Welcome, ladies and gentlemen, and thank you for your patience. You've joined Xunlei's 2022 third quarter earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to turn the call over to the host Investor Relations Manager, Miss Luhan Tang.
Thank you, and good morning, everyone, and thank you for joining Xunlei's 2022 third quarter earnings conference call. On the call with me today are Eric Zhou, Chief Financial Officer, and Li Li, Senior Vice President of Finance. Now you can find our earnings press release on our IR website, which is intended to supplement our prepared remarks today. For today's agenda, I will first read a prepared opening remarks by our chairman and CEO, Mr. Jinbo Li, on highlights of our third quarter operations. Then Mr. Eric Zhou, our CFO, will go through the details on the financial results and a wrap-up with our revenue guidance for the fourth quarter of 2022. We'd like to welcome any questions from you after the management's remarks. Today's call is recorded, and you can replay the call from our investor relations website.
Before we get started, I would like to take this opportunity to remind you that the discussion today will contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations under current market conditions that are subject to risks and uncertainties that are difficult to predict, which may cause actual results to differ materially from those made in the forward-looking statements. Please refer to our SEC filings for more detailed description of the risk factors that may affect our results. Xunlei assumes no obligation to update our forward-looking statements except as required under applicable laws. On this call, we'll be using both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to comparable GAAP measures can be found in our earnings press release.
Please note that all numbers are in U.S. dollars unless otherwise stated. With that, the following is prepared statements by Mr. Jinbo Li, Chairman and CEO of Xunlei Limited. Good morning, everyone, and thanks for joining us today. Despite the macro headwinds we've been facing for some time, we delivered solid third quarter results with revenue exceeding the top end of our revenue guidance and net income also grew sequentially. This is the third profitable quarter this year, and we expect to end the year with full-year profitability, assuming no extraordinary events or one-time write-off, which we do not foresee as of this earnings release. I believe the third quarter results demonstrated our ability to focus on and execute our strategies and showing the resilience of our products and services in a challenging environment. I'd like to share with you some of the major highlights from third quarter.
Generally speaking, the result of our major business lines, namely member subscription, cloud computing, and live streaming and other internet value-added services, came in either within or exceeding our expectations. Although the results when reported in US dollar were partially offset by the impact of the valuation of RMB against the US dollar. Specifically, in third quarter of 2022, we realized $88.3 million in total revenue with a 12.8% quarter-over-quarter increase, and revenue exceeded the high end of our revenue guidance range. Meanwhile, our net income increased to $8.3 million in the third quarter from $6 million in the second quarter, which is the third consecutive profitable quarter of this year.
Delivering profits three quarters in a row amidst a challenging macro environment clearly demonstrated the successful execution of our business strategies and the resilience of our business model. I feel very thankful to our employees and management for their dedication and efforts on keeping operations on track during a period of COVID-19 resurgence and carrying on our product and services to serve our users and clients without interruption. As one of our major business growth drivers, our cloud computing business in the third quarter of 2022, its revenue reached a record level of $29.1 million. In addition, Shenzhen Wanxin, the operator of cloud computing business and a wholly owned subsidiary of Xunlei, was ranked number four with a 12.2% of market share in public edge cloud service market in 2022, according to a study by International Data Corporation.
Our subscription business delivered essentially stable performance and generated approximately $25 million in revenue, down 1.7% compared to last quarter. Mainly due to the impact of currency devaluation and a slight decrease in the number of subscribers, partially offset by higher average revenue per user. If reported in renminbi, the third quarter subscription business would have been up slightly versus the prior quarter. The average revenue per subscriber reached RMB 39.1 in the third quarter compared to RMB 37.8 in the previous quarter, as the average proportion of premium membership rose to 35.3% of total subscribers from 34% in the previous quarter. We will continue to improve product features to enhance user experience and at the same time explore additional marketing channels to reach a broader user base.
Our live streaming and other internet value-added services was the fastest growing business line in the third quarter of 2022. Accounted for approximately 38.8% of our total revenues in third quarter, surpassing cloud computing and membership subscription, which accounted for approximately 33% and 28.3%, respectively, of our total revenues. In the third quarter, our live streaming and other internet value-added services reached a record level of $34.2 million in revenue with a 39.4% quarter-over-quarter increase. We expanded the presence of our products and services in more countries, hired additional local teams and deepened our brand recognition in these new markets. However, we expect the continued appreciation of the U.S. dollar against other currencies. If it happens, will dampen our financial performance in overseas markets.
We'll closely monitor the dynamics of global economies, geopolitical tensions, and regulatory policies, and importantly, execute our international growth strategies. We have high hopes that in the foreseeable future, seamless growth will be driven by products and services that have broader user recognition and larger market potential, and rely less on our traditional products and services. This is an ongoing transition, and we look forward to sharing with you our development in the coming quarters. To conclude, we anticipate future growth for the fourth quarter of 2022 sequentially and year-over-year, and that expects to be on course to achieve full year profitability. However, we will stay vigilant about the current macro dynamics, which could significantly impact our operations. To ensure sustainable development, we are steadily entering selected international markets to strengthen our product portfolio and address geographic market risks.
We have seen recent but encouraging progress in this regard. With a healthy balance sheet, clear strategic focus and effective execution, as well as improved product portfolio, we believe we are well-positioned to navigate this volatile macroeconomic and geopolitical environment and capture long-term opportunities. Now I'd like to turn the call to Eric to review some of the financial numbers.
Thank you, Luhan Tang. Good morning and good evening, everyone. We are pleased to have you join us today to discuss our third quarter results. I will now go through the details of our financial results and wrap up with our revenue guidance for the fourth quarter of 2022. Total revenues were $88.3 million, representing an increase of 12.8% from the previous quarter. The increase in total revenues was mainly attributable to increased revenue generated from our live streaming business. Revenues from cloud computing were $29.1 million, representing an increase of 2.7% from the previous quarter. The increase of cloud computing revenues was mainly due to the increased demand from our major customers for our cloud computing service, partially offset by the devaluation of exchange rate of RMB against U.S. dollar.
Revenues from subscription were $25 million, representing a decrease of 1.7% from the previous quarter. If reported in RMB, the subscription revenue would have been up slightly. The number of subscribers was 4.37 million as of September 30, 2022, compared with 4.46 million as of June 30, 2022. The average revenue per subscriber for the third quarter was RMB 39.1, compared with RMB 37.8 in the previous quarter. The higher average revenue per subscriber was due to a larger percentage of users opted for our premium membership. Revenues from live streaming and other IVAS were $34.2 million, representing an increase of 39.4% from the previous quarter.
The increase of live streaming and other IVAS revenues was mainly driven by the rise in the number of paying subscribers of our live streaming products, which were launched in 2021, as well as our enhanced monetization capability. Cost of revenues were $52.8 million, representing 59.9% of our total revenues, compared with $44.3 million or 56.6% of the total revenues in the previous quarter. Bandwidth costs as included in the cost of revenues were $25.3 million, representing 28.6% of our total revenues, compared with $25.5 million or 32.6% of the total revenues in the previous quarter.
The remaining cost of revenues mainly consisted of costs related to the revenue sharing costs for our live streaming business and depreciation of servers and other equipment. Gross profit for the third quarter was $35.2 million, representing an increase of 4.4% from the previous quarter. Gross profit margin was 39.9% in the third quarter, compared with 43.1% in the previous quarter. The increase in gross profit was mainly driven by the increase in gross profit from our live streaming business. The decrease in gross profit margin was mainly due to the increased portion of live streaming revenue to total revenues, which has a lower gross profit margin.
Research and development expenses for the third quarter were $16.2 million, representing 18.6% of our total revenues, compared with $16 million or 20.4% of our total revenues in the previous quarter. Sales and marketing expenses for the third quarter were $5.8 million, representing 6.6% of our total revenues, compared with $5 million or 6.4% of our total revenues in the previous quarter. The increase was primarily due to higher marketing expenses during the third quarter, driven by our continued user acquisition efforts. G&A expenses for the third quarter were $8.2 million, representing 9.6% of our total revenues, compared with $12 million or 15.4% of our total revenues in the previous quarter.
The decrease was primarily due to the decreased share-based compensation expenses, since fewer restricted share units were vested during the quarter. Operating income was $5.1 million compared with $0.7 million in the previous quarter. The increase in operating income was primarily attributable to the increase in gross profit of live streaming business and less share-based compensation expenses accrued during the third quarter. Other income was $4.7 million, compared with other income of $7 million in the previous quarter. The decrease was primarily due to the reversal of certain payables due over three years, with low payment probability recognized in the second quarter, but no similar item in the third quarter. Net income was $8.3 million, compared with $6 million in the previous quarter.
Non-GAAP net income was $9 million in the third quarter of 2022, compared with $9.8 million in the previous quarter. The increase in net income was primarily driven by the increase in operating income, as discussed above. Diluted earnings per ADS in the third quarter of 2022 was approximately $0.12 as compared to $0.09 in the second quarter of 2022. Moving to liquidity as of September 30, 2022, the company had cash equivalents and short-term investments of $251.7 million, compared with $259.9 million as of June 30, 2022. The decrease in cash and cash equivalents was mainly due to the impact of foreign exchange rates, spending on Xunlei headquarters building under construction and share repurchases. Turning to ongoing stock repurchase program.
In March, Xunlei announced that its board of directors authorized the repurchase of up to $20 million of its outstanding common stocks over the next 12 months. As of September 30, 2022, we have spent approximately $4.3 million on buying back Xunlei stocks. Regarding Xunlei research and headquarters building under construction, now it is in the final stage for interior decoration and preparation, and we expect the new building to commence operations by the end of this year. Finally, moving to our guidance for the fourth quarter of 2022. The company estimates total revenues to be between $90 million and $95 million, and the midpoint of the range represents a quarter-over-quarter increase of approximately 4.8%.
These estimates represent management's preliminary review as of the date of this press release, which is subject to change, and any change could be material. Now we conclude our prepared remarks for the conference call. Operator, we are ready to take questions.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile a Q&A roster. Our first question comes from Xiaoming Li, Private Investor. You may proceed.
Uh,
那么这些可能会出现的CDN和这个边缘计算公司与公司的这个CDN业务是否有直接重叠？那么一个竞争关系是怎样的？那么咱们如果重叠的话，有怎么样一个应对的策略，是否会对未来的业绩产生一个比较大的影响。
Thank you. His question is, recently, Tencent and China Unicom jointly established a new company and focusing on CDN and edge computing, and he's wondering if the joint venture business has any overlap with Xunlei's business. We think to some extent, the joint venture demonstrated China's comprehensive layout of the cloud computing industry, and it may bring great confidence to the entire industry under the current economic environment. So far since we haven't seen any details of the joint venture, and we really can't tell whether there will be any overlap in business, or it will be a direct competitor. From our perspective, we think edge computing has great opportunities.
We will adopt measures to embrace the changing competitive landscape. So far, we haven't seen any impact on us yet. As one of the tier one companies in edge public cloud, we intend to collaborate closely with all the players in the industry, including telecom carriers, large cloud computing firms, as well as, all upstream and downstream value chain firms. Together, we can build a better ecosystem for edge computing. In the long term, we will do our best to achieve win-win results for all stakes of the industry as we believe the market is huge and has also further potential. Thanks for the question.
我们的回答是在某种程度上，这也折射出了一个事实，就是中国对云计算赛道的一个全面布局，然后在现在的当前的经济状况环境下，也是对我们整个行业的一个发展带来了一个极大的信心。目前我们没有看到腾讯和联通联合组建的这个公司的具体的详细的产品，所以我们也不是很清楚有没有重叠的地方。但是对于网心科技的角度来讲，边缘计算是一个充满了无限机遇的蓝海市场。在当前的边缘云第一梯队的基础上，我们也非常积极应对，和三大运营商云计算的大厂以及产业链上下游的企业紧密地协作，拥抱变化，一起建设一个更好的边缘计算生态系统。到目前为止，我们并没有看到任何的影响。长期来讲的话，网心科技也会保持一个非常开放的心态，争取和各方达成共赢。谢谢您的问题。
谢谢。然后还有第二个问题是关于财务和指引方面。那么可以看到这个Q3的业绩中，收入增长中，直播是贡献了比较大的一个比例。那么同时也看到像毛利是出现了一个下滑。那么想问一下咱们是否根据自身的业务规划以及业务的竞争力，给出一个中短期的关于盈利的、毛利率的预测。那么这个毛利率是否会持续下降。
Basically, he asked, you know, based on our performance for the last quarter and the growth of each business line, and he wants to have an understanding of the outlook of the company's business and particularly its profitability. He wants to know whether the gross profit margin will continue to decline in the future. We believe the gross profit margin will continue to decline as our live streaming business is expected to continue to grow and account for a larger percentage of the total revenues. Our live streaming product has a lower gross margin than our traditional subscription business. We expect that in the longer term, the overall gross margin will gradually stabilize to a certain level. Thank you.
我们认为，接下来毛利率还是会有所下降的，因为我们的直播新业务的毛利率，是比传统的会员业务的毛利率要低的。但是我们也相信，在不久的将来会有一个逐渐平稳的趋势。谢谢您的问题。
好的，谢谢。我这边没有问题了。
Thank you. One moment for questions. Our next question comes from Zening Song with Accenture. You may proceed.
能听到我吗？OK。你好。
可以。
我这边的问题，主要是关于一些未来业务发展的情况的问题。有两个问题。第一个问题我想问一下，因为贵公司现在的会员收入，还有这个总体的会员的数量还是比较稳定的。我想问一下未来的话，在这一块会不会有一些新的一些突破。
The caller asked, he said that our subscription business has been relatively stable, you know, for the last several quarters, and he would like to know if we will have a breakthrough in this business. This is good question, and we hope our products and services, as well as the number of subscribers will remain stable at a relatively higher level and continuously improve. We are exploring new potential opportunities and strive to add more convenient, efficient, and reliable functions on top of existing subscription service. In addition, we are also exploring additional marketing channels to try to reach a broader user base. Thank you.
这是非常好的一个问题。目前呢，我们希望我们的产品和服务，还有就是会员的人数都保持一个比较稳定的、高的水平，同时也不断继续提高。我们从来也没有停止过尝试或调研新的领域。就比如说，我们不断地完善产品的功能，也在提高用户的体验。我们希望在现有的会员服务基础上，携带更多的便捷、高效和值得信赖的一些功能。与此同时呢，我们也在探索更多的市场渠道来扩大我们的用户的基数。谢谢您的问题。
好，谢谢。然后另外除了这个会员之外的话，我们也发现现在贵司的这个直播业务已经成为这个收入占比最大的一块业务，而且增长的速度还比较快。我想问一下，那直播业务的话，未来贵公司有什么样的一个这个发展的计划，也会要做一些类似于转型这样的工作吗？好，谢谢。
Thanks for asking. His question is, you know, since our live streaming product has become the fastest growing business and largest growth driver of Xunlei, and he would like to know the possibility of this business, and he also wants to know if we can make a transition for Xunlei's business model. This is good question.
You know, since we launched our live streaming business in 2021, we have seen significant growth. Our recent fast-growing operating results met our initial expectations. We are expanding our presence in more countries, hiring more local talents, and deepen our brand recognition in these new markets. As for whether we will make a transition, we are open to all possibilities in the future, and we will closely monitor the industry development and adapt our overseas growth strategies accordingly. We are optimistic that in the future, Xunlei's growth will be driven by the products and services that have broader user recognition and larger market potential, and rely less on our traditional products and services. I believe this is an ongoing endeavor and we look forward to sharing with you our progress in the coming quarters. Thank you.
这是一个非常好的问题。其实从2021年我们推出直播的业务以来，我们看到了很多巨大的增长机会。最近几个季度的快速增长的业绩呢，也符合了我们最初的一个预期。我们也会在更多的国家和地区推广我们的产品，以及扩大当地的运营团队，也会继续提升我们在这些新市场的品牌认知度。至于是否转型呢，我们对未来的一切的可能性目前都抱有开放的态度，也会密切关注行业的发展，酌情调整我们的国际化发展战略。我们也非常的乐观。在未来迅雷的增长也是将由用户认可率更高、市场潜力更大的产品和服务驱动，而不是依赖我们传统的产品和服务。我相信这是一个正在进行的一个过渡，我们也期待在接下来的几个季度给大家分享我们的一些进展。谢谢。
好，我没有问题了。谢谢。
Thank you. One moment for questions. Our next question comes from Giorgio Leontios with Royalton Holdings. You may proceed.
Yeah. Hi. Thank you for taking my call. The share repurchase program, you have about 4 million shares repurchased. I mean, not shares and value, but that doesn't seem to be reflected in the, unless I'm reading something wrong in the total number of shares issued and outstanding, can you shed some light on exactly, you know, how that's calculated or why the total shares outstanding are not going much lower?
First, I don't exactly know why, you know, the number is not what you know you saw. This number is the accumulated number because the dollar amount since we started program. Secondly, so far it's been done according to a 10b5-1 program. Because it's going on based on a, you know, predetermined formula by our brokerage house. We really don't have control of it. That said, when the window opens, you know, the trading window opens, we may look at all options. If you need to know the specific discrepancy, if you see it, we may discuss it offline because we need to look at the numbers and know exactly what you meant. Thank you.
Okay. I have a second question, if you may. Most of your income is in other income. Is this like accounts receivable that you had written off years ago, and you're putting them back on the books? Is that what it is, if I understand correctly? Second, do you anticipate this other income to continue as in the last two quarters?
The other income, basically, you know, the two major items in other income section, you know, we have, like, you know, some income from bank deposits. You know, we also have some income, you know, or sometimes loss due to the exchange gains or losses. For the last quarter, we also had some, as you mentioned, reversal of some of the, you know, accounts payable, you know, which later we deemed is not needed. Yeah. The second, we really don't, you know, provide any guidance on the net income for the coming quarters. Based on our progress so far, and particularly the performance of the last three quarters, and based on also our revenue guidance, we feel optimistic that for the full year we are going to have net profits. Thank you.
Thank you.
Thank you. As a reminder, to ask a question you will need to press star one one on your telephone. Our next question comes from Sarah Jiang with Private Investor. You may proceed.
Hello.
Well, thank you. Basically she has a question regarding our blockchain, particularly our digital collectible assets business, and she wants to know our plan for the future and for this business. We think this is still a new and emerging industry. In rare cases, the development of a new industry will be unpredictable. Regarding, you know, our products and our blockchain business, we basically experienced the same, you know, experience some of the other companies has experienced. We are still operating our enterprise digital collectible service platform, and also actively cooperate with creative and cultural organizations, museums and IP owners. At the same time, we are exploring more opportunities for cooperation.
So far, our investment in blockchain business is very limited, and it accounts for an insignificant part of our portfolio. We treat it as a real option, and we may adjust our strategy in the future based on the development of the industry. As for the outlook of the blockchain industry, I believe different people or different companies may have different opinions. Even for, you know, an industry giant like Facebook, you know, we see, you know, it was needing trials and making adjustments to it and to its strategies. Again, you know, we think it's a nascent industry and full of opportunities and challenges as well. Thank you.
非常感谢您的问题。我们认为这个行业还是非常新的。任何新行业在发展的时候，一开始都还是会有一些挫折。对于新产品和技术，每一个公司也有自己的看法和发展。目前我们的这个数字藏品平台，我们也在积极地和一些创意的文创平台、历史文化，以及我们的博物馆还有公司合作。同时我们也在探索更多可以合作的一些领域。但是目前我们在区块链、在我们藏品这块的投入是比较有限的，在我们产品组合里面也是非常小的一个部分。我们把这方面的投资也看作是一个基线，并会根据行业的发展来调整我们的战略。谢谢您的问题。
非常感谢您的回答。我这边的第二个问题是，其实在之前的这个讨论会上，管理层有多次提到计划会在今年控制成本，所以想请问一下今年以来咱们公司成本控制的举措以及效果是什么样子的？感谢。
He asked, you know, basically, we discussed before that we want to control our cost and he would like to know the progress so far in this regard. This is a good question. Basically, you know, overall our cost remained relatively stable, you know, and it's up slightly because we also, you know, to grow our business. You see we have, you know, exploring, you know, additional products and also entering into a diverse geographic market, which all require capital investment and expenses. We want to strike a balance between growth and preserving capital. So far our strategy is to try to grow our business, you know, with a reasonable CapEx or expenses. We want to maintain a strong balance sheet, at the same time try to grow our business. Thanks for your question.
非常好的一个问题。目前来讲，我们总体的成本还是非常稳定的。我们现在你也看到我们在发展，同时在发展我们的传统业务，同时也在海外有新的业务的发展，所以会产生更多的一些成本和费用。我们也想要更多的平衡，也想要平衡我们的留存更多的现金。但是呢，我们也希望能够在我们的业务方面有更大的发展，也希望我们能够保持一个非常强大、强劲的资产负债表。感谢你的问题。
非常感谢您的回答。我的下一个问题是，其实之前在财报会上也有讨论过派发股息的问题，想请问一下在这方面公司是否有任何的进展，以及像咱们资产负债表上现金也比较多嘛，所以想请问一下公司目前是计划如何去使用账上的现金。
It's a good question, you know, there are different ways of using cash.
Basically she asked, you know, whether we, you know, how we are going to use the cash we have and whether we are going to distribute any dividend. There are different ways of using the cash. For instance, we can distribute dividends, we can buy back stocks, and we can also use cash to expand our market. So far we have chosen to reinvest the cash into our companies. For a couple reasons. First, you know, we still feel we have very good growth opportunities. If we go beyond our existing business, we see, you know, there are quite other, you know, opportunities, a lot of opportunities out there. So far our initial exploration has been, you know, successful.
So we feel we can get higher returns, you know, for investment than distribution cash. Second reasons we do it is there are some practical restrictions if we distributing cash. For instance, we might have to pay taxes, you know, when we distribute to the public, transfer the money overseas and on the company level.
Also some investors may pay taxes on the money they receive. It may not be a better decision, you know, for the time being, particularly when we have, you know, growth opportunities. Let me translate.
目前我们的cash，其实我们的现金其实用在很多的地方，比如说我们也一直在回购股票，然后也一直在不断地去拓展我们海外的一些市场。现在我们主要是把我们的现金拿来重新投资回我们公司的业务，因为我们认为现在还是有很多增长的一些机会的。而且我们认为我们现在一直在探索的一些领域都有一些不错的一些进展，我们也认为这些投资呢，会有更高的回报。同时还有一点值得提到的就是其实我们，如果是派息的话，资金出境也会遇到很多的问题，比如说税务上的问题，或者是投资人会付一些额外的成本，等等，都会有一些问题。所以目前来讲，我们还是主要是把现金放在支持和发展公司业务上。谢谢您的问题。
That's that on paying dividends. It could be an option in the future, but for the time being, we feel you know we can use the cash for more productive purposes. Thank you, thank you.
未来，我们觉得就是派发股息也会是一个选择，但是目前的话我们是把这个现金用来发展公司业务，谢谢。
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Eric Zhou for any further remarks.
Thank you again for your time and participation. If you have any questions, please visit us at our website at ir.xunlei.com or send emails to our investor relations. Have a good day. Okay, we conclude today's conference call. Thank you very much.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.