Xunlei Earnings Call: Growth Surges Amid Margin Strain

Xunlei Ltd ((XNET)) has held its Q4 earnings call. Read on for the main highlights of the call.

Xunlei’s latest earnings call painted a broadly upbeat picture of accelerating revenue and an operational turnaround, even as profit quality and margins came under strain. Management stressed strong growth across subscriptions, cloud and live streaming, alongside a healthier cash position, but also acknowledged higher costs, GAAP volatility and execution risks from recent strategic moves.

Strong Top-Line Growth

Xunlei delivered robust expansion with full-year 2025 revenue reaching $462.4 million, up 42.5% year over year, signaling strong demand across its ecosystem. Fourth-quarter revenue climbed 17% to $143.3 million, with management emphasizing that growth was broad-based across all major business lines rather than reliant on any single product.

Robust Subscription Performance

Subscription services remained a key pillar, providing recurring revenue and stabilizing the business amid rapid expansion elsewhere. Q4 subscription revenue rose 22.4% year over year to $42.1 million, while full-year subscription sales increased 15.8% to $154.8 million, underscoring the durability of Xunlei’s core user base.

Cloud Computing Turnaround

The cloud computing segment showed a notable rebound, with Q4 revenue surging 102.7% year over year to $46.1 million, and full-year cloud revenue climbing 31.4% to $137.4 million. Management tied this momentum to stronger customer demand and a strategic sale of 50% of OneThing to a cloud partner aimed at improving capital efficiency and scaling capabilities.

Rapid Live-Streaming and IVAS Growth

Live streaming and other internet value-added services were standout performers, with Q4 revenue jumping 102.8% to $55.1 million. For the full year, management cited roughly 97.5% growth in this segment, driven mainly by overseas audio live streaming, stronger advertising and support from the Hupu acquisition in deepening user engagement.

Operating Profit Turnaround

Operationally, Xunlei swung back into the black, posting Q4 operating income of $4.7 million versus a $20.5 million loss a year earlier, helped by higher gross profit and no repeat of prior goodwill impairments. For the full year, operating income improved to $6.6 million from a $15.7 million loss, signaling better underlying cost discipline despite heavier growth investments.

Improved Cash Position and Capital Actions

The company exited 2025 with a stronger balance sheet, reporting roughly $305 million in cash, cash equivalents and short-term investments, up from about $287.5 million at the end of 2024. Xunlei also continued its share repurchase program, spending about $1 million in 2025 and roughly $6.5 million since the initiative began, signaling confidence in long-term value.

Strategic Portfolio Actions

Management highlighted two major portfolio moves: selling a 50% interest in OneThing to a cloud partner and acquiring sports community platform Hupu. The divestiture is intended to sharpen focus on subscriptions and overseas live streaming while leveraging a partner’s infrastructure, while Hupu is expected to enhance advertising monetization and deepen community engagement.

Q4 Net Loss Driven by Fair Value Losses

Despite better operating results, Xunlei reported a steep Q4 net loss of $228.9 million, compared with a $9.9 million loss in the prior-year quarter. The swing was largely attributed to $232.6 million in other losses, mainly from a drop in the fair value of a long-term investment following an IPO, highlighting how non-operating items can overshadow core performance.

Gross Margin Compression

Profitability at the gross level deteriorated, with Q4 gross margin falling to 43.0% from 51.7% a year earlier and full-year gross margin declining to 47.0% from 51.7%. Management linked the pressure to a mix shift toward lower-margin cloud computing and overseas live streaming, suggesting that sustaining growth may continue to weigh on margins.

Rising Cost of Revenues

Costs rose sharply alongside expansion, with Q4 cost of revenues jumping to $80.8 million, or 56.4% of revenue, up from $40.4 million and 47.9% a year ago. For the full year, cost of revenues climbed to $242.9 million, or 52.5% of revenue, from 48.0%, largely due to higher bandwidth spending and increased revenue sharing tied to live streaming.

Heavily Increased Sales and Marketing Spend

Sales and marketing expenses surged as Xunlei invested aggressively to capture market share, reaching $23.2 million in Q4, or 16.4% of revenue, versus $12.5 million previously. Full-year sales and marketing more than doubled to $86.3 million, or 18.7% of revenue, reflecting elevated marketing campaigns and higher labor costs that weighed on operating margins.

Decline in Non-GAAP Profitability Metrics

Non-GAAP earnings metrics softened despite the strong revenue trajectory, raising questions about underlying profit quality. Q4 non-GAAP net income dropped to $4.8 million from $11.3 million and diluted EPS fell to $0.08 from $0.18, while full-year non-GAAP net income slid to $18.5 million and EPS to $0.30 from $23.9 million and $0.38, respectively.

Significant Earnings Volatility from Investment Revaluations

Management acknowledged that fair value changes in investments are causing large swings in reported GAAP earnings, as seen in the latest quarter’s sizable loss. These revaluations, grouped in other gains and losses, introduce significant volatility and make it harder for investors to assess the sustainability of Xunlei’s recurring profitability profile.

Uncertainty from OneThing Stake Sale

While the 50% sale of OneThing is framed as unlocking capital efficiency and enabling deeper collaboration with a cloud partner, it also raises questions about future economics in the cloud segment. With only half of the operating entity retained, investors will be watching how revenue sharing, control and long-term value capture from cloud computing evolve.

Inconsistency in Reported Segment Figures

The call also revealed a reporting wrinkle, with management referencing conflicting full-year figures for live streaming and IVAS revenue while citing the same growth rate. The discrepancy between the CEO’s and CFO’s numbers, even if non-material in absolute terms, may prompt investors to seek greater clarity and consistency in segment disclosures.

Forward-Looking Guidance and Capital Deployment

Looking ahead, Xunlei plans to deploy transaction proceeds toward research and development, product upgrades for cloud acceleration and overseas audio live streaming, and broader market expansion and brand promotion. Management also intends to optimize the capital structure while maintaining flexibility for future shareholder returns, anchored by its $305 million cash balance and ongoing but modest share repurchases.

Xunlei’s earnings call showcased a company growing quickly and improving its operations, yet grappling with thinner margins, rising costs and volatile headline earnings. For investors, the story is one of powerful top-line momentum with promising growth engines in cloud and live streaming, tempered by the need to prove sustainable, high-quality profitability and tighter financial transparency.