Revenue and Profit Decline: Beike (Bei Ke) Can’t Rely on ‘Old Capital’ Anymore

Beike’s Revenue and Profit Decline: Unable to Rely on “Old Capital” Anymore.Beike’s rebound in 2023 did not continue into 2024. On May 23, Beike Holdings (hereinafter referred to as Beike) announced its Q1 2024 financial report: in the first quarter of this year, Beike’s net revenue was 16.4 billion yuan, down 19.2% year-on-year; its operating profit was only 11.85 million yuan, a sharp drop from 2.978 billion yuan in Q1 2023, with net profit down 84% year-on-year. Beike’s net income was supported by interest income, reaching 432 million yuan. Just two months earlier, Beike’s 2023 annual report had been impressive: in 2023, Beike’s full-year net revenue was 77.8 billion yuan, up 28.2% year-on-year, with an adjusted net profit of 9.8 billion yuan, and net profit of 5.89 billion yuan, reversing the losses from the previous two years (2021-2022).From a broader market perspective, 2023 was referred to as a “turning point” for the real estate industry. That year, the supply-demand relationship in the real estate market underwent significant changes, marking the beginning of a deep adjustment cycle for the industry. According to data from the National Bureau of Statistics, 2023 saw a decline in real estate land use, development investments, and commodity housing sales. Despite this, Beike, the “leading residential service platform,” continued to perform well. In addition to steady growth in its existing and new home businesses, its home decoration and furniture businesses, along with other emerging businesses, saw double-digit growth.

As a downstream service provider in the industry, Beike’s unique business model demonstrated its strong profit-making capability in 2023. So, how did Beike make money in such a challenging environment? Why is it unable to repeat its success this year? And, will Beike still be able to make money in the future?Left Hui Builds the “Ideal Nation,” Peng Yongdong Builds the Roads.If Left Hui’s creation of Lianjia (Beike’s predecessor) was a traditional real estate brokerage chain, then Beike, which he founded, is a real estate information company with the most comprehensive data in the industry, more akin to an “ideal nation.” Beike made money through the resources it controlled. These resources include: property resources, real estate agent resources, and customer resources. The core of property resources is the “True Property Source.” According to reports from Southern Weekly, as early as around 2004, Left Hui stated that he wanted to centralize backend data through both hardware and software systems, allowing every broker to access real property listings. In Left Hui’s view, with strong middle and back-end capabilities, brokers would become a respected profession.In 2012, Lianjia began promoting the “True Property Source” nationwide. Left Hui explained on Weibo that Lianjia knew there were over five million properties in Beijing through “counting” and strong IT capabilities. By “counting” and leveraging solid IT infrastructure, Lianjia was able to identify the number of properties in each district of Beijing. With the core asset of “True Property Sources” and real estate agents, Lianjia’s ambitions grew bigger.

Starting in 2015, Lianjia began a series of mergers and acquisitions, purchasing multiple real estate agencies, such as Chengdu Yicheng and Guangdong Deyou, and successfully expanded from Beijing to nationwide operations.In 2018, the Beike platform was launched under the leadership of Lianjia’s co-founder Peng Yongdong. Lianjia, having accumulated a wealth of “True Property Source” data, integrated this information into Beike’s platform, aiming to create infrastructure for the entire industry. Beike’s growth was directly tied to its “True Property Sources” and the ever-expanding network of real estate agents. According to financial reports, by the first quarter of 2024, Beike employed 440,000 real estate agents, nearly 400,000 of whom were active agents. This massive network, combined with “True Property Sources,” broke the traditional hierarchy of the real estate industry and transformed it into a platform-based ecosystem, connecting properties, agents, and customers.The platform’s commission structure includes two major segments: the source-side (property provider) and the client-side (customer provider). The property provider side is further divided into five roles, including property input, property maintenance, and property inspection. Meanwhile, the client-side includes roles like customer referral, transaction closer, and transaction consultant. Beike’s platform charges both the developers’ upfront commissions and a service fee from agents, making its business model highly profitable. By 2021, Beike’s market capitalization exceeded $60 billion, surpassing that of any other Chinese developer.

Peng Yongdong Takes Over: The Next Chapter.After Left Hui’s passing in May 2021, Beike’s market capitalization stood at over $60 billion. Peng Yongdong took over the baton and continued to build on Left Hui’s legacy. Having joined Lianjia in 2010, Peng led the online platform Lianjia Online and later helped develop Beike. As Beike’s platform expanded, Peng introduced a pre-payment commission model to mitigate commission-related risks. Under his leadership, Beike became the dominant player in China’s real estate industry.After Left Hui’s death, Peng continued to pursue growth, constantly seeking new avenues for Beike’s expansion. In July 2021, Beike announced its acquisition of the well-known home improvement company Shengdu Home Decor in East China, followed by the launch of its “One Body, Two Wings” strategy. The “body” refers to the real estate brokerage business, while the “wings” encompass home decoration and rental services, among other new initiatives. In 2023, Peng updated the strategy to include a third wing, focusing on data-driven residential development services through the newly established Beihome.However, the entire real estate sector is now in a deep adjustment period, which brings challenges to Beike’s business model.The Challenge of “One Body, Three Wings”.Beike’s core business remains its real estate brokerage services, which include new and second-hand housing markets, home renovation, rental, and real estate development.

Despite the strong growth of its new businesses, such as home renovation and rental services, these emerging sectors still face challenges.The second-hand housing market, which was booming in 2023, helped stabilize Beike’s overall revenue. However, as new home supplies decrease and second-hand housing transactions begin to slow, Beike’s revenue from real estate brokerage services is impacted. According to data from the National Bureau of Statistics, sales of new homes in the first four months of 2024 decreased by 20.2%. Beike’s new home brokerage business saw a sharp decline in revenue, dropping by 41.49% year-on-year in Q1 2024.On the other hand, home decoration and furniture businesses, which were able to stabilize revenue in 2023, are now facing slower growth. The revenue from home decoration businesses grew by 71% in Q1 2024, but it is still unclear whether these emerging sectors will be enough to support Beike during the adjustment period.Conclusion: Beike’s Road Ahead.The decline in revenue and profit in Q1 2024 shows that Beike is facing more significant challenges as the real estate sector adjusts. The company’s traditional businesses, such as brokerage services, remain under pressure, while its emerging businesses, like home decoration and rental services, still need time to mature. Despite the challenges, Beike’s past successes and extensive resources give it a solid foundation to weather the storm, but it must continue adapting to changing market conditions if it hopes to thrive in the years to come.