VC-backed Xunlei sets terms for $92.5m US IPO

The company said in a regulatory filing that it will sell 7.32 million American Depository Shares (ADS) at $9.00-11.00 apiece, rising to 8.41 million shares if underwriters exercise the full over-allotment option.

Xiaomi Ventures, an investment arm of Chinese mobile phone manufacturer Xiaomi, which invested $200 million in Xunlei earlier this year, has agreed to subscribe to $50 million of shares in the offering. Its stake in the company will rise from 27.2% to 28.8%.

King Venture Holdings, a subsidiary of software developer Kingsoft Holdings, invested $90 million at the same time as Xiaomi Ventures. It has an anti-dilution clause and so will be issued additional shares in the offering, taking its stake from 12.2% to 13%.

Other disclosed investors will all see their holdings diluted. Morningside Technologies will own 10.9% of the company post-offering, while IDG Capital Partners will have 7.7%, Ceyuan Ventures 4.1% and Primavera Capital 5.4%. However, both IDG and Primavera will both receive additional shares in Xunlei due to anti-dilution clauses.

Xunlei will use the proceeds for investment in technology, infrastructure and product development, acqusitions of digital media content and online game licenses, and for general corporate purposes. The company originally planned to go public two-and-a-half years ago but abandoned its NASDAQ offering due to market volatility.

According to AVCJ Research, IDG seeded Xunlei in 2003 and Morningside entered in the second round two years later. Both firms re-upped for the $15 million Series C in 2006, joined by Ceyuan and Fidelity Growth Partners Asia. Google committed $5 million to Xunlei the following year.

A number of investors picked up stakes in 2011 ahead of the planned IPO, including China Renaissance Capital Investment, Sohu and a vehicle owned by Rupert Murdoch and his then wife Wendi.

Primavera committed approximately $50 million in 2012. In April of this year, the company completed a Series E round of funding - which saw the entry of Xiaomi and Kingsoft, while IDG and Morningside re-upped - and repurchased shares from a number of investors. Fidelity Asia and Primavera were among those that made full or partial exits.

Xunlei claims to be the 12th largest internet company in China by user base. Its most popular - and free - product is Xunlei Accelerator, a peer-to-peer software tool with approximately 142 million monthly users as of March 2014 and a market share of 81.4%. The company also offers cloud acceleration subscription services, an online video streaming platform, pay-per-view media services and online games.

Xunlei was sued by six Hollywood studios and Chinese state broadcaster CCTV in 2008 for copyright infringement arising from illegal file-sharing. The company was subject to 72 lawsuits in China in 2013, down from 114 the previous year. Approximately 96.4% of the lawsuits faced since 2011 were rejected by the courts.

Revenues are primarily generated through cloud subscription services, online advertising and other internet value-added services. Xunlei reported revenue of $180.2 million in 2013, up from $148.2 million the previous year and $87.5 million in 2011. The company became profitable in 2012 and posted net income of $10.4 million in 2013.

J.P. Morgan, Citigroup, Stifel and Oppenheimer & Co. are managing the offering.

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• Topics
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