KE Holdings Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Shift: The company is shifting from scale to efficiency. In transaction services, it has restructured agent capabilities, e.g., piloting seller and buyer agent specialization in Shanghai, redefining roles, commission structures, and offering tech products.
• AI Integration: In home rental business, AI is fully integrated into end-to-end operations. It powers processes like property lead identification, pricing strategies, and homeowner communication. Achieved breakthroughs in rental unit sign-ups, property evaluation, and leasing efficiency.
• Business Optimization: In home renovation, replicated productized showroom model in multiple cities. In rental, achieved city-level profitability before headquarter expenses, with Carefree rent showing significant improvements through AI-native operations.

Segment Performance

• Housing Transaction Services:
  • Existing Home Transaction: Revenue in Q3 was RMB 6 billion, down 3.6% y-o-y and 10.8% q-o-q. GTV was RMB 505.6 billion, up 5.8% y-o-y but down 13.3% q-o-q. Contribution margin was 39% in Q3, down 2 percentage points y-o-y.
  • New Home Transaction: GTV in Q3 was RMB 196.3 billion, down 13.7% y-o-y and 23.1% q-o-q. Revenue was RMB 6.6 billion, down 14.1% y-o-y and 23% q-o-q. Contribution margin was 24.1%, down 0.7 percentage points y-o-y.
• Home Renovation and Furniture Services: Revenue was RMB 4.3 billion, relatively flat y-o-y. Contribution margin was 32%, up 0.8 percentage points y-o-y, driven by reduced procurement costs and enhanced order dispatching efficiency.
• Home Rental Service Business: Revenue reached a record high of RMB 5.7 billion in Q3, up 45.3% y-o-y. Contribution margin was 8.7%, up 4.3 percentage points y-o-y and 0.3 percentage points q-o-q, largely due to improved gross margin from Carefree rent business.

Guidance

• For new home business, plans to expand into more cities, leverage refined operation management to enhance service capability and sales efficiency for high-end products. B+ products piloted in 4 cities with plan to expand to over 30 cities by end of 2025.
• For home rental business, expects continued growth in rental unit scale and operational efficiency improvement, with potential to further lower per unit costs and expand value-added services.

Risks

• Market volatility may impact new home business performance. For example, recent price attractiveness of existing homes compared to new homes affects new home transaction growth.
• Cost control challenges, such as potential fluctuations in variable costs affecting contribution margins in new home and existing home businesses.

Question and Answer

Q: For the new home business, why has the magnitude of alpha diminished and what is the growth potential?

A: Near-term performance affected by market volatility. China's new home market has matured. Factors include customers choosing existing homes due to price attractiveness, base effect, and need to grow from a higher base. Opportunities include expanding into more cities, increasing broker channel penetration, and refining operation management for new home customers.

Q: How did the leasing service business turn last year's losses into operating profit by Q3 this year?

A: Profitability improved due to economies of scale from rapid growth in managed units and revenue. Structural shift to net revenue accounting for Carefree rent, operational efficiency improvements reducing cost ratios, and strong leasing capability lowering default costs. Future improvement potential lies in continuous growth of rental unit scale and operational efficiency.

Q: About renovation business in non-first-tier cities, how to motivate agents to cross-sell?

A: Home renovation in second and third-tier cities is a growth driver. Currently, resources are concentrated in core cities. Measures include deepening operation team expertise, rolling out innovative incentive programs, and leveraging AI to boost contract conversion efficiency. Long-term, will initiate proactive traffic diversion when standards are met.

Q: Elaborate on cost and expense control measures and future expectations?

A: Existing home transaction reduced fixed labor costs via organizational optimization. New home transaction streamlined fixed and variable costs. Home renovation reduced material costs via supply chain integration. Rental service improved efficiency reducing cost ratios. G&A, sales and marketing, and R&D expenses optimized. Expect continuous operation optimization to release operating leverage as market stabilizes.