Xunlei Q2 Earnings Call Highlights

Key Points

• Revenue grew 38.9% year over year to $102.7 million, driven by subscription services, overseas audio live streaming and Hupu advertising. Subscription revenue increased 22.6%, while live streaming and other services rose 54.8%.
• Gross margin narrowed to 55.8% from 63% as live streaming expanded and revenue-sharing costs increased. Higher research, marketing and administrative expenses also contributed to a $4.8 million operating loss.
• A mark-to-market loss on Xunlei’s Arashi Vision investment drove a $218.5 million net loss, compared with $726.4 million in net income a year earlier. The company began a new $20 million share-repurchase program and had bought back approximately 1.07 million ADSs for $5.9 million by Aug. 12.

Xunlei NASDAQ: XNET reported second-quarter 2026 revenue growth led by its subscription services, overseas audio live-streaming operations and advertising revenue from the Hupu sports community, while a mark-to-market loss on its investment in Arashi Vision Inc. drove a substantial net loss for the period.

Total revenue rose 38.9% year over year to $102.7 million in the quarter. Chairman and Chief Executive Officer Jinbo Li said the results reflected the company’s consumer-focused strategy, with subscription services and overseas audio live streaming serving as its main growth drivers.

Consumer businesses drive revenue growth

Subscription revenue reached $44.5 million, up 22.6% from a year earlier. Li described subscriptions as the company’s “stable cash flow foundation and reliable growth anchor,” citing user retention and monetization performance. During the quarter, Xunlei introduced new artificial intelligence-powered features, optimized existing functions, expanded cooperation with domestic smartphone partners and developed user-acquisition channels, according to Li.

The company said it plans to continue refining member benefits and broaden device-partnership coverage during the second half of the year in an effort to increase user penetration and revenue.

Revenue from live streaming and other services totaled $58.2 million, a 54.8% increase from the prior-year period, according to Chief Financial Officer Eric Zhou. Zhou attributed the increase primarily to the expansion of overseas audio live streaming and growth in Hupu advertising revenue during the sports season.

Li said overseas audio live-streaming revenue increased 64.8% year over year to $58.2 million. The business continued to invest in emerging markets including Southeast Asia, the Middle East, Turkey and Latin America. Xunlei also worked on localized product updates and operations, including offerings for one-on-one social interactions and multiperson chat rooms.

Hupu contributed $9.1 million in second-quarter revenue, according to Li. He said major global sporting events and the peak advertising season helped drive user discussion activity on the platform. AI-powered features also increased engagement and interactive activity, he added.

Margins narrow as live streaming expands

Cost of revenue increased to $44.8 million, or 43.6% of revenue, from $27 million, or 36.6% of revenue, in the second quarter of 2025. Zhou said the higher cost base was aligned with growth in live-streaming revenue, particularly increased revenue-sharing expenses associated with overseas audio live-streaming operations.

Gross profit rose 23.1% year over year to $57.3 million. However, gross margin declined to 55.8% from 63% a year earlier. Zhou said the margin contraction reflected a shift in revenue mix, as live streaming carries lower gross margins than subscription and advertising businesses.

Research and development expense rose to $21.4 million from $16.6 million, largely because of higher labor costs. Sales and marketing expense increased to $27.9 million from $20.7 million as Xunlei increased promotional spending across subscription and overseas audio live-streaming operations. General and administrative expense rose to $12.7 million from $8.5 million, which Zhou attributed to provisions for ongoing legal litigation and higher employee-related costs.

The company posted an operating loss of $4.8 million, compared with operating income of $300,000 in the prior-year quarter.

Arashi Vision valuation drives net loss

Xunlei recorded a net other loss of $230.8 million, compared with net other income of $721.5 million in the second quarter of 2025. Zhou said the swing was driven mainly by fair-value volatility related to the company’s long-term investment in Arashi Vision, which is valued on a mark-to-market basis using public stock prices following Arashi Vision’s June 2025 initial public offering.

Net loss from continuing operations was $218.5 million, compared with net income from continuing operations of $726.4 million a year earlier. On a non-GAAP basis, net loss from continuing operations was $2.1 million, compared with non-GAAP net income of $7.2 million in the prior-year period.

Diluted loss per ADS from continuing operations was $3.43, compared with diluted earnings per ADS of $11.47 in the second quarter of 2025. Non-GAAP diluted loss per ADS was $0.03, versus non-GAAP diluted earnings of $0.12 a year earlier.

Xunlei said there were no discontinued operations in the second quarter following the disposal of its Shenzhen Wanxin business in the prior quarter.

Buyback underway; company monitors investment holdings

Cash equivalents and short-term investments totaled $276.9 million as of June 30, down from $303.6 million as of March 31. Zhou said the decrease reflected net operating cash outflows, bank loan repayments, share-repurchase disbursements and deferred consideration payments related to the Hupu acquisition.

The board approved a new $20 million share-repurchase program at the end of June, and the program began July 1. During the question-and-answer session, Zhou said that as of Aug. 12, Xunlei had repurchased about 1.07 million ADSs for approximately $5.9 million. The program remains in progress, with further details expected in the third-quarter financial report.

Regarding Arashi Vision, Zhou said Xunlei held a 7.8% equity interest and was completing procedures that would allow it to reduce the position, though it had no specific disposal plan at the time of the call. He added that Xunlei is monitoring its appreciated assets and may gradually adjust holdings if necessary to keep investment securities below 45% of total assets, excluding government securities and cash items. The company said it intends to remain focused on its consumer-facing core business rather than operate as an investment company.

About Xunlei (NASDAQ:XNET)

Xunlei Limited NASDAQ: XNET is a China-based technology company specializing in content acceleration and cloud services. Its core offerings include the Xunlei download manager, which integrates peer-to-peer (P2P) and cloud-based acceleration technologies to enhance file delivery speeds for large downloads. The company has expanded its suite of products to encompass cloud storage solutions, media streaming applications and mobile browsing tools, all aimed at improving digital content distribution and user experience.

Founded in 2003 and headquartered in Shenzhen, Xunlei originally gained traction by addressing bandwidth constraints in China's burgeoning internet market.

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