Xunlei’s Accounting Windfall Masks Operational Reality

Chinese technology firm Xunlei Limited has reported staggering third-quarter 2025 earnings that initially appear transformative for the cloud and streaming specialist. However, a deeper examination reveals the headline profit figure stems largely from an accounting adjustment rather than operational improvements, leaving market participants cautious despite the impressive numbers.

Core Business Shows Measured Growth

Xunlei’s operational performance demonstrated solid, if unspectacular, progress during the quarter. Total revenue reached $126.4 million, representing substantial year-over-year growth of 57.7%. The company’s live-streaming division emerged as the standout performer, surging 127.1% primarily through expanded international audio streaming services. Cloud computing operations also showed renewed vigor with a 44.9% revenue increase.

The company’s subscriber base expanded to 6.56 million accounts, with average revenue per customer edging upward. Despite these positive indicators, profitability metrics revealed some concerning trends. Gross margin contracted from 51.5% to 47.9%, pressured by narrower margins in both cloud computing and audio streaming segments.

The Illusory Profit Phenomenon

Xunlei’s reported GAAP net income of $550.1 million for Q3 2025 represents an extraordinary leap from the $4.4 million recorded during the same period last year. Yet this apparent windfall proves misleading upon closer inspection. A massive $545.8 million of this total originated not from core operations but from the revaluation of the company’s 7.8% stake in Arashi Vision Inc.

Should investors sell immediately? Or is it worth buying Xunlei?

When excluding this one-time investment gain, Xunlei’s non-GAAP operating profit amounted to just $5.3 million. This dramatic discrepancy underscores the importance of distinguishing between accounting profits and operational performance when evaluating the company’s genuine financial health.

Future Outlook and Market Reaction

Management provided fourth-quarter revenue guidance projecting between $131 million and $139 million, suggesting continued top-line growth of approximately 6.8% quarter-over-quarter. The company’s cash position improved modestly to $284.1 million, though executives indicated no plans to initiate dividend payments despite the substantial paper profit.

Market response to the earnings release has been tempered, with share price movements reflecting investor skepticism about the sustainability of Xunlei’s performance. The central question facing the company remains whether it can strengthen its core operations sufficiently to achieve profitability independent of occasional investment gains.

The challenge for Xunlei leadership will be to translate its respectable revenue growth into consistent operational earnings that don’t require one-time accounting events to impress shareholders. Until the company demonstrates this capability, many investors are likely to maintain their cautious stance toward the streaming and cloud services provider.