What happened

Shares of Xunlei Limited (NASDAQ:XNET) lost 30.5% of their value through the first half of 2018, according to data from S&P Global Market Intelligence. The sell-offs appear to be tied to a worsening outlook for the company's LinkToken cryptocurrency and broader pullbacks across the crypto market.

XNET Chart

XNET data by YCharts

The Chinese company's stock climbed nearly 300% in 2017, with most of the gains tied to its announcement of a cryptocurrency and the huge interest in virtual currencies that occurred near the end of the year. It could be a rough road ahead for Xunlei shareholders.

Four cubes linked together in a chain.

Image source: Getty Images.

So what

Xunlei's first big drop of the year arrived after the National Internet Finance Association published skeptical comments about the Chinese company's cryptocurrency projects on Jan. 12. The big valuation decline also corresponded with Xunlei's presentation at the Las Vegas Consumer Electronics Show -- indicating that investors may have been disappointed with the details of its LinkToken cryptocurrency and OneThing Cloud infrastructure.

News arrived in early February that two class action lawsuits had been filed against the company alleging deliberate misinformation about its cryptocurrency projects, prompting big share-price declines. Sales then saw substantial sell-offs in March on the heels of disappointing fourth-quarter results that arrived a day later than initially planned.

Xunlei started as a provider of torrent downloading services, and then moved into the streaming-video space, and has recently pivoted to focus on cloud services and blockchain technologies. The company's cloud revenue has climbed substantially over the past year, helping to deliver a 118% year-over-year sales increase in its March-ended quarter. However, cloud revenue was up just 9.4% sequentially, and overall sales in the period were down 4% from the previous quarter, raising questions about the sales-growth outlook.

Now what

Xunlei is looking to bridge its cloud offerings into the U.S. market this year and expects to compete with Amazon.com in the space, according to CEO Chen Lei. However, with much of Xunlei's valuation seemingly tied to the fate of LinkToken and the volatile nature of the cryptocurrency market, the stock remains a very high-risk investment. There's limited visibility as to how its cloud, blockchain, and cryptocurrency businesses will fare, and I recommend that investors steer clear of the stock.