KE Holdings Inc., the largest property transaction and service platform in China, delivered a contradictory first-quarter report. While total revenue dropped nearly 20%, net profit attributable to shareholders surged against the trend by 46.7%, and the gross margin reached its highest point in the past seven quarters. The company's Chairman and CEO attributed this performance to the success of an "efficiency-driven growth" strategy. Behind these seemingly positive data points indicating quality and efficiency improvements, KE Holdings Inc.'s former growth engines are stalling. New home transaction volume plummeted by 37.2%, existing home transaction volume fell by 7.9%, and although home renovation, home furnishing, and rental services are held with high expectations, their scale remains insufficient, and revenue across these segments declined comprehensively. The significant increase in KE Holdings Inc.'s net profit relied heavily on substantial compression of costs, including personnel compensation, and various expenses. More concerning is that while KE Holdings Inc. reported accounting profit, it did not generate actual cash, with operating cash flow showing a large outflow. Against this backdrop, the company still allocated substantial funds for share repurchases. 01 Cost and Fee Cuts "Squeeze Out" Significant Profit In the first quarter, KE Holdings Inc. achieved net revenue of 18.9 billion yuan, a decrease of 19.0% year-over-year. This is not an optimistic start. The core pillar, new home business, suffered a severe blow, with total transaction volume of 145.9 billion yuan, down 37.2% year-over-year. This directly caused net revenue from the new home business to drop sharply from 8.1 billion yuan in the same period last year to 5.1 billion yuan, a 37% decline. This indicates that the new home market itself has not seen a substantive reversal, with developers remaining cautious about land acquisition and homebuyers maintaining conservative expectations. Looking at KE Holdings Inc.'s existing home transactions, total transaction volume was 534.4 billion yuan, down 7.9% year-over-year. The performance of these two major segments ultimately led to a 15.6% year-over-year decline in total transaction volume. In Q1, net revenue from the existing home business was 6.1 billion yuan, down 10.7% from 6.9 billion yuan in the same period last year. However, KE Holdings Inc.'s profitability in the first quarter appeared impressive: net profit attributable to shareholders reached 1.255 billion yuan, a sharp increase of 46.7% year-over-year; even adjusted net profit was 1.611 billion yuan, up 15.7% year-over-year; the gross margin jumped from 20.7% in the same period last year to 24.1%, reaching a seven-quarter high. Where did KE Holdings Inc.'s profit come from? It can be attributed to extreme "cost-cutting" and a "passive optimization" of the business structure. On the cost side, KE Holdings Inc. demonstrated strong control. Cost of revenue decreased by 22.6% year-over-year, from 18.5 billion yuan in Q1 last year to 14.3 billion yuan in Q1 this year. This was mainly due to significant compression of external commissions and internal compensation. Internal commissions and compensation, in particular, decreased by nearly 18%. This means that although the number of stores increased (reaching 60,383 by the end of March, up 6.2% year-over-year), the overall income for agents and frontline staff was compressed. Beyond cost savings in operations, reductions in general and administrative expenses also contributed significantly, down 22.3% year-over-year; sales and marketing expenses fell by 1.39% year-over-year; and research and development expenses were optimized, decreasing by 15.6% in Q1. A review of periodic reports shows that KE Holdings Inc. indeed achieved headcount reduction year-over-year. The number of agents by the end of March was 526,900, down 4.2% year-over-year, with the number of active agents down 7.6%. This trend was also seen in the 2025 annual report, where the number of employees at the end of 2025 was 119,200, compared to 135,100 at the end of 2024. For a service platform like KE Holdings Inc., where "people" and "stores" form the core network, human resources are both a cost and an asset. Optimizing short-term financial data by reducing the number of agents, while boosting quarterly profits, may weaken service density and response speed in key cities in the long run, representing a risk point to monitor. Simultaneously, the room for subtraction is limited; expenses cannot be compressed indefinitely. Healthy growth requires addition, which is the real challenge KE Holdings Inc. needs to address. 02 Comprehensive Revenue Decline in the Second Growth Curve To reduce reliance on pure property transaction cycles, KE Holdings Inc. has vigorously pursued an "integrated" strategy in recent years, consolidating property transactions and service platforms. It aims to build a second growth curve through home renovation and furnishing, property rental, and its development business. However, the Q1 report shows that while these new businesses show promising gross margin performance, they are still unable to act as "stabilizers" in terms of scale. Home Renovation and Furnishing: Slowing Pace. The home renovation and furnishing business was once considered KE Holdings Inc.'s most imaginative segment. However, in Q1, revenue from this segment decreased by 20.6% year-over-year, from 2.9 billion yuan in Q1 last year to 2.3 billion yuan. The official explanation attributes this to the company's proactive optimization of customer acquisition channel mix and a slowdown in the pace of some non-agent channel business. This reflects the high dependence of the renovation business on property transaction traffic. The cliff-like drop in new home transaction volume in Q1 evidently directly impacted the demand for post-cycle renovation services. Although the contribution margin for this business improved against the backdrop of declining operating costs, this resembles "passive profitability." If the challenges of scalable customer acquisition and standardized delivery cannot be resolved, the home renovation business cannot shoulder the responsibility of "rebuilding KE Holdings Inc." Property Rental Services: Surge in Listings, Decline in Revenue. Property rental is one of KE Holdings Inc.'s important segments. In Q1, rental service revenue was 5.0 billion yuan. Although it decreased by 1.5% year-over-year, the contribution margin reached 14.8%, marking six consecutive quarters of sequential improvement. KE Holdings Inc.'s managed rental property portfolio currently exceeds 700,000 units, compared to only about 430,000 units at the end of 2024. Reportedly, revenue from its managed rental service primarily comes from two parts: commissions earned for facilitating lease agreements between owners and tenants, and fees for providing property management services throughout the lease term. The logic of this business is sound, as rental markets in major Chinese cities have long suffered from fragmented supply, poor service, and opaque information, leaving room for integration. KE Holdings Inc.'s managed rental model aims to address these pain points, leveraging its own brand and property scale to gain market recognition. However, against the backdrop of a gradually increasing managed property portfolio, its Q1 net revenue decreased year-over-year instead of increasing, indicating that this "master tenant" business is also facing challenges. With a managed scale exceeding 700,000 units, insufficient occupancy rates could become a significant burden for KE Holdings Inc. Development Business: Still in the Exploration Phase. The development business primarily provides C2M product solutions and integrated online-offline efficient marketing services to developers and other partners. In 2025, the company advanced C2M capability development, offering data-driven decision support to developers, including unit mix and price forecasting, with several cooperative projects implemented. Q1 data shows that net revenue from emerging businesses and others was only 321 million yuan, down 8.1% from the same period last year. 03 Operating "Bleeding" Amid Aggressive Buybacks A detail easily overlooked in the financial report is operating cash flow. In Q1, KE Holdings Inc.'s net cash flow from operating activities was -1.47 billion yuan. Although significantly narrowed year-over-year, it still represents a serious cash outflow. This means that the 1.255 billion yuan in reported net profit did not translate into positive actual cash received. This is mainly due to factors such as capital advances for the home renovation business and accounts receivable collection periods for the new home business. KE Holdings Inc. emphasized that its days sales outstanding remains at a healthy level. Despite negative operating cash flow, KE Holdings Inc. did not slow its share repurchase pace. In Q1, the company further intensified efforts to return value to shareholders, spending approximately $195 million on share repurchases, an increase of about 40% year-over-year. Beyond its US listings, KE Holdings Inc. recently expanded its repurchase scope to its Hong Kong listings. According to an announcement on the Hong Kong Exchange, on May 26, KE Holdings Inc. repurchased 353,400 shares at prices ranging from HK$42.000 to HK$42.800 per share, totaling approximately HK$14.9978 million. On May 22, KE Holdings Inc. repurchased 464,900 shares at prices ranging from HK$42.66 to HK$43.26 per share, totaling approximately HK$19.9967 million. However, against the backdrop of lacking high-growth expectations for its core businesses, it is evident that KE Holdings Inc. will struggle to maintain a respectable share price over the long term solely through buybacks, and its capacity to do so may increasingly wane. In the days leading up to the Hong Kong buyback announcements, KE Holdings Inc.'s stock price had also experienced a decline.
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