Xunlei Q3 2026 Earnings Call - Subscription Growth Slows to 8.5% as Strategic Reset Bites; Net Loss Hits $236M on Arashi Vision Writedown

Conference 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. Luhan Tang. Please go ahead.

Luhan Tang, Investor Relations Manager, Xunlei Limited: 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 Levy, Vice President of Finance. Our IR website has our earnings conference 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 presentations 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.xunlei.com.

Before we get started, I would like to take this opportunity 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 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. 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 our Q3 2026 earnings conference call. We 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 are seeing near-term revenue softness during the transition, we believe that the refined acquisition framework and the monetization model we are 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 are 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 of Hupu’s advertising business in the third quarter. Benefiting from this World Cup year, the platform recorded a notable uptick in traffic and user engagement. Both brand advertising and performance advertising delivered meaningful growth. Since joining Xunlei’s product matrix, Hupu has constantly generated steady profits. The platform maintains a 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 numbers of shares with less than originally anticipated $20 million. In further demonstration of our unwavering commitment to returning capital to shareholders, our board of directors have 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 on 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.

Eric Zhou, Chief Financial Officer, Xunlei Limited: Thank you, Luhan Tang, and good morning and good evening, everyone. Let me walk you through our Q3 2026 financial results. Total revenue came in $101.3 million, up 12.9% year-over-year. Growth was driven by our subscription business and overseas audio live streaming business. Subscription revenue was $44.1 million, up 8.5% year-over-year, supported by steady demand for our subscription services. Live streaming and other services revenue reached $87.2 million, up 16.6% year-over-year, mainly from overseas audio live streaming and Hupu 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 high revenue sharing for our overseas live streaming business, which tracked the revenue growth in that segment. Gross profit was $86.5 million, up 1.6% year-over-year, with gross margin at 85.7%, down from 62% a year ago.

Gross profit grew on the back of a subscription and Hupu advertising business. The margin pressure is due to a revenue mix shift. Live streaming carries a lower gross margin, and now it makes up a larger share of our total revenues. Now turning to operating expenses. 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 32.9% of the total revenue. We stepped up user acquisition spending for both subscriptions and overseas live streaming. 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, with 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 equivalent, 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 stock buyback program. We received board approval on June 26 this year for up to $20 million. As of September 30, we had spent $13.8 million. As of today’s earnings release, we have completed the share repurchase program.

As stated in the earnings press release, the board of directors of the company 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.

Conference Operator: Thank you. To ask a question, you will need to press star, one, and one on your telephone and wait for your name to be announced. To withdraw your question, you can press star, one, and one again. Once again, if you would like to ask a question, please press star, one, and one 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: 您好，管理层。我关注到本季度会员营收同比增长8.5%，但环比有所下滑，这也是近几年增速相对偏弱的一个季度。想请教一下主要是什么原因，以及公司接下来有什么应对策略？谢谢。

Eric Zhou, Chief Financial Officer, Xunlei Limited: The question is, she states that what factors contributed to the 8.5% year-over-year revenue growth in subscription business? Despite a marginal quarter-over-quarter decline this quarter, it is the slowest quarter growth rate we observed in recent years. She would like to know what measures the company is taking to strengthen the subscription business revenue momentum. Thanks for the question. Over the past five years, the company’s subscriber business has grown steadily from about 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 refinement, the team has undertaken a dynamic evaluation of the marginal returns of existing acquisition channels and tactics.

Levy, Vice President of Finance, Xunlei Limited: 我来简单翻译一下。就是过去5年呢，我们公司的会员规模由2020年的300多万，稳步增长至去年的700多万。尽管目前我们没有对外去披露最新的会员数据，但是从我们综合的业务发展态势以及运营表现来看，预计本年度的会员规模仍将保持平稳的态势。会员的业务团队也持续在实施成效显著的获客的策略。那过去5年，我们会员数量和相应的收入也都实现了连续两位数的同比增长。与此同时，团队也正在基于业务持续迭代升级的实际情况，来动态评估获客策略的边际效益的变化趋势。

Eric Zhou, Chief Financial Officer, Xunlei Limited: 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 ARPU, 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 certain 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.

Levy, Vice President of Finance, Xunlei Limited: 从我们第二季度开始，公司就已经开始优化我们的获客策略，聚焦高留存潜力用户的获取以及培养。这类的用户虽然在早期付费金额相对还是温和，但由于有更优的长期留存的表现，会显著地提升生命周期价值以及后续付费行为的可预测性，从而构建我们更具可持续性与健康度的增长模型。Q3对我们来讲仍处于策略调整的适应期，现阶段还是有一些影响的，但我们预计随着策略深化落地，后续季度会逐步展现更为积极的运营成效。谢谢您的问题。Our operator can take the second question.

Conference Operator: 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?

Eric Zhou, Chief Financial Officer, Xunlei Limited: Right now, we have not started the process yet for a couple of reasons. Eventually, we will divest from this investment in open market, and we will do it in an ordinary way because right now we hold 7.8% of the stake. 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. Again, at this time, we don’t have any specific plans.

Levy, Vice President of Finance, Xunlei Limited: I will translate in Chinese。这位投资者问我们的影石创新的部分股份的资金未来会怎么处理，还是说卖掉一部分？因为我们是影石的前三大股东，超过5%的股权，我们如果减持的话，是需要去遵守一些监管的规定，有序地去减持和披露的。目前的话，我们没有任何的明确的计划。谢谢您的提问。Thank you for your question.

Conference Operator: Thank you. We will now take the next question. This is from Andrei Iulian Huidu from Asia Crest. Please go ahead.

Andrei Iulian Huidu, Individual Investor, Asia Crest: Again, I am asking on, thank you for the buyback and for the management execution. It is for the interest of the management if they 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 is not including other assets XNET has. Selling Arashi Vision and buying more XNET is, even now, even though Arashi Vision decreased in price, it is highly critical to shareholders, which would include also management, which are also shareholders. Try to reach 5% so you have more options, or try to reduce the stake of Arashi Vision. I would like to ask the question, what would be the timeframe? When would you decide?

What are the constraints of you not deciding faster, even though Arashi Vision decreased a bit from the lockup period, June 2026? Thank you kindly.

Levy, Vice President of Finance, Xunlei Limited: 就是什么时候我们会想要决定出来。

Eric Zhou, Chief Financial Officer, Xunlei Limited: We had a poor connection, but I tried to answer your question to my best. First is we will continue to repurchase the Xunlei stocks, XNET, and we will spend to the maximum allowed under certain Xunlei charter restrictions. For the Arashi Vision divestiture, we will wait for the right time to do it. If you look at the Arashi’s price performance, it has been down quite a lot for the last several months or several quarters. We still have high confidence in the company, and we will wait for the opportune, the right opportunity to do it. Again, the factors limiting our ability, there are several factors limiting our ability, including the Arashi’s stock performance and its liquidity on the market, and also the overall performance of the A-share market. Because it may influence the certain regulatory policies relating to our divestiture. Thank you.

Levy, Vice President of Finance, Xunlei Limited: I’ll translate.

我们会继续地去回购我们公司的股票，然后这也是符合我们公司章程的一些条例，您刚刚提到了5%。然后我们对于影石的这个减持的话，因为最近可以看到市场上他们的股价下来比较厉害，我们会等待一个更好的时机去做这样的决定。那有几个factors，有几个因素是我们要考虑的，一个是本身影石的股价，第2是整个市场流动性，第3个还有就是A股的整体的大盘的这个表现，都是我们考量的一个因素。同时我们也提到了，我们是第三大股东，中国还拥有我们的股权，所以也会受到一些监管规则的一个约束，所以我们之后会综合考量。Thank you for your question.

Conference Operator: Thank you.

Andrei Iulian Huidu, Individual Investor, Asia Crest: If the connection is better.

Conference 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 is 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.

Eric Zhou, Chief Financial Officer, Xunlei Limited: Just one second, I will get some numbers. In the first half of the year, the World Cup had some negative impact or the upward pressure on our user acquisition cost control across the Middle East and Turkey. Concurrently, our continued market expansion into Latin America necessitated sustained continued advertising investment, contributing to elevated marketing expenditure. Moreover, intensified regional competition also had 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 trying to prioritize disciplined capital allocation. Moving forward, we will carry out refined data-driven marketing strategies and implement end-to-end cost control optimization mechanism to enhance operational efficiency, strengthening investment economics, and accelerate the path towards sustainable profitability.

At this time, what we can say is we expect the marketing expenses in the last quarter will be controlled or hopefully will begin to generate higher returns than in the third quarter. Thank you.

Levy, Vice President of Finance, Xunlei Limited: I will translate.

上半年的话，我们受到世界杯的这个影响，中东和土耳其的区域的获客成本是在提高的，同时由于我们扩展战略，所以我们也在持续地去投放推广，然后所以导致了推广费用的一个增加。此外就是我们所在的区域竞争格局加剧，也对我们广告投放转化效率造成了一定的压力。我们目前也是还在扩大规模的这样的一个阶段，所以公司仍处在规模化扩张阶段，后续的话也会将依托我们精细化的运营策略和全流程的成本管控机制，着力来提高我们的运营效率和盈利水平，然后来加速实现我们的扭亏为盈。那我们Q3的话，推广费还是比较平缓的，我们也会积极地去应对这个费用，然后希望在未来会可以让这个亏损稳定下来，缩减。Thank you for your question.

Conference Operator: Thank you. Next, we have a follow-up question from Andrei Iulian Huidu from Asia Crest. Please go ahead.

Andrei Iulian Huidu, Individual Investor, Asia Crest: Again, sorry for the connection problem. Again, thank you for the management response and for the buybacks. The idea is just that Xunlei’s price-to-book, it never traded below 0.3. in September 2024, it was lower than 0.3. This is the total assets minus the total liabilities, is the meat on the bone of the company. Right now, it is trading at 0.2 price-to-book. That is why I am saying selling Arashi Vision or reducing is unlocking a lot of value for shareholders, which are including also management, and it is actually making and buying back that money you are selling from Arashi Vision at any price. It does not matter if it is CNY 160 or Chinese yuan or it is 100 per share, how much you sell for. Volume is also 1.3% for Arashi Vision.

I am wondering what constraints are and what is the timeframe, considering the price-to-book can rise a lot. In June 2025, when Arashi Vision IPO’d, it was 1.2x for Xunlei. Right now, we are trading six times lower than June 2025 price-to-book, so market cap over assets minus liabilities. Again, when would the timeframe 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 timeframe. Thank you.

Eric Zhou, Chief Financial Officer, Xunlei Limited: 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 the reasons beyond their control. That is what I can tell you today. Of course, I will be happy to engage with you in a further discussion in the coming days once we have more information available. Regarding the selling price, we do not 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.

Levy, Vice President of Finance, Xunlei Limited: 我来翻译。我们其实是因为有很多不可控的这些因素，其实您也可以看到其他的大股东也是没有做减持这个动作的。目前的话，我只能提供到这些信息，如果后期您还对这个问题有其他想法的话，我们是非常乐意跟您持续沟通的。那至于我们要卖的价格，我们目前是没有这个计划的。如果未来有这样的一个窗口，有机会的话，我们也会跟董事会去沟通，然后实时跟大家做这样的一个披露。感谢您的问题。Thank you for your question.

Andrei Iulian Huidu, Individual Investor, Asia Crest: Okay, we will email you.

Conference 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 the Arashi. How much more time do you have to comply with this?

Eric Zhou, Chief Financial Officer, Xunlei Limited: 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 the Arashi’s stock price has declined significantly over the last several months. We will pay close attention to this. As we stated before, we are not an investment company, and we will remain as an operating company. We will do our best to be in compliance with relevant regulations. Thank you.

Levy, Vice President of Finance, Xunlei Limited: 我来翻译。我们目前还没有收到任何的一个问询，但是我们内部一直都在紧密地去跟踪我们的这部分的股权价值占我们总收入的这个比例。最近呢，因为影石的这个股价也是大幅下跌，所以我们目前还没有触及到这样的一个红线。但是我们会尽我们的全力去跟SEC或监管部门去解释，我们并不是一个投资公司，而是一个运营型的公司。谢谢您的问题。Thank you for your question.

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

Eric Zhou, Chief Financial Officer, Xunlei Limited: Thank you again for your time and participation. For any follow-up inquiries, please feel free to visit our website, ir.xunlei.com, or contact our investor relations team. Have a good day. We conclude today’s conference call. Thank you.

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