Chinese Internet Company Xunlei Sets IPO Pricing Terms

| About: Xunlei Limited (XNET)

Xunlei Limited, a consumer Internet platform enabling users to access and manage digital media in China, announced pricing terms for its IPO late Friday. The Shenzhen, China,-based company plans to raise $114 million by selling 7.6 million ADSs at a price range of $14 to $16 per ADS. At the mid-point of the proposed range, Xunlei Limited will command a fully diluted market value of $1 billion. The company plans to list on the NASDAQ under the symbol XNET. JP Morgan (NYSE:JPM) and Deutsche Bank Securities (NYSE:DB) are the lead underwriters on the deal, with Cowen and Company, Needham & Company and Stifel Nicolaus Weisel acting as co-managers. The deal is expected to price Tuesday, July 19, for trading the next day.

Xunlei Limited, which launched its core digital media download service in 2004 (Xunlei Downloader) and its video streaming portal (Xunlei Kankan) in 2007, has seen its net revenue ramp from $17 million in 2008 to $30 million in 2009 and $43 million in 2010. For the three months ended March 31, 2011, net revenue doubled to over $14 million. Net income totaled $8.5 million in 2010 and $1.8 million in the first quarter of 2011. The company generates most of its revenue from online advertising as well as premium subscription services and online games. Its Xunlei Downloader product is the the dominant download acceleration application in China with nearly 80% market share, while its online video streaming portal ranks No. 3 in China based on monthly unique visitors

Xunlei, which was founded by two computer engineers and graduates of Duke University (one of whom proceeded to lead the corporate products team at China's dominant search engine Baidu (NASDAQ:BIDU)), is backed by venture firms Morningside, IDG and Ceyuan Funds. Google (NASDAQ:GOOG) also owns a small stake in the company.

Despite recent apprehension toward Chinese IPOs in light of instances of fraud, skepticism about business models and/or inadequate financial controls, Xunlei stands to become the 12th U.S.-listed Chinese IPO in 2011 and the 8th Internet-based China-based company to tap the public markets this year. As a group, the 12 U.S.-listed Chinese IPOs have raised $1.7 billion but are down 13% on average from their respective offer prices.

The worst performing U.S.-listed Chinese IPOs year-to-date are mobile security software company NetQin Mobile (NYSE:NQ) (down 54%), mobile technology platform vendor Trunkbow International (NASDAQ:TBOW) (down 41%), and Chinese social networking company Renren (NYSE:RENN) (down 34%). As of July 1, eight of the 11 U.S.-listed Chinese IPOs are trading below issue price.