KE Holdings Inc - ADR

Profit rebound + margin expansion despite falling revenue (core “good” takeaway): - Q2 2026 GTV +6.3% YoY while revenue -5.7% YoY (revenue pressure from home renovation/furnishing adjustments and revenue recognition impacts from iterative product modeling). - Non-GAAP net income +74.9% YoY to RMB 3.185bn; non-GAAP net margin 13% (+6% YoY, a three-year high). - Gross margin +6.7pp YoY to 28.6% and GAAP operating expenses -14.1% YoY (profit growth driven by healthier cost structure + operating efficiency).

Segment performance shows “mix + efficiency” working, not just market help: - Existing home transaction services: GTV RMB 629.89bn +8% YoY (+17.9% QoQ); contribution margin 46.1% (+6.1pp YoY). Alpha attributed mainly to higher unit productivity in a stable network (connected stores: transaction volume ~+30% YoY; +26% avg transactions per active connected store) and better conversion of platform service value (non-Lianjia platform service revenue +27.8% YoY). - New home: GTV RMB 258.39bn +1.2% YoY, but profitability improving (contribution margin 28.8% +4.4pp YoY). - Renovation & furnishing: Revenue RMB 3.19bn -30.1% YoY (exit/adjust inefficient channels; weaker unit economics), but margin +7.5pp YoY to 39.6% due to procurement and cost control (good but with “bad” topline impact). - Rental services: Revenue RMB 4.83bn -14.8% YoY due to product/accounting shift to lighter “net-basis” model; however managed units >790k (~+34% YoY) and contribution margin 15.3% (+6.9pp YoY).

Cost discipline is paying—watch for quarterly noise (sustainability + outlook): - GAAP operating profit RMB 3.026bn +185.6% YoY; non-GAAP operating profit +123.6% YoY. - Expenses fell YoY, but QoQ operating expenses +21.3% due to seasonal home renovation selling and a bad debt provision in new home (~RMB 280m). - Management said the lower cost baseline should support profit in upcoming quarters under a neutral market, but marketing incentives/frontline sales cost may fluctuate with seasonality and scale—company won’t extrapolate one quarter.