Controversial file-sharing site Xunlei ready for $200M Nasdaq IPO

14 June 2011 15 h 28 min 35 comments

On June 8, the Chinese portal and game downloads site Xunlei filed a registration statement with the US SEC for a proposed IPO. The company which operates Xunlei.com could raise up to $200 million.

According to the statement, the company, which plans to list on Nasdaq under the symbol “XNET,” will use proceeds from the offering to establish a customer service center and cloud computing data centers, to acquire digital media and gaming content, and to invest in technology, infrastructure and product development.

According to China Daily, The Shenzhen-based company didn’t disclose how much equity it will sell or give a price range in its filing with the US Securities and Exchange Commission. Owners of the company include Google Inc, according to the filing.

Controversial platform

Xunlei first launched its Downloader application in 2004, letting users download video and other content easily on a Chinese internet where growing broadband adoption can sometimes slow connections. According to iResearch, xunlei.com has now 291 million active connections for all its websites including its own video portal Xunlei Kankan. According to the IPO prospectus, Xunlei made a $25.7 million profit in 2010, most of which comes from online advertising.

In December 2010, Xunlei was criticized for financial reporting deficiencies and non-compliance with US accounting rules. It has since hired financial executives with the necessary knowledge of compliance.

Another controversy is about the real nature of its business. Xunlei is considered as a P2P service. According to penn-olson.com, citing Wikipedia, “it uses something called P2SP, which is not a P2P tool in its essence.” But the company has been under fire over the years, especially when it was sued by six Hollywood studios in 2008. The company was also sued by China’s primary television station CCTV during the Beijing Olympic Games.
 
The main concern of content holders is the website’s video section, Xunlei Kankan which offers many international programmes, for which the copyright legality is discussed by many observers.   
   
Rupert, Wendi and Google could be happy !

Ironically, Rupert Murdoch and his Wife as well as Google could benefit from this planned IPO. At a time when Murdoch is fighting against piracy in China and Google struggles with China government, they could make a good return on their investment.

According to paidcontent which reveals these investments,

. Google “invested $5 million in Xunlei in 2007 and is currently a principal shareholder to the tune of 2.8 percent”

. 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 (NSDQ: NWS) investment, though the documents were signed by News Corp finance SVP and News America Inc treasurer Paula Wardynski.”

Rupert Murdoch told paidContent:UK: “Wendi and I recently made a personal investment in the Chinese video and music internet company Xunlei Limited, through RW Investments.  We believe in the talented entrepreneurs who launched this company and we are confident they can build a successful entertainment offering that respects the rights of copyright holders and artists.  They have committed to us that they will do so.”

Along with the IPO, ex Google China VP Kai-Fu Lee is joining Xunlei as an independent director. IDG is the other major institutional investor with 12.2 and a Xunlei’s valuation at $10 billion.

J.P. Morgan and Deutsche Bank will lead underwriters for the offering. Xunlei’s IPO follows a spate of similar listings by Chinese Internet ventures including Jiayuan.com International Ltd and Renren Inc .

SOURCES: streetinsider.com (8/06/2011), penn-olson.com, Pacific Epoch (9/06/2011), China Daily (10/06/2011), paidcontent (14/06/2011)

IN THE PRESS:

. “Rupert, Wendi And Google In Chinese Video Site’s $200 Million IPO” (paidcontent.org, 14/06/2011)

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