Xunlei is China’s largest download client for software, video, and music downloads. It also operates an video website, Xunlei Kankan. Xunlei will list on NASDAQ on July 20 under the ticker XNET. By iChinaStock.

1. INSIDE
INSIDE XUNLEI
NASDAQ: XNET
Chinese Download Client and Online Video
REPORT BY
iChinaStock.com profiles Chinese firms
that are publicly-listed or may list soon in
overseas markets

2. INSIDE
SUMMARY
• Xunlei is China’s largest download client for software, video, and music
downloads. It also operates an video website, Xunlei Kankan. As of
February 2011, Xunlei claimed 291 million active users.
• Xunlei’s revenue breakdown: 51% online advertising, 26% subscription
fees, and 23% from games and other. Its 2011 Q1 revenues were $14.3
million, with gross profits of $8.8 million and net income of $1.7 million.
• Market Share: Xunlei held 78.7% market share among all download
software in China as of February 2011. Among online video sites, Xunlei
KanKan ranks fifth with 4.2% market share, according to iResearch.
• Xunlei will list on NASDAQ on July 20 under the ticker XNET. At the
midpoint of its IPO price range ($15), Xunlei would raise $112.5 million at
a valuation of $916 million.

3. INSIDE
BUSINESS MODEL
Xunlei
Online advertising Cloud-based Online games
subscription service and others
• Over 1.3 million subscribers;
Xunlei produces its own
• Subscription fee of RMB 9.8 games that are promoted
Download (USD 1.51) or RMB 15 (USD through its download
Xunlei Kankan
client 2.31) per month client and its website.
Aprx. 138 million 120.7 million monthly
downloads per day in 2010
unique visitors

4. INSIDE
REVENUE
(unit:
$1,000)
Games
and
other
16,000
1.2
23%
14,339
14,000
13,147
Online
1
adverEsing
12,000
98.13%
51%
SubscripEon
10,100
0.8
9,507
fees
10,000
76.38%
26%
7,973
8,000
7,444
7,454
7,237
0.6
6,000
35.68%
0.4
4,000
Revenue Breakdown in Q1. 2011
19.24%
0.2
2,000
As the graph above indicates,
advertising displayed on Xunlei’s
0
0
download client and its video site
2009Q2
2009Q3
2009Q4
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
generates more than 50% of revenues.
Net
Revenue
Growth
Rate

5. INSIDE
PROFIT & HIGH MARGINS
Unit:
$1,000
10,000
80.00%
8,801
9,000
72%
70%
71%
70.00%
7,928
8,000
64%
63%
7,000
6,398
6,363
59%
56%
57%
60.00%
6,308
6,000
5,680
5,797
50.00%
4,993
5,000
40.00%
4,000
30.00%
2,698
2,677
3,000
2,187
1,980
2,070
1,770
20.00%
2,000
1,541
1,537
1,000
10.00%
0
0.00%
09Q2
09Q3
09Q4
10Q1
10Q2
10Q3
10Q4
11Q1
gross
profit
net
income/loss
gross
margin

6. Unit:
$1,000
COST OF REVENUES
16,000
40%
Total:
14,309
14,000
35%
33.50%
12,000
30%
10,000
25%
other
costs
24.20%
22.20%
DepreciaEon
of
servers
8,000
20%
Total:
6,578
Content
costs
6,000
15%
Bandwidth
costs
Total:
4,065
Cost/Revenues
4,000
10%
2,000
5%
0
0%
2008
2009
2010

7. COST OF REVENUES:
XUNLEI VS. YOUKU
Xunlei
in
2010
Youku
in
2010
Bandwidth
costs
Content
costs
Other
Bandwidth
costs
Content
costs
Other
Total costs = 33.5% of revenue Total costs = 91% of revenue
3,493
11,750
5,746
24.5%
22%
40%
29,000
12,500
54%
5,070
24%
35.5%
Unit: $1,000 Unit: $1,000
As opposed to online video sites like Youku, Xunlei is already a profitable firm. Its cost of
revenues are significantly lower, particularly in terms of bandwidth expenses.

8. INSIDE
SUBSCRIPTION SERVICE
Unit: 1,000 paying users Unit: $1,000
1,400,000
1,304
4500
4000
1,200,000
$4,060
1,031
3500
1,000,000
3000
800,000
$2,765
2500
619
600,000
2000
444
$2,168
1500
400,000
307
$1,413
1000
200,000
163
$887
79
500
18
$495
0
$31
$189
0
09Q2
09Q3
09Q4
10Q1
10Q2
10Q3
10Q4
11Q1
SubscripEon
fee
Paid
users
Cloud-based offline downloads and express downloads are the core of
Xunlei’s VIP service, which now has 1.3 million paying users. They grant
users the blazing fast download speeds that are Xunlei’s big appeal.

9. INSIDE
PRODUCTS STRUCTURE
• Xunlei launched its digital media download services in 2004, digital media streaming services in
2007, online games offerings in 2008 and cloud-based subscription services in 2009.
• Cloud-based offline downloads and express downloads are the core of Xunlei’s VIP service.

10. INSIDE
COMPETITORS I
DOWNLOAD CLIENTS
• Xunlei held 78.7% market share among all download software in China in
February 2011, according to iResearch.
• QQ Xuanfeng (QQ Cyclone or QQ ) by Tencent is Xunlei’s main
competitor in the download client market. It also provides cloud-based
offline downloading services.
• Users must subscribe to Xunlei’s offline download service at the price of 10
yuan/month. QQ Xuanfeng is free with a QQ VIP membership (paid).
• The maximum transfer volume per user for Xunlei is 1 PB, while QQ
Xuanfeng is 50 GB.
• According to Chinese IT blog “Moonlight ( )”, Xunlei’s obvious
advantage is its blazing download speeds.

11. INSIDE
COMPETITORS
Online Video
• Much of Xunlei’s download content is video, but the company also operate its own
video website, where it faces fierce competition from other sites and services
including Youku (NYSE: YOKU), Ku6 (NASDAQ: KUTV), Tudou, PPLive, PPTV, Qiyi, and
others.
• The main cost of its video website is bandwidth and content licensing. Players in
China’s online video market are all investing large sums to gain market share, though
the economics are at present less appealing than download clients. (See “Cost of
revenues” on slide 7)
China’s Top 5 Online Video Sites
Name Domain Visitor Time
Percentage
(unit:10,000 h)
Youku youku.com 47,426.7 31.0%
Tudou tudou.com 24,558.6 16.0%
Sohu tv.sohu.com 22,419.5 14.6%
Qiyi qiyi.com 18,579.5 12.1% Source: iResearch
Q1 2011
Xunlei Kankan xunlei.com 6,474,6 4.2%

12. INSIDE
COPYRIGHT ISSUES
• Xunlei still faces 32 pending copyright infringement lawsuits. But it should be
noted that Chinese law is not clear as to whether software or sites are
responsible for policing pirated content that is downloaded via peer-to-peer
(P2P) technology.
• Xunlei notes that 87% of lawsuits to-date against it have been resolved in their
favor by Chinese courts. The monetary fines for copyright infringement are
generally so small as to be immaterial to the company’s bottom-line (a total of
about USD $200,000 to-date).
• Xunlei is likely more concerned about the reactions of foreign investors than the
Chinese government when it comes to copyright issues. In preparation for its
IPO, Xunlei removed the pirated content that used to be promoted front and
center in its service.
• But users still use Xunlei to download pirated material by obtaining links from 3rd
party sites that can then be entered into Xunlei’s client download software. If a
user pays for the VIP ‘cloud download’ service, that pirated content can even first
be downloaded directly onto Xunlei’s servers for that user to watch.

13. INSIDE
COPYRIGHT ISSUES II
• The majority of outstanding lawsuits are related to videos available on its
Xunlei Kankan website and third-party content accessible through links
provided by Gougou ( ), a film search site.
• In December 2010, the Xunlei Group sold the related domain name,
trademark and software copyrights for Gougou, together with Gougou's assets,
to a third-party at a consideration of RMB10,000 (equivalent to USD1,471).
• The sale of Gougou to a third-party, still the featured search engine on
Xunlei’s download manager, was likely to reduce Xunlei’s exposure to
copyright issues.

14. INSIDE
INVESTMENT STATUS
• In 2007, Google invested $5 million in Xunlei and currently holds 2.8 percent of shares.
• In April 2011, the Murdochs made a $29.4 million third-round investment in the company
through RW Investments LLC (“R” for Rupert, “W” for Wendi”). It is not a News Corp
(NASDQ: NWS) investment.
• Sohu (NASDAQ: SOHU), a leading Chinese internet portal, has agreed to purchase USD
$10 million in Class A common shares at a price equal to the IPO price. Assuming an
initial offering price of USD $15 per ADS, Sohu will purchase a total of 2 million Class A
common shares from Xunlei. (Note: 1 ADS = 3 common shares)

15. INSIDE
LISTING STATUS
• Xunlei will list on NASDAQ on July 20 under the ticker XNET. At the midpoint of its
IPO price range ($15), Xunlei would raise $112.5 million at a valuation of $916
million.
Use of proceeds:
• USD $20 million to establish a customer service center and cloud computing data
centers to better serve our subscribers;
• USD $20 million to acquire digital media content and exclusive online game
licenses;
• USD $10 million to invest in technology, infrastructure and product development
efforts;
• The balance for other general corporate purposes, including working capital needs
and potential acquisitions.

16. INSIDE
CORPORATION STRUCTURE
Xunlei Limited is a Cayman Islands company that controls various Chinese assets via contractual arrangements
commonly referred to as the Variable Interest Entity (VIE) structure or colloquially the “Sina Structure.”

17. XUNLEI DOWNLOADER
Xunlei’s client software for downloads of movies, tv shows, songs, etc.
Gougou search
Download status
Download list
Casual online games

18. VIP SERVICE
• Xunlei’s VIP services includes offline download and express download, which
offer faster downloads for a monthly fee of 10 RMB.
Express download
Offline download

19. Xunlei Kankan is an online video site
XUNLEI KANKAN
that focuses on professionally produced
content, similar to other competitors
like Sohu TV and Baidu’s Qiyi
XUNLEI.COM
Home | Movies | TV | Reality shows | Comedy | News | Entertainment | Fashion | Auto | Travel Top movies
Includes sponsored content from online brands like VANCL (online apparel), Okbuy (e-commerce, Moonbasa (fashion),
and Yihaodian (online groceries)

20. Xunlei used to rely upon revenue
sharing with third-party developers, but
XUNLEI GAMES now produces its own games that are
promoted through its download client
and its website, Xunlei Games.
YOUXI.XUNLEI.COM
Home | Charge up | Service | Forum

21. INSIDE
ABOUT ICHINASTOCK
Snowball Finance is a financial media platform that includes two sites.
One is iMeigu.com, a Chinese-language site that covers all US-listed stocks. The other is
iChinaStock.com, an English-language site that covers Chinese stocks listed in the US. Each
site provides stock quotes, business news, and analysis.
Snowball Finance has also established my.iMeigu.com, a Web 2.0 platform for global investors
to share news and insights on stocks they follow. Snowball Finance also publishes
the iChinaStock 30 Index, a representative sample of Chinese stocks on the NYSE and
NASDAQ.
© March 2011 iChinaStock