In the post-Hou Zuo Hui era, Peng Yongdong has actually been doing quite well.

Ask AI · How does Peng Yongdong lead Shell to break out against the odds in the industry downturn?

Last week, Shell released its fourth-quarter financial results. Operating revenue came in at RMB 22.2 billion, with a sharp year-over-year decline of 29% for the quarter. For the full year, revenue reached RMB 94.6 billion, up slightly—by 1.2%—from RMB 93.5 billion in 2024. However, after adjustments, net profit in the fourth quarter was only RMB 517 million, down 61.5% year over year. The adjusted net profit margin was merely 2.3%. The following image shows the financial report in one chart:

If there is a company that could serve as a “thermometer” for observing fluctuations in China’s real estate cycle, it would have to be Shell. Its massive store network, hundreds of thousands of active real-estate agents, and full-chain data spanning both primary and secondary home transactions make it the most accurate reflection of supply-demand relationships in China’s real estate market, as well as price expectations and liquidity conditions.

Shell’s overall business is divided into three major directions. Direction one is the stock housing (secondhand homes) and new home transaction business centered on property transactions. Direction two is the home renovation and home furnishings business with a longer service chain. Direction three is the housing rental business. Among these, new home and stock housing transactions are still the primary sources of Shell’s profit. Home renovation and home furnishings are the second growth curve. The rental market is large in scale, but its profit contribution is relatively low. Looking across the fourth quarter and the full-year financial reports for 2025, our core view is:

· In the downcycle of the real estate industry, everything is thrown in together, and Shell is no exception. In the fourth quarter, performance on the revenue side was weak, and except for the rental business, the other businesses all saw noticeable declines.

· Management wants to promote standardization in the home renovation business to reduce financial costs. Therefore, as the home renovation business—an offset to the long-chain home-selling business—also first recorded year-over-year negative growth.

· The rental business is still adjusting its accounting policy, which leads to a decline in revenue but growth in profit. At its core, Shell is still focused on maintaining a gross profit level of 20%.

· Although fee rates are affected by the revenue scale and have increased, the overall reduction in expenses is still quite significant, and fee control performance is fairly strong.

· From a business-line perspective, Peng Yongdong actually did a good job in a countercyclical period. Through expansion via the franchise model, he secured industry position, maintained the user base, and Shell is becoming increasingly “lighter.”

Detailed analysis of the financial report is as follows.

01 Industry beta is declining, making it hard for Shell to stand apart

Looking only at Shell’s performance on the revenue side in the fourth quarter, it can be said to be rather grim. Compared with the relative peak in 2024, Shell’s overall revenue in the fourth quarter of 2025 was only RMB 22.19 billion. Among this, revenue from the stock-housing business saw a quarterly year-over-year decline of 39%, and the new home business saw an even larger single-quarter year-over-year decline of 44%.

Compared with the low expectations for the new home business (in recent years, China’s real estate development investment has declined more clearly), the stock housing business has long been Shell’s relatively stable ballast, with volatility smaller than that of the new home business. But in the fourth quarter of 2025, Shell’s stock housing business achieved the largest year-over-year quarterly drop since 2023.

Of course, a significant reason is that 2024 Q4 was precisely a dense release period for policy stimulus. Market sentiment was high, so the year-over-year base for 2025 Q4 was relatively elevated—therefore the revenue-side performance looked especially bleak.

Although real estate policies were eased somewhat early this year in different regions, according to the real estate development growth rates released by the National Bureau of Statistics, Shell’s future expectations for property transaction business are also not optimistic. For 2024, the full-year growth rate of real estate investment was -10.6%. From the second half of 2025 to year-end, with an overall low base, investment growth has repeatedly hit new lows.

For Shell, the objective fact that the industry beta is declining is undeniable. In the short term, trying to survive the cycle is not an easy task.

02 The second curve is highly correlated; home furnishings and renovation business takes the initiative to slow down

The home renovation business—one that Shell places high hopes on—also hasn’t performed very well. In the fourth quarter, Shell’s home renovation and home furnishings business recorded revenue of RMB 5.411 billion, with a single-quarter year-over-year growth rate of -12%. This is also the first time that the home renovation and home furnishings business has seen single-quarter negative growth since Shell’s “One Body and Three Wings” strategy was established.

Under such circumstances, how could there be a complete egg? Although Shell hoped early on to offset the risks of the real estate cycle through a long service chain, it now appears that improving the existing home market is far from enough to escape the downward trend of the real estate cycle and carve out an independent trajectory.

The profit margin for the home renovation business also declined noticeably. Among the four businesses, if the other three have issues with revenue scale, then the home renovation business can be described as seeing everything washed along with the silt; its profit margin fell to 29%, the new lowest since 2024, and price cuts failed to drive volume growth.

At the earnings call, management also placed particular emphasis on explaining the performance of the home renovation business. In 2025, a number of peers in the home renovation segment experienced blowups. Therefore, Shell proactively reduced the development pace of the home renovation business. It aims to lower costs by conducting centralized procurement (集采), optimizing manpower, and implementing standardized replication. The expectation is that over the next 2–3 years, growth won’t be very fast.

03 The rental market is relatively stable; Shell is adjusting its profit model

In the fourth quarter, Shell’s housing rental business recorded revenue of RMB 5.411 billion, up 18% year over year. Although the growth rate also declined, it was the only business among the four that recorded positive growth.

One of the main reasons for the slowdown in revenue growth for Shell’s rental business in the fourth quarter is an adjustment to the accounting policy: the recognition of revenue was adjusted to the net method. As management disclosed, under the net method used for the “省心租” rental business, the proportion of recognized revenue is currently over 30%.

Under the net method, revenue is no longer accounted for based on rent; instead, only service fees are recognized (that is, traditional intermediary fees). This certainly affects Shell’s revenue, but it will also lead to an increase in profit margins. In the fourth quarter, Shell’s overall rental business profit margin reached 10.4%, exceeding that of peers.

Although the rental business’s contribution to overall profits is currently limited, compared with the home renovation business, the rental business can actually complement the home sales business to some extent. After all, as long as there is housing demand, there will be overlap between rentals and sales.

04 Fee rates are rising significantly, but overall fee control performance is still fairly good

In the fourth quarter, Shell’s sales expenses, administrative expenses, and R&D expenses were RMB 1.93 billion, RMB 2.25 billion, and RMB 720 million, respectively. Their fee rates were 8.7%, 10.2%, and 3.2%, respectively.

Judging from the trend in fee rates, due to the substantial decline on the revenue side, the fee rates for the three expense categories increased clearly. Compared with the third quarter, the sales expense rate rose by 120 bps, the administrative expense rate rose by 210 bps, and the R&D expense rate rose by 40 bps.

However, in absolute terms, in the fourth quarter sales expenses decreased 18% year over year, administrative expenses decreased 24% year over year, and R&D expenses decreased 3% year over year. Sales and administrative expenses declined fairly noticeably. Operational data also shows that although the number of active agents is not far off from the fourth quarter of last year, the number of active stores accelerated significantly.

By optimizing internal staff structure without any significant reduction in operational scale and headcount, Shell adjusted roughly RMB 1.3 billion in expenses, ultimately turning adjusted profit back to profitability. In practice, its fee control performance is actually very good.

05 Franchise stores are rising; Shell is pursuing extreme efficiency

Looking closely at Shell’s series of actions in both the fourth quarter and the full year, you can see a clear thread: in the industry’s downcycle, Shell put “efficiency” first.

The most typical example is the accelerated expansion of its light-asset model. Currently, the revenue contribution from Shell’s franchise stores is higher than that from directly operated stores. And most franchise stores are essentially incubated within Shell itself. Take Le Yuan—the fastest company in terms of current expansion speed—as an example: in less than three years, it expanded to 5,800 stores, basically covering lower-tier markets. It has high flexibility and low cost. At the same time, connecting to the ACN network ensures service standards and coverage, helping maintain Shell’s store count.

This strategy both protects market share and eases pressure on the listed company’s financial reporting—stores are increasing, but the asset structure is becoming lighter.

Meanwhile, franchise stores are not bound by the strict requirement of Lianjia’s 2% fixed fee, giving them higher market flexibility. This can also reduce anxiety about one company dominating. Especially in the context where stock-housing GTV has fallen significantly, franchise stores can adjust the take rate to maintain overall profit margin, while still sustaining a relatively scaled team of agents—one approach with two benefits.

The accounting-policy adjustment for the rental business is another decision that has been underestimated. The shift of the “省心租” business from the gross method to the net method means Shell is voluntarily sacrificing book revenue growth. In the capital market’s scrutiny, profit matters more than revenue. Currently, Shell is focusing on a 20% profit line to plan and ensure a safety cushion at the capital level.

Including share repurchases, a series of actions in essence answer the same question: when you can’t see the end of the cycle’s bottom, how to survive at the lowest cost—and survive longer than competitors. Judging by the result of the turn back to profitability after the fourth quarter adjustments, Shell earns a solid score on the “efficiency” question during the countercycle.

06 Under cycle tests, Peng Yongdong actually did quite well

Looking back at the 2026 milestone, in the years after Zuo Hui left, the answers delivered by Peng Yongdong are not bad.

Due to the industry’s declining beta, Shell’s revenue and profits inevitably face pressure, and this is a reality that any real estate services company cannot avoid. But under this large premise, Shell managed to do three things: stabilize the core business, protect cash flow, and maintain the pace of expansion. The group’s overall gross margin is maintained above 20%. For the new home business, the turnover days for accounts receivable are controlled at around 40 days. In today’s environment, it’s not easy to achieve each metric individually.

Even the criticized “sky-high” compensation is mainly due to historical equity reasons. When “Shell” listed on the Hong Kong stock market in 2022, Peng Yongdong only held 3.6% of the economic interests through original shares, which was below the mandatory requirement from the Stock Exchange of Hong Kong’s “different rights for different shares” framework beneficiaries needing to hold shares ≥10%. Therefore, the company granted him a targeted award of 71.824 million restricted A shares, to be unlocked in equal installments over five years. Under accounting standards, he must recognize compensation costs each year using the “straight-line amortization method.”

And after the accelerated repurchases, Peng Yongdong and Dan Yijiaer—together—have donated approximately RMB 840 million cumulatively over the past year, so there’s not much to criticize.

Industry contraction is a disadvantage in the short term, but it may not be so in the long run. For leading companies, a declining cycle is precisely an opportunity to clear out the weaker players. Smaller players are forced out, resources concentrate on the top tier, and Shell’s market share actually increases. In the fourth quarter, MAU stabilized at over 43 million. The store network further densified. Once the cycle steadies, these accumulations will convert into stronger pricing power and a faster rebound speed.

At that time and right now, after prioritizing efficiency and moving toward a light-asset model, Shell looks even more like a light internet company than before. It didn’t lose its footing in the midst of the harsh winter.

In the post–Zuo Hui era, Peng Yongdong actually did pretty well.