Tao Xu: Our view on market share：We don’t operate with a market share as our KPI, the management has always been adhering to the core principle of €œtaking care of customers and helping service providers to be good to customers€. However, we must reach a certain scale threshold city-wise to realize the network and scale effects of our core business, and to fully benefit from the extensibility of our agents and store network as infrastructure around living services. Therefore, we need to pay attention to scale, and need to achieve sufficient scale through connecting and empowering connected stores and agents. Existing home transaction services: This round of massive market corrections has presented us with opportunities to scale faster, and we anticipate a greater number of customers will enjoy the quality service offered by Beike this year.
In the past two years, the market’s correction was long and deep, resulting in significant industry supply side reductions in various regions. Still, we have better capacity retention: The number of active agents in 25 key cities even increased year-over-year at the end of 2022. Moreover, we have focused on retaining high-quality agents, which allows us to benefit more from the market’s rebound during the recovery cycle. Specific initiatives in different cities For our top-performing cities, we will continue to explore opportunities in specific market segments such as mid-to-high-end markets, suburban markets, etc. In cities with a competitive environment, we saw our business expand at a relatively fast pace starting in the second half of last year, as our better capacity retention, our business conduct governance such as customer poaching rectification, our focused operations, and our community expert training generated remarkable results.
We have even bigger opportunities in cities where there is still a lot of room for improvement in our scale market share and the market is relatively fragmented. For example, in Shanghai, a trillion RMB market, our market penetration is still significantly lower than in Beijing. To expand our business in these cities, we will actively implement a series of initiatives, such as establishing more connections with high-quality service providers, investing in our brand and service quality, and strengthening operational efficiency. New home transaction services: This year we will consistently emphasize €œrisk aversion€ as top priority as we did last year. We will not proactively loosen our risk controls or compromise business security, especially the security of agents’ receivable collection, in exchange for platform scale expansion.
But we will also make dynamic adjustments depending on the market and the recovery of developers. As developers’ cash flow situation improves, their receivable payments to us will improve as well, which will lead to upgrades of their ratings in our internal system. Their improved risk ratings will allow us to expand our cooperation, and the addressable markets for our new home transaction services may also expand. Meanwhile, new home channel sales market has seen significant increase in concentration in the recent round of market correction. Our better and safer receivable collection and healthier new home business conducts gained trust from a large number of service providers and agents on the sector. They connect with us through ACN and the Fangjianghu channel, becoming the cornerstone of the continued expansion of our new home transaction services as the market recovers.
Operator: Thank you. And our next question today comes from Jiong Shao with Barclays. Please go ahead.
Jiong Shao: Thank you very much for taking my question. And let me add to my congratulations on the very strong results and guidance. You talked about improving efficiency of your agents and of your stores, I was just wondering, could you talk about your target, if you have any, for the stores and agents this year? And you have already improved their productivity quite a bit last year, how can you improve their productivity further from here, while not losing your strong culture and performance elements? Thank you.
Tao Xu: Overall, we have no plans for significant expansion of our stores and agents. As we mentioned last quarter, our focus is on improving per store and per agent efficiency while enhancing agent income, rather than pursuing large-scale expansion. This approach will not change. Only when the income of stores and agents increase steadily can the industry retain high-quality people and achieve healthy development. Furthermore, given the current trend of a balanced supply and demand market, and the broader emphasis on €œhousing is for living in, not for speculation€, we do not anticipate a significant increase in industry capacity following this market recovery. Our plans for agents and stores this year include the following: Regarding to Scale.
Store-wise: We plan to focus on large and high-quality stores and drive the onboarding of Fangjianghu stores for new home sales to our platform as connected stores. Agent-wise: We plan to recruit agents during the spring recruiting season in 2023, after which we expect to maintain a stable agent count. This includes increasing the proportion of mid-level agents and increasing the number of agents in a few cities with a need for scale expansion. Quality and efficiency. Store productivity: In 2023, we expect to see a significant improvement in store productivity as a result of our ongoing efforts in large stores, store and agent rankings, business conduct governance, and Huaqiao Academy. We are committed to improving management on loss-making and inefficient stores, and we believe that the inefficiencies could be temporary.
Agent productivity. The general agent productivity has a huge room to improve in the long run. Beijing could be a benchmark, where our agents’ productivity is 3-4 times higher than the industry average. Lianjia: In 2022, excluding Beijing and Shanghai, Lianjia agents’ productivity was 1.3 times that of connected agents, and our target for this year is to increase the ratio to 1.4 times. For Deyou and connected stores: Although we will not set a specific target for agent productivity this year, we will improve a range of operating metrics, to improve agent productivity, such metrics include: cross-store, cross-brand cooperation ratio, accompanied home tours by home listing agents, price differences between listing and transaction prices, and ACN role split ratio of one transaction.
In term of Culture: We believe in the value of taking good care of the consumers. We believe in the value of sharing successful experience and infrastructure to the industry, to empower and enhance industry efficiency. We believe in the value of protecting the interests of service providers, paying commission timely. We believe in the value of improving the industry code of conduct, and help developers and all participants to work with a sense of security and fairness. We believe in the value of our hundreds of thousands of excellent service providers, who have been serving the communities for many years and established this unique moat in home services. And, we believe in the value of time. This is what we have been doing, not perfectly, but we are on our way.
Operator: Thank you. And our next question today comes from John Lam with UBS. Please go ahead.
John Lam: Thank you, and also congratulation for the result, so my question is regarding on the on the cost optimizations in the third quarter last year were very effective. Is there any more room for further improvement? And can the expense ratio from the third quarter of 2022 be used to infer subsequent profitability? Thank you.
Tao Xu: Thank you John, for costs and expenses for €œthe one-body€ business, we quickly implemented a series of cost reduction and efficiency enhancement initiatives in 2022. As a result, the costs and expenses for our €œone-body€ business were optimized to reach the 2019 level, which we believe is relatively sustainable. In terms of cost control, in the fourth quarter of 2022, the fixed costs of our €œone-body€ business fell by 36% year-over-year and its variable costs as a percentage of revenue dropped by 5.6 ppts year-over-year. In terms of expenses, the total amounts of non-GAAP operating expenses declined by 17% year-over-year to the same level as in 2019. The expense reduction will be more significant if we exclude the impact of the consolidation of Shengdu.
Commission in Advance accounted for 44% of total new home commission in the fourth quarter, up from 20% in the first quarter. This ensured the collection of new home receivables, mitigating the negative impact of new home bad debt provisions on our expenses. In 2023, our platform’s agent productivity will see even greater improvements, and we will implement incentives to develop and retain our existing employees. We also hope to offset the costs of such incentives through continuous control of non-personnel expenses. In addition, we hope to improve agents’ productivity via technology investments to reduce their time spent on low-productivity matters, hence allowing them to get off work earlier, spend more time with their family, and contributing to further industry optimization as well as potential platform profitability improvement.
All in all, our finance strategy for our €œone-body€ business will remain focused on efficiency. With optimized cost and expense level in 2022, we will support quality growth cost-effectively. Meanwhile, we will continue to strictly control risks and strike a balance between efficiency, receivable collection speed and scale expansion, with ensured security of account receivables, we will enhance our cooperation with partners in the upstream and downstream. For two wings business, regarding our home renovation and furnishing business, in addition to making sure its total loss ratio will not further expand, we will capture opportunities to reinforce our foundational capabilities including product, supply chain and service delivery ability, and invest in high-quality service providers.
On the whole, we will reflect on some of the redundant investments we made during the last round of market growth, and while continuing to promote our business growth, strictly control costs and expenses to balance growth and profitability.
