On the evening of August 26, BEKE-W (02423, BEKE.US) released its Q2 2025 financial results: total transaction value reached 878.7 billion yuan, up 4.7% year-over-year; revenue hit 26.01 billion yuan, increasing 11.3% year-over-year; net profit stood at 1.31 billion yuan, down 31.2% year-over-year. Simultaneously, the company announced an expansion of its share repurchase program from $3 billion to $5 billion, extending the timeline until August 31, 2028.

"Share repurchases can boost stock prices and increase the value of equity incentives," noted a Hong Kong stock-focused investor. Against the backdrop of mounting performance pressure, management is attempting to stabilize market confidence through capital operations, but this cannot mask an uncomfortable reality - this former internet giant has fallen behind.

Four years ago, on May 20, Zuo Hui passed away due to illness. At that time, KE Holdings still stood at its peak: stock price at $52.5, market capitalization exceeding $80 billion, firmly positioned among China's top fifteen internet companies. Today, however, KE Holdings' US stock price has tumbled to $18.58, representing a decline of over 60%. Its Hong Kong stock has risen merely 7% this year while the Hang Seng Tech Index surged 30%, significantly underperforming the broader market, trading at HK$50.55 at press time.

The contrast from former giant to current laggard is striking. On the surface, this reflects the objective challenges facing the entire real estate industry. However, undeniably, management's loss of public trust due to "astronomical compensation" packages represents another crucial factor.

In the four years since Zuo Hui's passing, what is the true state of this once-promising "real estate services star enterprise"? Based on the newly released Q2 2025 financial results, what new changes and trends can be observed? Against the backdrop of performance volatility and executive compensation controversies, does KE Holdings' governance structure require reflection?

Today, KE Holdings stands at a critical crossroads.

**1. Traditional Business: Profitability Becomes Increasingly Challenging**

Understanding KE Holdings' performance struggles requires reviewing its trajectory over recent years. From 2021 to Q2 2025, KE Holdings' performance has resembled a "roller coaster":

2021 saw revenue growth without profit gains. While the real estate market remained relatively active in the first half, policy controls led to market cooling in the second half. KE Holdings invested heavily to capture market share but with low efficiency, ultimately posting a loss of 520 million yuan.

2022 marked winter survival mode. The real estate market plummeted sharply, severely impacting KE Holdings' traditional business, leading to revenue collapse and expanded losses.

2023 represented a bottoming-out recovery. Market recovery, combined with KE Holdings' significant cost reduction and efficiency improvements, restored revenue growth and achieved profitability.

2024 showed declining profits. Overall performance was mediocre, but existing home business rebounded in Q4, driving quarterly revenue growth of 54%.

The first two quarters of 2025 continued this divergence. Q1 showed significant revenue growth with stable profits, while Q2 saw slowing revenue growth and sharply declining year-over-year profits.

This demonstrates KE Holdings' heavy dependence on external conditions. While the company strives to reduce this dependence through business diversification, profitability remains increasingly challenging.

The root cause lies in the business structure. Q2 2025 data shows KE Holdings' business comprises: traditional business (existing + new homes) accounting for approximately 59%, home renovation about 18%, rental services about 22%, and other businesses about 1%.

Traditional business remains KE Holdings' foundation, determining overall performance. New home business serves as the primary revenue source, maintaining a 52%-60% share within traditional business. This explains KE Holdings' significant performance volatility - when new home markets perform well, revenue grows rapidly; when they struggle, revenues may decline.

While new home business contributes more revenue, existing home business proves more profitable. According to 2024 annual report data, existing home business achieved a contribution margin of 43.2%, far exceeding new home business. Essentially, existing home business offers lower volume but higher margins, while new home business provides higher volume but thinner margins.

The most direct reason for KE Holdings' profitability challenges is the continued decline in profit margins across both traditional businesses from 2023 to 2024. Specifically, the most profitable existing home business shows weak growth with declining profit margins. From 2021 to 2024, existing home business revenue not only failed to grow but actually decreased 11.7%. In the first two quarters of 2025, its revenue share continued declining.

From 2023 to 2024, existing home business contribution margins also fell from 47.2% to 43.2%, primarily due to increased fixed salary costs for Lianjia agents. Simply put, agent wages increased while business volumes didn't grow proportionally.

Meanwhile, new home business profit margins also declined. After experiencing significant drops in 2022, new home business returned to growth in 2024, but this growth came at the cost of higher commission expenses and sacrificed profit margins - contribution margins fell from 26.6% to 24.8%, reflecting intensified market competition forcing KE Holdings to increase commission ratios to maintain market share.

This reflects structural changes across the entire real estate industry: while existing home markets represent long-term trends, short-term rapid growth remains difficult; new home markets face significant policy and cyclical influences, creating substantial volatility. As a platform company, despite certain technological and service advantages, KE Holdings struggles to remain unaffected amid overall industry decline.

With high-margin existing home business stagnating and new home business showing increased volatility alongside declining margins, KE Holdings' traditional business faces mounting challenges.

**2. New Business Accounts for 40%: Hope or Burden?**

With traditional business under pressure, KE Holdings pins hopes on new ventures. Starting in 2021, it aggressively developed home renovation and rental services. Recent performance shows these new businesses indeed brought growth. In Q2 2025, home renovation and rental services combined accounted for 40% of total revenue, significantly up from 2022.

Breaking this down further, 2024 home renovation business achieved a 30.7% contribution margin, while rental services reached 5.0%. From this perspective, home renovation represents KE Holdings' relatively successful new business venture.

In 2021, KE Holdings entered this field by acquiring Shengdu Home Decoration. Revenue grew 115.8% year-over-year in 2023, maintaining growth in 2024 while achieving contribution margins exceeding new home business. However, since 2025, this business has shown significantly slower revenue growth.

"This is an expected result," analyzes home renovation industry entrepreneur Wang Tao. The home renovation market has a relatively low ceiling, low industry concentration, infrequent demand, and non-rigid requirements. According to AVC data, 2024 home renovation market sales reached approximately 3.5 trillion yuan, down 16.8% year-over-year, with 2025 expected to further contract to 3.3 trillion yuan.

According to research reports, home renovation industry concentration remains extremely low, with CR10 (top 10 companies' market concentration) at only 1.8%. Even as the industry leader, KE Holdings holds less than 0.4% market share, showing no significant advantage.

This industry's profitability also remains weak. Wang Tao indicates traditional home renovation companies achieve approximately 8% net profit margins, while one-stop integrated renovation companies manage only 4%-6%.

Rental services represent the fastest-growing segment but face significant challenges. From the revenue perspective, rental services grew nearly fivefold from 2022 to 2024, with contribution margins turning from negative to positive at 5.0%. However, rapid expansion also brought enormous cost pressures: Q2 2025 rental services costs surged 73.3% from 3 billion to 5.2 billion yuan, growing far faster than revenue.

"The rental business problem lies in the business model itself," analyzes a long-term rental apartment industry investor. KE Holdings' rental services primarily operate through the "worry-free rental" model, essentially functioning as a "sub-landlord": first renting properties from landlords, then subleasing to tenants.

This model faces challenges: high customer acquisition costs requiring substantial investment to attract both landlords and tenants, particularly in competitive first and second-tier cities; and lack of economies of scale - while property portfolios grow rapidly, per-unit management costs haven't decreased significantly.

Overall, while KE Holdings emphasizes leveraging real estate transaction business to drive new business traffic, limited synergy effects exist due to significant model differences and varied required capabilities and resources. More importantly, rapid new business expansion dilutes overall profitability, with clear issues in both profitability and sustainability: home renovation business growth slows with obvious market ceilings; rental services face difficult cost control with short-term sustainable profitability challenges.

**3. Governance Crisis: How to Constrain "Astronomical Compensation"?**

While new businesses bring growth, they cannot solve fundamental problems facing traditional business in the short term. Against this backdrop, investors question KE Holdings' development strategy, with recent management compensation controversies adding insult to injury, eroding market confidence.

The story begins in 2021. That year, KE Holdings lost its soul figure Zuo Hui, who held over 20% of shares and over 80% voting rights in KE Holdings - essentially, he had complete control over the company. KE Holdings CEO Peng Yongdong and co-founder Shan Yigang held relatively small stakes at 3.1% and 1.3% respectively.

The turning point came two months after Zuo Hui's death in July 2021. The Zuo Hui family authorized voting rights corresponding to their shareholdings to Peng Yongdong and Shan Yigang, giving these two executives complete control over KE Holdings.

A year later, they began substantial "self-motivation." In May 2022, KE Holdings launched an equity incentive plan, announcing grants of 71.82 million and 53.86 million shares to Peng Yongdong and Shan Yigang respectively. Based on prevailing stock prices, these represented values of 2.5 billion and 1.8 billion yuan respectively.

These shares vest over five years. From 2022 to 2024, the two executives have received shares valued at 1.55 billion and 1.16 billion yuan respectively.

Objectively, following sudden founder death, KE Holdings indeed needed to deeply bind executive interests through incentives, ensuring long-term service and avoiding company instability - this makes commercial sense. However, the premise is that many companies impose strict conditions on executive equity incentives, closely linking compensation to performance.

The most typical example is Tesla's equity incentive for Musk (launched in 2018 with 26 billion dollar scale), setting 12 stringent market value and operational targets that Musk must simultaneously achieve to unlock shares. Investment banks calculated that in 2022, he failed to unlock approximately 16 billion dollars in options due to incomplete energy project targets.

This performance-linked incentive model, despite involving enormous amounts, gains relatively high market recognition due to strict conditions.

In contrast, KE Holdings' substantial executive equity incentives disclosed no performance conditions whatsoever. Essentially, regardless of company performance, shares unlock upon reaching specified timeframes. Against the backdrop of significant stock price declines and poor performance, this mismatch between performance and compensation naturally invites scrutiny.

According to KE Holdings, equity incentives aim to meet listing requirements (Hong Kong Exchange "weighted voting rights structure beneficiaries must hold ≥10% stakes"). But this precisely indicates "such incentives serve more to meet institutional requirements rather than represent genuine performance-based motivation," adds KE Holdings-focused investor Li Xin.

Facing criticism, KE Holdings management adopted various remedial measures. Peng Yongdong announced donating 9 million KE Holdings shares for charitable causes, valued at approximately 440 million yuan at prevailing prices, supporting residential industry service providers, family member medical health benefits, and rental assistance for graduate and other tenant groups.

While implementing substantial equity incentives, KE Holdings also aggressively pursued share repurchases. In 2024, KE Holdings spent approximately $716 million on share repurchases. In Q2 2025, it expanded the repurchase program from $3 billion to $5 billion.

But can these measures truly solve underlying problems? The root cause may lie in KE Holdings' governance structure. According to annual reports, Peng Yongdong's team controls nearly 50% of company voting rights through B-class share holdings and received voting right authorizations.

Li Xin notes this structure, while beneficial for management's long-term focus, can easily lead to insufficient oversight. After Zuo Hui's death, KE Holdings lost that leader who could balance various interests with absolute authority.

This creates the current awkward situation: management believes it's doing the right thing but lacks sufficient authority to convince outsiders; investors and the public believe management serves self-interest, lacking confidence in corporate governance.

"Once this trust crisis forms, it's difficult to eliminate short-term. Once investors lose confidence in management, even strong performance struggles to drive stock price increases," Li Xin states.

From traditional business profitability challenges to new business growing pains to deep governance structure issues, KE Holdings faces multiple challenges. Operationally, it needs balance between defending core business and cultivating new ventures. Governance-wise, it must rebuild investor trust.

Four years after Zuo Hui's death, KE Holdings stands at a critical crossroads. Whether it can overcome difficulties and regain investor trust depends on finding a sustainable profit path amid deep real estate market adjustments. This tests not only Peng Yongdong and management but also represents important exploration for China's entire real estate services industry transformation and upgrading.