Xunlei Q3 2026 Earnings Call Transcript

Xunlei (NASDAQ:XNET) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Xunlei Ltd reported 12.9% year-over-year revenue growth in Q3 2026, reaching $101.3 million, driven by subscription and overseas live streaming businesses.

The company is refining its user acquisition strategy and investing in feature upgrades to enhance user retention and lifetime value in its subscription business.

Despite facing significant industry competition, the overseas audio live streaming business grew, with increased marketing spend expected to yield future returns.

Hufu’s advertising business saw strong momentum due to the World Cup, contributing to revenue growth, but the company is aware of the cyclical nature of such boosts.

Xunlei completed a $20 million share repurchase program and announced a new $20 million program for the next 12 months to return capital to shareholders.

The company reported a net loss of $235.8 million, primarily due to fair value changes in its investment in Arashi Vision, with a non-GAAP net loss of $16.4 million.

Management discussed plans to eventually divest from its Arashi Vision investment, but no specific timeline or strategy has been set due to market conditions and regulatory procedures.

Full Transcript

OPERATOR

Welcome ladies and gentlemen, and thank you for your patience. You have joined Xunlei’s third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to turn the call over to the host, Investor Relations Manager, Ms. Lu Hantang. Please go ahead.

Lu Hantang (Investor Relations Manager)

Good morning and good evening everyone, and thank you for joining Xunlei’s Q3 2026 earnings conference call. With me today are Jinbo Li, Chairman and CEO; Eric Zhou, CFO; and 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 our Q3 operational highlights, followed by CFO Eric Zhou’s presentation of the details of our Q3 financial results, before we open up the floor to your questions in the Q&A session. Please note that this call is being recorded and can be replayed on our investor relations website at ir.finlay.com.

Before we get started, I would like to remind you that today’s discussion 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 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 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.

The following is the prepared statement by Mr. Jinbo Li, Chairman and CEO of Xunlei Ltd.

Jinbo Li (Chief Executive Officer)

Good morning and good evening everyone. Thank you for joining our Q3 2026 earnings conference call. We’ve delivered year-over-year revenue growth in the third quarter, though at a moderated pace, as we navigated evolving market dynamics and executed strategic adjustments across our core consumer businesses. Total revenue reached $101.3 million, up 12.9% year over year. Both our subscription business and our live streaming and other services business maintained positive year-over-year growth and generated revenue of $44.1 million, up 8.5%, and $57.2 million, up 16.6%, respectively.

Let me walk you through the performance of these core businesses. First, our subscription business, which remains our stable cash flow foundation, saw a slower year-over-year growth rate this quarter. This moderation stemmed from a targeted reset of our user acquisition strategy that we began rolling out in Q2 and into Q3. While we’re seeing near-term revenue softness during the transition, we believe that the refined acquisition framework and the monetization model we’re building will drive healthier, more sustainable growth in the quarters ahead.

We continue to invest in feature upgrades, discover users’ emerging interests and needs, and refine differentiated user benefits to lift user retention and lifetime value. Second, our overseas audio live streaming business continued to grow year over year, but faced significant industry headwinds. The overseas entertainment landscape has become increasingly competitive, with rising user acquisition costs putting pressure on our campaign efficiency. We’re actively refining our localized product matrix and traffic allocation models to improve spending returns and capture higher-quality users across Southeast Asia, the Middle East, Turkey and Latin America.

We also increased our marketing spending in Q3, which created near-term pressure on profitability. Marketing investments typically involve a lag before returns are finally realized, and we expect the benefits of these calibrated investments to materialize gradually in future periods. We will remain disciplined and data-driven as we test and optimize our go-to-market approach. We also saw strong momentum on Hufu’s advertising business in the third quarter. Benefiting from this World Cup year, the platform reported a notable uptick in traffic and user engagement. Both brand advertising and performance advertising delivered meaningful growth. Since joining Xunlei’s product matrix, Hufu has consistently generated steady profits. The platform maintains solid user activity and stickiness, serving as a valuable complementary asset to our core consumer businesses.

As this event-driven boost from sports events is cyclical, we are exploring additional product offerings to smooth our operating performance. Turning to shareholder return, as previously announced, we launched our $20 million share repurchase program on July 1 this year. As of September 30, 2026, we had spent $13.8 million under this program. As of today’s earnings release, we have hit the maximum authorized number of shares for the program, fully exhausting our share authorization. Lower market price allows us to acquire the full authorized number of shares with less than the originally anticipated $20 million.

In further demonstration of our unwavering commitment to returning capital to shareholders, our Board of Directors has approved a new $20 million share repurchase authorization for the next 12 months, reinforcing our belief in the strength of our balance sheet, the durability of our cash flows, and the compelling long-term value proposition of our business. Looking ahead, we will remain anchored in our user-centric strategy. We will keep iterating on product features, selectively deepen penetration in our priority overseas markets, and maintain strict cost discipline while balancing growth, investment and profitability. We will continue to prioritize capital allocation towards core product innovation and international expansion while making thoughtful trade-offs to improve unit economics. We believe that our differentiated consumer positioning, dual core businesses, technology capabilities and localized operations remain durable competitive strengths despite near-term industry and transitional headwinds.

We remain confident that Xunlei’s business model can deliver sustainable long-term value for our users and shareholders. With that overview, I will now turn the call over to our CFO, Eric Zhou, who will walk you through our Q3 financial results in detail.

Naijiang Zhou (Chief Financial Officer)

Thank you, and good morning and good evening everyone. Let me walk you through our Q3 2026 financial results. Total revenues came in at $101.3 million, up 12.9% year over year. Growth was driven by our subscription business and our overseas live streaming business. Subscription revenue was $44.1 million, up 8.5% year over year, supported by steady demand for subscription services. Live streaming and other services revenue reached $57.4 million, up 16.6% year over year, mainly from overseas audio live streaming and from Hufu’s advertising businesses.

Cost of revenue was $44.4 million, or 43.8% of total revenue, compared with 37.6% for the same quarter last year. The increase primarily stemmed from higher revenue sharing for our overseas live streaming business, which tracked the revenue growth in that segment. Gross profit was $56.5 million, up 1.6% year over year, with gross margin at 55.7%, down from 62% a year ago. Gross profit grew on the back of our subscription and advertising businesses.

The margin pressure is due to a revenue mix shift. Live streaming carries a lower gross margin and now makes up a larger share of our total revenues. Now turning to operating expenses, our R&D expenses were $25.6 million, or 25.3% of revenue, higher than a year ago, mainly due to increased headcount and labor costs. Sales and marketing expenses were $33.3 million, or 34.9% of total revenue; we stepped up user acquisition spending for both subscriptions and overseas. G&A expenses came in at $12.4 million, or 12.3% of revenue, higher year over year due to litigation provisions and higher headcount and employee costs.

We posted an operating loss of $14.8 million, compared with operating income of $3.3 million in Q3 2025. The change was mainly due to higher operating expenses. We recorded a net other loss of $219.2 million, compared with net other income of $547.5 million a year ago. The large swing reflects mark-to-market fair value changes on our long-term investment in Arashi Vision. Net loss from continuing operations was $235.8 million, compared with net income of $550.4 million in Q3 2025. Again, the change was driven by the fair value change on our long-term investment in Arashi Vision and the swing to an operating loss, partly offset by positive gross profit from our core consumer businesses.

On a non-GAAP basis, we had a net loss of $16.4 million, compared with non-GAAP net income of $5.6 million a year ago. On a per ADS basis, diluted loss per ADS from continuing operations was $3.74, versus EPS of $8.60 a year ago. Non-GAAP diluted loss per ADS was $0.26, compared with non-GAAP EPS of $0.09 a year ago. As of September 30, 2026, cash, cash equivalents and short-term investments stood at $265.1 million, down from $276.9 million on June 30, 2026. This decline reflects net operating cash outflows and payments for our stock repurchases. A quick update on the share buyback program: we received all approvals on June 27 for up to $20 million. As of September 30, we had spent $13.8 million, and as of today’s earnings release we have completed the share repurchase program as stated in the earnings press release.

The Board of Directors has authorized a new share repurchase program, and more information will be disclosed in next quarter’s earnings release. That wraps up our prepared remarks. Operator, we are now ready to open the line for questions.

OPERATOR

Thank you. To ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, you can press star 1-1 again. Once again, if you would like to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. We will now take our first question. This is from Xiao Shen, retail investor. Please go ahead.

Xiao Shen (Retail Investor)

What factors contributed to the 8.5% year-over-year revenue growth in the subscription business? Despite a marginal quarter-over-quarter decline this quarter, it is the slowest quarterly growth rate we have observed in recent years. What measures is the company taking to strengthen the subscription business revenue momentum?

Jinbo Li (Chief Executive Officer)

Thanks for the question. Over the past five years, the company’s subscriber business has grown steadily from above 3 million in 2020 to more than 7 million in 2025. While the latest subscriber number has not been disclosed, the company’s consistent business expansion and operational performance support relatively stable membership. For 2026, we believe for five consecutive years the subscription business team has executed highly effective user acquisition strategies, driving double-digit year-over-year growth in both subscriber volume and associated revenue.

In response to ongoing product evolution and business model requirements, the team has undertaken a dynamic evaluation of the marginal returns of existing acquisition channels and tactics. Beginning in Q2 2026, we refined our acquisition strategy to prioritize the acquisition and cultivation of those users who demonstrate high long-term retention potential. Although such users typically exhibit lower initial output, their superior cohort retention significantly enhances customer lifetime value and improves the visibility of monetization, thereby reinforcing a more sustainable and scalable growth framework. Q3 2026 remained a transitional phase for this strategic realignment.

While short-term adjustments are still evident, we anticipate progressively stronger operational outcomes, including improved LTV efficiency and high-quality revenue growth, as we believe the strategy will mature in subsequent quarters. Thank you.

OPERATOR

We will now take the second question. Thank you. The next question today comes from Rob Beckwith, individual investor. Please go ahead.

Rob Beckwith (Individual Investor)

Hi, good evening. Thank you for taking my call. I applaud the new $20 million stock buyback plan. As far as Arashi Vision, what is the plan to monetize this asset? Have you thought about a private sale or selling a small percentage?

Naijiang Zhou (Chief Financial Officer)

Right now we have not started the process yet because of a couple of reasons, and eventually we will divest from this investment in the open market. We are doing it in an orderly way because right now we hold 7.8% of the stake, and whenever an investor has more than 5% of the stake, the sales will need to go through certain regulatory approval procedures. Once the number drops below 5%, then we will have more options to reduce the holdings. But again, at this time we don’t have any specific plans.

Lu Hantang (Investor Relations Manager)

I will translate in Chinese. Thank you for your question.

OPERATOR

Thank you. We will now take the next question. This is from Andre Uluan Huidu from Azure Crest. Please go ahead.

Andre Uluan Huidu (Investor at Azure Crest)

So again, I’m asking. Thank you for the buybacks, for the management execution. It’s for the interest of the management, who are also shareholders, to buy back as much of XNET because if you buy back more XNET you own more of Arashi Vision, as the difference is two times between the stock market price, and that’s not including other assets XNET has. So selling Arashi Vision and buying more XNET is, even now, even though Arashi Vision decreased in price, highly accretive to shareholders, which would include also management, which are also shareholders.

So try to reach 5% so you have more options, or try to reduce the stake of Arashi Vision. And I would like to ask the question: what would be the time frame? Like when would you decide, or what are the constraints of you not deciding faster, even though Arashi Vision decreased a bit from the lockup period June 2026? Thank you.

Naijiang Zhou (Chief Financial Officer)

We had a poor connection, but I will try to answer your question and do my best. First, we will continue to repurchase XNET shares, and we will spend to the maximum allowed under certain exchange restrictions. For the Arashi Vision divestiture, we will wait for the right time to do it. If you look at the price performance, it’s been down quite a lot for the last several months or several quarters, and we still have high confidence in the company and we will wait for the right opportunity to do it.

Again, there are several factors limiting our ability, including Arashi Vision’s stock performance and its liquidity on the market, and also the overall performance of the A-share stock market, because it may influence certain regulatory policies relating to our divestiture. Thank you.

OPERATOR

We are taking a follow-up question from Rob Beckwith, individual investor. Please go ahead.

Rob Beckwith (Individual Investor)

Hi. Thank you. I just had a question regarding the marketing expenses and how is that going to look going forward? I know it’s a little higher at the moment, but how do you see that going forward? Do you expect that to decline in order to achieve profitability sooner? Thank you.

Jinbo Li (Chief Executive Officer)

In the first half of the year, the World Cup had some negative impact—or upward pressure—on our user acquisition cost control across the Middle East and Turkey, and concurrently our continued market expansion into Latin America necessitated sustained advertising investment, contributing to elevated marketing expenditure. Moreover, intensified regional competition also put downward pressure on our advertising conversion efficiency. As the company remains in a strategic growth phase characterized by geographic scaling and operational capacity building, we are prioritizing disciplined capital allocation. Moving forward, we will carry out refined, data-driven marketing strategies and implement end-to-end cost control optimization mechanisms to enhance operational efficiency, strengthen investment economics, and accelerate our path towards sustainable profitability. At this time, what we can see is we expect the marketing expenses in the last quarter will be controlled, and hopefully we begin to generate higher returns than in the third quarter.

Thank you.

OPERATOR

Thank you. Next we have a follow-up question from Andre Iluyan Hudu from Azure Crest. Please go ahead.

Andre Uluan Huidu (Investor at Azure Crest)

Again, sorry for the connection problem. So again, thank you for the management response and for the buybacks. The idea is just that XNET, Xunlei’s price-to-book, it never traded below 0.3. In September 2024 it was lower than 0.3. So this is the total asset minus the total liability. This is the meat on the bone of the company, and right now it’s trading at 0.2 price-to-book. So that’s why I’m saying selling Arashi Vision or reducing is unlocking a lot of value for shareholders, which are including also management, and it’s actually making—and buying back—that money you are selling from Arashi Vision at any price.

So it doesn’t matter if it’s 160 RMB or it’s 100 per share. Volume is also 1.3%. I’m wondering what constraints are and what’s the time frame, considering the price-to-book can rise a lot. In June 2025, when Arashi Vision IPO’d, it was 1.2x for Xunlei. So right now we’re trading six times lower than June 2025 price-to-book, the market cap over assets minus liability. So again, when would the time frame be? In one month? In three months? When is management thinking what stock price of Arashi Vision is sufficient for management to sell something?

And the time frame. Thank you.

Naijiang Zhou (Chief Financial Officer)

Thanks for the question. As I mentioned, some factors are beyond our control. If you look at Arashi Vision’s other large institutional investors, they also have not started selling their holdings because of reasons beyond their control, and that’s what I can tell you today. Of course, I’ll be happy to engage you for further discussion in the coming days once we have more information available. Regarding the selling price, we don’t have any specific plans, but once the window is available, we will talk to the Board and seek their advice and design a plan for divestiture. Thank you.

Lu Hantang (Investor Relations Manager)

I’ll translate. Thank you for your question.

OPERATOR

Thank you. Next question from Rob Beckwith, individual investor. Please go ahead.

Rob Beckwith (Individual Investor)

Yes, just in relation to the Investment Company Act of 1940 and the exceeding of 40% of total assets with Arashi, how much more time do you have to comply with this?

Naijiang Zhou (Chief Financial Officer)

We haven’t received any reviews or questions from relevant agencies on this issue. Internally we are closely monitoring this issue, and I believe the ratio right now is on the borderline because Arashi Vision’s stock price has declined significantly over the last several months. But we will pay close attention to this. As we stated before, we are not an investment company; we will remain an operating company. We will do our best to be in compliance with relevant regulations.

Thank you.

Rob Beckwith (Individual Investor)

Okay. Thank you.

OPERATOR

Thank you. There are no further questions at this time. I will now hand back to the speakers for closing comments.

Lu Hantang (Investor Relations Manager)

Thank you again for your time and participation. For any follow-up inquiries or concerns, please feel free to visit our website ir.schuly.com or contact our investor relations team. Have a good day. 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. Speakers, please stand by.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.