Xunlei Limited (XNET): A High-Momentum Growth Story Amid Profitability Turnaround

In the fast-evolving software sector, companies that balance innovation with financial discipline often emerge as standout performers. Xunlei Limited (XNET) appears to be one such story, combining a dramatic profitability turnaround with robust revenue growth and a compelling momentum profile. For investors seeking exposure to a high-conviction play in the digital economy, Xunlei's recent performance and strategic moves warrant closer scrutiny.

A Profitability Turnaround Driven by Strategic Leverage

Xunlei's Q2 2025 results, released on August 14, underscore a transformation that has long eluded the company. Total revenues surged 30.6% year-over-year to $104 million, fueled by three core segments:
- Subscription services grew 10.5% to $36.4 million, with 6.4 million subscribers and a 3.3% increase in average revenue per user (ARPU) to RMB40.8.
- Live-streaming and other services exploded 85.5% to $37.6 million, driven by overseas audio live-streaming and the Hupu acquisition.
- Cloud computing rose 13.6% to $30 million, reflecting heightened demand from enterprise clients.

While gross profit margins dipped slightly to 49.3% (from 51.1% in 2024), the company's net income was electrifying: a staggering $727.4 million, up from $2.5 million in the prior year. This was largely due to a $721.8 million unrealized gain from its investment in Arashi Vision (Insta360), which went public in June. Non-GAAP net income also rose to $8.3 million, signaling improving operational efficiency.

The CEO, Jinbo Li, emphasized that these results reflect a “milestone” in Xunlei's long-term strategy, with the Hupu acquisition and Arashi Vision's IPO acting as catalysts. The company's cash reserves, now $275.6 million, provide flexibility for further expansion or shareholder returns, as evidenced by $6.5 million in share repurchases under a $20 million program.

Momentum Metrics: A Stock in Motion

Xunlei's financials are only part of the story. The stock's technical and market indicators paint a picture of a high-momentum asset. Trading at $7.21 as of August 21, XNET is above its 50-day ($4.96), 100-day ($4.81), and 200-day ($3.81) moving averages, a rare alignment that suggests strong upward bias. Its weighted four-quarter relative strength rank of 95—classified as “Very Strong” by AAII—highlights its outperformance against peers and the broader market.

Valuation metrics further amplify the case for Xunlei. With a P/E ratio of 0.59, it trades at a steep discount to the software sector's average of 54.59 and the S&P 500's 28.64. This undervaluation, coupled with a 15.4% guidance for Q3 revenue growth (projected at $116–$124 million), suggests the market may be underestimating its long-term potential.

Analyst sentiment, though mixed, has turned cautiously optimistic. Recent upgrades from Wall Street Zen to “Buy” in August 2025, alongside Xunlei's 129.2% relative price strength in Q2, indicate growing confidence. However, short interest has risen 48.4% to 2.17% of the float, a reminder that bearish bets remain a risk.

Catalysts for Outperformance

Three key drivers position Xunlei for continued momentum:
1. Strategic Acquisitions: The Hupu acquisition has turbocharged live-streaming revenue, while Arashi Vision's IPO unlocked latent value. Future M&A could further diversify revenue streams.
2. Cloud and Subscription Scalability: Cloud computing's 13.6% growth and subscription ARPU increase demonstrate Xunlei's ability to monetize recurring revenue models.
3. Global Expansion: Overseas live-streaming and advertising efforts are untapped growth areas, particularly in Asia-Pacific markets.

Risks and Considerations

Investors should not ignore challenges. The cloud segment's margin compression and the live-streaming business's ongoing losses (despite top-line growth) highlight operational risks. Additionally, the stock's RSI of 64.93, while neutral, suggests caution if it breaches overbought territory.

Investment Thesis

For momentum-focused investors, Xunlei offers a compelling mix of undervaluation, revenue diversification, and strategic leverage. Its Q2 results and guidance suggest a path to sustained growth, particularly if it can stabilize margins and capitalize on its cloud and live-streaming assets. While the short-term volatility and margin pressures warrant monitoring, the long-term case hinges on Xunlei's ability to execute its value-creation strategy.

Actionable Advice: Consider a position in XNET for a medium-term horizon, with a stop-loss near the 50-day moving average ($4.96) to mitigate downside risk. Monitor the third-quarter results and any follow-up analyst ratings for confirmation of the upward trend.

In a sector where innovation and execution are paramount, Xunlei Limited has positioned itself as a high-conviction opportunity. Whether it can sustain its momentum will depend on its ability to translate strategic wins into consistent profitability—a test it appears ready to face.