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Xunlei Files for Nasdaq IPO

SEC, 6/08/11

Chinese online P2P video service provider, download accelerator software developer, and online game operator Xunlei Limited has filed an IPO prospectus with the U.S. Securities and Exchange Commission to list on the Nasdaq Global Market under the ticker symbol "XNET." The IPO will be underwritten by J.P. Morgan, Deutsche Bank Securities, Cowen and Company, Needham & Company, LLC, and Stifel Nicolaus Weisel.

Xunlei plans to use the funds raised in the IPO for the following purposes: to establish a customer service center and cloud computing data centers to better serve subscribers; to acquire digital media content and exclusive online game licenses; to invest in technology, infrastructure and product development efforts; and to use the balance for other general corporate purposes, including working capital needs and potential acquisitions (although Xunlei is not currently negotiating any such acquisitions).

Revenues increased by 98.1% YoY from USD 7.8 mln for the three months ended March 31, 2010 to USD 15.4 mln for the same period in 2011, and net income attributable to Xunlei increased by 22.1% YoY from USD 1.5 mln for the three months ended March 31, 2010 to USD 1.9 mln for the same period in 2011.

Revenue from online advertising in Q1 2011 reached USD 7.84 mln, up 69.6% YoY compared to USD 4.62 mln in Q1 2010. Revenue from subscription-related services rose 357.7% YoY to USD 4.06 mln, compared to USD 887,000 in Q1 2010. Revenue from games and other business rose 54.2% YoY to USD 3.47 mln, compared to USD 2.25 mln in Q1 2010.

Xunlei's revenues increased from USD 16.8 mln in 2008 to USD 29.6 mln in 2009 and to USD 42.8 mln in 2010, representing a compound annual growth rate, or CAGR, of 59.7%. Net loss attributable to Xunlei reached USD 4.6 mln in 2008 and net income attributable to Xunlei reached USD 5.4 mln and USD 8.5 mln in 2009 and 2010, respectively.

Revenue from online advertising reached USD 11.86 mln in 2008 (accounting for 70.7% of total revenues), USD 20.37 mln in 2009 (68.8%), and USD 24.97 mln in 2010 (58.4%) in 2010. Revenue from subscription-related services was nil in 2008, USD 715,000 in 2009 (2.4% of total revenue), and USD 7.23 mln in 2010 (16.9%). Revenue from games and other business was 4.91 mln in 2008 (29.3%), USD 8.52 mln in 2009 (28.8%), and USD 10.58 mln in 2010 (24.7%).

The number of advertisers that use Xunlei online advertising services increased from 246 in 2008 to 334 in 2009 and to 348 in 2010, and the same number increased from 110 in the three months ended March 31, 2010 to 141 in the same period in 2011.

The average spending per advertiser increased from approximately USD 48,200 in 2008 to approximately USD 61,000 in 2009, and to approximately USD 71,800 in 2010, and the same number increased from approximately USD 42,000 in the three months ended March 31, 2010 to approximately USD 55,600 for the same period in 2011.

The top five advertising agencies accounted for approximately 36.4%, 30.0% and 25.0% of total revenues in 2009 and 2010 and the three months ended March 31, 2011, respectively. The largest advertising agency customer accounted for 14.4%, 8.9% and 7.4% of total revenues in 2009 and 2010 and the three months ended March 31, 2011, respectively.

Xunlei introduced its cloud-based subscription services in March 2009 offering services such as access to high-speed online downloading, premium download-related or access privileges and cloud storage, for a time-based subscription fee of RMB 9.8 (USD 1.51), or RMB 15 (USD 2.31) per month as the case may be, depending on the payment method. Xunlei also offers services and products for a per-transaction fee payment that range from RMB 1.00 (USD 0.15) to RMB 50.00 (USD 7.72); these products primarily consist of downloads of popular games and products from Xunlei's digital content store, such as individual downloads of high-definition movies or television series. Xunlei had over 1.3 mln paid subscribers as of March 31, 2011.

Xunlei's platform connected 291 mln active users as of February 2011, according to Chinese market research firm iResearch, as well as over 1 mln third-party servers and over 3,600 servers owned by Xunlei as of March 31, 2011. As of March 31, 2011, Xunlei servers maintain and update an index of over 3.7 bln digital media files available on third-party servers and PCs connected to Xunlei's resource discovery network.

Xunlei Downloader, the company's core download accelerator product, was launched in 2004 and has gradually evolved into the central interface for a growing collection of premium download-related services. Xunlei Downloader has a 78.7% market share based on the number of software launches among all download software in China in February 2011, according to iResearch. Xunlei's primary competitors for download services are e-Mule, FlashGet and Tencent (0700.HK) (QQ Cyclone). Xunlei Downloader was used in an average of approximately 138 mln downloads per day in 2010. These downloads are available to internet users free of charge.

To complement its download services, Xunlei also launched online video streaming services in 2007 at Xunlei Kankan, now the third largest video streaming portal in China, as measured by the monthly unique visitors in April 2011 according to iResearch. Xunlei Kankan had 120.7 mln monthly unique visitors in April 2011.

There are currently 33 copyright infringement lawsuits pending against Xunlei with an aggregate amount of claimed damages of approximately USD 21.8 mln (USD 3.4 mln) and the majority of such amount relates to claims against the Gougou search engine. In December 2010, Xunlei sold the domain name, trademark rights and copyright interests in software relating to Gougou to an undisclosed third party for RMB 100,000.

For Xunlei's complete IPO prospectus, please click here.

Keywords: XNET JP Morgan 2009 2010 2008 Deutsche Bank Internet IPO Nasdaq loss revenue software users online advertising online video Xunlei Needham Gougou download software active users Kankan P2P Q1 2011 law profit litigation IPR infringement online gaming online search

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