Xunlei Ltd Q2 FY2025 Earnings Call

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei's Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to turn the call over to the host, Investor Relations Manager, Ms. Luhan Tang.

Good morning, and good evening, everyone, and thank you for joining Xunlei's Q2 2025 Earnings Conference Call. With me today are Eric Zhou, CFO; and Lee Li, Vice President of Finance. Our IR website has our earnings press release to supplement our prepared remarks during the call. Today's agenda includes a prepared opening remark from Chairman and CEO, Mr. Jinbo Li on Q2 operational highlights, followed by CFO, Eric Zhou's presentation of financial results details of Q2 2025 and revenue guidance for Q3 2025 before I open up the floor to your questions in the Q&A session. Please note that this call is recorded and can be replayed on our Investor Relations website. Before I get started, I would like to take this opportunity to remind you that the discussion today will contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are based on our management's current expectations under existing market conditions and are subject to risks and uncertainties that are difficult to predict, which may cause actual results to differ materially from those made in forward-looking statements. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. Xunlei assumes no obligations to update any forward-looking statements, except as required under applicable law. On this call, we will be using both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to comparable GAAP measures can be found in our earnings press release. Please note that all numbers are in U.S. dollars unless otherwise stated. Now the following is the prepared statement by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited.

Good morning and good evening, everyone. Thank you for joining us today. The second quarter of 2025 marked a significant milestone for Xunlei. During this period, we achieved a series of notable accomplishments, including the successful acquisition of Hupu, a leading online community for sports enthusiasts, which expands Xunlei's reach into new user segments and content domains. Additionally, the IPO of Arashi Vision Inc., one of our invested companies, showcased our strategic investment capabilities and our ability to identify high potential ventures. We also reported year-over-year revenue growth of 30.6%, driven by strong performance across key business segments. This growth demonstrates the resilience of our business model and the effectiveness of our growth strategy. All of our core businesses experienced robust growth during the second quarter. I’d like to provide insights into each segment and the key drivers behind this performance. In Q2, our subscription business generated $36.4 million in revenue, reflecting a 10.5% increase compared to the same period in 2024. Notably, we achieved a new record with 6.4 million subscribers. This growth was mainly fueled by our continuous enhancement of existing features, efforts to meet evolving user needs, and more refined marketing strategies aimed at expanding our diverse user base. The percentage of users opting for our premium subscription, our highest tier offering, rose to 81%, up from 77.1% in Q2 2021. This indicates that our products and services have gained user affirmation, and we believe our subscription offerings will continue to grow in popularity among our valued user base. We’re also excited to report that our live streaming and other services experienced strong year-over-year revenue growth of 85.5% in the second quarter, reaching $37.6 million. This growth was significantly supported by the expansion of our overseas audio live streaming business and advertising revenue from the recent acquisition of Hupu. We remain committed to strengthening our presence in international markets by enhancing user engagement and continuously improving our features and services. We are pleased to welcome Hupu to our Xunlei family and expect that its integration will bring valuable complementary strengths and synergies, especially in community-driven content, sports and lifestyle sectors, as well as in advertising resources and strategies. We believe this collaboration will create promising opportunities for future growth. Our cloud computing business also generated $30 million in revenue, a 13.6% increase compared to the same period in 2024, largely due to recovery from previous setbacks and rising demand among our major clients. We are focused on delivering cost-effective, scalable, and secure solutions that meet the diverse needs of our enterprise clients. Additionally, we are addressing ongoing challenges such as competition and market uncertainties, turning them into opportunities for innovation and expansion. Our team's keen business sense and agile approach strengthen our market position and capacity to explore future options. In the second quarter, we booked approximately $720 million in realized pretax capital gains on our investment in Arashi Vision Inc. I believe the future returns on this investment will provide a solid foundation for our ongoing efforts to enhance operational efficiency and pursue innovative growth opportunities in emerging industries. Looking ahead, I am confident that the financial flexibility gained from this success will enable us to further strengthen our core business, invest in cutting-edge technologies, and expand into high-growth markets. We intend to explore all options to create value for our shareholders and all stakeholders. With that, I’ll pass the call over to Eric, who will review our Q2 2025 financial results and provide revenue guidance for the third quarter of 2025.

Thank you, Luhan. Thank you all for participating in Xunlei's conference call to discuss the financial results of the second quarter call of 2025. In the second quarter, our total revenues were $104 million, representing an increase of 30.6% year-over-year. The increase in total revenues was mainly attributable to the increased revenues generated from our major business operations. Revenues from subscriptions were $36.4 million, presenting an increase of 10.5% year-over-year. The increase in subscription revenues was mainly driven by the increase in the number of subscribers and the increased average revenue per subscriber. The number of subscribers was 6.4 million as of June 30, 2025, compared with 5.71 million on June 30, 2024. The average revenue per subscriber for the second quarter was RMB 40.8 compared with RMB 39.5 in the same period of last year. The higher average revenue per subscriber was due to the increased proportion of premium subscribers which have high average revenue per subscriber. Revenues from live streaming and other services were $37.6 million, representing an increase of 85.5% year-over-year. The increase was mainly due to the growth of our overseas audio live streaming business as well as advertising business as a result of the acquisition of Hupu in June this year. The second quarter results included one month financial results from Hupu. Revenues from cloud computing were $30 million, representing an increase of 13.6% year-over-year. The increase in cloud computing revenues was mainly attributable to the recoveries from previous loans and increased demand from our major customers for cloud computing services. Cost of revenues were $52.3 million, representing 50.3% of our total revenues compared with $38.6 million or 48.5% of the total revenues in the same period of 2024. The increase in cost of revenues was mainly attributable to the increase in bandwidth costs and revenue sharing expenses in our overseas audio live streaming operations generally in line with the growth in revenues. Gross profit for the second quarter of 2025 was $51.2 million, representing an increase of 25.9% year-over-year. Gross profit margin was 49.3% in the second quarter of 2025 compared with 51.1% in the same period of 2024. The increase in gross profit was mainly driven by our overseas audio live streaming business, subscription business, and advertising business. The decrease in gross profit margin was mainly attributable to the decreased gross profit margin of our cloud computing business. Research and development expenses for the second quarter of 2025 were $18.4 million, representing 17.7% of our total revenues, compared with $17.5 million or 21.9% of our total revenues in the same period of 2024. This increase in R&D spending was primarily due to the increased labor costs incurred during the quarter. Sales and marketing expenses for the second quarter of 2025 were $21.6 million, representing 20.8% of our total revenues compared with $10.9 million or 13.7% of our total revenues in the same period of 2024. The increase was primarily due to more marketing expenses incurred during the quarter for our subscription and overseas audio live streaming business as part of our ongoing efforts on acquisition. General and administrative expenses for the second quarter of 2025 were $9.8 million, representing 9.4% of our total revenues compared with $11.2 million or 0.41% of our total revenues in the same period of 2024. The decrease was primarily due to the decrease in provision for litigation, depreciation expenses, and labor costs during the second quarter of 2025. Operating income was $1.1 million compared with an operating income of $1 million in the same period of 2024. Other income, net was $721.8 million compared with other income, net of $2.5 million in the same period of 2024. The increase was primarily attributable to the fair value changes in our long-term investment in Arashi Vision Inc., which completed its IPO in June 2025. Net income was $727.4 million compared with net income of $2.5 million in the same period of 2024. The increase in net income was primarily due to the increase in other income. Non-GAAP net income was $8.3 million in the second quarter of 2025 compared with $3.2 million in the same period of 2024. The increase in non-GAAP income was primarily due to the increase in operating income and income tax benefits. Diluted income per ADS in the second quarter of 2025 was $11.48 compared with diluted earnings per ADS of $0.04 in the second quarter of 2024. Non-GAAP diluted earnings per ADS was $0.13 in the second quarter, compared with non-GAAP diluted earnings per ADS of $0.05 in the same period of 2024. As of June 30, 2025, the company had cash, cash equivalents and short-term investments of $275.6 million compared with $274.6 million as of March 31, 2025. The increase was mainly due to the increase in proceeds from bank borrowings and net cash inflow from operating activities, partially offset by the payment for the acquisition of Hupu. On June 4, 2024, Xunlei announced that its Board of Directors authorized a new plan for the purchase of up to $20 million of its stock over the 12 months that followed. As of June 4, 2025, the company had spent $6.5 million on share buybacks under the new share repurchase program, with no shares purchased during the second quarter of 2025. Now let's turn to the guidance for the third quarter of 2025. For the third quarter of 2025, Xunlei estimates total revenues would be between $116 million and $124 million. The midpoint of the range presents a quarter-over-quarter increase of approximately 15.4%. This estimate represents management's preliminary view as of the date of this press release, which is subject to change and any change could be material. Now we conclude prepared remarks for the conference call.

We will now take our first question from the line of an unidentified analyst.

Thank you and congratulations on your strong performance for the second quarter of 2025. You noted that our live streaming business saw more than an 80% increase quarter-on-quarter. I would like to understand the components of live streaming and other services for Hupu. Thank you for your question. The acquisition of Hupu was finalized at the end of May this year. In the second quarter, we only included Hupu's financial data for June, which accounted for about $3.2 million or roughly 3.1% of our total revenues. We anticipate providing more information on Hupu's operational data in the upcoming quarters.

I would like to know the breakdown of the components of the live streaming and other services for Hupu. The acquisition of Hupu was completed at the end of May this year. During the second quarter, we only consolidated Hupu's financial data for June, which contributed about $3.2 million or approximately 3.1% of our total revenues. We expect to provide more information about Hupu's operational data in the coming quarters.

Excluding Hupu's contribution, what would be the growth rate of our overseas live streaming business? Revenue from live streaming and other services together was $37.6 million, reflecting an increase of 85.5% year-on-year. If we disregard Hupu's influence, the growth rate for the overseas live streaming business alone for the second quarter was approximately 80.3%.

Excluding Hupu's contribution, the growth rate for our overseas live streaming business in the second quarter was about 80.3%. Revenue from live streaming and other services together was $37.6 million, which represents an increase of 85.5% year-on-year.

I would like to know the performance of each of our three main business segments and whether our Hupu operations will positively impact our overall performance. As I mentioned, we have three primary businesses. Our subscription business is generating all of our positive operating income. Our live streaming business is still growing, and we are making significant investments in it, but it continues to incur losses. Our cloud computing business has recently shown some improvement, but overall, it is still operating at a loss. Therefore, we have one segment that is profitable and two that are not. Regarding our Hupu business, in June, it contributed to our revenue and positively impacted our overall results. While we do not provide guidance on earnings or net income, we anticipate that, on a yearly basis, the Hupu business will contribute positively to our overall performance.

I'm showing no further questions. I'd now like to turn the conference back to the management team for closing comments.

Thank you again for your time and participation. If you have any questions, please visit our website or send us e-mails to our Investor Relations. Have a good day. Operator, we conclude today's conference call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect your lines.