KE Holdings Inc. (BEKE) Earnings

Management highlights

### Overall Financial Performance - Group gross margin expanded 6.7pp YoY to 28.6%, while GAAP operating expenses fell 14.1% YoY, driving strong profit growth. - GAAP operating profit reached 3.026 billion RMB, up 185.6% YoY; Non-GAAP net income grew 74.9% YoY to 3.185 billion RMB, with non-GAAP net margin hitting 13% (a three-year high, up 6pp YoY). - End-Q2 cash balance (excluding customer deposits) was ~67.3 billion RMB, with Q2 net operating cash inflow of 6.61 billion RMB. 250 million USD was spent on share repurchases in Q2, with 450 million USD spent in H1 2026. ### Strategic Transformation Progress - **Refined Operations**: Shifted from one-size-fits-all city-level strategies to district/project-specific solutions tailored to actual customer behavior, e.g., regrouping operational units around customer property viewing paths in high-end markets. - **Shifted Performance Metrics**: Moved beyond pure scale/market share to prioritize consistent agent transactions, rising agent income, healthy store profitability, and stable service quality, e.g., reorganized leasing agent blocks to boost average efficiency from 3 to 5.6 transactions per agent (April-July) and cut zero-transaction ratio from 25% to under 10%. - **Frontline Organizational Mobilization**: Managers moved from meeting rooms to frontline operations, with requirements for on-the-ground presence to solve real consumer and agent problems. ### Re-defining Industry Roles Under Consumer-Centric Transformation - Being consumer-centric does not mean bypassing agents: the platform is shifting from a zero-sum commission split model to a modular ecosystem where specialized skills are independently compensated. New roles such as client managers (paid by consumer alignment, not per transaction) improve lead conversion, hitting 7.4% lead-to-showing (outperforming the market 5%) from May-July. - Agents will not become obsolete: AI automates static property information, but dynamic, contextual insights and accountability for decision outcomes remain scarce and human-dependent; the industry increasingly values professionals who can make judgments and take responsibility, not just distribute information. ### AI Integration as a Core Production Factor - AI is treated as a direct production variable, not just an efficiency tool, requiring full organizational rework: - Enables granular management of individual properties, clients and agents, moving beyond managing average metrics - Lowers fixed costs, enables high-frequency low-cost trial-and-error for new models, flattens organization, and pushes managers to create direct value instead of just reporting numbers - Shifts bottlenecks to human capabilities: AI optimizes routine workflows, leaving human interaction and team coordination as the key limiting factors for growth ### Long-Term Strategic Direction - Heavy bets placed on three core areas: deep service, deep data, and a platform ecosystem. Direction is certain, while specific organizational and AI implementation details are tested through small investments, rapid iteration, and early loss cutting. - Success will be measured by four pillars: professional agent adoption of AI, managers returning to the frontline to deliver quality judgments, customer trust gained through deeper services, and the ability to replicate successful models across the organization.

Guidance

- Management maintains a disciplined approach to expansion: the company will not return to extensive growth even if market conditions improve. All new investments must pass stage-gated ROI and service validation before scaling to ensure transactions translate to profit and cash flow. - Under a neutral market outlook for the second half of 2026, the optimized lower cost base will continue to support profitability. The current operating structure increases both upside profit potential when the market improves and downside protection when market pressure persists. - Proactive adjustments to home renovation and furnishing (exiting inefficient cities and channels) are largely complete, with no further broad-based contractions expected in 2026. Revenue recovery will lag contract value growth due to construction cycles, with early front-end demand metrics showing sequential improvement as of July. - The company will prioritize cash flow and balance sheet strength, strictly managing receivables and credit risk to preserve operational flexibility.

Segment performance

1. Existing Home Transaction Services: GTV of $629.89 billion, up 8% YoY and 17.9% QoQ; revenue of $7.02 billion, up 4.5% YoY and 14.5% QoQ. Contribution margin reached 46.1%, up 6.1pp YoY and 4.8pp QoQ. Non-lianjiao platform service revenue (net basis recognition) accounted for 27.8% of segment revenue YoY and 29.8% QoQ. 2. New Home Business: GTV of $258.39 billion, up 1.2% YoY. Contribution margin reached 28.8%, up 4.4pp YoY and 3.1pp QoQ. 3. Home Renovation and Furnishing: Revenue of 3.19 billion RMB, down 30.1% YoY and up 36.4% QoQ. Contribution margin reached 39.6%, up 7.5pp YoY and 3.4pp QoQ. 4. Home Rental Services: Revenue of 4.83 billion RMB, down 14.8% YoY and 3.6% QoQ. Contribution margin reached 15.3%, up 6.9pp YoY and 0.5pp QoQ. Total managed units exceeded 790,000, up ~34% YoY, with net base product comprising over 50% of units. 5. Other Businesses: Revenue of 550 million RMB, up 26.4% YoY and 70% QoQ.

Risks & headwinds

- The overall property market remains polarized and uncertain, with uneven recovery across cities and price tiers, cautious customer decision-making, and continued pressure on the new home market. - Home renovation and furnishing faces intensified competition, as new home-focused firms enter the existing home renovation market amid falling new home deliveries, with overall industry demand remaining pressured. - Developer credit risk remains a key concern for the new home business; the company proactively manages this by avoiding unreasonable risk exposure just to expand GTV, and strictly controls receivable collection. - AI integration creates a new bottleneck in human organizational capabilities: successfully uniting teams to work effectively with AI requires cultural and evolutionary change across the organization, with uncertain long-term implementation outcomes. - Final forms of AI-enabled business and organizational management structures remain uncertain, requiring ongoing testing and iteration.

Analyst Q&A

• Q: Given ongoing property market uncertainty, what controllable levers does management have to drive performance in H2 2026?

  A: Management will allocate resources based on market performance, reinforcing coverage in higher-tier cities, and focus on content engagement, precise matching, and professional execution to convert genuine demand. The company will maintain a lean cost structure and flexible resource allocation, prioritizing the core professional service network over short-term profits, with no return to extensive expansion regardless of market conditions. It will also prioritize cash flow and balance sheet strength, strictly managing receivables to preserve operational flexibility.

• Q: Q2 profits outpaced revenue growth significantly. What drove this improvement, and how sustainable is it?

  A: Profit growth came from higher contribution margins across all core businesses and 14.1% YoY lower operating expenses, driven by three factors: a structurally lowered fixed cost and break-even baseline from years of store/agent structure optimization, improved operating efficiency across transaction business lines, and improved unit economics from business mix shifts (net basis rental products, lower renovation material costs from centralized procurement). The lower cost base will support profits going forward, and the current structure increases both upside potential and downside protection. In the long run, this optimization is the first step of strategic transformation, embedding efficient resource allocation into daily operations for sustainable growth.

• Q: How much of Q2 existing home growth and margin improvement comes from market recovery versus operational alpha, and what metrics demonstrate this alpha?

  A: Moderate market transaction recovery provided a volume foundation, but there was no YoY price tailwind, as average prices remained in adjustment. Operational alpha came from higher per-store productivity within a stable network scale: connected store transaction volume grew nearly 30% YoY, with active stores/agents broadly stable, pushing average transactions per active connected store up 26%. The 6.1pp YoY contribution margin increase to 46.1% confirms growth was not achieved at the expense of profitability. Sustainability will be validated by ongoing stable per-store output and platform service revenue conversion across markets.

• Q: For new home business, what operational alpha has been gained from upgrades, and how does management balance growth, margins, and credit risk?

  A: Q2 1.2% YoY GTV growth came from improved coverage of high-quality core city projects and higher conversion efficiency, outperforming the broader weak market. Long-term, the business is shifting from a pure transaction channel to consumer-centric full-cycle project services, building three core capabilities: early consumer demand insights to inform project positioning, translating complex product attributes into intuitive decision metrics, and end-to-end adaptive project operations. All new capabilities go through per-project validation before scaling, and the company avoids unreasonable credit risk to expand GTV, focusing on high-quality revenue, healthy profitability, and strong cash collection.