KE Holdings (BEKE 1.23%), commonly known as Beike Zhaofang, is China's biggest property technology company. Beike's two online platforms -- Lianjia and Beike -- facilitate real estate transactions matching home buyers and renters with owners and brokers, as well as add-on services like financing.
It made a big splash when it debuted on the New York Stock Exchange in August, opening at $35 a share versus its $20 IPO price. Since then, shares have risen as high as $79.40 (a 127% gain) and currently sit at around $63 a share (an 82% gain), valuing the company at $75 billion.
Beike looks off to a solid start, and investors should give it a closer look. Here's why.
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It just delivered outstanding quarterly results
Backed by big names like SoftBank, Tencent Holdings, and Hillhouse Capital, Beike is seen as the combined Zillow and Redfin of China -- a proxy to growth in the world's biggest real estate market.
It reported its first quarterly earnings after going public in mid-November, and the numbers were nothing short of remarkable. Revenue for the third quarter (ending Sept. 30) surged 71% year over year to 20.5 billion yuan ($3.1 billion), driven by an 87% rise in gross transaction value (GTV). Net profit came in even stronger, up 211% to 1.9 billion yuan, boosted by higher revenue and operating leverage.
All of Beike's three business segments delivered solid growth, with revenue from existing home transactions, new home transactions, and other services rising 46%, 95%, and 117% year over year, respectively.
I think these numbers are truly impressive. Consider this: At the time of its Aug. 12 IPO, Beike was already a massive company -- generating about $3.9 billion in revenue in the first half of 2020.
It's rare for such large companies to grow revenue at such high rates. And Beike is already profitable, something even rarer among high-growth companies.
Beike has guided for fourth-quarter revenue to rise anywhere between 34% and 41%. In other words, the real estate giant is expecting more growth down the road.
It has ample growth opportunities
In 2019, China's property industry recorded 22.3 trillion yuan of GTV, according to Beike's IPO prospectus. That year, Beike facilitated about 2.1 trillion yuan or 9% of all transactions -- making it China's biggest real estate platform.
As the market leader, Beike's poised to ride the growth of China's housing market, which has an estimated compound annual growth rate (CAGR) of 7% between 2019 and 2024. Its latest quarterly results, as discussed above, show that Beike is doing just that.
Being in pole position also gives the company bigger opportunities to grow market share.
Buyers searching for their dream property will naturally gravitate toward the platform with the most listings. At the same time, homeowners and property agents will prefer to list their properties on the most-visited platform. This creates a self-reinforcing cycle as more customers lead to more agents and more homeowners jumping on board.
For perspective, over the last two years, Beike has tripled the number of agents on its platform -- doubling GTV in the same period. If this rate of expansion continues, Beike can easily sustain its revenue growth trajectory.
Beike is also expanding its ancillary services offering, which includes financial products and property renovation. As these services don't require much effort from agents -- as compared with selling houses -- they should generate higher margins and complement Beike's core revenue drivers. This will also help diversify the company's revenue stream, providing more income stability.
Why I'm keeping an eye on the company
As an investor, I'm always looking for businesses that are hard for competitors to replicate. I think Beike, with its well-known brand and market-leading platform, is one of those assets.
That being said, I'm sticking to the sidelines for now.
There are two reasons for this. First, Beike's share price has more than tripled from its IPO price of $20, making the stock less attractive from a price perspective. Also, the company has a short track record -- it launched the Beike platform in 2018 -- which makes it hard to predict what's going to happen next.
Hence, I'll observe the company's performance over the next few quarters before making any investment decision.
