Executive Summary / Key Takeaways

• Fangdd Network Group Ltd. (NASDAQ:DUO) is strategically transforming its business model, pivoting from a commission-driven, subsidy-heavy approach to a higher-margin, technology-enabled Software-as-a-Service (SaaS) and asset management focus, particularly in a challenging Chinese real estate market.
• The company's Property Cloud SaaS solutions for developers and agent-centric tools offer significant technological differentiation, driving efficiency and cost reduction for real estate participants, with SaaS gross margins projected at 60-80% compared to 15-20% for traditional commissions.
• Despite a significant market downturn in Q3 2021, which led to substantial revenue declines and increased impairment provisions, DUO is implementing aggressive risk control measures and optimizing its operational structure for long-term profitability.
• Recent financial performance reflects this strategic shift and market headwinds, with a net loss in Q3 2021, but a positive net income of $30.83 million in 2024, indicating a potential turnaround.
• The long-term investment thesis hinges on DUO's ability to scale its high-margin SaaS and asset management services, effectively manage developer credit risk, and capitalize on the broader digitalization trend within China's real estate sector.

A Digital Foundation in China's Evolving Real Estate Landscape

Fangdd Network Group Ltd. (NASDAQ:DUO), founded in 2011 and headquartered in Shenzhen, China, has established itself as a pioneer in the digitalization of the Chinese real estate service industry. The company's core business revolves around providing comprehensive real estate information services through its online platforms, catering to real estate agents, buyers, and sellers. This foundational strategy, centered on empowering agents through Software-as-a-Service (SaaS) offerings, has seen its agent base expand for nine consecutive years by 2020, accumulating extensive expertise in agent resources, data, and product development.

The Chinese real estate market, a colossal and dynamic sector, has undergone significant transformations. In 2020, commercial housing sales reached RMB17.4 trillion, growing 8.7% year-over-year, with a projected average sales growth of 11.85% for 44 developers in 2021. However, government initiatives like property price caps and the "three red lines policy" have pressured developer profit margins, leading to an industry-wide net profit margin of 9.85% in 2020—a historical low since 2015. This environment has spurred a critical need for developers to enhance efficiency and reduce costs through digitalization. Indeed, over 90% of real estate developers surveyed in 2021 increased their investment in digital transformation, with 26% boosting spending by more than 38% year-over-year. This broad industry trend underpins Fangdd's strategic pivot towards technology-enabled solutions.

Technological Edge: The Core of DUO's Transformation

At the heart of Fangdd's strategy lies its differentiated technology, primarily manifested in its Property Cloud SaaS solutions for real estate developers and its suite of agent-centric tools like Duoduo Sales and Duoduo Cloud Sales. These platforms are designed to digitalize the entire real estate sales cycle, offering tangible and quantifiable benefits to its users.

The Property Cloud SaaS solution, launched in Q4 2020, leverages Fangdd's nine years of accumulated agency resources, data, and product expertise. It enables developers to digitalize property project management, customer profile analysis, customer acquisition, sales channel management, and cost management. This technology allows developers to interact with suitable agents, streamline transaction processes, and manage marketing campaign viewership, budget, and conversion rates, ultimately enabling them to select optimal commission rates and control costs effectively. The company's SaaS business model typically involves annual or monthly subscription fees, which are projected to yield significantly higher gross profit margins of 60% to 80% in the coming years, a stark contrast to the 15% to 20% margins from traditional new property sales commissions.

Fangdd's commitment to technological innovation is evident in its continuous R&D initiatives. In Q3 2021, the company migrated all its data to Huawei Cloud to enhance data security and privacy, reflecting its adherence to evolving regulatory requirements. New features added to the SaaS system, such as instant messaging and telephone consultation, facilitate seamless connections between homebuyers, agents, and property sales galleries. The "agents own function" and "I Am Automate, smart question-and-answer function" further improve developer efficiency and user experience. These technological advancements have translated into operational successes, with pilot project collaborations demonstrating efficiency gains, such as 54 transactions completed in June for China Railway Real Estate Group and 78 transactions during an opening sale for CMB Real Estate Corporation Limited. The Tinghaozhu product, part of its resale property business, achieved a single-month revenue exceeding RMB5 million in Q1 2021, with an average property turnover period of 22 days and a property appreciation rate and transaction efficiency "significantly higher than the industry at an average level."

For investors, this technological differentiation is a critical component of DUO's competitive moat. It allows the company to offer superior value propositions—cost reduction and efficiency gains—to both developers and agents, fostering stronger platform stickiness and potentially higher average selling prices (ASPs) for its services. This focus on high-margin SaaS solutions is central to Fangdd's long-term growth strategy and its path to improved profitability.

Strategic Evolution and Competitive Dynamics

Fangdd's strategic journey has been marked by a deliberate shift away from "reckless competition" characterized by high subsidies and low gross profits, which management believes is unsustainable in the long run. Instead, the company is prioritizing efficiency, technological capabilities, and value-added services. This strategic pivot is crucial in a competitive landscape that, while still in its early stages of digital transformation, is intensifying, particularly in the new property distribution market due to excessive supply.

In this environment, Fangdd faces competition from established players like KE Holdings Inc. (BEKE), E-House China Holdings Ltd. (EJ), and Autohome Inc. (ATHM). KE Holdings, with its comprehensive ecosystem and strong network effects, often exhibits stronger profitability and cash flow, driven by its larger scale and diversified revenue streams. E-House China, while strong in data analytics and developer relationships, has shown variable profitability. Autohome, with its broad online platform and data capabilities, generally demonstrates robust financial health.

Fangdd differentiates itself through its specialized, agent-focused tools and its Property Cloud SaaS for developers. While it may lag larger rivals in overall market share and innovation speed due to scale differences, its niche focus on empowering small and medium-sized agencies (SMAs) and providing tailored digital solutions offers a unique value proposition. By Q4 2020, 85% of the 557,000 active agents using Fangdd's SaaS solutions were from SMAs, highlighting its strong penetration in this segment. The company's strategic partnerships, such as the one with Centaline Property Agency for its Yuancui platform (later substantially reduced), and collaborations with seven banks for supply chain financing, further enhance its competitive standing by addressing critical needs in the real estate ecosystem.

However, Fangdd's smaller scale compared to industry giants can lead to higher operational costs and potential technological gaps in advanced analytics, making it vulnerable to rivals with superior R&D investment. The company's strategic decision to avoid using its own funds for advanced commission payments, while prudent for long-term financial health by mitigating bad debts and low internal rates of return, has had a short-term impact on its new construction property revenue growth.

Financial Performance and Outlook

Fangdd's financial performance in recent years reflects both its strategic transformation and the challenging market conditions. In Q3 2021, the company experienced a significant downturn, with revenue decreasing by 57.8% sequentially to RMB169.2 million from RMB401.4 million in Q2 2021. This was primarily attributed to the rapid cooling of the real estate market, macroeconomic regulations, and tightening loan policies, which led to a 48.5% sequential decrease in total closed-loop GMV. Gross profit plummeted by 90.4% sequentially to RMB6 million, with gross margin falling to 3.5% from 15.6% in Q2 2021, largely due to strategic reductions in its Yuancui business to cut losses.

Operating expenses in Q3 2021 increased by 54.3% sequentially to RMB316.4 million, driven by a substantial increase in provision for impairment on assets, including accounts receivable from developers, which rose to RMB201.9 million from RMB79.1 million in Q2 2021. This reflected the tightened financial conditions faced by developers. Consequently, the net loss widened to RMB355 million in Q3 2021 from RMB139 million in Q2 2021.

Despite these headwinds, the company's strategic pivot towards SaaS solutions showed resilience. Revenue from SaaS solutions increased by 38.8% sequentially to RMB3.2 million in Q3 2021, following a robust 268.4% sequential increase to RMB2.3 million in Q2 2021. This growth underscores the potential of its high-margin, technology-driven offerings.

Looking forward, management's guidance has reflected the prevailing market uncertainty. For Q4 2021, revenue was projected to be between RMB138 million and RMB150 million, a significant reduction from prior expectations. However, the long-term outlook remains focused on improving profitability through its strategic shift. Management anticipates overall gross margins to increase, driven by the higher margins of its SaaS business (60-80%) compared to traditional commission revenue (15-20%). Operating expenses are expected to see a minimum increase, within 10%, for 2021, as the company optimizes its product development and sales and marketing teams. The company aims to maintain its cash flow by increasing inflows and reducing outflows, bolstering its "abilities of going concern."

The recent unaudited financial results for the first half of 2025, filed on August 29, 2025, and the annual net income of $30.83 million in 2024, suggest a potential stabilization and recovery from the 2021 downturn.

Risks and Challenges

Investing in Fangdd carries inherent risks, primarily stemming from the volatile nature of the Chinese real estate market and the intense competitive landscape. The rapid cooling of the market, driven by macroeconomic regulations and tightening loan policies, poses a significant threat to transaction volumes and developer solvency. This was evident in Q3 2021, when developer credit risk intensified, leading to substantial impairment provisions for Fangdd. The government's continued emphasis on market stability, without significant relaxation of control measures, suggests that a rapid rebound is unlikely in the short term.

Furthermore, the "fierce competition" in the new property distribution market, coupled with developers increasingly building their own digitalized channels, could pressure Fangdd's traditional commission-based revenues. While the company's pivot to SaaS aims to mitigate this, the digital transformation of the real estate industry is still in its early stages, and the competitive landscape remains "far for stable." The company's reliance on supply chain financing, while strategic, also introduces financial counterparty risks.

Conclusion

Fangdd Network Group Ltd. is undergoing a profound strategic transformation, shifting its focus from volume-driven, low-margin commission businesses to a technology-centric model built on high-margin SaaS solutions and innovative asset management services. This pivot is a direct response to the evolving dynamics of the Chinese real estate market, characterized by increased digitalization, declining developer profit margins, and intense competition.

While the company has faced significant headwinds, particularly evident in the Q3 2021 market downturn and its financial repercussions, its commitment to technological differentiation, stringent risk control measures, and a disciplined approach to profitability positions it for long-term value creation. The anticipated growth in its SaaS segment, with its attractive gross margins, coupled with efforts to revitalize assets and refine its resale property business, forms the core of its investment thesis. Investors should closely monitor Fangdd's ability to scale its SaaS offerings, effectively manage developer credit risk in a volatile market, and execute its strategy to achieve sustained profitability amidst a challenging yet digitally transforming real estate landscape. The recent share consolidation and regaining of Nasdaq compliance underscore the company's efforts to strengthen its market position and investor confidence.