Xunlei set to buy Kuaipan Personal

Number of users of personal cloud storage service in China (PC) March 2014

Will purchase cloud storage firm for $33m

Chinese video and music file-sharing company Xunlei Ltd announced on Thursday that it is acquiring the personal storage business of a Beijing-based Internet service provider for $33 million so as to boost its competitiveness on the mobile front.

The company has entered into advanced discussions with Kingsoft Corp regarding the takeover of Kuaipan Personal, which is expected to be closed in September, according to a filing posted by Xunlei on the NASDAQ on Wednesday (US time).

The acquisition is considered an opportunity to "further cement Xunlei into the mobile ecosystem of Xiaomi [shareholder of Xunlei]… and to increase the monetization potential of our efforts toward an efficient use of idle bandwidth and storage," Zou Shenglong, Xunlei's chairman and CEO, said in the filing.

Analysts said that Xiaomi's CEO Lei Jun is likely to have pushed through the acquisition.

This is beneficial for Xiaomi, which can further improve its smartphone owners' user experience, as Kuaipan is the cloud storage services provider for Xiaomi's mobile users, said Li Yi, secretary-general of the China Mobile Internet Industry Alliance.

According to the filing, with Xunlei's acceleration technology, the company would improve Kuaipan users' experience and provide a higher level of speed for paying users.

However, the takeover of the underperforming Kuaipan cannot contribute a lot to Xunlei's personal storage business in terms of either userbase or technology, Li told the Global Times on Thursday.

According to a report issued by Beijing-based market research firm Analysys International in June, on the PC front, Kingsoft's kuaipan.cn had only amassed 6.5 million users in March, while Baidu's personal cloud storage platform pan.baidu.com was the most preferred with 134.2 million users, followed by Tencent's weiyun.com and Xunlei's kuai.xunlei.com with 123.6 million and 33.8 million respectively.

Xunlei will continue to lag far behind Baidu and Tencent in the sector, because the two Internet mammoths will always have the ability to offer larger storage and faster processing speed, said Li.

Offering more online storage is usually an effective and frequently adopted method in China to attract more users, which has resulted in escalating competition among rival firms that has been underway since July 2013.

After Kuaipan started providing 100GB free storage to users in August 2013, rival Qihoo 360 Technology promised individuals 360GB of free storage one month later.

Currently, Baidu offers 2TB of free storage for each user, while Qihoo 360 offers 36TB (1TB equals 1024GB).

In response to the fierce competition in the cloud storage industry, Kingsoft is restructuring its business and selling Kuaipan would be a good deal, Fu Liang, a Beijing-based independent analyst, told the Global Times on Thursday.

Kingsoft recorded a 19 percent fall year-on-year in net profits for the second quarter, hitting 118.1 million yuan ($19.2 million), according to the financial reports posted by the company on the Hong Kong bourse on Tuesday.

But Li noted that the takeover would help Xunlei attract more attention in the overseas stock market, as Xunlei has sent signals in the filing to investors that the integration with Xiaomi would be deepened via the takeover of Kuaipan.

In June, Xunlei got listed on the NASDAQ, seeing its share price hit $14.21 per share, or 18 percent higher than the offering price, following Xiaomi's $200 million investment in Xunlei earlier this year.

On Thursday, Xunlei also reported its second-quarter results for the first time since the IPO.

Its net income increased 58.9 percent in the second quarter ended June 30 from the same period in 2013, reaching $9.3 million, partly thanks to its growth in subscriber base.

However, the company is concerned that there would be some pressure on its subscriber base, citing increased government regulation of Internet content, according to the filing.