What is the progress on reducing the stake in Arashi Vision Inc. and the plans for the proceeds? How is the company addressing compliance with the 1940 Investment Company Act?

Xunlei holds a 7.8% equity stake in Arashi Vision Inc. They are following regulatory procedures to prepare for stake reduction but have no specific disposal plans yet. The company is consulting advisors to ensure compliance with the 1940 Investment Act, aiming to adjust holdings so that investment securities do not exceed 45% of total assets, as they do not intend to be an investment company. “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.”

XNET

Xunlei (XNET) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 13, 2026

Source: earnings call transcript

Executive summary

Xunlei Q2 FY26 — Strong Consumer-Centric Growth and Share Repurchase

Xunlei reported strong top-line growth in Q2 FY26, driven by its consumer-centric strategy, with subscription and overseas live streaming businesses showing significant year-over-year revenue increases. Despite a shift in revenue mix impacting gross margin and leading to an operating loss, the company initiated a $20 million share repurchase program to reinforce market confidence. Management remains focused on balancing growth with profitability, emphasizing core product innovation and international market expansion.

Highlights

Total revenues increased by 38.9% year-over-year to $102.7 million.
Subscription revenue grew 22.6% year-over-year to $44.5 million.
Overseas audio live streaming revenue surged 54.8% year-over-year to $58.2 million.
Hupu business contributed $9.1 million in Q2 revenue, benefiting from peak advertising season and sporting events.
Announced a new $20 million share repurchase program, with $5.9 million already spent to buy back 1.07 million shares as of August 12.

Concerns

Gross margin declined to 55.8% from 63% in Q2 FY25 due to revenue mix shift towards lower-margin live streaming.
Operating loss of $4.8 million in Q2 FY26, a reversal from operating income of $0.3 million in Q2 FY25.
Net other loss of $213.8 million due to fair value volatility of Arashi Vision Inc. investment.
Non-GAAP net loss from continuing operations of $2.1 million, down from non-GAAP net income of $7.2 million in Q2 FY25.
Cash, cash equivalents, and short-term investments decreased sequentially to $276.9 million from $303.6 million.

Guidance & targets

Category	Target	Timeline	Confidence
Share Repurchase Program	$20 million high materiality	Ongoing	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Subscription Business Remains a stable cash flow foundation and reliable growth anchor. Maintained resilient user retention and steady monetization performance. 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 ecosystem user acquisition channels.	$44.5 million	22.6%	—	—
Overseas Audio Live Streaming Business Emerged as the primary growth engine. Continued deploying targeted investments in high-potential emerging markets, including Southeast Asia, the Middle East, Turkey and further expansion into Latin America. Enhanced localized product iteration and operational capabilities, optimizing product matrix across one-on-one social interaction scenarios and multi-person chat rooms.	$58.2 million	54.8%	—	—
Hupu Business Saw notable quarterly momentum, benefiting from the peak advertising season and major global sporting events. User discussion activity across the platform reached new highs. Newly rolled out AI-powered features meaningfully boosted user engagement and deepened interactive activity.	$9.1 million	—	—	—

Risks & headwinds

Intense competition in the overseas entertainment market Ongoing

Unquantified, described as 'intense'

Mitigation:Sticking to long-term localized operational and marketing strategies instead of chasing near-term scale expansion, fostering sustainable business growth.

Fair value volatility of Arashi Vision Inc. investment Q2 FY26 (impact), ongoing for stake reduction

Resulted in a net other loss of $213.8 million in Q2 FY26.

Mitigation:Following regulatory rules for stake reduction, consulting advisors for 1940 Investment Company Act compliance, aiming to adjust holdings to keep investment securities below 45% of total assets.

Compliance with 1940 Investment Company Act Ongoing, gradual adjustment

Need to adjust holdings so investment securities do not exceed 45% of total assets, excluding government securities and cash items.

Mitigation:Consulting with relevant advisors, gradually seeking to adjust holdings to comply with the Act and reaffirm focus on core business.

What to watch in Q3 FY26

Share repurchase program progress

Q3 FY26

Current $5.9 million spent, 1.07 million ADSs repurchased as of August 12

Target Further execution of the remaining $14.1 million of the $20 million program

Why it matters

Demonstrates management's commitment to shareholder returns and confidence in the company's valuation.

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.

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Q&A highlights

Why was there no information about the share repurchase program in the press release, and what is its current status?

The $20 million share repurchase program commenced on July 1st. As of August 12th, the company had bought back approximately 1.07 million ADSs for $5.9 million. The program is ongoing, and more details will be disclosed in the Q3 financial report.

“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.”

asked by Zoe Zhang · answered by Eric Zhou

2 min read 8 chapters

Detailed narrative

Strategic Pivot Success

The company's strategic pivot towards a consumer-centric business model is delivering tangible results, with subscription services and overseas audio live streaming emerging as primary growth drivers. This approach has led to continued top-line growth, building on the foundations established in Q1 FY26, validating the effectiveness of the new strategy.

Subscription Business Performance

The subscription business remains a stable cash flow foundation and reliable growth anchor, with Q2 revenue reaching $44.5 million, up 22.6% year-over-year. The segment maintained resilient user retention and steady monetization performance, supported by the rollout of new AI-powered features, optimized functionality, and deepened cooperation with leading domestic smartphone partners.

Overseas Live Streaming Expansion

The overseas audio live streaming business was the primary growth engine, generating $58.2 million in revenue, a significant 54.8% year-over-year increase. This growth was fueled by targeted investments in high-potential emerging markets, including Southeast Asia, the Middle East, Turkey, and Latin America, alongside enhanced localized product iteration and operational capabilities.

Hupu Business Momentum

The Hupu business showed notable quarterly momentum, contributing $9.1 million in Q2 revenue. This performance benefited from the peak advertising season and major global sporting events, which drove user discussion activity to new highs. Newly rolled out AI-powered features also boosted user engagement and interactive activity, creating incremental revenue streams.

Profitability and Margin Dynamics

While gross profit improved by 23.1% year-over-year to $57.3 million, the overall gross margin compressed to 55.8% from 63% in the prior year. This decline is attributed to a structural revenue mix shift, as the live streaming business, which carries a lower gross margin, now accounts for a larger share of total revenue.

Investment in Growth and Capital Allocation

The company increased R&D and sales & marketing expenses to support higher labor costs and promotional investments in its core operations. Concurrently, Xunlei announced a $20 million share repurchase program, with $5.9 million already executed, demonstrating confidence in its fundamentals and commitment to returning excess capital to shareholders while prioritizing core product innovation and international expansion.

Arashi Vision Investment Volatility

Xunlei recorded a substantial net other loss of $213.8 million in Q2 FY26, primarily due to the fair value volatility of its long-term investment in Arashi Vision Inc. This investment is accounted for on a mark-to-market basis following Arashi Vision's IPO in June 2025, leading to a significant swing from net income in the prior year.

Investment Company Act Compliance

The company is actively consulting with advisors to ensure compliance with the 1940 Investment Company Act. Xunlei intends to gradually adjust its holdings to ensure investment securities do not exceed 45% of total assets, reaffirming its core focus on the consumer-facing business and its intention not to operate as an investment company.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.