KE Holdings Inc. (02423.HK; BEKE.US) recently released its Q3 financial results, showing a mixed performance. The company reported net revenue of RMB23.1 billion (USD3.2 billion), up 2.1% year-over-year (YoY), but net profit plunged 36.1% YoY to RMB747 million (USD105 million). Adjusted net profit declined 27.8% YoY to RMB1.29 billion (USD181 million), with adjusted net margin dropping 2.3 percentage points YoY to 5.6%. Gross margin also contracted by 1.3 percentage points YoY to 21.4%.

While revenue edged up, the sharp profit decline reflects challenges in KE Holdings' core business. Total transaction volume (TTV) for Q3 remained flat YoY at RMB736.7 billion (USD103.5 billion). Existing home transactions grew 5.8% YoY to RMB505.6 billion (USD71 billion), but new home transactions fell 13.7% YoY to RMB196.3 billion (USD27.6 billion), dragged by the property sector downturn.

Bright spots emerged in newer segments: rental services revenue surged 45.3% YoY to RMB5.7 billion, contributing over RMB100 million in profit, while home renovation revenue held steady at RMB4.3 billion. However, these gains couldn’t offset the core brokerage slump. Analysts likened the situation to a restaurant boosting takeout sales amid dwindling dine-in traffic—revenue rises, but profitability suffers.

Multiple institutions revised target prices downward. DBS cut its HK-listed target from HK$62.25 to HK$52.09 and its US-listed target from USD23.41 to USD19.36, citing weaker operational leverage. CMB International noted market share gains despite sector headwinds. Daiwa slashed its HK target from HK$56 to HK$46 but maintained an "Outperform" rating, seeing tactical buying opportunities. CICC reduced 2025–2026 revenue forecasts by 5–16% but kept its USD25 target, highlighting KE Holdings' long-term potential.

The stock has fallen ~30% since mid-March 2025. To bolster confidence, KE Holdings ramped up buybacks, repurchasing USD280 million in Q3 (up 38.3% YoY), bringing the 2025 total to USD675 million. Since 2022, it has bought back USD2.3 billion in shares (11.5% of pre-program shares outstanding) and extended its USD5 billion buyback authorization to 2028. Critics argue this prioritizes short-term price stability over new business investment.

Meanwhile, unverified social media posts suggest KE Holdings may lay off 30% of staff with N+4 severance, though the company hasn’t confirmed this.

Amid core business pressures, KE Holdings is betting on AI to drive efficiency. CEO Peng Yongdong emphasized AI adoption in key operations, citing a 13% efficiency gain in rental processes and 96% faster AI-audit times. R&D spending has grown YoY for eight consecutive quarters, totaling RMB14.3 billion since IPO.

While tech investments show promise, balancing innovation with profitability remains critical as the property market downturn persists.