KE Holdings Earnings Call: Margins Rise Amid Headwinds

KE Holdings Inc. Sponsored ADR Class A ((BEKE)) has held its Q1 earnings call. Read on for the main highlights of the call.

KE Holdings’ latest earnings call struck a cautiously upbeat tone as management balanced notable revenue and GTV declines with sharp profitability gains and stronger capital returns. Executives framed the quarter as proof that the group’s multi‑year transformation is working, with cost discipline, margin expansion and AI‑driven efficiency more than offsetting market headwinds.

Profit Surges Despite Top-Line Pressure

Q1 non‑GAAP operating profit jumped to RMB 1.67 billion, up 45.1% year on year and more than fourfold sequentially, lifting non‑GAAP operating margin to a seven‑quarter high of 8.8%. GAAP operating profit more than doubled to RMB 1.27 billion, while GAAP net income rose 46.7% to RMB 1.26 billion and non‑GAAP net income climbed 15.7% to RMB 1.61 billion.

Gross Margin Hits Multi‑Quarter High

Group gross margin widened to 24.1%, up about three percentage points from a year ago, as the business mix tilted further toward higher‑margin existing‑home transactions. Management also highlighted contribution margin expansion across several core segments, underscoring that quality of revenue is improving even as overall sales volumes contract.

Cost Cuts Drive Leaner Operating Model

Total GAAP operating expenses fell to RMB 3.3 billion, down 22.3% year on year and roughly one‑third sequentially, marking the lowest level in nearly three years. Store costs declined 20.3% to RMB 571 million, while sales and marketing spend dropped 39%, G&A fell 8.6% and R&D slipped 15.6%, reflecting tighter management and rising organizational efficiency.

Existing-Home Segment Shows Resilience

Existing‑home GTV came in at RMB 534.4 billion, down 7.9% year on year but up 10.9% from Q4, while revenue of RMB 6.1 billion fell 10.7% annually yet rose 12.7% sequentially. Contribution margin in existing‑home transactions reached 41.3%, the highest in seven quarters, and platform metrics were robust, with nationwide per‑capita transaction volume up 26% and per‑capita commission up 8.5% year on year.

Rental Business Scales With Better Unit Economics

Managed rental units surpassed 740,000, growing roughly 47% year on year, as the rental platform continued to scale. Q1 rental revenue edged down 1.5% to RMB 500 million, but contribution margin improved sharply to 14.8%, aided by productivity gains, while higher‑margin net‑method units accounted for more than 40% of the portfolio.

Share Buybacks Underscore Capital Strength

The company repurchased approximately USD 195–200 million of stock in Q1, an increase of about 40% from a year earlier, signaling confidence in long‑term value. Since launching the program, cumulative buybacks have reached roughly USD 2.7 billion, or about 13.5% of pre‑program shares, while broader cash balances excluding customer deposits remained solid at around RMB 65.6 billion.

Strategic Shift Toward AI-Driven Operations

Management stressed ongoing organizational restructuring and AI adoption, with a focus on putting managers back on the frontline and productizing services to enhance decision support. The frontline platform now covers more than 7,100 employees and over 4,400 applications, with tracked business activity exceeding RMB 4.12 million, enabling faster iterations and data‑driven operating improvements.

Renovation Margin Rises as Business is Cleaned Up

Home renovation and furnishing contribution margin climbed to 36.2% in Q1, improving 3.6 percentage points year on year and 7.4 points sequentially thanks to centralized procurement, material cost savings and better order allocation. Losses narrowed as the company pushed more standardization, though management acknowledged that this progress is coming alongside deliberate pruning of lower‑quality business.

Revenue and GTV Under Pressure

Group GTV fell 15.6% year on year to RMB 711.2 billion and revenue declined 19% to RMB 18.9 billion, with management citing a high comparison base and ongoing market adjustments. The company emphasized that the quarter reflects a shift in focus from pure scale to profitable growth, but investors will still need to weigh the top‑line contraction against the margin gains.

New Home Business Sees Sharp Contraction

New‑home GTV dropped 37.2% year on year, and nearly 30% sequentially, to RMB 145.9 billion, while new‑home revenue declined 37% annually and 30% quarter on quarter to RMB 5.1 billion. Contribution margin improved 2.3 percentage points year on year to 25.7% but slipped 2.6 points from Q4, underlining both structural pressure in the segment and ongoing volatility.

Renovation and Emerging Segments Remain Weak

Home renovation and furnishing revenue slid to RMB 2.3 billion, down 20.6% year on year and 35.3% sequentially, as the company exited low‑quality channels and certain cities, accepting a near‑term hit to scale in exchange for healthier economics. Emerging and other businesses generated RMB 321 million of net revenue, down 8.1% year on year and 30% from Q4, signaling continued softness in smaller and early‑stage lines.

Cash Flow Dragged by Timing Effects

KE Holdings reported a net operating cash outflow of RMB 1.5 billion in Q1, which management attributed mainly to the timing of paying accrued employee compensation from the prior year. While leaders framed this as a temporary issue rather than a structural cash problem, the outflow is a datapoint investors will watch closely in coming quarters.

Navigating a Volatile Property Market

Executives reiterated that China’s property sector is undergoing structural adjustment, with significant regional and segment divergence complicating forecasting. They noted that some year‑on‑year declines are magnified by an unusually high base last year, and that short‑term comparisons are further distorted by one‑off expenses and seasonal factors that add noise to quarterly trends.

Guidance Signals Focus on Margins and AI

Looking ahead, management plans to prioritize long‑term value by allocating capital based on disciplined ROI, keeping a tight grip on costs and continuing to invest in AI and pilot projects. They expect full‑year margin improvement, pointing to Q1’s 8.8% non‑GAAP operating margin, 24.1% gross margin, leaner opex and strong liquidity as evidence that the profitability and efficiency gains are sustainable even amid softer demand.

KE Holdings’ earnings call painted a picture of a platform sacrificing some scale to build a leaner, more technology‑driven and shareholder‑friendly business. While new‑home and renovation revenues are under pressure and market volatility remains a key risk, the company’s margin expansion, cash reserves and aggressive buybacks suggest it is positioning itself for stronger returns when the property cycle eventually stabilizes.