Xunlei Limited (XNET) Q3 FY2025 Earnings Call Transcript & Summary

Welcome, ladies and gentlemen. Thank you for your patience. You've joined Xunlei Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your host, Investor Relations Manager, Ms. Luhan Tang. Please go ahead.

Good morning, and good evening, everyone. Thank you for joining Xunlei's Q3 2025 Earnings Conference Call. With me today are Mr. Jinbo Li, Chairman and CEO; 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 Q3 operational highlights, followed by CFO, Eric Zhou's presentation of financial results details of Q3 2025 and the revenue guidance for the Q4 2025 before we open up the floor to your questions in the Q&A session. Mr. Jinbo Li will answer 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 we 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 the 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 obligation to update any forward-looking statements, except as required under applicable laws. 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. We're pleased to report that the third quarter of 2025 continued to demonstrate positive growth momentum, supported by solid performance across all of our major business operations. Our top line exceeded the upper end of our expectations, reaching total revenues of $126.4 million, representing an over-year of increase of 57.7%. This outcome underscores the effectiveness of our initiatives to enhance user experience and deepen community engagement as well as the further expansion of our overseas audio live streaming operations. Our bottom line, on the other hand, continued to benefit significantly from the increased stock price of our investee company, Arashi Vision Inc. during the third quarter following its IPO in June this year and reflected a gain of $545.8 million resulting from the fair value changes in our approximately 7.8% equity stake in the company. We believe that future realization of investment gains will drastically strengthen our balance sheet and provide strategic flexibility to pursue opportunities in research and development of new technologies, pursuing industry collaboration, selective investments as well as more options for the shareholder return. Now let me take a moment to walk you through each segment and share some insights into the key drivers behind this performance. In Q3, our subscription business achieved significant milestones, generating $40.7 million in revenue, a 22.3% increase compared to the same period in 2024. This sustained growth underscored the strength and resilience of our business model as well as increased trust users place on our product offerings. A key highlight was the subscription revenue reached a record high, reflecting strong market demand for our services. This upward trajectory is attributable to several strategic initiatives driven by continuous product integration and the integration of the user feedback, which enhanced user satisfaction and both organic growth. We developed more refined strategies tailored to various platforms, enabling effective engagement with diverse audience segments across demographics. Furthermore, our live streaming and other services achieved robust year-over-year revenue growth of 127.1% in the third quarter, reaching $49.1 million. The growth was primarily driven by the rapid expansion of our overseas audio live streaming operations, which have gained strong traction in multiple international markets. In addition, the acquisition of Hupu significantly contributed to our advertising revenue, bringing in high-quality monetization opportunities through its established platform and audience reach. Hupu's strong presence in the sports digital space has allowed us to tap into the highly engaged community of sports enthusiasts, enabling more effective ads targeting and higher advertiser satisfaction. Finally, our cloud computing business generated $36.6 million in revenue, representing a significant year-over-year increase of 44.9% compared to the same period in 2024. This notable growth reflected a strong recovery from earlier setbacks. With the rebound in client demand, particularly among large enterprise customers, we successfully capitalized on emerging opportunities by enhancing our service offerings to provide more tailored, cost-effective, scalable and secure solutions. But despite the increased revenues, our cloud computing business still faced challenges and headwinds. Looking ahead, we intend to foster innovation, enhance operational resilience and a capitalize on emerging opportunities to drive long-term growth and deliver a durable value to our shareholders. With that, I will now pass the call over to Eric. Eric will give a detailed review of our Q3 2025 financial results and provide revenue guidance for the fourth quarter of 2025. Thank you.

Thank you, Luhan. Thank you all again for participating in Xunlei's conference call to discuss the financial results of the third quarter of 2025. In the third quarter, our total revenues were $126.4 million, representing an increase of 57.7% year-over-year. The increase in total revenues was mainly attributable to the increased revenue generated from our major business operations. Revenues from subscription were $40.7 million, representing an increase of 22.3% year-over-year. The increase in subscription revenues was driven by the increase in the number of subscribers and the increased average revenue per subscriber. The number of subscribers was 6.56 million as of September 30, 2025, compared with 5.51 million as of September 30, 2024. The average revenue per subscriber for the third quarter was RMB 44.2 compared with RMB 40.9 in the same period of last year. The higher average revenue per subscriber was due to the increased proportion of premium subscribers, which have higher average revenue per subscriber. Revenues from live streaming and other services were $49.1 million, representing an increase of 127.1% year-over-year. The increase was mainly due to the growth of our overseas audio live streaming business as well as advertising business. Revenues from cloud computing were $36.6 million, representing an increase of 44.9% year-over-year. The increase in cloud computing revenues was mainly attributable to the increased demand from major customers for our cloud computing services. Cost of revenues were $65.4 million, representing 51.7% of our total revenues compared with $39.4 million or 49.1% 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, especially, generally in line with the growth in revenues. Bandwidth costs as included in cost of revenues were $38.3 million, representing 30.3% of our total revenues compared with $24.8 million or 31% of the total revenues in the same period of 2024. The increase in bandwidth costs was primarily due to the increased sales of our cloud computing services. Gross profit for the third quarter of 2025 was $60.5 million, representing an increase of 49.6% year-over-year. Gross profit margin was 47.9% in the third quarter of 2025 compared with 50.5% in the same period of 2024. The increase in gross profit was mainly contributed by our online advertising business, overseas audio live-streaming business and subscription business. The decrease in gross profit margin was mainly attributable to the decreased gross profit margin of our cloud computing business and higher proportion of revenues derived from our audio live-streaming business, which has a lower gross profit margin. R&D expenses for the third quarter of 2025 were $21 million, representing 16.6% of our total revenues compared with $17.7 million or 22.1% of our total revenues in the same period of 2024. The increased expenses were primarily due to the increase in labor costs as compared with the same period of 2024. Sales and marketing expenses for the third quarter of 2025 were $25.8 million, representing 20.4% of our total revenues compared with $11.5 million or 14.3% of our total revenues in the same period of 2024. The increases were 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 user acquisition. G&A expenses for the third quarter of 2025 was $10.9 million, representing 8.6% of our total revenues compared with $11.4 million or 14.2% of our total revenues in the same period of 2024. The decreased expenses were primarily due to the decrease in labor costs, partially offset by the increase in provision for litigations and share-based compensation expenses during the third quarter of 2025. Operating income was $2.7 million compared with an operating loss of $0.2 million in the same period of 2024. The increase in operating income was primarily attributable to the increase in gross profit, partially offset by the increase in marketing and other operating expenses during the quarter. Other income net was $547.7 million compared with other income net of $4.8 million in the same period of 2024. The increase was primarily due to the fair value changes in the third quarter for our long-term investment in Arashi Vision Inc., which completed its IPO in June 2025. Net income was $550.1 million compared with net income of $4.4 million in the same period of 2024. The increase in net income was primarily due to the increase in other income, as mentioned above. Non-GAAP net income was $5.3 million in the third quarter of 2025 compared with $4.9 million in the same period of 2024. The increase in non-GAAP net income was primarily due to the increase in operating income. Diluted income per ADS in the third quarter of 2025 was $8.60 compared with diluted earnings per ADS of $0.07 in the third quarter of 2024. Non-GAAP diluted earnings per ADS was $0.09 in the third quarter of 2025 compared with non-GAAP diluted earnings per ADS of $0.08 in the same period of 2024. As of September 30, 2025, the company had cash, cash equivalents and short-term investments of $284.1 million compared with $275.6 million as of June 30, 2025. The increase was mainly due to the increase in net cash inflows from operating activities during the quarter. Turning to our guidance. For the fourth quarter of 2025, Xunlei estimates total revenues to be between $131 million and $139 million and the midpoint of the range represents a quarter-over-quarter increase of approximately 6.8%. 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. Operator, we are ready to take questions.

[Operator Instructions] first question comes from [ Zhao Lin Tan from BT Capital. ]

[Foreign Language]

[Interpreted] Investor asking Xunlei has not paid any dividend historically -- given the fact that [indiscernible] our investment in [ Xunlei ] and the upcoming expiration of the markup period next year, does Xunlei plan to consider dividend distribution in the future?

[Foreign Language]

[Interpreted] So Xunlei holds more than 5% of the shares. If we want to sell our shares, we have to follow certain regulatory rules and also the regulation. So far, we don't have any plans to -- for the share disposals or the dividend distribution.

[Foreign Language]

[Interpreted] So the investors asking Xunlei has previously mentioned that we would embrace artificial intelligence. So are there any like progress that made so far?

[Foreign Language]

[Interpreted] We're very excited for the futures of artificial intelligence. We're actively exploring the opportunities in this field. We look forward to sharing our progress with you in the future. Thank you.

[Operator Instructions] I see no further questions at this time. I will now pass back to management.

Thank you again for your time and participation. And if you have any questions, please visit our website at ir.xunlei.com or send 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.