KE Holdings Inc. (02423.HK), a leading player in China's residential services sector, has unexpectedly launched its most significant organizational restructuring since its founding. On March 29, the company issued multiple internal documents, initiating a top-to-bottom overhaul of its corporate governance, business lines, and regional operations. In a company-wide letter, Peng Yongdong, Co-Founder, Chairman, and CEO, announced a strategic pivot for KE Holdings from a "real estate transaction platform" to a "residential services platform."
This major transformation comes just two weeks after the company reported its full-year 2025 results. Annual net revenue reached 94.6 billion yuan, a slight increase of 1.2% year-over-year. However, net profit attributable to shareholders was 2.991 billion yuan, down 26.7% compared to the previous year. On an adjusted basis, net profit fell 30.4% to 5.017 billion yuan. The gross profit margin declined from 24.6% to 21.4%. The fourth quarter was particularly challenging, with net profit plummeting 85.8% year-over-year to 82 million yuan.
Facing pressure from profit decline despite revenue growth, a contraction in its core business, and new ventures struggling to fill the profitability gap, KE Holdings' restructuring is a strategic response to its 2025 performance challenges. Amid a prolonged downturn in the real estate sector and pressures on cash flow and profitability, the company aims to reverse slowing growth and declining profits through organizational redesign, resource reallocation, and a shift in business focus, seeking a new growth trajectory for the next five years.
The restructuring, detailed in Peng Yongdong's letter titled "KE Holdings' Next Phase: Consumer-Centric Organizational Rebuilding," involves upgrades to service models, organizational changes, and reforms for its Beijing Lianjia unit, marking a deep transition towards a community-focused residential services platform.
Peng Yongdong stated that significant opportunities remain to iterate and redefine services around "residence." Meeting consumer needs today, he explained, requires rebuilding service capabilities around new consumer decision-making processes, risk perceptions, information habits, and living expectations, while also restructuring content, product, and organizational systems around long-term customer value.
Following the letter, KE Holdings released several internal documents outlining specific changes. At the group level, a Transformation Management Committee, led by Peng Yongdong, was established to oversee major changes, resource allocation, and risk control. Five specialized committees were also created for human capital, strategy and operations, product and R&D, security, and culture and discipline.
Business lines were reorganized: the former Product & R&D line was split into separate Product and R&D lines. A new Integrity and Discipline line was formed to strengthen compliance. Functions from the former Human Resources line's organization department were integrated into a General Cadre Department, and the KE Holdings Research Institute was moved under the Public Affairs line.
Regionally, the previous North and South mega-regions were dissolved. Ten direct reporting regions were established in Chengdu, Chongqing, Guangzhou, Hangzhou, Nanjing, Shenzhen, Suzhou, Tianjin, Wuhan, and Xi'an, now managed directly by the group.
Business units were regionalized. Diversified businesses, including home renovation, Beihaojia, and Huiju (leasing), were integrated into regional operations. The home renovation division established Western and Eastern regions; Huiju set up Northeast and Southwest regions; and Beihaojia established regions in Beijing, Wuhan, Xi'an, Hangzhou, Guangzhou, Chengdu, Nanjing (preparatory), and Shanghai, deeply aligning operations with local markets.
Beijing will be a pilot city for the changes. A Strategic Committee was formed for Beijing Lianjia, establishing specialized capability centers, Eastern and Western regions, and introducing three "Chief Customer Officers" to drive deeper integration of brokerage, Huiju, and renovation services, reporting directly to Peng Yongdong.
These measures aim to restore organizational agility and flatten the structure, ensuring a focus on the consumer. Peng Yongdong acknowledged that after 24 years, the company had developed "big company disease," with thick departmental silos, processes overriding common sense, and complex metrics obscuring real value creation, leading to internal friction and distance from consumers.
Peng Yongdong frankly admitted that for this transformation, "we have no choice." With consumers, the industry, and technology all changing, stagnation would only increase the distance from consumers and the company's original purpose, leaving progress as the only path to continued value creation.
The impetus for this large-scale restructuring stems from multiple operational challenges. In 2025, as China's property sector entered a deep adjustment phase, with new home sales area falling over 15% nationally and secondary market transactions remaining weak, the era of high growth, high commissions, and high margins from incremental markets ended, making competition in the存量 market the norm.
KE Holdings' core transaction business Gross Transaction Volume (GTV) for 2025 was 31.8 trillion yuan, down 5% year-over-year. New home GTV fell 8.2% to 890.9 billion yuan, while secondary home GTV declined 4.2% to 2.15 trillion yuan.
By the end of 2025, the number of KE Holdings stores increased 18.5% to 61,100, and agent count grew 4.6% to 523,000. However, the number of active agents remained flat at 445,600. This scale expansion failed to drive performance growth and instead significantly squeezed profit margins, becoming an operational burden.
The 2025 financials showed weak growth under high pressure. Net revenue growth plummeted from 20.2% in 2024 to just 1.2% in 2025. Gross profit decreased 11.9% to 20.2 billion yuan, with the gross margin dropping 3.2 percentage points to 21.4%, the lowest in five years. Operating profit fell 43.9% to 2.111 billion yuan, and the operating margin declined from 4.0% to 2.2%. This profitability decline was primarily due to a significant increase in the proportion of low-margin leasing business, while the contribution from higher-margin existing and new home businesses decreased.
Net cash flow from operating activities turned negative at -376 million yuan, a 104% decrease year-over-year, a rare occurrence in recent years. This was mainly caused by substantial capital outlays for leasing business property custodianship and advance funding, coupled with slower commission collection from property transactions, leading to cash flow strain. Cash and cash equivalents stood at 15.94 billion yuan at year-end, down 4.36 billion yuan from the start of the year, indicating increased short-term debt repayment and liquidity pressures.
Business structure in 2025 showed extreme divergence. Traditional property transaction businesses contracted comprehensively. Revenue from existing home transactions fell 11.3% to 25 billion yuan; while still the largest profit contributor, commission income shrank alongside declining GTV and intensified competition. New home business revenue decreased 9.1% to 30.6 billion yuan, mainly due to an 8.2% drop in GTV. Combined revenue from these two core businesses was 55.6 billion yuan, falling below 60% of total revenue for the first time to 58.8%, significantly weakening their profit support.
Conversely, non-transaction businesses like leasing and home furnishing grew against the trend. Home leasing revenue surged 53% to 21.9 billion yuan, becoming the primary growth driver, though its profit contribution remains far below traditional transactions. Home renovation and furnishing revenue increased 4.4% to a record 15.4 billion yuan, but scale economies are not yet fully realized. Revenue from other emerging businesses fell 36%, failing to provide substantial profit support.
By the end of 2025, non-transaction businesses accounted for 41% of revenue, suggesting initial success in diversification. However, the structural矛盾 of high-cost, low-margin leasing and home furnishing businesses, coupled with the ongoing contraction of high-margin transaction businesses, continuously dragged down overall gross and net profit margins. The diversification shift has not improved profit quality but instead intensified operational pressure.
To control costs and enhance efficiency, KE Holdings implemented workforce optimization. The number of employees decreased by 15,800, or 12%, from 135,100 to 119,200 in 2025. Employee compensation and benefits payable decreased by 1.91 billion yuan year-over-year.
Total operating expenses in 2025 decreased 5.6% to 18.1 billion yuan. General and administrative expenses fell 9.9% to 8.1 billion yuan, primarily due to reduced share-based compensation and credit loss provisions. Sales and marketing expenses decreased 5.8% to 7.3 billion yuan, mainly from cost optimization measures including lower labor costs and reduced advertising and promotion spending. Research and development expenses increased 13.0% to 2.6 billion yuan, largely due to higher personnel costs. Impairment of goodwill, intangible assets, and other long-term assets was 116 million yuan, compared to 152 million yuan a year earlier, mainly due to market volatility.
A more alarming trend was the concentration of performance deterioration in the fourth quarter. Q4 net revenue was 22.2 billion yuan, down 28.7% year-over-year. Net profit was just 82 million yuan, an 86% decline. The quarter saw an operating loss of 147 million yuan, compared to an operating profit of 1.011 billion yuan in Q4 2024. The operating margin turned negative at -0.7%, down from 3.2% a year prior, attributed to the gross margin decline and certain one-time costs related to cost optimization initiatives incurred in Q4 2025.
Peng Yongdong articulated the essence of the transformation: consumers need not just more information, but certainty and solutions. The company must shift its core focus from "transaction" to "residential decision support" and "long-term service relationships." This signifies a complete departure from the extensive growth model focused on GTV scale and store count towards an intensive operation model pursuing per-customer value, service quality, and long-term profitability.
For capital markets, the effectiveness of KE Holdings' transformation will require phased monitoring. Short-term focus should be on the actual results of cost reduction and efficiency gains, gross margin recovery, and the return of operating cash flow to positive territory. Medium-term attention should be on profitability breakthroughs in home renovation, quality improvement in leasing, and further increases in the profit contribution from non-transaction businesses. The long-term key judgment will be whether KE Holdings can truly transform into a community residential services platform, decouple from the real estate cycle, and achieve stable, sustainable, high-quality growth.
"Past success does not guarantee the future. Only through continuous change, staying close to customers, and improving efficiency can we navigate cycles," Peng Yongdong wrote. Now, KE Holdings' battle to break through has just begun. The market will test the effectiveness of its organizational restructuring and strategic transformation, making 2026 a critical year for judging the success of this overhaul and determining the company's future direction.
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