Xunlei Limited
Q1 2021 Earnings Call Transcript

Published: 20 May 2021

[Operator:]

Good day, ladies and gentlemen and thank you for your patience. You have joined Xunlei's first quarter of 2021 earnings conference call. At this time, all participants are in a listen-only mode. There will be a Q&A session after the management's remarks. I would now like to turn the call over to your host, Investor Relations Manager, Ms. Mengnan Gao. Please take over, ma'am.

[Mengnan Gao:]

Thank you. Good morning and good evening. Thank you for joining Xunlei's first quarter of 2021 earnings conference call. For our agenda today, Mr. Eric Zhou, the CFO, will first read the prepared remarks by Mr. Jinbo Li, Chairman and CEO of Xunlei. After that, he will provide additional details on the financial results and wrap up with our revenue guidance for the second quarter of 2021. We will be happy to take your questions after our management remarks. Please limit to two questions at a time so others can get their question in as well.

[Eric Zhou:]

Thank you Mengnan. Hi everyone. I am Eric Zhou, CFO of Xunlei Limited. Thanks again for joining in Xunlei's first quarter of 2021 earnings conference call. The following is a prepared remark by Mr. Jinbo Li, our Chairman and CEO.

[Jinbo Li:]

Good morning and good evening everyone. Welcome to Xunlei's first quarter of 2021 earnings conference call. We delivered robust financial and operating results in the first quarter due to our solid execution on the product innovation strategy with solid growth of subscription and cloud computing service revenues and the enhancement of key operating metrics, which contribute to the double digit growth rate of the bottomline. In the first quarter, our strong emphasis on strategic execution as well as operational enhancements drove steady and high quality growth in revenue and net income, following a turnaround performance in the previous quarter. The total revenues in the first quarter of 2021 was $53.3 million, a 5.9% growth sequentially. The net income increased to $6.8 million, a 45.4% growth quarter-over-quarter, which was mainly due to the higher gross margin and optimized operations. It gives us confidence in our ability to uncover Xunlei's value and monetize future growth. The solid first quarter result demonstrated our efforts on business breakthroughs and innovation when entering the year of 2021. We have been building on our competitive strengths we have gained over the years and doubling down our efforts to improve our product offerings to our users. We will always be looking at for new ways to create more value for our customers through user experience enhancement and technological innovation.

[Eric Zhou:]

That was prepared remarks by our Chairman and CEO. Now I would like to review the financial results of the first quarter of 2021 and provide a revenue guidance for the second quarter of 2021. Total revenues for the first quarter of 2021 was $53.3 million, representing an increase of 5.9% from the previous quarter. The increase was primarily driven by the revenue increase from cloud computing and subscription services. Revenues from cloud computing and other IVAS combined were $27.3 million, representing an increase of 5.7% from the previous quarter. The cloud computing revenue was $21 million, increasing 10.9% sequentially. The increase in cloud computing and other IVAS revenues were mainly due to increased demand for our cloud computing services. Revenues from subscriptions were $22.1 million, a 6.9% increase from the previous quarter. The number of subscribers was approximately 4.05 million as of March 31, 2021 compared with 3.83 million as of December 31, 2020. The average revenue per subscriber for the first quarter of 2021 was RMB35.5 compared with RMB35.4 for the previous quarter. Revenues from online advertising were $3.9 million, representing an increase of 2.4% from the previous quarter. Cost of revenues was $24.4 million, representing 45.8% of our total revenues, compared with $23.3 million or 46.4% of our total revenues in the previous quarter. The increase was mainly due to the increased sales of our cloud computing services. Gross profit for the first quarter was $28.6 million, representing an increase of 6.7% from the previous quarter. Gross margin was 53.7% in the first quarter, compared with 53.3% in the previous quarter. The decrease in gross profit and gross margin was mainly due to increased revenues of our subscription business which had high gross margin than other product lines. Research and development expenses for the first quarter were $13.3 million, representing 24.9% of our total revenues, compared with $12 million or 23.9% of our total revenues in the previous quarter. Sales and marketing expenses for the first quarter were $4.5 million, representing 8.4% of our total revenues, compared with $2.8 million or 5.6% of our total revenues in the previous quarter. The increase was mainly due to more promotional activities.

[Operator:]

. You have a question coming from the line of . Please go ahead.

[Unidentified Analyst:]

[Eric Zhou:]

I will speak Chinese first and then translate into English. Now I will speak briefly in English. We think basically the question asked, whether we are developing a sort video business and when we are going to launch this product? We think it is the right time for us to develop short form video product. We form our rationale from several points of consideration. First is, the operations of each of our business lines is stable and positive after the transition in last year. And we are pursuing the next of growth. And so we need to enhance retention of all the users with additional product features and capture further growth opportunities. Secondly and I believe that our 2C business still has promising growth potential. As user's social and entertainment demands are becoming more video bases, short form video is a pent-up business opportunity with growing market and monetization potential. And it is also a great complement to our existing products. And we intend to enter this market by focusing on certain vertical content that maybe appealing to some groups of users. And we believe that there's still room for us to capitalize on our investment. And that being said, we have been research and developing certain products. But for the time being, we still don't have a specific timeline for launching this product. But we intend to launch this product in the near future. Thank you for your question.

[Operator:]

The next question is coming from the line of from Retail Investment. Please go ahead.

[Unidentified Analyst:]

[Eric Zhou:]

Okay.

[Unidentified Analyst:]

[Eric Zhou:]

The question, basically, he asked two questions. One, firstly, is about our launchings in cloud computing business model and just that how we could expand our business in the future? How we could deepen our cooperation with national telecommunication carriers. Basically, I said, that our cloud computing business is an innovative business and we use the so-called sharing economy business model. And at one hand, we try to use the bandwidth contributed by all users. At the same time, we are also exploring potential cooperation opportunities with our national telecom carriers. And the second question he asks, whether we would disclose Xunlei app users, whether on a DAU or MAU. And we don't disclose it on a frequent basis because of commercial considerations. But we do have certain numbers disclosed in our recently issued annual report. So I would encourage interested investors to read our annual report to see if you can find the right information. Thank you for your question.

[Unidentified Analyst:]

[Operator:]

We have the next question which is coming from . Please go ahead.

[Unidentified Analyst:]

Hi. And thanks a lot for taking my question. I am wondering if you could elaborate more on the hybrid P2P technology in cloud computing and for your CDN services? What are the main advantages? And how big is the market, maybe for instance, could you give a number on the current clients? And is this number of clients that are using it is increasing or not? Thank you.

[Eric Zhou:]

Okay. Xunlei is one of the pioneers in P2P or P2SP in the network technology. And over the years, we have developed in-depth expertise in this regard. As I mentioned earlier in answering the previous caller's question, we are using an innovative business model, especially it's like based on the sharing economy. We outsource the idle bandwidth from all users of OneThing Cloud hardware intelligence and product. And to provide the service to all enterprise customers. And in addition to our technological qualification and the expertise, one of our advantages is, we are low-cost service providers. And because of this, today as you will many of the top Internet companies in China and some of the household name internet companies are our customers. And because of the confidentiality, I am not at liberty to disclose their names. But I would rather say, some of the most well-known Internet companies in China are our clients. Thank you.

[Operator:]

. The next question comes from . Please go ahead.

[Unidentified Analyst:]

[Eric Zhou:]

The question is, he asks about the status of our Xunlei buildings under construction. And we previously planned to have the building construction completed by the end of the April. But now, it looks like we are going to have it completed in either June or July because it was impacted by the neighboring municipal construction projects which affect the construction of all buildings. And we are in the process of preparing for the internal renovation work and we plan to have this building internal renovation completed by the end of this year. And so it's most likely we may move into the new building at the beginning of next year. Thank you.

[Operator:]

And we have the next question from , retail investor. Please go ahead.

[Unidentified Analyst:]

[Eric Zhou:]

Basically, asking in the first quarter all other business showed improvement except for the so-called other business. The other business, in the previous quarters we had in other business basically included the video streaming business and some of the other one-time so-called the event reporting sales. And we didn't have last quarter but we had in the previous quarters. So basically our last quarter's other business was affected by some of the one-time event as well as our live streaming business. Thank you.

[Operator:]

.

[Eric Zhou:]

Thank you again for your time and participation. If you have any questions, please visit our website at www.xunlei.com or send emails to our Investors Relations. Have a good day. Operator, I think we can conclude this conference call. Thank you

[Operator:]

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participating. You may disconnect now.