Investors in Kanzhun's (BZ -1.07%) IPO are laughing all the way to the bank. Shares of the online recruitment platform operator have more than doubled since Kanzhun -- known as Boss Zhipin in China -- made its trading debut two weeks ago.

Kanzhun began trading on the Nasdaq on June 12 after raising $912 million from investors, including UBS Asset Management and Tiger Global Investments. The company sold 48 million American Depositary Shares (ADSs) at $19 a share, at the top of the $17 to $19 range marketed to investors.

Interestingly, Kanzhun's main backers include tech titan Tencent (TCEHY 0.33%) and Capital Today, a Chinese venture capitalist known for being an early investor in and NetEase. Post-IPO, Capital Today owns 10.4% of Kanzhun -- making it the company's biggest external investor. Tencent is Kanzhun's second-biggest outside shareholder, with an 8.6% stake.

Both Tencent and Capital Today are known for making early-stage bets on some of today's biggest tech companies. This suggests Kanzhun might be worth a closer look -- and let's get right into it.

Interviewer interviewing candidate.

Image source: Getty Images

What Kanzhun does

Kanzhun may not be well-known in the U.S., but it's a household name among Chinese professionals. Boss Zhipin, after all, is China's largest  online recruitment platform -- with around 25 million monthly active users (MAUs).

Boss Zhipin aims to disrupt the traditional recruitment industry by connecting job hunters directly with employers using artificial intelligence (AI) and big data analytics. After they're matched, job seekers and employers can chat via the Boss Zhipin app. This approach -- which Kanzhun calls the "direct recruitment model" -- offers several benefits. 

For one, job seekers and employers can interact from the start. As a result, job hunters gain more say in the recruitment process and hear directly from potential employers about their demands. This two-way conversation also allows employers to confirm a candidate's suitability early on -- even before an interview -- saving everyone time. The result is a win-win: employers end up hiring the right person for the job, and job hunters can score the career of their dreams.

Contrast this with the traditional online job board. Job seekers upload their resumes, then play a game of chance. If they're lucky, they catch the attention of recruiters or human resources departments. If not, their resumes get buried under reams of other profiles. To understand how most online job boards work, think of the typical Facebook feed. The most popular post of the day tends to show up first, driving even more users to view the post and respond to it. Similarly, traditional job boards concentrate traffic among top candidates and well-known employers. This, of course, means most average job seekers and smaller businesses are underserved.

Enter Kanzhun. Leveraging AI-powered algorithms, Kanzhun has built a recommendation engine that matches job seekers and companies within seconds. This data-driven approach ensures that all companies and candidates receive equal exposure on the Boss Zhipin app. It also speeds up the recruitment and job-hunting process while improving the outcome of the process -- getting the right candidate for the right job.

Kanzhun makes most of its money by charging enterprise customers for value-added services. This includes paid job postings, messaging tools, and the ability to connect with multiple candidates at once. Companies can also buy subscription packages -- giving them access to additional features for up to a year.

While Kanzhun's mobile-first, AI-driven recruitment platform is still new, it has definitely struck a chord among job seekers and employers. Boss Zhipin's MAUs have grown from 11.5 million in 2019 to 24.9  million in March. The platform had 85.8 million verified job seekers in March, up from 76.7 million in 2020.

Revenue surged 95% to 1.9 billion yuan ($298 million) in 2020. This jump came on the back of growth in its enterprise customer base, which rose 80%  to 2.2 million users. Top-line growth accelerated further in the first quarter of 2021, with revenue rising 179% to 789  million yuan ($120 million).

Kanzhun's prospects and risks

Kanzhun's growth has been spectacular lately, but much suggests the best is yet to come.

According to research commissioned by Kanzhun, China's recruitment service industry was worth 171 billion yuan in 2020. This market could more than double to 446  billion yuan by 2025, fueled by growing demand for private-sector talent. Kanzhun's 1.9 billion  yuan ($298 million) in 2020 revenue is barely 1% of this opportunity.

There are many ways Kanzhun can grow. As a start, Kanzhun is poised to benefit from the ongoing shift from offline to online recruitment channels. By going online, companies aim to improve the efficiency and effectiveness of the recruitment process while reducing the overall cost. As a result, China's online recruitment market is expected to grow from 55 billion yuan in 2020 to 223  billion yuan in 2025 -- a compound annual growth rate (CAGR) of 32%.

Kanzhun can also grow by gaining market share over time by leveraging its leadership position, data advantage, and massive user base. As the largest online recruitment platform by MAU, Boss Zhipin is in a favorable position to attract more companies over time. Naturally, this will attract even more job seekers, creating a positive loop. On top of that, the platform will gain an ever-growing amount of data, which will improve the quality of its AI matching system. And with a growing user base and an improving data insight, Kanzhun can further roll out more value-added services and grow its income stream.

That being said, there are risks Kanzhun will have to overcome in its quest for success. 

For starters, despite rapid revenue growth, Kanzhun is still unprofitable. Net losses nearly doubled last year due to heavy investments in user growth -- with sales and marketing costs eating up 69%  of revenue. Kanzhun will likely remain in the red for some time as it invests in growing its user base and brand profile. On top of that, the company competes with several other platforms in China. While Kanzhun enjoys a first-mover advantage, there's no guarantee that rivals will not come up with superior products -- such as better matching technology.

So far, Kanzhun has shown it can deliver under pressure. But only time will tell if the company can hold on to its market-leading position.

Is Kanzhun a buy now?

By now, it's not hard to see why Kanzhun has a bright future. With its technology chops and massive user base, the company has a good shot at becoming China's answer to LinkedIn. On top of that, the local online recruitment market is worth hundreds of billions of yuan -- giving Kanzhun lots of room to grow.

Still, I don't think investors should dive headfirst into this stock. As a newly listed company, Kanzhun still has much to prove. For this reason, it would be better to monitor Kanzhun's progress from the sidelines -- at least for the next few quarters. That would give investors a better idea of whether Kanzhun's capabilities match the scale of its ambition.