KE Holdings

KE Holdings, or Beike, reported a 5% year-on-year revenue decline and a 178% increase in operating profit in the second quarter of 2026. Operating margin rose to 12.3% from 4.2% a year ago, driven by improved agent productivity, a pivot to performance-based compensation, and lower marketing costs.

Why it matters: Beike's profitability exceeded our expectations as its renewed focus on optimizing agent and marketing spending has begun to yield results. We lift our 2026-30 operating margin assumptions by 80-130 basis points, reflecting tighter cost control and stronger operating leverage. Both existing home and new home brokerage revenue returned to growth, supported by 4% and 1% increases in gross transaction value, respectively. We believe Beike continued to gain market share in the new home segment, as its GTV increased despite a 10% contraction in industry sales. Despite policy easing in Beijing and Shanghai, management guided for flat GTV in existing home and new home brokerage in the third quarter. We think this reflects the company's exit from less-developed regions and expect stronger housing demand in wealthy cities to support a GTV rebound in 2027.

The bottom line: We raise our fair value estimate to USD 19.00 per ADS (HKD 49.40 per H-share) from USD 18.00 (HKD 46.80) for narrow-moat Beike. Both the ADS and H-shares remain fairly valued, with much of the potential upside from margin improvement already reflected in the share price.

Key stats: Home rental service revenue fell 15% amid an ongoing transition from gross to net revenue recognition, but operating profit grew 56% on margin expansion and robust demand. We expect revenue growth to resume at around 10% in 2027 once the transition is complete. The firm remained committed to shareholder returns, repurchasing USD 250 million of shares in the second quarter. Together with dividends, we continue to forecast a healthy 6% shareholder yield in 2026.

Our fair value estimate for Beike is USD 19 per ADS, implying 2026 adjusted price/earnings of 15.2 times and enterprise value/adjusted EBITDA of 8.5 times. Our valuation is based on a cost of equity of 12.1% and a weighted average cost of capital of 9.8%. We expect Beike’s revenue to grow at a five-year CAGR of 3.0% during 2025-30. This is driven by steady new home GTV growth and home renovation and rental service rollout, partly offset by a slower revenue growth in existing-home transactions.

We believe the new home transaction service will remain the largest revenue contributor to Beike over the next five years, given increasing brokerage penetration in China. With pronounced headwinds on housing demand, we expect more developers to collaborate with Beike, supporting GTV and stabilizing fee rates. However, we foresee a mild decline in the existing homes’ commission rate over time amid slowing GTV growth and rising competition, leading to revenue growth decelerating to the midsingle digits in 2030. Meanwhile, Beike’s home rental brokerage services should maintain decent earnings expansion in the long run under coverage expansion and cost rationalization, in our view.

Regarding profitability, we expect margins to rebound starting in 2026 as agency and marketing cost optimization strengthens. Beike’s annual fixed cost of CNY 5 billion-CNY 6 billion suggests room for operating leverage, and store efficiency could improve through a positive income mix shift to wealthy cities and closure of unprofitable branches. Additionally, we envision higher efficiency in personnel costs amid optimized headcount. As a result, we project the company’s recurring operating margin to jump to 11.4% in 2030 from 2.4% in 2025.

We assign a narrow moat rating to Beike given its network effect of existing-home and new-home transaction services. Through a robust brokerage network that connects buyers, sellers, and agents, Beike has carved out an over 35% market share in China’s existing-home gross transaction value, or GTV, in 2025. While the new home market is more fragmented, Beike represents around 15% of nationwide GTV, the biggest among all real estate brokers. Regarding competition, we view that close peer Anjuke and other online platforms should bring modest pressure to pricing, but Beike will likely retain sector leadership as it warrants high brand awareness among buyers and sellers. We forecast Beike’s steady-state adjusted ROIC to reach about 18% in 2030, exceeding our WACC assumption of 11%.

Beike is one of the largest real estate brokerage platforms in China with over 43 million monthly active users, 58,000 stores, and 446,000 active agents in 2025. Despite a pronounced market downturn since the second half of 2021, Beike maintained resilient user and agent counts, thanks to its solid brand reputation and access through Tencent’s instant messaging app WeChat. While the company relies on franchise or independent stores in most cities, all these branches are integrated into Beike’s system to share operational information with its self-owned stores. In addition, Beike has standardized brokerage procedures for connected third-party agencies, effectively enhancing their service quality. We think Beike’s online-offline integrated model covers the entire homebuying process, including screening listings, contacting agents for site visits, and finalizing deals, and provides a seamless experience. This is amplified by positive word-of-mouth to entice more buyers to join, leading to a flywheel effect as more listings are posted, in turn benefiting existing users.

Beike’s strong network can also attract realtors, who are particularly crucial to existing-home purchases. To retain agents, Beike adopts a mechanism to segregate duties between buyer agents and listing agents, and allocates commission revenue between the two parties under prespecified criteria. While buyer agents usually take the larger slice of the pie, listing agents are also rewarded to avert malicious competition and encourage seller sourcing. We think this innovative method has gained traction among realtors and helps improve the authenticity of listings. Although Beike charges an 18% platform service fee on commission received by nonproprietary agents, we do not view this as a significant hurdle for third-party and franchise realtors to stick to the platform and gain from the vibrant network.

For other service providers in China, Beike’s close peer Anjuke saw a larger network of 67 million MAU and 726,000 paying agents in 2020, which we mainly ascribe to its business model being different. In contrast to Beike’s commission-based fee model—like that of Redfin—Anjuke resembles Zillow more, as it offers advertising bundles with leads to agency stores for client acquisition. As such, Anjuke may post higher margins amid a lack of commission split to realtors. However, we expect Beike to enhance operating leverage through higher efficiency of agents and stores, as well as lower personnel costs, to lift profitability. Despite a mild contraction from the peak in 2025, Beike’s run-rate operating margin should rise to high single digits, in our view.

Outside of traditional peers, comprehensive online platforms may emerge as disruptors, including Kuaishou, ByteDance (TikTok’s parent company), and JD.com. That said, these platforms lack infrastructure for real estate brokerages, and barriers to replicating Beike’s transaction scale can be high. Although Kuaishou lifted its GTV for housing livestreaming to CNY 10 billion in 2022, this remains minimal compared with Beike’s. According to EqualOcean’s survey in 2020, 79% of respondents have used internet real estate platforms, while only 5% have used social media and short video ones. Given elevated client awareness of Beike and Anjuke, we think they should remain the go-to platforms for searching for homes.

Another potential threat to Beike’s network comes from direct channels (such as sales centers) established by real estate developers. As developers pay for new home transactions’ commissions (typically 3%-4% of GTV), they may pivot to self-owned channels for cost savings. Nonetheless, given weak homebuying sentiment, developers have increased exposure to third-party platforms like Beike and Anjuke. In recent years, Beike has required over 50% of partnering developers with high-risk profiles to prepay most commission fees, indicating its strong bargaining power. Moreover, we foresee a stepping-up in China’s brokerage penetration for new homes, as the 2025 level of about 40% substantially lags the 60% for the US, per our estimate. This should enable Beike to reinforce its foothold in the new home sector, in our view.

We do not view Beike’s home renovation, furnishing, and other ancillary services as moaty. There are constantly around 100,000 home renovation companies in China, with no single peer representing over 5% of the sector’s GTV. Amid soft demand, China’s construction and decorative material sales saw continued decline in 2025, according to the National Bureau of Statistics. With a shrinking market, low entry barriers, and muted brand loyalty, we project competition to remain stiff. That said, Beike’s home refurbishment has constantly posted an over 30% contributed margin, and we see a low likelihood for this segment to become value-destructive.

Beike rolls out realtors and stores more effectively in key cities, adding to a stronger GTV and commission revenue growth.

Beike’s core brokerage services will further benefit from a faster-than-expected recovery of China’s home demand.

The company’s acquisition of home renovation companies would lead to higher earnings growth, given service quality improvement and cost synergy.

A more prolonged housing market slowdown in China will compress Beike’s top-line growth for longer.

Real estate brokerage peers and other online platforms may launch more compelling services to constrain Beike’s agent and user growth.

Lower commission rates on existing homes as competition intensifies would eat into Beike’s profit margins.