Despite a decline in annual revenue, Xunlei becomes a safe haven for the Nasdaq, welcoming the spring of undervalued stocks

In the past month, the Nasdaq index in the US has fallen from around 20,000 points to a low of 17,238.24 points, a decline of 13.88%. It remained in a downward channel until March 14. However, during the Nasdaq's four-week panic decline, Xunlei (XNET.US) managed to show a trend of first declining and then rising.

According to Zhitong Finance APP, on February 18, Xunlei followed the Nasdaq's decline and experienced a "six consecutive days of decline" trend, but on February 26, it rose by 4.69%, outperforming the index. The next day, it surged by 29.66%, and thereafter, Xunlei's stock price continued to rise, reaching a high of $5.44 on March 11. Calculating from the intraday low of $2.64 on February 25, Xunlei's stock price increased by 106.06% in less than half a month, transforming into a "safe haven" during this round of Nasdaq decline.

Can a decline in annual revenue still be a safe haven?

On March 13, before the US stock market opened, Xunlei officially disclosed its unaudited financial report for the fourth quarter of 2024 and the entire year ending December 31, 2024.

The financial report showed that Xunlei's total revenue for the entire year of 2024 was $324 million, a year-on-year decrease of 11.1%; the gross profit for the period was $168 million, a slight year-on-year increase of 2.8%; meanwhile, the company's net profit under GAAP was only $700,000, a significant decline from $14.3 million in the same period last year.

The dual decline in annual revenue and profit is obviously not good news, but on that day, Xunlei's stock price only fell by 1.22%, still outperforming the Nasdaq's decline of 1.96%. It wasn't until the next day, when the Nasdaq rose by 2.61%, that Xunlei expanded its decline to 5.36%.

As mentioned above, Xunlei's rising trend coincided with the Nasdaq's decline, with a key turning point on February 27. On that day, Xunlei surged by 29.66%, and the key reason for this price increase was the approval of the IPO of Ying Shi Innovation, in which the company holds shares.

According to Zhitong Finance APP, Ying Shi Innovation has recently registered and is preparing to go public on the Sci-Tech Innovation Board, planning to raise 460 million yuan. The company has received investments from IDG Capital, Chuangyebang Angel Fund, Qiming Venture Partners, Xunlei, Suning Group, MFS Investment Management, Longmapeng Venture Capital, Huajin Capital, and other institutions. Data shows that before the IPO, Hong Kong Xunlei held an 8.73% stake.

Previously, the market estimated Ying Shi Innovation's market valuation at around 30 billion yuan, which corresponds to a value of about 2.6 billion yuan for Xunlei's shares. Adding the latest financial report showing total cash of $288 million, after acquiring Hupu for 500 million yuan, it amounts to about 1.55 billion yuan.

In other words, just based on Ying Shi's shares and the company's cash, Xunlei's intrinsic value reaches as high as 4.15 billion yuan, while according to the closing price on February 26, Xunlei's market value was only about 1.3 billion yuan, indicating a serious undervaluation. This is the reason why Xunlei's stock price rose after February 27, despite the panic sentiment of the entire Nasdaq decline. As of March 14, Xunlei's market value after the rise was approximately 2.041 billion yuan, still in an undervalued state.

Combining Xunlei's 24Q4 financial report data, Xunlei's revenue for the period was $84.3 million, a year-on-year increase of 9.3%. Among them, Xunlei's core membership business revenue was $34.4 million, a year-on-year increase of 9%. The corresponding number of Xunlei's membership users was approximately 6.38 million, an increase of 390,000 year-on-year In the current period, the average revenue per member for Xunlei is 36.6 yuan, an increase of 0.1 yuan compared to the same period last year.

Among all its businesses, the decline in cloud computing has had a significant impact on Xunlei and is one of the main reasons for the company's annual revenue decline. However, in this financial report, Xunlei recorded a one-time goodwill impairment of 20.7 million USD, and it is expected that the negative impact of the decline in cloud computing on its subsequent performance may gradually weaken. Additionally, Xunlei forecasts its total revenue range for Q1 2025 to be between 85 million USD and 89 million USD, with a steady increase expected quarter-on-quarter. Therefore, from a fundamental perspective, there are clear signs of improvement for Xunlei.

However, as the market shows, Xunlei's "safe haven" effect may still be closely related to the future trend of the Nasdaq index. For Xunlei, how long funds are willing to stay in this "safe haven" seems to depend on when the "storm" of the Nasdaq index will stop.

Why did the Nasdaq index plummet?

In recent years, the fundamental reason for the Nasdaq index attracting global funds and forming a strong profit-making effect lies in the unexpected explosion of AI productivity driven by massive computing power.

According to Zhitong Finance APP, since the end of 2022, AI technology represented by ChatGPT has made leapfrog progress, triggering a global "AI boom." Global investors' enthusiasm for investing in technology stocks in related fields has remained high, driving their stock prices and the Nasdaq index to rise significantly. As of December 16, 2024, the Nasdaq index reached a peak of 20,204.58 points, up 34.60% from the end of 2023 and a cumulative increase of 93.04% from the end of 2022.

In short, the unexpected explosion of AI productivity in this round has led to a collective push from global capital, doubling the Nasdaq index's growth within two years. The core logic is mainly based on the positive correlation between computing power and AI productivity, with Nvidia's advanced computing power foundation being the central hub of this logic.

From this logic, it can be seen that the recent plummet of the Nasdaq index is different from the bursting of the internet bubble in the U.S. at that time, as the leading companies in the current U.S. stock market are mostly fundamentally sound, supported by Nvidia's graphics card computing power, showing profitability and growth, rather than being high-valuation bubble companies with significant losses and no fundamental support.

It is worth mentioning that Deepseek across the ocean may not be the "culprit" breaking the profit-making effect of the Nasdaq index.

The emergence of open-source Deepseek has made optimizing computing power costs a possibility, which has led to renewed voices in the market about "excess computing power." However, in reality, the recent emergence of Manus has pointed out another path for AI applications to the world, showcasing an AI Agent full-chain task execution model with a massive computing power demand that far exceeds market expectations and has a high ceiling. In other words, even with the support of Deepseek's computing power optimization, a strong computing power foundation is still needed to support the high ceiling development of future AI Agents.

In other words, although the emergence of Deepseek has stirred the U.S. stock market, the growth logic of the U.S. stock market supported by Nvidia's computing power has not been broken, and the profit-making effect still exists.

In contrast, U.S. stock market funds seem to be more panicked about the "uncertainty" brought by the current unpredictable policy risks. As a Wall Street investor put it, "The current attitude of the U.S. government towards potential economic recession seems indifferent, which makes market participants uneasy." Recently, the panic indicator Cboe Volatility Index (VIX) briefly approached 30, reaching its highest level since August of last year. The S&P 500 index also recently fell below the closely watched 200-day moving average support level, marking the first time since November 2023. Additionally, HSBC and Citigroup have recently downgraded their ratings on U.S. stocks, citing uncertainty brought about by tariffs. On the other hand, Citigroup has simultaneously upgraded its rating on the Chinese stock market to "overweight," stating that the U.S. exceptionalism narrative is at least temporarily on hold.

Dirk Willer, Global Head of Macro Research and Asset Allocation at Centre Asset Management LLC, stated, "In the coming months, the flow of economic news from the U.S. is likely to be below that of other parts of the world, so at least tactically, the U.S. exceptionalism narrative is unlikely to make a comeback." He added that the neutral outlook on the U.S. stock market is for a time frame of three to six months, expecting more negative news from U.S. data.

In other words, if the "uncertainty" storm of the Nasdaq continues, the "safe haven" effect of Xunlei may also persist