KE Holdings Inc. (BEKE) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc.'s Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Matthew Zhao, IR Director of the company. Please go ahead, Matthew.

Thank you, operator. Good evening, and Good morning, everyone. Welcome to KE Holdings Inc. or Beike's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, www.investors.ke.com. On today's call, we have Mr. Stanley Yongdong Peng, our Co-Founder, Chairman and Chief Executive Officer; and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business development and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Baker's earnings press release and this conference call include discussions of our audit GAAP financial information as well as audited non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, sir.

Thank you, Matthew. Hello, everyone. Thank you for joining Beike's Fourth Quarter 2021 Earnings Conference Call. 2021 was a year of unprecedented hardship with Lao Zuo’s passing, the significant correction in the real estate market and the new paradigm for the internet-based platform economy, massive changes took place, both internally and externally, posing many new challenges to our company. However, this is not unchartered territory for us. Over the past 21 years, difficulties and change have accomplished (sic) [ accompanied ] us and gotten us where we are today. For an organization, it's not hardship when everyone within it is working together towards a common future goal. It is not hardship when the organization proactively resolves a problem it encounters and gets better and stronger from the experience each time. This is when hardship becomes a blessing. Rising to challenges, transforming through changes, and deriving more vitality in the process, is embedded within our DNA. This is also our stance and solution to address the current hardships. Market fluctuations have their own logic and inevitability. The many changes happening right now, or that will happen in the future had their seeds sown a long time ago. From a long-term perspective, the market will revert to its mean, and in the short term, the market will gradually recover. Our underlying belief about the housing-related industry has never changed. It is certain that digitalization catalyzes industry transformation, service providers are indispensable, and service quality builds customer trust that transcends market cycles. It is also certain that the business model of our industry is characterized by slow, early-stage development, which means it will take time to establish a virtuous cycle. Yet once we move past the inflection point, business will take off very quickly. All the right things we are doing now will surely sow the seeds for a better future. Therefore, we have a deep peace of mind, we are undisturbed by external fluctuations, and we propel ourselves to looking forward for answers. Be the enterprise of the era, that's our answer. At the end of 2021, we officially launched Beike's one body, two wings [Foreign Language] strategic upgrade. One body refers to our core, which is our existing and new home transaction services business, while two wings refers to our home renovation and furnishing offering and our inclusive housing services. Through our upgraded strategic focus, we aim to fully energize our wings as we accelerate our core business progress toward its goals, building an increasing presence in the wide housing-related services industry, reaching consumers more broadly and enduring through a diverse array of services and product innovations and becoming a new leading services provider that makes home a better place. By that, we are responding to the higher requirements put forward to us by our country and society in this era, catering to consumers' fast evolving demand from finding a place to live to a place to -- of enjoy living as housing price stabilizes, and at the same time, meeting an organization's need for continuous iteration and progress, it provides long-term vision for our talents and drive the organization to thrive. Can we do this? If something is relevant to our mission and vision, and is something we have a strong desire and adequate ability to accomplish, we can. Why can we do this? Over the past 21 years, Lianjia expanded its single city presence in Beijing to nationwide and Beike grew from a pilot in Zhengzhou and several cities to a platform operating in over 100 cities across China. During this time, we iterated a complete set of methodologies to grow from 0 to 1 for the industrial internet. We accumulated rich [ experience ] and learnings such as cultivating key capabilities in each stage and finding the right pace for the team. Sometimes you can’t go too fast. If you want a tree to grow taller, you can't rush it to blossom or bear fruits. The aim needs to be higher and farther. Other times, you must speed up and keep running forward with all your strength to achieve fast iteration. Our team is extremely adept at reflection and abstract thinking, which enables us to constantly learn from experiences, accumulate and improve. Our profound set of 0 to 1 methodologies also give us full confidence in our expansion into new business areas. Next, moving to our fourth quarter of 2021, our progress implementing the one body, two wings strategy and our future plans. Thanks to policy support, the market has shown signs of bottoming out since the fourth quarter of last year. However, it will take time for transaction volume to fully recover, and the industry’s supply side to future -- to further contract in Q1. According to data from Kongbai Research Institute, [ Kongbai ] as of the end of last year, the industrial number of agents has contracted by at least 30% to 40% with wide variation across cities. In comparison, on the Beike's platform, we had 51,000 connected stores by the end of the fourth quarter, up 8.7% year-over-year and down 5.4% quarter-over-quarter. The number of active stores exceeded 45,000, up 4.4% year-over-year and down 8.3% quarter-over-quarter. The quarter-over-quarter store reduction was mainly due to few newly added stores during the market down cycle as well as store merge to stay competitive. At the end of the fourth quarter, we had around 455,000 agents on our platform, a decline of 7.8% year-over-year and 11.8% quarter-over-quarter. Active agents were around 407,000, down 8.7% year-over-year, 13.1% quarter-over-quarter and 18.6% lower from its peak in the second quarter in 2021, which was in line with our expectations. Our resilience compared with the broader market was largely owing to our ACN mechanism and agent specialization, which brought our agents more opportunities to take part in transactions and more stable income. This, together with the base compensation guarantee to high-quality agents provided by solid store owners, empower our platform with stronger agent retention capability and resilience. Meanwhile, given the lower housing transaction volume in the fourth quarter, we temporarily cut back our online advertising budget and experienced a decrease in platform traffic. In the fourth quarter, we had 37.4 million MAUs on the Beike app and the mini program, down 22% year-over-year. Nevertheless, as the market recovers, we expect our online traffic to resume growth in 2022. Moving on to existing and new homes. Regarding existing home transaction services, according to data from Beike Research Institute, GTV of existing home sales market dropped 43% year-over-year in the fourth quarter and GTV of existing home transaction on Beike's platform was RMB 354.6 billion, down 39% year-over-year, of which existing home sales declined 41%, slightly better than the overall market. Existing home transaction volume in some key cities have started to bottom out. We believe the key to successful brokerage business operation is collaboration and focus. In 2021, we established rules such as agents’ specialization and agent and store ranking system, refine our existing home sales leads allocation mechanism and directed agents and stores to focus on homeowners retention through platform resources deployment, all of which enable us to lead agent to focus and collaborate, strengthening the superior and exclude the inferior. We are also firmly committed to investing in industrial infrastructure. As of the end of last year, we started to operate 298 contract service centers in 30 key cities and over 90% of the existing home transaction signing process was completed in these centers. As part of our infrastructure, these centers not only improve customers’ signing experiences, ensure funds safety, but will also become one of the best scenarios to direct traffic to our emerging business segments. Turning to new home transaction services. The new home market declined 20% year-over-year in the fourth quarter, and GTV of new home transactions on Beike's platform dropped 24%, slightly underperforming the market, mainly as we cut back our new home transaction business due to the liquidity risks of developers to ensure the long-term health of our business. From a short-term perspective, it will take more time for the overall new home market to recover. We have prioritized new home risk management to ensure safe home handovers to buyers and the payment collection by service providers. With the premise, we also hope to help developers through higher sell-through efficiency. The key to improving sell-through is to provide a work environment that give agents a sense of security with the knowledge that they will receive their commission on time and their transaction will not be broken by any misconduct such as client information leakage that has prevailed in the industry. In 2021, we continued to promote new home business conduct improvement plan, establishing infrastructure and comprehensive procedures to prevent, intervene, trace and penalize misbehaviors. We investigated and deal (sic) [ dealt ] with over 3,000 incompliant cases throughout the year. Agents were feeling safer doing new home sales business. We further developed our systems and our tools to enhance agent capabilities. Our Xiaobei training camp also enhanced agents’ familiarity with new home projects and their ability to introduce them to customers. 98% of agents in the pilot program use our Xiaobei assistant at night to answer questions on their behalf and pick up the conversation the next day, significantly reducing the loss of customers at night. Looking forward, regarding our one body, the housing transaction services business, we have a committed goal in mind and a clear path to get there. Our goal is to offer better customer experience and gather more capital and ethical agents, store managers and brands. And the path leading to this long-term target is simple: taking care of our customer and helping service providers take care of the customers, empower agents and raising their professional ethics, improve store quality and become friends with the communities. In 2022, the first target for our core business segment is to nurture capable, ethical and dignified service providers and advance their professionalism. Second, we will pay more attention to improve the platform operation efficiency of our home transaction business. We will continue to improve organizational flexibility to quickly respond to any changes and take measures according to either increase or rein in the expenses. Third, the strength in our body will facilitate the development of our two wings as we build a higher efficiency customer referral model to our new business. Next, moving to our progress and plans for our two wings new business development. We define 2021 and 2022 as the years during which our home renovation and furnishing services business group takes root. We believe that the customer demand for home renovation and furnishing will continue to grow and housing price stabilize. In this market, helping service providers is the key to enhance consumers' experience. Standardization and digitalization, along with renovation product upgrades are at the core of improved service providers' capability and delivery quality in developing our renovation and furnishing offering. We started with the hardest part in the home renovation process, delivering a high-quality interior construction finish. Over the past few years, we have laid the groundwork for this business. This part of our business seem slow, but once we nail it, it will take off quickly. We have already advanced from 0 to 1 in the home renovation business. We are determined, our team is confident and motivated by the positive feedback from consumers, and we have built a replicable regional model. Shengdu is the most significant piece of the puzzle we have found, which allow us to replicate our model more rapidly at scale to go from 1 to 100. In 2021, we built up our capabilities to support expansion in a standardized manner at a large scale. In building our underlying capabilities, we institute a scientific management approach with respect to scheduling transaction orders and cooperation mechanism. We officially rolled out the Home SaaS version 1 system covering the entire home renovation business with multi modules that could enable process standardization and enhanced process productivity. For example, its BIM version 1 system has become the industry first product covering design rendering, detailing and modulization into a bill of materials. Bolstered by our strong capabilities, Beike's self-operated home renovation business, Beiwoo has become an industry leader in terms of construction standards and construction cycle as well as process management and control. In 2021, we delivered our tender offer to Shengdu Home Renovation, China's leading home renovation and the furnishing service brand, and the transaction has been approved by the SAMR. As of the end of 2021, Shengdu has more than 110 stores in 31 cities nationwide. We kicked off the preliminary integration between Shengdu and Beike. Shengdu has an absolute leadership position in the industry when it comes to size, organizational management, internal cost control and supply management. Beike has a unique capability in digitalization, standardization of complex industry process. And a customer acquisition in home renovation and the furnishing, not to mention a sizable talent pool of industrial internet professionals. Our combined companies are leveraging our respective advantages to generate substantial synergies and build China's #1 home renovation and the furnishing brand to empower the entire industry. Looking forward to 2022, we hope to accelerate the expansion of our home renovation and furnishing business as well as the development of our underlying capabilities. With respect to building our capabilities. First, we will improve our ability to provide high-quality services through establish middle-office capabilities, guarantees and training. Second, we will focus on improving capabilities of construction delivery from both online and offline. Third, we will establish standardized operations to construction, delivery process, service provider certification and so on. We will also continue to iterate our Home SaaS to version 2 system and invest in our talent pool. Supported by our upgraded underlying capabilities, we will actively expand our home renovation and furnishing business in 9 cities where Beike's housing transaction services have core advantages. Our housing transaction services will refer customers to our two wings business. In the pilot cities, our home transaction services already contributed 30% of the new business customer leads in the fourth quarter. We are optimistic we can achieve further breakthroughs in 2022 after integration, fostering remarkable growth for our overall home renovation and furnishing business through the large-scale connection with high-quality service providers, plus customized home furnishing production and sales on the back end. The second wing is our one body, two wings strategy is inclusive housing services. It carries out affection and devotion to our country and responsibility to society. It mainly covers home rentals plus a wide range of value-added home services. The housing supply gap is a prominent program for new urban residents, young adults and low-income groups who are in the most urgent need of improving their living conditions. The national policy specifically encourage both home purchase and renting. We will deeply participate in this industry in the future, increase high-quality rental housing supply and elevate the quality of the industry through diverse solutions and broad external collaborations, providing real solutions to livelihood problems and improving living environment inclusively. Our inclusive business -- housing business is divided into 3 categories: general home rental brokerage services, lite rental property management services and centralized service apartments plus value-added home services. In 2021, over 2.5 million general home rental transactions were completed on our platform. up 41% year-over-year. In the second half of 2021, we launched a rental commission fee reduction campaign for fresh university graduates in cities such as Beijing and offered our support to more than 1,600 university students in finding their first home after the graduation. The lite rental property management services manager (sic) [ managed ], more than 11,000 units in 2021 on average, up over 51% year-over-year. As to infrastructure, we promoted post rental housekeeping services by providing a comprehensive variety of convenient home services for tenant and realized penetration of over 80% in the pilot program. In 2022, we will deepen our exploration of diversified solutions for inclusive living from both the supply side and the user end. We will make efforts in diversifying model to address over 100,000 rental units for new urban residents, young people and low income groups. On the consumer side, we plan to provide a comprehensive guarantee system for all types of tenants. This, coupled with diversified home services offer, will provide tenants with a safe and high-quality rental experience. Lastly, it is a great honor for us to do business in China's housing-related services sector, a fertile ground full of promise. No matter what weather come to our way, we will give back to this land, to our society and the people through our inclusive housing initiative and more diverse solutions in the future. We, as an organization, will forever strive to go ahead and stay open. With that, I would like to turn the call over to our CFO, Xu Tao, for a closer review of the fourth quarter and full year financials.

Thank you, Stanley, and thank you, everyone, for joining us. Before discussing more details about our fourth quarter and the fiscal year 2021 financial results, I would like to provide a brief overview of the housing market in 2021. Beginning in the second half of 2020, overall housing price began to rise sharply, fueled by an economic recovery and overzealous expectation in the capital market. In order to cool the red hot housing market, the government introduced a variety of policies with unprecedented frequency and intensity, most notably tightened the credit measures. This measure precipitated a steep decline in the volume of existing home sales declining 47% in September compared to June. This in turn, negatively impacted the new home market since approximately 40% of the new home transactions rely on the funds from existing home sales. The financial health of many real estate developers worsened triggered by default from some high-profile, large-scale developments. This brought a significant blow to the debt market, making it even more difficult for many developers to issue a new debt to repay old ones. With concern for a rippling debt scenario, many local banks curbed developer funds withdrawals from escrow account, leaving some developers in a serious cash shortage position. The combined negative consequences of all of these factors were many. Firstly, more developers faced debt default risk in the second half of last year. Secondly, cash-strapped developers stopped payment to both upstream and downstream suppliers. Thirdly, some developers start to liquidate their valuable assets, including Sunac, who sold Beike’s share in order to strengthen their cash reserve. Developers also offered a hefty discount to promote quick project sales and clear inventories. Fourthly, land sales slumped as developers stayed on the sidelines. Facing these headwinds, beginning in Q3 last year, the China housing market froze across the nation. Rapidly deteriorating conditions prompted policy makers to fine-tune some regulations starting in [ Q3 ] last year, pledged to promote house development of the housing market and a better mix reasonable demand for the homebuyers. Since then, marginal relaxation in credit measures have brought some signs of [ thaw ]. The volume of existing home transaction has picked up slightly, while new home transaction are still pending developers' short-term liquidity status. We expect market sentiment will gradually recover in the first half of 2022. Although the market recovery was still nascent and fragmented in Q4, which muted overall transaction volume -- we are able to utilize this opportunity to optimize our execution and lay the ground work to better position for the further market recovery as was reflected in our operational and financial results in Q4. Turning to our financial details in Q4. Our net revenues were RMB 17.8 billion in Q4 compared to RMB 22.7 billion in the same period of 2020, exceeding both the high end of our guidance and street consensus. The decrease was primarily attributable to the decline of total GTV of 34.6% to RMB 732.4 billion in Q4 from RMB 1,120 billion in the same period of 2020 due to the market downturn. In particular, our net revenue from the in-home transaction services were RMB 6.0 billion in Q4 compared to RMB 9.2 billion in the same period of 2020, primarily due to a 39.4% decrease in GTV of in-home transaction to RMB 354.6 billion in Q4 from RMB 584.7 billion in the same period of 2020. Our net revenue from new home transaction services decreased by 12.2% to RMB 11.3 billion in Q4 from RMB 12.9 billion in the same period of 2020, primarily due to a 24% decrease in GTV of new home transactions to RMB 356.8 billion in Q4 from RMB 469.2 billion in the same period of 2020, which was partially offset by a moderate increase of new home transaction commission rate. Our net revenue from emerging and other services were RMB 0.5 billion in Q4 compared to RMB 0.6 billion in the same period of 2020, primarily attributable to the decrease of net revenue from the financial services. Cost of revenue was RMB 14.9 billion in Q4 compared to RMB 17.2 billion in the same period of 2020. Gross profit was RMB 2.9 billion in Q4 compared to RMB 5.4 billion in the same period of 2020. Gross margin was 16.4% in Q4 compared to 23.9% in the same period of 2020. The decrease in gross margin was mainly due to: one, a continuing shift of revenue mix towards new home construction services with the lower contribution margin; two, a lower contribution margin of the in-home transaction led by a relatively higher percentage of fixed compensation cost for Lianjia agents; and three, a relatively higher percentage of cost related to store of net revenue in the fourth quarter of 2021 as a result of incremental rise in the rental fees of contract service center opened in 2021 and the increased depreciation and amortization cost. Operating expenses were RMB 4.1 billion in Q4 compared to RMB 4.2 billion in the same period of 2020. General and administrative expenses were RMB 2,202 million in Q4 compared to RMB 1,884 million in the same period of 2020, mainly due to the increase of provision for credit losses. Sales and marketing expenses were RMB 809 million in Q4 compared to RMB 1,323 million in the same period of 2020, mainly due to the decrease of brand advertising and the promotional marketing activities. Research and development expenses were RMB 738 million in Q4 compared to RMB 714 million in the same period of 2020, mainly due to the increase of headcount in experienced R&D personnel, which was partially offset by the decrease of the share-based compensation expenses. Loss from operations was RMB 1,184 million in Q4 compared to income from operations of RMB 1,267 million in the same period of 2020. Operating margin was negative 6.7% in Q4 compared to 5.6% in the same period of 2020, primarily due to: one, relatively lower gross profit margin in the fourth quarter of 2021 compared to the same period of 2020; and two, the increase of percentage of total operating expenses as of net revenue in fourth quarter of 2021, primarily due to decreased net revenue along with relatively flat operating expenses in the fourth quarter of 2021 compared to the same period of 2020. Excluding non-GAAP items, our adjusted loss from operations was RMB 398 million in Q4 compared to adjusted income from the operation of RMB 2,231 million in the same period of 2020. Adjusted operating margin was negative 2.2% in Q4 compared to 9.8% in the same period of 2020. Adjusted EBITDA was RMB 484 million in Q4 compared to RMB 2,897 million in the same period of 2020. Net loss was RMB 933 million in Q4 compared to net income of RMB 1,096 million in the same period of 2020. Excluding non-GAAP items, adjusted net income was RMB 42 million in Q4 compared to RMB 2,001 million in the same period of 2020. Net loss attributable to KE Holdings Inc. ordinary shareholders was RMB 930 million in Q4 compared to net income attributable to KE Holdings Inc. ordinary shareholders of RMB 1,095 million in the same period of 2020. Adjusted net income attributable KE Holding Inc. was RMB 45 million in Q4 compared to RMB 2,000 million in the same period of 2020. For the fourth quarter of 2020, diluted net loss per ADS attributable to KE Holdings Inc. ordinary shareholders was RMB 0.78 compared to diluted net income per ADS attributable to KE Holdings Inc. ordinary shareholders of RMB 0.93 in the same period of 2020. Adjusted diluted net income for ADS attributable to KE Holdings Inc. other shareholders was RMB 0.04 compared to RMB 1.71 in the same period of 2020. Even during the market downturn, we were still able to remain strong cash position and again, the positive cash flow generated from the operating activities in Q4. As of December 31, 2021, the combined balance of company's cash, cash equivalents, restricted cash and short-term investment amounted to RMB 56.1 billion or USD 8.8 billion. Additionally, as of December 31, 2021, the balance of our long-term cash items mainly including the long-term investment amounted to RMB 14.9 billion or USD 2.3 billion. Turning to our financial details in fiscal year 2021. Although, we experienced a sharp market downturn in the second half of last year, that significantly impacted our overall operating and the financial results, we still achieved a resilient year-over-year growth of our topline in 2021. For the fiscal year of 2021, our net revenue increased by 14.6% to RMB 80.8 billion from RMB 70.5 billion in 2020, primarily attributable to a 10.1% year-over-year increase of our GTV to RMB 3,853.5 billion in 2021 from RMB 3,499.1 billion in 2020. Our gross profit decreased by 6.2% to RMB 15.8 billion in 2021 from RMB 16.9 billion in 2020. Our gross margin was 19.6% in 2021 compared to 23.9% in 2020. The decrease in gross margin was mainly due to: one, a continued shift in revenue mix towards new home transaction services with a lower contribution margin; two, a lower contribution margin of income transactions as a result of the higher percentage of the fixed compensation costs for Lianjia agents and the compensation cost for the transaction support staff; and three, a lower contribution margin of new home transactions led by the increased proportion of new home sale transaction completed by the connected agents and other sales channels, and the incremental rise in the fixed compensation cost for expansion of dedicated sales team with expertise on the new home transaction services in 2021. Our loss from operations was RMB 1.4 billion in 2021 compared to the income from operations of RMB 2.8 billion in 2020. Operating margin was negative 1.7% in 2021 compared to 4% in 2020, primarily due to: one, a relatively lower gross margin profit in 2021 compared to 2020; two, an increase of percentage of total operating expenses as of net revenue in 2021, primarily due to the increase of staff-related expenses, provision for credit losses and the impairment of the goodwill incurred in 2021 compared to 2020. Excluding non-GAAP items, our adjusted income from operation was RMB 1.4 billion in 2021 compared to RMB 5.9 billion in 2020. Our net loss was RMB 525 million in 2021 compared to net income of RMB 2,778 million in 2020. Excluding non-GAAP items, our adjusted net income was RMB 2,294 million in 2021 compared to RMB 5,720 million in 2020. In mid of December, we were attacked and forced to defend ourselves against the groundless allegation levied by a published short-seller report towards our company. Upon receiving the report, the Audit Committee quickly launched an internal review process with the assistance of the third-party professional advisers, including an international law firm and the forensic accounting experts from Big 4 accounting firm that is not company’s auditor. In late January, before Chinese New Year, we announced the substantial completion of [indiscernible] review, which were conclusive in its findings that all allegations will not substantiate. It clearly shows evidence of our high standards and effort in data integrity, corporate governance and internal control. We sincerely appreciate the extensive support and the trust we received from our investors during this period. And I want to take this opportunity to publicly reiterate our commitment to maintaining those high standards, transparency and timely disclosure in compliance with applicable rules. To sum up, as Stanley mentioned, 2021 was undoubtedly a challenge year for us. Yet, despite the formidable challenge, we made further solid progress in fulfilling our commitment to support our service provider and bring admirable services and joyful living to our customers. One body, two wings will guide our strategic expansion into the housing-related complementary services in 2022 and bring meaningful financial impact in fiscal year 2022 and beyond. I will now speak about our near-term focus and plans. Firstly, for our housing transaction services, we will focus on the profitability and the cash generation capability by further holding efficiency in our management and operating initiatives, along with continuing to invest into the industry infrastructure and our agent training. The steps we took in Q4 to better optimize our organization have made us more flexible in embarking our new one body, two wings strategy and will further drive our operating leverage. We will also continue to focus on the prudent cash management and account receivable control considering ongoing uncertainties from developers’ operations in the first half of this year. Benefited from our effective management of the receivables, our DSO for the new home construction services further reduced to 97 days in 2021 from 103 days in 2020. According to Beike Research Institute, overall market GTV of both existing home and the new home transaction is [indiscernible] to trend down year-over-year in 2022. As a result, we expect our GTV of the housing transaction services will observe a similar trend. Secondly, for our two wings, home renovation and furnishing services and the inclusive housing services, while dreaming big, we will move forward with careful steps. In developing both strategic business, further investment will be required and that this will have an impact to overall group's profitability in 2022. We firmly believe this investment will yield long-term economy benefits and position us well to capture burgeoning new demand in complementary sectors. Turning now guidance for the first quarter of 2022. As stated in our Q3 earnings call, we foresee the market will likely hit bottom in Q1 of 2022 and will gradually, with time, gain transaction in recovery from this point. Considering the housing market is still at the early stage of recovery and adding the high base effect of the same period in 2021, we expect overall market GTV of existing home sales to fall about 50% year-over-year in Q1. And our overall market GTV of the new home transactions to decrease over 40% year-over-year in Q1, according to Beike Research Institute. Based on above considerations, looking forward to the fourth quarter of 2022, we expect the total net revenue to be between RMB 11.5 billion and RMB 12.5 billion, representing a decrease of approximately 39.6% to 44.4% from the same quarter of 2021. This forecast considers the potential impact of the recent real estate related policies and measures and the company’s current and preliminary view of the business situation and market conditions, which is subject to change. All in all, as we move forward to 2022, the toughest winter is gradually fading away. The year for the better living is coming to focus with a tremendous opportunity around the living at all fronts. In depths of winter, we proved again within [indiscernible] there’s an invincible summer. As we continue to pursue our mission and capture adjacent opportunities where we are still resilient, strengthen vertical capabilities and most importantly keep an open mind. Our decades of experience with housing transaction services has prepared us well to level up the playground for the vast and expanding the industry of better living. We will continue to help service providers develop and operate with professional ethics and expertise and to win respect from their high-quality services. We firmly believe our continued effort to bring our customers the service and experience and our proven track record of overcoming difficulties will eventually lead us to a better tomorrow. That concludes our prepared remarks. We would like now open the call for questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Piyush Mubayi from Goldman Sachs.

Congratulations on the unveiling of the one body, two wings strategy. My first question is about the -- following the decline that we've seen in GTV in fourth quarter and the guidance you've given for the first quarter, could you take us through how the market conditions have been since? And if I can slip in a second question, with the recent policy loosening, how should we set or reset expectations for housing recovery trends in 2022? And if you could take us through that period quarter by quarter, both in terms of price and volume, that would be great.

Thank you, Piyush. This is Xu Tao. Regarding your first question how is the market conditions since 4Q last year, I would like to say since the fourth quarter, the Chinese government has signaling stabilization for the macro market and housing policies, aiming to rectify the previous overtightened policy under the theme of housing for living, not for speculation. The improving credit environment also helped unlock the pent-up demand. At the policy implementation level, responses were promptly made to the central government policies. For administrative measures, over 30 cities introduced supportive policies, focusing on the less restriction on the mortgage, home buying and the sales as well as the developers’ presale proceeds. For credit environment, that is a key factor for the housing market and has been improving recently, with significant betterment in the mortgage rates and the approval process. As of January 2022, the first home and the second home interest rate fell by 0.16% and 0.18% versus the peak season of last September, respectively. The mortgage origination cycle shortened to 50 days in 103 cities in January 2022. This is also a normalized level similar to March 2021. The 23-day license peak season in last October. The improving credit environment at the consumer side directly contributes market recovery, our impact for the both agents and the homeowners’ expectation and the sentiment bottomed out since November last year. For existing home sales, the improving credit environment interacted equity to facilitate recovery. According to Beike Research Institute, the China existing home market in Q4 last year shrank around 43% year-over-year and 21% quarter-over-quarter. And the Beike in-home transaction GTV dropped by 39% year-over-year, among which the existing home sales GTV dropped by 41% year-over-year and 4% quarter-over-quarter. Market-wise, driven by the improving credit environment, existing home transaction that are interdependent were fulfilled and the performance in certain upper tier cities bottomed out. Monthly transaction volume in 20 out of 32 cities, and monitored by Beike, saw sequential growth for 3 consecutive months. So quarter-over-quarter decrease in Q4 versus Q3 was mainly due to the high base in last July and August. Existing home transaction on Beike platform also bottomed out in last Q4, which means by the month-over-month GTV growth of 11%, 7% and 19%, respectively, for October, November and December. And for new home sales, China new home sales market GTV dropped 20% year-over-year, but posted 9% growth quarter-over-quarter. The new home sales GTV on Beike dropped 24% year-over-year and then 13% quarter-over-quarter. The broader new home sales market despite a slight rebound in Q4, the 9% quarter-over-quarter growth is much slower versus average 18% growth in the fourth quarter in past 5 years. Lower-tier cities performance weaker and albeit with the policy easing, it will still take time for the homebuyers to restore their confidence. We expect the short-term downside pressure to continue in new home market with divergent performance across different cities. And for Beike, new home sales in Q4 and we continue to prioritize stability and opt for a prudent strategy for new home sales, with a focus on strengthening risk management mechanism, reducing the receivable collection risk and seeking incremental opportunities. We proactively suspended cooperation with high-risk projects, adopt for a conservative revenue recognition policy and a timely, prudently with provision for potential accounts receivable risks. Regarding your second question for the expectation on the housing recovery trends this year by quarter and also the volume and the price with the recent policy loosening. Looking ahead to 2022, there are 3 things we are very sure. The first is the rectification of overtightening the policy. The second will be the strong consumer demand and the [ related ] demand for joyful living. And the third thing will be market transactions will return to the steady volume. Based on these views, overall market GTV of home transactions is expected to decrease around 6% to 14% year-over-year, of which existing home down by low teens year-over-year and the new home down by 5% to 10% year-over-year. That said, we expect a decline in transaction volume should narrow down from 2Q onwards and the market should see a positive year-over-year growth in the second half. At a macro level, the Chinese government has reiterated its emphasis on the stabilized growth for the macro economy in 2022. The Chinese government is calling for proactively introducing some policy positive to the economic stability and cautiously implementing policy with the tightening side effect. Such a goal of stabilized growth that necessitates the role of the housing and the pillar industry. Beike Research Institute, we're recently foreseeing a neutral to accommodative monetary policy stance to continue with one RR cut and the 2 rate cuts this year. And 2022 estimates the housing-related investment to remain flat versus 2021, underpinning the stable performance across housing sales and the entire industry value chains throughout the year. We also estimate that this year, we will see a steady recovery of the housing market, driven by credit environment and administrative tailwinds. On the credit side, as estimated by the Beike Research Institute, a further mortgage interest rate cuts and credit supply will pace the market demand. That will lead to a higher growth mortgage supply versus the year of 2021, which will drive to unlock the rigid and upgrade the demand as a catalyst for the housing consumptions. On the administrative measures, we are expecting the more local government to relax demand side measures in 2022 such as easier criteria for the first home recognition, fewer home purchase and sales restrictions. Demand for the housing remains massive, and it will require time to unleash. Based on our estimation on the accommodative policy environment [ under ] secular, stable demand growth trajectory, we expect a backloaded process of gradual market recovery in 2022. In general, 2022 new home sales market GTV is estimated to around RMB 15 trillion, down around 5% to 10% year-over-year, factoring in around the 10% year-over-year decline in the gross floor area according to be Beike Research Institute. The existing sales market for GTV is estimated around RMB 6 trillion to RMB 7 trillion, down by low teens year-over-year, factoring in low teens year-over-year decline in gross floor area. On combined basis of existing and new home market, the GTV is -- total market GTV is actually at RMB 20 trillion to RMB 22 trillion, down around 6% to 14% year over year. Regarding the quarter, Q1 should see a sequential decline, both in existing and new home sales market GTV versus 4Q 2021 due to the seasonality like the Chinese New Year and the impact of the COVID-19 and reached a trough in this cycle as we briefed during Q3 earnings call. We recently foresee the year-over-year decline of the 50% for the existing home sales market GTV and almost a 40% decline for the new home market GTV in Q1. We expect that existing home transaction to stabilize post Chinese new year, leading to a gradual recovery, both in the existing home sales and new home sales in Q2 with a significant narrow year-over decline versus Q1. Starting from Q3, according to Beike Research Institute, we expect the year-over-year GTV growth for both existing and new home sales to turn positive. And in the second half of 2022, we expect existing and new home sales market GTV to achieve an overall 25% and 15% year-over-year rebound, respectively.

Next question is from the line of Ashley Xu of Credit Suisse.

Since you have just discussed the market outlook, could you also go through Beike's business outlook for year '22? And also, would you give us some color on the company's strategy and investment this year in both core business and the two wings.

Thank you, Ashley. And I will answer Beike's business outlook in 2022 and will invite our Chairman, Stanley, to answer the follow-up question on our new strategy one body, two wings. Based on our outlook, as I just answered to Piyush, we will deploy our effort under the one body, two wings strategy. On GTV, and agent store size, we reasonably forsee the Beike’s existing home transaction GTV will be able to outperform the broader market in the recovery cycle. For new home segment, we will closely monitor developers’ risk in the first half of 2020 (sic) [ 2022 ], focused on the transaction safety and manage accounts receivable risk. Our new home sales performance is expected to be in line with the market. On agent-store size, we foresee a bottoming out in Q1 2022 for our platform stores as well as agent count. Compared to Q1 2022, we expect the number of active stores and agents on our platform to grow by the low single digit when exiting year of 2022. For monetization and the profitability, we will lay more emphasis on our operational efficiency for our platform and the connect store reflected by stable monetization rates and the platform take rates for our core business, including existing and new home transaction services, while continuing our strict cost control starting from 4Q 2021. With these measures, contribution margin is also expected to increase both for the existing and new home sales. And this year marks a new chapter for our new business development, our home renovation and furnishing Beike will draw upon its customer acquisition advantage and the leverage construction delivery and execution capability of Beiwoo and Shengdu to expand, especially in 90 cities. Shengdu is expected to be consolidated in our financial statement and generate significant revenue contribution upon the completion in the second half of this year. Our inclusive housing service business is in a ramp-up phase. So in a longer horizon, the two wings business will effectively mitigate and offset the impact of the market downturns in our core business and the core -- and capture additional revenues from stable environment. And I would like to invite our Chairman, Stanley, to give some color for our strategy one body, two wings.

[Foreign Language]

Yes. This is Stanley. Let me quickly address your question in terms of the one body, two wings strategy, right? I think in terms of the one body and two wings strategy that actually related to a couple of questions. First question is why we actually have been announced and launching the one body and two wings strategy at the current stage? I think the fundamental reason behind that is we actually monitor 2 of the fundamental changes from the market as well as the society. Firstly is in terms of the consumer's attitude is -- and their value actually has been significant change from buying the house to living better, right? So that actually brings us very good opportunities to bring the changes. And the second change is coming from the unit valuation as well as the proposition for all the enterprise. I think now more and more of the enterprise actually has been valued both of the commercial value as well as the social value at the same stage. So we do believe, followed by those 2 of the changes, is the right time to launch our new strategy. And the second question relates to one body and two wings is how we can execute that, right? I think there are a couple of the strengths I want to address there. So firstly, it’s our mission of the company, which is admirable services and service provider with dignity, then bring the joyful living. So within our industry, we do -- rather than the agents, we do notice for other service providers such as foreman, workers as well as other housing services related or the home services related, there are all the different types of the service providers, which is eager to improve their professionalism as well as bring the better services to the customers. And secondly is we actually have the capability to do that. In the past 2 decades, we actually have been accumulating a lot of different capabilities in terms of standardization, in terms of the online and off-line execution as well as other parts. So that actually gave us more confidence to doing those parts of the business. And the third thing is we have the willingness to do of those kind of the business. So that's the first 2 questions I want to address related to one body and two wings strategy.

[Foreign Language]

In terms of one body and two wings strategies, there are a couple of the most important factors, which is we have been mentioned many times before, including the scalability, quality as well as the efficiency. But when we develop a business, no doubt, we cannot promote all the 3 part simultaneously. So at every stage, we have a focus. In terms of one body business, we truly believe at current stage, we should continually improve by improve the service quality to further improve the efficiency. We will continue to find out more of the different -- the excellence of the service providers in the one body business. For example, like the good brands, good stops, good developers as well as other parts. And meanwhile, we also will make a balance between the investment as well as efficiency, like our CFO Tao has been mentioned before. So we'll further improve our cash use efficiency in order to bring the further changes into our one body business. On the other hand, in terms of the two wings business, we do believe the current focus will be using the further service quality improvement to bring the better scalabilities. So for example, in terms of our home decoration and furnishing business, I think for that part of the industry, there still has a question is whether 1 company can bring over RMB 10 billion revenue per year. So far, we didn't see that. But hopefully, after we cooperate with Shengdu together and we can bring more breakthrough in terms of the business model into the home decoration and renovation furnishing business. And I think this year we will continue to promote what we call the 5-1 strategy, which means 1 organization, 1 standard, 1 process and 1 system, and the most important thing is 1 goal, right? So in order to further bring the better scalability business for the home decoration and furnishing. And meanwhile, for the other -- on the other wing, which is called inclusive housing services, we do believe we should continue to unite the different types of the supply in the society, including the life model as well as others, the supplies in the society, more tailor made to the young generation or even to the blue collar of the workers, all et cetera, right? So by consolidating all those kinds of the high quality of the supply of the industry, we do believe we can using our capability to further empower them in the different parts, such as talent, infrastructure in order to bring a better balance between the company's commercial value as well as the social value. Thank you. So that's my answer for your question. Back to you, operator.

Next question comes from Thomas Chong of Jefferies.

[Foreign Language]

Thomas, could you translate your questions into english please?

Yes, sure. My question is about the decline in terms of the store numbers. Can management comment about the reason behind? And my second question is about the AR, the accounts receivable, in Q4. Can management comment about the bad debt situation?

Okay. Thanks, Thomas. This Xu Tao. Let me answer your first question regarding the decline for the number of stores in the fourth quarter. The number of brokerage stores on Beike platform reduced approximately 2,900 sequentially in Q4, down around 5.4% quarter-on-quarter. Around 4,100 connected store is connected from the platform in Q4, an increase of 400 versus Q3. While approximately 1,200 connected store newly joined the platform in Q4 and 2,300 in Q3. Therefore, the decrease in the total number of stores on the platform is mainly driven by the slowdown of the newly connected stores in Q4. At market troughs, the platform slowed down the pace of connecting new stores to focus on improving the operational efficiency. At the same time, the number of stores meeting our selection criteria, but not yet connected, has been declined during the market downturn as well. For disconnected stores, the quarterly number increased by 400 quarter-over-quarter, of which 310 stores is connected due to the store merger, aimed to enhancing the competitiveness during a market downturn. In addition, the disconnection due to the violation as of the total disconnect store was only 7% lower -- was 7% lower than that in the Q1 2021 showing case or effective governance of the platform ecosystem throughout the year. In Q1, as market bottomed during the Chinese New Year, the common practice such as merging and shutting down stores are likely to occur. And some stores may also choose not to renew their leases when expiring around the year-end or before Chinese New Year, resulting in a further decline in the number of stores on our platform. However, the number of stores on the platform is expected to increase gradually after market stabilizes in Q2. Regarding second question for the bad debt and whether we have any risk for the collection. I would like to say the first number talks -- there is no mature risk for Beike's new home business. If you look at our -- just earnings release, our DSO reduced from 103 days in 2020 to 97 days in 2021. And also in 2021, the total commission revenue from new home sales was RMB 46.5 million, while our collection was RMB 51.7 million in this year. Our company had approximately RMB 11.5 billion of accounts receivable for Q4, including approximately RMB 11 billion for the new home transaction services, whereas the cash collection for the new home transaction services was approximately RMB 12.6 billion in Q4. The bad debt provision for accounts receivable and other receivables in Q4 totaled RMB 620 million, representing a quarter-over-quarter increase of RMB 250 million. Beike strategically increased the bad debt provision in Q4 due to some reasons. First, on 1 hand, due to the continuous downturn of the new home market, developers' liquidity risk increase significantly. Therefore, the increase in the scope and the percentage of bad debt provision reflects Beike's principle in adopting our most prudent and the straightest accounting treatment amid exacerbating market risks. The second is the clarification of more projects, high risk and the increase of better provision will encourage our frontline teams to explore more business opportunities from the low-risk projects and reduce the proportion of the high-risk project in the future. Although there are still some developers under the liquidity pressures to repay debts, we have recently seen a series of policy easing for developers, such as acquisition loans no longer counted towards the [indiscernible], relaxation of the control over pre-sale proceeds. It is believed that these measures marginally ease the developers’ liquidity risk, but it will take time for the policy to be fully effective. The rebound of sales and the subsequent recycling of cash will ultimately solve the challenge developer faces at this moment, whilst improving the sell through is exactly where Beike's strength lies. For our internal risk control, we will continue the initiatives we have been taking over the past to improve our dynamic risk control model for monitoring the real estate developers and their new home projects. Through advance assessment based on our risk rating mechanism, we will avoid cooperation of the high-risk projects and cease cooperation after risks are exposed and focus on repayment. All in all, I would like to say that Beike’s bad debt provision for the new home transaction services was proactive [ choice] made by us based on our prudent accounting policy. We do not believe Beike's new homes business will face material risk because Beike enjoy the high degree of independence in this new home business. Since our business are not reliant on relationship, but on our extensive network of sales and channels, high quality of services, recognition by our customers and our reputation, we closely monitor risk and implement the countermeasures as soon as we perceive them. We believe the industry will be in a better shape in the future despite the short-term pain. Thank you.

Thank you for all the questions. We are now approaching the end of the conference call. I'll now turn the call over to your speaker host today, Mr. Matthew Zhao, for closing remarks.

Thank you, operator. Thank you once again for all of you joining us today. If you have any further questions, please feel free to contact Beike's investor relations team through the contact information via our website. This concludes today's call, and we look forward to speaking with you again next quarter. Take care. Thank you, and goodbye.