Xunlei (XNET) Q2 2026 Earnings Call Transcript

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DATE

Thursday, Aug. 13, 2026 at 8:00 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Jinbo Li
• Chief Financial Officer - Eric Zhou
• Vice President of Finance - Lee Li
• Investor Relations Manager - Luhan Tang

TAKEAWAYS

• Total Revenues -- $102.7 million, up 38.9% year over year, driven by growth in subscription and overseas audio live-streaming segments.
• Subscription Revenues -- $44.5 million, a 22.6% increase year over year, reflecting sustained user demand for premium product offerings.
• Live-Streaming and Other Revenues -- $58.2 million, up 54.8% year over year, primarily due to the expansion of overseas audio live-streaming and higher advertising revenue.
• Hupu Revenue -- $9.1 million for the quarter, benefiting from the peak advertising season and a slate of major global sporting events.
• Gross Profit -- $57.3 million, up 23.1% year over year, fueled by both the subscription business and advertising revenue.
• Gross Margin -- 55.8%, down from 63% in the prior-year period, reflecting a structural revenue mix shift toward lower-margin live-streaming services.
• Cost of Revenues -- $44.8 million, or 43.6% of total revenues, compared with $27 million in the same period last year.
• Revenue Sharing Expenses -- Increased for overseas audio live-streaming operations, aligning with the growth in live-streaming revenue.
• Research and Development Expenses -- $21.4 million, representing 20.8% of total revenues, primarily due to higher labor costs.
• Sales and Marketing Expenses -- $27.9 million, or 27.2% of total revenues, reflecting increased promotional investment for user acquisition and brand visibility.
• General and Administrative Expenses -- $12.7 million, or 12.4% of total revenues, driven by provisions for ongoing legal litigations and higher employee-related costs.
• Operating Loss -- $4.8 million, a reversal from operating income of $0.3 million in the second quarter of 2025.
• Other Loss (Net) -- $213.8 million, compared with other income of $721.5 million last year, primarily due to fair value volatility of the investment in Arashi Vision Inc.
• Net Loss from Continuing Operations -- $218.5 million, compared with net income of $726.4 million in the prior-year period.
• Non-GAAP Net Loss from Continuing Operations -- $2.1 million, down from non-GAAP net income of $7.2 million in the same period last year.
• Diluted Loss per ADS -- $3.43 for the quarter, compared with diluted earnings per ADS of $11.47 in the second quarter of 2025.
• Cash and Short-Term Investments -- $276.9 million as of June 30, 2026, down from $303.6 million at the end of the first quarter.
• Share Repurchase Program -- $20 million authorized at the end of June 2026, with the program officially commencing on July 1.
• Buyback Execution -- $5.9 million spent to repurchase approximately 1.07 million ADSs as of Aug. 12, 2026.
• Arashi Vision Investment -- 7.8% equity stake, which the company is currently preparing to reduce in an ordinary manner.
• Regulatory Asset Compliance -- Management intends to maintain investment securities at a value not exceeding 45% of total assets, excluding cash and government securities, to comply with the 1940 Investment Company Act.

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RISKS

• CFO Zhou stated, "The notable margin decline stems from a structural revenue mix shift," noting that live streaming carries a lower gross margin than the subscription and advertising segments.
• CFO Zhou attributed the significant net loss to "fair value volatility on our long-term investment in Arashi Vision Inc.," which is measured based on public stock prices following its June 2025 initial public offering.
• CFO Zhou warned that general and administrative expenses increased to $12.7 million, "primarily driven by provision for ongoing legal litigations and higher employee-related costs year-over-year."

SUMMARY

Xunlei Limited (NASDAQ:XNET) reported revenue growth for the second quarter, reflecting expansion in the subscription and overseas live-streaming segments. Management stated that these results demonstrate the transition toward a consumer-centric business model and increased demand for premium services. The company experienced a decline in gross margin as live-streaming revenue, which carries lower profitability, became a larger portion of the total revenue mix. Xunlei recorded an operating loss and a net loss from continuing operations, with the latter driven by fair value volatility in its minority investment holdings. In response to these developments, the company commenced a share repurchase program and emphasized localized strategies in international markets to sustain corporate development.

• CEO Li stated that the quarterly results serve as "clear validation that our strategic pivot towards a consumer-centric business model is delivering tangible results."
• The company integrated new AI-powered features into its subscription services to boost user penetration and enhance premium member perks.
• Overseas audio live-streaming operations focused on high-potential markets, including Southeast Asia, the Middle East, Turkey, and Latin America.
• CFO Zhou noted that the company is consulting with advisers to ensure its investment holdings remain in compliance with the requirements of the 1940 Investment Company Act.
• CEO Li emphasized localized operational and marketing strategies in overseas markets to foster sustainable growth across core consumer verticals.
• Advertising revenue from the sports community reached peak levels during the quarter, driven by a slate of major global sporting events.

INDUSTRY GLOSSARY

• ADS: American Depositary Share, a U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange.
• Arashi Vision Inc.: A camera technology company, also known as Insta360, in which Xunlei holds a minority equity interest.
• Hupu: A Chinese sports-centric community and media platform acquired by Xunlei.
• 1940 Investment Company Act: A U.S. federal statute that regulates the organization of companies, including mutual funds, that engage primarily in investing and trading in securities.

Full Conference Call Transcript

Operator: Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei's Second Quarter 2026 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.

Luhan Tang: Good morning, and good evening, everyone, and thank you for joining Xunlei's Q2 2026 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 prepared opening remarks from Chairman and CEO, Mr. Jinbo Li, on Q2 operational highlights, followed by CFO, Eric Zhou's presentation of financial results details of Q2 before we 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 we get started, I'd 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 that 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 law.

On this call, we'll 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 prepared statements by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited: Good morning, and good evening, everyone. Thank you for joining our Q2 2026 earnings call. We're pleased to report continued top line growth this quarter, building on the solid consumer-focused growth foundations we established in Q1. These results serve as clear validation that our strategic pivot towards a consumer-centric business model is delivering tangible results.

Our 2 primary growth drivers, subscription services and overseas audio live streaming, each posted steady year-over-year increase in revenue. Let me walk you through the performance of these core consumer-facing businesses individually. First, our subscription business remains our stable cash flow foundation and reliable growth anchor. Q2 subscription revenue reached $44.5 million, up 22.6% year-over-year, while the growth rate softened marginally on the sequential basis. This segment maintained resilient user retention and steady monetization performance. During the quarter, we continued upgrading premium user experiences by rolling out new AI-powered features, optimizing existing functionality, deepening long-term cooperation with leading domestic smartphone partners and scaling our ecosystem user acquisition channels as planned.

Looking ahead, we will continue refining our differentiated member perks to boost user penetration and expand end device cooperation coverage, capturing incremental user acquisition and revenue growth in the second half of the year. Second, our overseas audio live streaming business once again emerged as our primary growth engine. In Q2, this segment generated $58.2 million in revenue, representing a significant 54.8% year-over-year increase. We continued deploying targeted investments in high-potential emerging markets, including Southeast Asia, the Middle East, Turkey and further expansion into Latin America. Concurrently, we enhanced localized product iteration and operational capabilities, optimizing our product matrix across one-on-one social interaction scenarios and multi-person chat rooms.

Additionally, we saw notable quarterly momentum for our Hupu business, which contributed $9.1 million in Q2 revenue, benefiting from the peak advertising season and the slate of major global sporting events. User discussion activity across the platform reached new highs. Our newly rolled out AI-powered features also meaningfully boosted user engagement and deepened interactive activity, creating an additional stream of incremental revenue across our consumer ecosystem. As we communicated in our previous quarterly reports, competition in the overseas entertainment market remains intense. Accordingly, we will stick to our long-term localized operational and marketing strategies instead of chasing near-term scale expansion, fostering sustainable business growth across all our core consumer verticals.

Beyond operational performance, to further reinforce market confidence and deliver long-term shareholder returns, we announced a new $20 million share repurchase program at the end of June. We believe that this initiative demonstrates our unwavering confidence in the company's solid fundamentals and long-term growth potential. We will maintain disciplined capital allocation, prioritizing investment in core consumer product innovation and international market expansion while returning excess capital to shareholders when appropriate. Looking ahead, we will stay firmly committed to our user-centric development strategy. We will further accelerate feature iteration for our subscription offerings, deepen market penetration within our established overseas markets, selectively pursue new regional growth opportunities and uphold strict cost discipline to expand profit margins across all business lines.

By balancing growth with profitability and through rigorous capital and operational management, we aim to promote balanced and sustainable corporate development. Against the backdrop of an evolving global market landscape, our targeted consumer positioning, 2 core business structure, advanced technological strength and localized operations serve as our key competitive edges. We are optimistic about delivering sustained long-term value to our users and shareholders alike. With that overview, I will now turn the call over to our CFO, Eric Zhou, who will walk you through our Q2 financial metrics in detail.

Eric Zhou: Thank you, Luhan, and thank you all for participating in today's conference call. I will now walk you through our financial results for the second quarter of 2026. For Q2 2026, total revenues came in at $102.7 million, up 38.9% year-over-year. This steady top line growth was primarily driven by rising revenues from our subscription business and our overseas audio live streaming business as well as improved Hupu's advertising business. Breaking down our revenue performance. Subscription revenues reached $44.5 million, a 22.6% year-over-year increase. This performance reflected the sustained user demand for a full suite of our premium product offerings. Revenue from live streaming and other services totaled $58.2 million, representing a 54.8% year-over-year increase.

This strong performance was driven chiefly by rapid expansion of our overseas audio live streaming operations alongside the growth in advertising revenue from our sports community during the peak sports season. Cost of revenues was $44.8 million during the quarter, accounting for 43.6% of total revenues. By comparison, in Q2 2025, cost of revenues came to $27 million, or 36.6% of total revenues. The uptick in our cost base largely aligned with the expansion of our live streaming revenue, driven mainly by increased revenue sharing expenses for our overseas audio live streaming operations. Turning to profitability. We generated $57.3 million in gross profit during the second quarter of 2026, up 23.1% year-over-year.

Gross margin stood at 55.8%, compared with 63% in the prior year period. The gross profit improvement was fueled by both our subscription business and the Hupu advertising revenue. The notable margin decline stems from a structural revenue mix shift. Since live streaming carries a lower gross margin than subscription and advertising business, its larger share of total revenue mix modestly compressed our overall gross margin. On the expense front, R&D expenses were $21.4 million in Q2 2026, representing 20.8% of total revenues compared with $16.6 million or 22.4% of total revenues in Q2 2025. The year-over-year increase was mainly due to higher labor costs.

Sales and marketing expenses rose to $27.9 million during the second quarter of 2026, representing 27.2% of revenue compared with $20.7 million or 28% of total revenues in Q2 2025. The increase in absolute marketing spending reflected ramp-up promotional investment across our subscription and overseas audio live streaming operations as we continued to proactively prioritize acquisition and brand visibility. G&A expenses came in at $12.7 million, equal to 12.4% of total revenues, versus $8.5 million or 11.6% of total revenue in Q2 2025. The increase was primarily driven by provision for ongoing legal litigations and higher employee-related costs year-over-year.

At the operating level, we posted an operating loss of $4.8 million this quarter, a reversal from operating income of $0.3 million in the same period last year. This swing was largely due to the sequential and year-over-year rise in our selling, marketing and general and administrative expenses outlined above. We posted a net other loss of $213.8 million for the quarter versus net income of $721.5 million in Q2 2025. The dramatic swing was mainly driven by fair value volatility on our long-term investment in Arashi Vision Inc., which is accounted for on a mark-to-market basis using public stock prices after the company's IPO in June 2025.

Unlike Q1, there were no discontinued operations to report for Q2 2026, following the disposal of our Shenzhen Onething business last quarter. Our net loss from continuing operations was $218.5 million this quarter compared with net income of $726.4 million in Q2 2025. The net loss was mainly due to the material net other loss just mentioned, partially offset by positive gross profit growth in our core consumer-facing business. On a non-GAAP basis, we posted a non-GAAP net loss from continuing operations of $2.1 million, down from non-GAAP net income of $7.2 million in the prior year period.

On a per share basis, diluted loss per ADS from continuing operations was $3.43 for the quarter compared with diluted EPS of $11.47 in Q2 2025. Our non-GAAP diluted loss per ADS from continuing operations came to $0.03 versus non-GAAP diluted earnings of $0.12 per ADS in the same period last year. Finally, on our balance sheet. As of June 30, 2026, cash, cash equivalents and short-term investments totaled $276.9 million, down from $303.6 million as of March 31, 2026. The sequential decrease was primarily driven by net operating cash outflows, bank loan repayments, disbursements related to our newly announced share repurchase program and deferred consideration payments related to our Hupu acquisition. This concludes our prepared remarks.

Operator, we are now ready to open the line for questions.

Operator: [Operator Instructions] First question comes from the line of [ Zoe Zhang ], retail investor.

Unknown Attendee: [Foreign Language]

Eric Zhou: The question is the company announced a share repurchase program at the end of June, but she didn't see any share repurchase information in our press release and she'd like to know what's going on with the buyback program. Thanks for asking. The Board of Directors of the company approved a new share repurchase program of $20 million at the end of June, and the repurchase officially commenced on July 1. And as of August 12, we bought back approximately 1.07 million shares of ADS and spent approximately $5.9 million, and the repurchase program remains ongoing, and more details will be disclosed in our third quarter financial report. Thank you.

Luhan Tang: [Foreign Language]

Operator: [Operator Instructions] Next, we have [ X. J. ], individual shareholder.

Unknown Attendee: [Foreign Language]

Eric Zhou: Okay. Basically, his question is surrounding our stake in [indiscernible] Arashi Vision Inc. And he'd like to know our progress in reducing our stake in this investment and what our plans for the proceeds for the future. And thank you for the question. And currently, we hold more than 5% of shareholders or exactly 7.8% of Vision's equity stake. And we need to follow certain regulatory rules and regulations when we began to sell the stock and do it in an ordinary manner and make timely disclosure. And for the time being, we are following -- going through certain procedures to get ready to reduce our stake in the company.

But at this time, we have no specific plans for the share disposal for the time being. And he also asked a question regarding the 1940 Investment Company Act. And according to that, 1940 Investment Act, a listed company needs to follow certain regulations to be in compliance with the requirements of the Investment Act. And we will continue to monitor our holdings of our operated assets, and we've been consulting with relevant advisers. And if needed, we will gradually seek to adjust our holdings so that Xunlei holds investment securities with a value not exceeding 45% of the company's total assets, excluding government securities and cash items.

In line with the company's intention to mainly engage in the core business, which is the consumer-facing business, 2C business, we never intend to be an investment company. Thank you.

Luhan Tang: [Foreign Language]

Operator: Thank you. I see no further questions at this time. I will now turn the conference back to Eric for closing remarks.

Eric Zhou: Thank you again your time and participation. For any follow-up inquiries, please visit our website at ir.xunlei.com or contact our Investor Relations team. Have a good day. Operator, we conclude today's conference call. Thank you.

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

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