KE Holdings (BEKE 0.73%), also known as "Beike" and considered the Redfin of China, recently announced its fourth-quarter and full-year 2021 results. Quarterly revenue fell 22% year over year to 17.8 billion yuan ($2.8 billion), while the bottom line saw a 933 million yuan loss, reversing the prior-year quarter's 1.1 billion yuan net profit.
While far from inspiring, these headline numbers tell us only half of the story. Digging further into the earnings announcement reveals three key takeaways.
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2021 was a turbulent year for Beike
There are two parts to Beike's 2021 performance. In the first half of the year, the company grew revenue 65%, topping analysts' expectations for both quarters . However, things turned south after the Chinese government expanded its regulatory scrutiny of major industries, including real estate, education, technology, and more. Even worse, company founder and chairman Zuo Hui passed away unexpectedly in May 2021 due to complications from an illness.
The Chinese real estate industry went into turmoil after the government pushed forward its policy that houses are for living, not speculating. Beike, the leading real estate platform in China, took a massive hit in the wake of this policy change -- gross transaction value fell 35% year over year in the fourth quarter, resulting in a 22% revenue decline.
Operational metrics also came in weaker as the number of stores, agents, and mobile monthly active users fell quarter on quarter. People were either too afraid to buy a new house or unable to secure loans as banks tightened their lending criteria, leading to an industrywide slowdown. Beike responded by closing stores and reducing its number of agents.
In short, 2021 was a tumultuous year for the Beike and the Chinese real estate industry overall.
Acquisition is a bright spot in a challenging time
Despite the headwinds last year, there were some positive developments for the company.
One of Beike's biggest moves in 2021 was to double down on home renovation and furnishing services. It acquired Shengdu Home Renovation -- a leader in full-service home renovation in China -- to accelerate its growth in this industry. Shengdu's acquisition will bring cost synergies and shorten Beike's learning curve in the renovation industry. After all, Beike entered this industry only in 2019 via its self-launched service Beiwoo, while Shengdu already has close to two decades of experience.
Another point worth mentioning is the fact Beike has a fortress-like balance sheet. After generating 3.6 billion yuan in operating cash flow last year and spending 8.0 billion yuan acquiring Shengdu in 2021, the company ended the year with about 50 billion yuan ($7.8 billion) in cash and short-term investments, and almost zero debt. This positions the company well to invest in and grow its home renovation business -- and other initiatives -- going forward.
Early results in 2022 still under pressure
Unfortunately, the challenging real estate environment in China will persist through 2022. To this end, Beike has guided for revenue to decline in the first quarter of 2022, down 40% to 44% year over year. However, there are signs the market has bottomed and will recover from here on out.
While Beike's traditional property sales business will likely face another challenging year, its property rental services and housing renovations are expected to grow. The company plans to maintain its spending in these growing areas, which will also affect its profitability in 2022.
May 2022 will mark one year since Beike lost its founder. CEO (and new chairman) Peng Yongdong has kept the company focused on its long-term direction, but the coming months will be critical as they shed more light on Peng's leadership without Zuo.
