Gross profit margin doubles, R&D expenses continue to decline—what is the outlook for XREAL, the leading AR glasses company, in its Hong Kong stock listing?

What are the key factors behind XREAL’s gross profit margin doubling?

On April 1st, AR glasses company XREAL Ltd. (hereinafter referred to as “XREAL”) officially submitted its prospectus to the Hong Kong Stock Exchange, with China International Capital Corporation and Citigroup serving as joint sponsors, aiming to become the “world’s first smart glasses IPO.” Founded in Beijing in 2017, this company has embarked on a critical capital journey after ten years of establishment.

According to the prospectus, the company has accumulated a loss of 2.05B yuan over the past three years, with losses gradually narrowing. The gross profit margin has significantly improved from 18.8% to 35.2%. However, the company’s R&D investment has also been decreasing gradually. Currently, Alibaba and Kuaishou hold 6.68% and 6.66% of shares respectively. The proceeds from this IPO will mainly be used for R&D, global market expansion, and production line construction.

Net losses have narrowed over the past three years, and R&D investment has also decreased gradually

“XREAL’s tenth year, a new beginning.” XREAL submitted its prospectus to the Hong Kong stock exchange. Founder and CEO Xu Chi expressed his feelings on social media.

XREAL is an AR glasses company, founded in Beijing in 2017, originally named NREAL.

Xu Chi is a 2003 graduate of Zhejiang University, with a bachelor’s and master’s degree in Electronic Information Engineering (mixed class), and earned a PhD in Electronic Engineering from the University of Minnesota in the United States. He has previously worked at Nvidia and Magic Leap.

Currently, the company’s product lines can be summarized into three main series: the Air series, the One series, and the Light-Ultra-Aura product line.

In terms of sales, from 2023 to 2025, XREAL is projected to sell 137.2k, 124.9k, and 133.7k units of AR glasses respectively, totaling nearly 400k units. In the first two months of this year, XREAL’s sales reached 25,828 units, a 62% increase compared to the same period in 2025.

The prospectus shows that from 2023 to 2025, XREAL’s revenue was 390 million yuan, 394 million yuan, and 516 million yuan respectively; net losses during the same period were 882 million yuan, 709 million yuan, and 456 million yuan. The total accumulated loss over three years reached 137.2k yuan.

In terms of revenue composition, AR glasses and accessories dominate, accounting for 92.2% in 2025. Among them, AR glasses sales revenue in 2025 reached 403 million yuan, accounting for 78.1% of total revenue.

XREAL’s revenue composition. Image / Prospectus screenshot

Currently, overseas markets are the main source of revenue for XREAL. In 2025, over 70% of XREAL’s revenue comes from international markets.

As of December 31, 2025, XREAL’s sales network covered 40 countries and regions, with local sales and operations teams established in North America, Japan, and South Korea.

According to iResearch data, based on sales revenue, XREAL has ranked first globally in the AR glasses market from 2022 to 2025; when considering the broader smart glasses market that includes AR glasses and non-display glasses, XREAL was also second worldwide in 2025 and first in China.

In recent years, the company’s gross profit margin has shown a significant improvement, rising from 18.8% in 2023 to 35.2% in 2025, an increase of 87.2% over two years. The main drivers include rapid growth in sales of high-margin products like the One series, cost reductions from economies of scale, and cost control advantages from its own optical module manufacturing base.

Gross profit margins in various business segments have all increased notably, with service and other business margins jumping from 4.4% to 60.8%, accessories from 25.6% to 47.3%, and AR glasses from 19.3% to 30.4%.

Although the company is not profitable, Xu Chi previously stated, “Today, so many domestic and international giants are still investing so hard, which shows that this industry’s direction is correct, and that this industry has high technological barriers. It’s something that requires long-term commitment and strong strategic resolve.”

However, in terms of R&D investment, XREAL has been decreasing continuously over the past three years, with R&D expenses of 216 million yuan, 204 million yuan, and 183 million yuan respectively.

Founder Xu Chi is the largest shareholder, with Alibaba and Kuaishou backing

According to latest data from Luotu Technology, in 2025, China’s smart glasses market sales reached 124.9k units, a year-on-year increase of 211%.

Based on product form and function, smart glasses are divided into AR glasses (display + audio), audio glasses (no display + audio), and camera glasses (no display + camera). Among these, AR glasses and audio glasses saw year-on-year growth of 83% and 135%, respectively, while camera glasses nearly achieved a breakthrough from zero to 500k units.

AR glasses, with early development narratives in XR metaverse, started relatively early. The Chinese market size grew from 267k units in 2024 to 489k units in 2025, an 83.2% increase, nearly doubling.

In 2025, the Chinese market was highly competitive, with a slight decline in concentration. The core features are: stable leading brands, intensified competition among second-tier brands, and an industry accelerating toward diversification and contest.

In the main online sales channels, according to Luotu Technology data, in 2025, the top four brands by sales volume were Leishen Innovation, XREAL, Rokid, and Xingji Meizu, with a combined market share (CR4) of 78.4%.

Since its founding in 2017, XREAL has completed dozens of funding rounds, with investors including Alibaba, Kuaishou, NIO Capital, Yunfeng Fund, Sequoia China, Gentle Monster, Hillhouse, Hongtai, China International Capital Corporation, Jinpu Investment, Shunwei Capital, CPE Yuanfeng, Huachuang Capital, iQIYI, among others.

The prospectus shows that as of March 23, 2026, the largest shareholder of XREAL is founder Xu Chi and his controlling entities, holding a combined voting stake of 27.98%, maintaining control after listing. Alibaba Group holds 6.68%, and Kuaishou Technology holds 6.66%.

After completing the last funding round before the IPO in January this year, XREAL’s valuation was $833 million.

XREAL stated in the prospectus that the net proceeds from the IPO will mainly be used for ongoing R&D, including technology development and product upgrades; global branding and sales/distribution network expansion; building new self-operated production lines and upgrading existing infrastructure; deploying and upgrading internal systems to improve management and operational efficiency; and working capital and general corporate purposes.

Beijing News Shell Finance Reporter: Chen Weicheng

Editor: Yang Juanjuan

Proofreader: Liu Baoqing