Xunlei Limited (XNET) Q2 2025 Earnings Report, Transcript and Summary

Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 remarks from Chairman and CEO, Mr. Jinbo Li on Q2 operational highlights, followed by CFO, Eric Joe'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 at ir.xunlei.com. 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 assume 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.

[Interpreted] 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 achievements, the successful acquisition of Hupu, a leading online community for sport enthusiasts, expanding Xunlei's reach into new user segments and content domain. Meanwhile, the IPO of Arashi Vision Inc., one of our invested companies, highlighted our strategic investment capabilities and our ability to identify high potential ventures. Additionally, we reported year-over-year revenue growth of 30.6%, driven by strong performance across key business segments. This growth underscores the resilience of our business model and the effectiveness of our growth strategy. Just as I mentioned earlier, all of our core businesses showed robust growth during the second quarter. I'd like to take a moment to walk you through each segment and share some insights into 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 a number of the subscribers reaching 6.4 million. This growth was primarily driven by our continuous improvement on the existing features, our efforts to meet evolving user needs as well as more refined marketing strategies aimed at expanding our diverse user base. Additionally, the percentage of users choosing our premium subscription, our highest tier offering rose to 81%, up from 77.1% in Q2 2021. It serves as evidence that our products and services have achieved user affirmation, and we're confident that our subscription offerings will continue to gain popularity among our value user base. We're also excited to report our live streaming and other services achieved a strong year-over-year revenue growth of 85.5% in the second quarter, reaching $37.6 million, this growth was largely fueled by the expansion of our overseas audio live streaming business as well as advertising revenue from the recent acquisition of Hupu. We remain committed to defending our presence in international markets by improving user engagement and continuously enhancing our features and services. Additionally, we are pleased to welcome Hupu to our Xunlei family. We expect integration of Hupu will bring valuable complementary strengths and synergies, particularly in the areas of community-driven content, sports and lifestyle sectors as well as in advertising resources and strategies. We believe this collaboration will create promising new opportunities for future growth. Additionally, our cloud computing business brought in $30 million in revenue, marking a 13.6% increase compared to the same period in 2024. This growth is largely due to the recovery from previous setbacks and a rising demand from our major clients. As we focus on providing cost-effective, scalable and secure solutions that meet the diverse needs of our enterprise clients. At the same time, we actively tackled ongoing challenges such as competition and market uncertainties, turning them into opportunities for innovation and expansion. Our team's acute business sense and agile approach helps to strengthen our market position and capacity to explore future options. During the second quarter, we booked approximately $720 million on realized pretax capital gains on our investment in our Arashi Vision Inc. I believe that the future returns on this investment will provide a solid foundation for our sustained efforts to enhance operational efficiency and pursue innovative growth opportunities in the emerging industries. Looking ahead, I'm 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 as well as all stakeholders. With that, I'll now pass the call over to Eric. Eric will give a detailed review of 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 were 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 1 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 2020 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. G&A 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 the 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 at 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 2022 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 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, no shares were 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. And 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 substituting and any change could be material. Now we conclude prepared remarks for the conference call. Operator we are ready to take questions.

[Operator Instructions] We will now take our first question from the line of [ Di Li ].

[Foreign Language].

Thank you [indiscernible] high maintenance and congrats for your good performance for the second quarter of 2025. And she mentioned that our live streaming business achieved more than 80%, quarter-on-quarter increase. And she would like to know the breakdown of the components of the live streaming and other services for the Hupu. Thanks for your question. The acquisition of Hupu completed at the end of May this year. And during the second quarter only Hupu's financial debt for the month of June was consolidated, contributing about USD 3.2 million or approximately 3.1% of our total revenues. And we expect to report more for Hupu's operational debt during the coming quarters.

[Foreign Language].

[Foreign Language].

Excluding Hupu's contribution, what would be the growth rate of our overseas live streaming business? And the revenue from live streaming and other services together were $37.6 million, representing an increase of 85.5% year-on-year. And if we exclude Hupu's contribution, the growth rate for the second quarter for overseas live streaming business alone was about 80.3%.

[Foreign Language]. [Operator Instructions] We will now take our next question from the line of [ Wei Zhou from HWS Fund ].

[Foreign Language].

Okay. Basically he would like to know the performance of each of our 3 main business segments. And he would like to also know that if our Hupu operations will make positive contributions to our total performance? Basically, as I mentioned, we have 3 main businesses. And for subscription business, basically, it contributed all our positive operating income. And for our live streaming business and it's still in the growth stage, and we're still investing heavily in this business. And so far, it's still losing money. And for our cloud computing business and recently, it had improved the performance. But overall, the sector is still losing money. So we have 1 segment making money and 2 other segments are still losing on. And for our Hupu business, and in June, it contributed to our top line and also it made positive contributions to the bottom line and though we do not provide earnings or net income guidance, but we do expect Hupu business on a yearly basis, will make positive contributions to our total performance.

[Foreign Language]. [Operator Instructions] 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 at ir.xunlei.com 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. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.