Executive Summary / Key Takeaways

• Strategic Pivot to Efficiency and AI: KE Holdings Inc. ($BEKE) is strategically shifting its growth engine from pure scale expansion to efficiency enhancement, driven by evolving consumer needs and the transformative power of AI across its integrated online and offline platform. This pivot is crucial for long-term value creation in China's maturing real estate market.
• Robust Diversification Beyond Brokerage: The "One Body, Three Wings" strategy is yielding significant results, with non-housing transaction services (home renovation and furnishing, home rental services) contributing a substantial 41% of total revenues in Q2 2025, demonstrating resilient growth and margin improvements in these segments.
• Technological Moat Deepens with AI Integration: BEKE is aggressively deploying AI across its operations, from customer-facing assistants like "Pudding" (780k MAUs in July 2025) to agent-empowering tools like "Like" (30% higher conversion rates for mandates in pilot cities), driving tangible productivity gains and enhancing service quality.
• Solid Financial Foundation and Shareholder Returns: Despite a softening market in Q2 2025, BEKE maintains robust cash liquidity of approximately RMB70 billion and has significantly expanded its share repurchase program to US$5 billion, signaling strong financial health and a commitment to rewarding shareholders.
• Navigating a Complex Market with Cautious Optimism: While the broader Chinese real estate market faces structural challenges and price decline expectations, BEKE's outperformance in existing and new home transactions, coupled with proactive policy support and its asset-light Beihaojia model, positions it for a moderate recovery in 2025, with a focus on quality and customer-centric solutions.

A New Chapter in China's Real Estate: From Scale to Intelligent Efficiency

KE Holdings Inc. (BEKE), a leading integrated online and offline platform for housing transactions and services in China, stands at a pivotal juncture. Founded in 2001, the company initially carved out its market dominance by addressing fundamental consumer pain points through its Agent Cooperation Network (ACN) and authentic listings, rapidly building scale and establishing a deep competitive moat. Today, as China's real estate market matures and consumer needs evolve, BEKE is embarking on a strategic pivot: shifting its growth engine from sheer scale to enhanced efficiency, powered by cutting-edge artificial intelligence. This transformation is not merely an operational adjustment but a fundamental redefinition of its value proposition in a market increasingly demanding certainty, professional insight, and emotional connection.

The broader Chinese real estate market is at a turning point in early 2025, showing signs of stabilization after years of decline, driven by effective demand, consumption upgrades, and technological progress. However, despite government support measures and policy adjustments yielding initial results, a full recovery could take time due to persistent structural imbalances. Experts predict further price declines throughout 2025, with no full recovery expected before 2026, and housing prices having dropped by 20-30% from their August 2021 peak. New home prices may stabilize in Q2 2025, but secondhand housing prices are anticipated to recover more slowly. This complex backdrop underscores the strategic imperative for BEKE to innovate and differentiate.

The Technological Edge: AI as the New Production Factor

BEKE's commitment to technological differentiation is central to its efficiency-driven strategy. The company views AI as a new production factor, capable of reshaping user experiences, boosting efficiency, and spurring transformation across the real estate industry. BEKE has integrated its extensive residential industry data with advanced foundational models to develop proprietary large language models like ChatHome and image models such as Dreamhome.

The tangible benefits of this AI integration are already evident across its ecosystem. For consumers, "Pudding," an AI-powered home-seeking assistant, provides real estate market analysis, city-wide house searches, and listing comparisons. In July 2025, Pudding's Monthly Active Users (MAUs) reached 780,000, a 10% increase from June, with conversation volume growing by 59% and average time spent per user up 14%. For agents, the AI-driven CRM product "Like" empowers over 335,000 brokers in 69 cities, leading to a 30% higher conversion rate for formal client mandates and approximately a 20% higher conversion rate for showings in pilot cities. Similarly, the AI property maintenance assistant has resulted in a transaction conversion rate four times higher for maintained listings. These quantifiable improvements highlight AI's direct impact on operational effectiveness and customer engagement.

In the home renovation business, AI tools like "Sheniu" automatically generate design plans and marketing visuals, while the self-developed BIM system with AI-driven delivery management and intelligent construction systems facilitate real-time online inspections and automated quality checks. Internally, Digital AI Agents like "Sun Xiaosheng" have saved business analysts 85% of their time and operational strategy teams nearly 20% of their time by automating daily report summaries and pending matter management. These technological advancements not only enhance BEKE's competitive moat but also directly contribute to improved financial performance through higher conversion rates, reduced operational costs, and elevated customer satisfaction. For 2025, BEKE plans to increase AI investments to further strengthen foundational model capabilities and accelerate iterative application R&D, aiming to make its AI assistants smarter and promote AI integration throughout the organization.

Financial Performance: Resilience Amidst Market Headwinds

BEKE's financial performance in the first half of 2025 reflects both the challenging market environment and the early successes of its strategic pivot. In Q2 2025, total Gross Transaction Value (GTV) reached RMB878.7 billion, representing a year-over-year increase of 4.7%. Total revenues were RMB26 billion, up 11.3% year-over-year. However, GAAP net income was RMB1.31 billion, falling 31.2% year-over-year, and non-GAAP net income reached RMB1.82 billion, down 32.4% year-over-year. The gross margin declined by 6 percentage points year-over-year to 21.9%, primarily due to a decrease in the contribution margin from existing home transaction services.

The existing home transaction services segment generated RMB6.7 billion in revenue in Q2 2025, down 8.4% year-over-year, with a contribution margin of 39.9%, a 7.5 percentage point year-over-year decline. This margin pressure was mainly attributed to higher fixed labor costs resulting from an increase in Lianjia agents and the lasting impact of the agent welfare improvement strategy implemented in 2024. Despite this, the number of existing home sales transactions on BEKE's platform rose by 26% in H1 2025, outpacing the market's 19% growth rate, demonstrating its competitive strength. The proportion of existing home sales in total home transaction orders on the platform also reached a record high of 76% in H1 2025, up from 51% in H1 2021.

New home transaction services saw GTV reach RMB255.4 billion in Q2 2025, up 8.5% year-over-year, with revenues of RMB8.6 billion, an 8.6% year-over-year increase. The contribution margin for this segment was 24.4%, a slight decrease of 0.6 percentage points year-over-year due to increased variable costs from agent welfare improvements. Notably, new home orders on BEKE's platform increased by 19% in H1 2025, significantly outperforming the market, which declined by 6%.

The "Three Wings" businesses continue to be vital growth drivers. Home renovation and furnishing services generated RMB4.6 billion in revenue in Q2 2025, increasing by 13% year-over-year, driven by increased orders and a higher average revenue per order. Its contribution margin reached 32.1%, up 0.8 percentage points year-over-year, benefiting from a larger proportion of centralized procurement (over 60% in Q2 2025, up from over 20% in Q2 2024) and enhanced order dispatching efficiency. The customer complaint rate for this business dropped to below 10% in Q2 2025 from over 25% in Q2 2024, indicating improved service quality. Home rental services achieved a record high revenue of RMB5.7 billion in Q2 2025, up 78% year-over-year, primarily due to the rapid growth in rental units under management, which exceeded 590,000 by the end of Q2 2025, compared to over 310,000 in the same period of 2024. The contribution margin for home rental services was 8.4%, an increase of 2.5 percentage points year-over-year, largely due to improved gross profit in the Carefree Rent business.

BEKE's liquidity remains robust, with a net operating cash inflow of RMB826 million in Q2 2025. Total cash liquidity, excluding customer deposits payable, stood at approximately RMB70 billion at the end of Q2 2025.

The company's commitment to shareholder returns is evident in its expanded share repurchase program, now authorized up to US$5 billion and extended to August 31, 2028. As of the end of June 2025, BEKE had repurchased approximately US$2 billion in shares since September 2022, representing about 10.3% of its total shares outstanding before the program began.

Competitive Positioning and Strategic Differentiation

BEKE holds a leading position in China's real estate services market, characterized by its integrated platform and strong brand presence. Its competitive edge in the existing home market has consistently led to more stable and solid overall business performance. The company's ability to significantly outperform the market in both existing and new home transactions, even amidst a challenging environment, underscores its operational effectiveness.

Compared to more traditional brokerage firms, BEKE's seamless integration of online and offline services, coupled with its Agent Cooperation Network (ACN), creates powerful network effects. This fosters collaboration among agents, enhancing transaction efficiency and industry transparency, a qualitative advantage that rivals may struggle to replicate. Against purely online platforms, BEKE's extensive offline presence through branded stores like Lianjia builds trust and provides a more comprehensive service delivery model, leading to higher customer loyalty. While direct quantitative comparisons with all niche competitors are challenging to ascertain, BEKE's strong performance in transaction volumes and its diversified revenue streams suggest a superior competitive standing.

BEKE's strategic collaborations with developers, covering 7 out of the top 10 developers, further solidify its position in the new home market. These partnerships move beyond single project cooperation to foster mutual understanding and integrate BEKE's sales capabilities, market insights, and platform services. The Beihaojia business, while still in its early stages, exemplifies BEKE's asset-light approach to revolutionizing residential development. By providing C2M (Customer-to-Manufacturer) product solutions and marketing services, leveraging AI and big data for precise customer demand insights, BEKE aims to help developers create differentiated, high-quality homes. The company has explicitly stated its commitment to an asset-light model for Beihaojia, with a strict limit of no more than RMB1 billion in additional self-owned funds for this business beyond amounts deployed as of June 30, 2025, and a clear intention to "never be developers."

Outlook and Risks

Management's outlook for 2025 emphasizes a continued shift towards efficiency. The company plans to slow the pace of store and agent growth, particularly in cities with high network coverage, and instead focus on enhancing productivity per store and per agent. In Beijing and Shanghai, where agent growth has been strong, BEKE is consolidating lower-performing stores and phasing out less productive agents. The goal is to achieve an approximately 20% improvement in efficiency for connected agents on the platform within three years, driven by the large-store model and AI-powered tools.

For the home renovation business, the focus for 2025 is on "enhancing product strength and improving delivery quality with a customer-centric approach, and improving management and operational efficiency." This includes iterating business models, upgrading showrooms, professionalizing project managers, and refining operational efficiency through clear role definitions and cultivating business districts. The home rental services business has "high hopes for the number of rental units managed under 'Carefree Rent'" in 2025, with a focus on balancing scale and operation by heightening service quality and boosting re-renting efficiency.

Despite these proactive strategies, several risks warrant investor attention. The softening market momentum in Q2 2025 due to international trade friction and fading policy impacts highlights the sensitivity of the real estate sector to macroeconomic conditions. Reinforced expectations for price declines continue to constrain market recovery. The market downturn picked up speed in July 2025, with existing home transactions falling over 5% month-over-month and new home subscriptions dropping 25% month-over-month, signaling a period of sharp correction. Furthermore, the home rental business faces inherent challenges of diseconomies of scale due to the non-standard nature of products and thin service fee profit margins, which BEKE is actively addressing through its AI-human model and operational restructuring. The home renovation business also contends with customer uncertainty regarding final costs and service reliability, which BEKE aims to mitigate with innovative services like "community showroom designs" and "pre-signing measurement and drawing."

Conclusion

KE Holdings Inc. is navigating a transformative period in China's real estate sector, strategically pivoting from a scale-driven model to one centered on efficiency and technological innovation. Its integrated online-offline platform, robust "One Body, Three Wings" strategy, and aggressive adoption of AI across all business segments are critical differentiators. While the broader market faces headwinds and structural challenges, BEKE's consistent outperformance, strong financial position, and commitment to shareholder returns underscore its resilience. The company's focus on enhancing agent productivity, optimizing operational costs through technology, and developing asset-light models like Beihaojia positions it to capitalize on evolving consumer demands for quality and certainty. Investors should recognize BEKE's proactive stance in leveraging AI and refining its ecosystem as key drivers for long-term value creation, even as it operates within a complex and evolving macroeconomic and regulatory landscape. The success of its efficiency initiatives and the continued integration of its technological advantages will be paramount in solidifying its leadership and driving sustainable growth in the years to come.