BZ Q2 2025: Adjusted Operating Margin Hits 41.9% as SME Demand and AI Efficiency Drive Record Profitability
BZ’s second quarter marked a decisive inflection in both profitability and operational leverage, powered by a 33% jump in adjusted operating profit and margin expansion to record highs. Small and medium-sized enterprise (SME) hiring demand, AI-driven productivity, and disciplined cost control converged to deliver robust cash generation and set the stage for accelerated growth in the second half. Management’s confidence in sustained recovery and new shareholder return initiatives signal a strategic commitment to both reinvestment and capital return.
Summary
- SME Recruitment Demand Surges: Smaller enterprises led platform growth, fueling revenue and user expansion.
- AI Integration Drives Cost Efficiency: Automation and AI-enabled tools compressed costs and improved product velocity.
- Shareholder Capital Return Commitment: New dividend and $250M buyback reinforce management’s focus on investor returns.
Performance Analysis
BZ delivered double-digit revenue growth with top-line up 9.7% year-on-year, underpinned by a 16.5% increase in average monthly active users and a 10% rise in paying enterprise customers to 6.5 million. Adjusted operating profit soared 33% as cost discipline and scale benefits pushed adjusted operating margin to 41.9%, a 7.5 percentage point improvement over the prior year and the highest in company history. Net income margin also reached a new high, reflecting both higher monetization and reduced share-based compensation as a share of revenue.
Cost structure improvements were broad-based: Sales and marketing spend fell 23% year-on-year, even as user growth accelerated, while R&D and cost of revenue both declined on the back of AI-driven operational efficiency. Cash flow from operations exceeded RMB 1 billion for the second consecutive quarter, further strengthening a cash position now at RMB 16 billion. The July Hong Kong share offering added liquidity and flexibility for continued investment and capital return.
- Gross Margin Expansion: Gross margin rose to 85.4%, up 1.9 points, as automation reduced operational headcount costs.
- Marketing Leverage: Declining marketing spend as a percent of revenue, with absolute spend still industry-leading, drove higher user acquisition efficiency.
- SME and Internet Sector Outperformance: SMEs under 20 employees contributed nearly 20% of revenue, while internet sector postings hit post-2021 highs.
Monetization improved alongside platform health: Higher job postings, improved supply-demand balance, and robust user retention reinforced the business flywheel and set the stage for further acceleration in Q3.
Executive Commentary
"The scale effect brought by the business change and high-quality business model supports our high-quality growth of income and profit at the same time."
Jonathan Peng Zhao, Founder, Chairman, and CEO
"Our adjusted operating margin in the quarter reached 41.9%, up by 7.5 percentage points year on year, hit a record high."
Phil Yu Zhang, Director and CFO
Strategic Positioning
1. SME and Lower-Tier Market Penetration
BZ’s platform expansion is increasingly anchored by SMEs and users from lower-tier cities, with companies under 20 employees now accounting for the fastest revenue growth and nearly a fifth of total revenue. Recruitment demand from these segments outpaced the platform average, reflecting both market recovery and BZ’s differentiated reach into underserved employer cohorts.
2. AI-Driven Operational Transformation
AI is now deeply embedded across job seeker, employer, and internal management workflows. Product velocity has accelerated, with up to 70% of code in some R&D teams generated by AI. AI-powered recruiter tools, recommendation engines, and safety features are driving higher user and recruiter engagement as well as improved monetization. Cost efficiencies from AI have directly contributed to margin gains and allowed for reinvestment in innovation.
3. Capital Allocation and Shareholder Returns
Management’s dual-pronged capital return program—an annual dividend (US$80 million for 2025) and a new $250 million buyback—signals a shift toward more predictable and recurring shareholder distributions. The recent Hong Kong share offering, while not needed for core funding, was strategically aimed at boosting trading liquidity and broadening the investor base, reflecting a long-term alignment with public market interests.
4. Product Innovation and Commercialization of AI
AI-powered products like Hammer, an intelligent recruiter agent, and customizable digital interview tools for large enterprises are in active pilot and early commercialization. Management views these initiatives as foundational to creating future “killer apps” that will further differentiate BZ’s platform and unlock new monetization streams.
5. Disciplined Cost Control with Growth Investment
Despite margin expansion, management remains committed to reinvestment in R&D, talent, and selective overseas expansion. Share-based compensation and marketing spend as a percentage of revenue continue to decline, freeing up capital for innovation and platform enhancements without sacrificing profitability.
Key Considerations
BZ’s Q2 marks a strategic inflection, with operational leverage, AI productivity, and SME-led demand recovery converging to unlock both margin and growth. Investors should weigh:
Key Considerations:
- SME Penetration as a Growth Lever: Continued outperformance in small business hiring signals a durable, underpenetrated revenue pool.
- AI as a Margin and Product Flywheel: AI-driven efficiencies are compressing costs while catalyzing new product capabilities and user value.
- Capital Returns as Signaling Device: The institution of an annual dividend and buyback program reflects management’s confidence in recurring cash flow and mature capital allocation discipline.
- Platform Monetization Health: Improved supply-demand balance and higher ARPU from key accounts point to a robust monetization environment.
- Competitive Moat in User Acquisition: Industry-leading marketing spend, declining acquisition costs, and high retention reinforce BZ’s network effect and defendable market position.
Risks
Competitive intensity in online recruitment, especially in the blue-collar and SME segments, remains a persistent risk, though management downplays the impact of recent marketing pushes by peers. AI-driven productivity gains may slow if adoption plateaus, and the sustainability of margin expansion will depend on continued user and employer growth. Regulatory shifts or macroeconomic shocks could disrupt hiring demand, particularly among SMEs and in lower-tier cities.
Forward Outlook
For Q3 2025, BZ guided to:
- Total revenue between RMB 2.13 billion and RMB 2.16 billion (11.4% to 13% YoY growth)
For full-year 2025, management maintained a positive outlook:
- Annual dividend of US$80 million and a $250 million buyback authorized
Management highlighted several factors that will shape the second half:
- SME and internet sector hiring momentum expected to accelerate
- AI-driven operational gains and R&D investment to continue
Takeaways
BZ’s Q2 results reinforce the platform’s operational leverage, with margin expansion and robust cash flow supporting both reinvestment and capital returns. SME hiring and AI integration are now central growth engines, while management’s capital allocation discipline signals confidence in recurring profitability and platform durability.
- Margin Expansion Anchored in AI and SME Demand: Record profitability is the product of both structural cost reduction and durable top-line growth from underpenetrated SME and lower-tier markets.
- Capital Return as a New Baseline: The shift to annual dividends and sustained buybacks marks a new era of shareholder alignment and maturity in capital allocation.
- Watch for AI Commercialization and SME Retention: Investors should track the monetization of AI-powered products and the stickiness of SME user cohorts as key drivers for future quarters.
Conclusion
BZ’s second quarter establishes a new profitability baseline, powered by SME growth and AI-driven efficiency. With a clear commitment to both reinvestment and shareholder returns, the company is strategically positioned for sustained momentum as market recovery and platform innovation converge.
Industry Read-Through
BZ’s results underscore a broader trend toward SME-driven hiring recovery and AI-enabled operational leverage in online recruitment platforms. The rapid adoption of AI for both customer-facing and internal workflows is compressing costs and accelerating product cycles across the sector. Capital return initiatives are becoming more prevalent as platforms mature and cash generation becomes more predictable. Other industry participants should monitor SME penetration, AI commercialization, and the sustainability of margin expansion as leading indicators of competitive positioning and sector-wide profitability.