaluation supportCandidates interact with Doris, an AI digital interviewer, closely mirroring real interview scenarios.

It is evident that Headhunt's exploration and practical application of AI in recruitment is consistently fostering product innovationsBy serving enterprises, job seekers, and headhunters alike, Headhunt addresses challenges throughout the recruitment cycle, thus improving the efficiency and caliber of talent matchingFinancial figures reveal that the “AI + Service” synergy has positively impacted user retention as well as the growth of paying users on the platform.

Simultaneously, the implementation of AI technology has advanced the enhancement of Headhunt's core business servicesFor example, the company utilizes AI assistance to bolster sales efforts, thereby effectively improving sales efficiency and client conversion rates

This development also stimulates cross-purchase behaviors among users, amplifying the lifetime value of individual clients.

The elevation of AI integration undeniably acts as a pivotal lever in the restructuring of Headhunt’s valuation.

Conclusion

Despite prevailing market headwinds, Headhunt is displaying robust development through innovations rooted in the “AI + Service” approach combined with meticulous management strategies to reduce costs and enhance efficiencies.

Since the onset of the fourth quarter, a series of incremental policies have taken effect, with several market institutions projecting economic growth rates may reach between 4.7% and 5.3% in the fourth quarter, signaling a stabilization and improvement trend in the overall economyAgainst the backdrop of policies geared toward sustaining employment, the labor market is poised for stabilization and recovery—as Headhunt stands to benefit from this upward trend.

Furthermore, sectors associated with new productive capacities such as robotics, artificial intelligence, and low-altitude economies are showcasing high demands for talent and elevated compensation propositions, continually unleashing recruitment needs