WEBTOON Entertainment Inc. Q1 FY2025 earnings call

Junkoo Kim highlighted strong Q1 results with revenue and adjusted EBITDA at the top end of guidance, growth in Japan (over 50% of revenue), local creator ecosystem in Japan, expanding Japanese contents to other markets, and investment in English platform. David Lee discussed revenue growth (5.3% constant currency), adjusted EBITDA ($4.1M vs $22.2M prior year), operational health (MAU changes, Wattpad security issues and government ban), revenue streams by segment, regional performance (Korea: 3.6% constant currency revenue growth; Japan: 9.4% constant currency revenue growth; rest of world: revenue decline), profitability (gross margin 22% vs 25.2% prior year), and infrastructure investments for future product improvements.

In the first quarter, paid content had 2.8% constant currency revenue growth, driven by Japan but offset by declines in Korea and rest of world; ARPPU grew 8.4% on a constant currency basis. Advertising saw 13.6% constant currency revenue growth, with double-digit growth in Korea and Japan but decline in rest of world. IP adaptations had 20.7% constant currency revenue growth, led by Korea and Japan but down in rest of world. Japan represented over 50% of revenue in Q1.

For the second quarter of 2025, expected revenue growth of 2.2% to 5.2% on a constant currency basis, resulting in anticipated revenue of $335 million to $345 million. Anticipated adjusted EBITDA in the range of $0.5 million to $5.5 million, with an adjusted EBITDA margin of 0.1% to 1.6%. Continues to invest in marketing and infrastructure, with additional public company expenses this quarter compared to the prior year.

Wattpad security upgrade in January temporarily affected search engine indexing, causing a dip in search traffic and web MAU decline, impact expected to continue for another quarter. Wattpad impacted by a government ban in one country, actively working to address concerns. FX headwinds in the first half of 2025 due to less favorable FX rates compared to the first half of 2024.

Q: Two, if I could, in terms of the user growth initiatives you have planned for the remainder of this year, can you talk through a little bit of what your key priorities are and how we should be thinking about that as an investment cadence, putting pressure on margin for the remainder of this year, and how to think about it as an output for user growth exiting the year in the media?

A: David Lee responded about strong long-term growth in newer markets, English-speaking platform web comic app up 19% due to content, product innovation, and marketing, with investments expected to pay off mid to long-term.

Q: On the Korea MAU decline year-over-year, I understand that there was a change in methodology by NAVER. Do you have a separate opinion as to what’s happening to your MAUs in that country or maybe better, what would be realistic expectations? Do you think you can continue to grow MAUs in Korea or are you kind of at mature levels? And then just give us an update please on advertising revenue in North America.

A: David Lee discussed Korea's 3.6% constant currency revenue growth driven by ARPU growth, product improvement, and content, with webcomic app MAU growth being a better predictor of long-term pay content revenue growth. Advertising on constant currency basis up 13.6%, with North America advertising being early days but potential large market.

Q: How does that affect your monetization? Because right now, pay content is monetized on unlocking new episodes, so wondering if the global franchises, every format launches have that type of monetization capabilities built into it as well, and does that affect how your gross margins could look like over time as you get more of these franchises on the platform?

A: David Lee said global franchises are not new, fresh content powers pay content margin structure, with both creating higher margin U.S. originals and popular franchises important for margin structure.

Q: You did talk about significant changes to the English app. So, curious what the changes are and is this more about tailoring your app to the U.S. market or English speaking markets or is this more about bringing the learning that you have from Korea and Japanese market to the English market?

A: David Lee mentioned product innovations benefiting from global lessons learned and tested for local English-speaking audience, including onboarding, home tab, search tab, and new and hot features, extensive product rollout with strong AB testing results.

Q: Maybe I will start just with the security update to Wattpad that caused the search indexing issue. I guess, could you just give a little more update, a little more detail on what specifically was changed, what impact that’s having, the amount of user impact it had on rest of world for this quarter and then kind of where you are in the process of resolving it?

A: David Lee explained Wattpad was a significant contributor to rest of world MAU declines, security issue affected search traffic, impact expected to continue into Q2 and possibly Q3, with issues identified and being addressed.

Q: Are you guys – are you seeing a difference in the monetization levels in the app versus the web platform in the U.S. for web comics?

A: David Lee stated that they monetize paid content on the app, not the web, and the app is where new product features are focused, with web comic app MAU growth important for future revenue.

Q: Are you seeing a benefit where license IP is driving new users to the platform or is it more driving engagement of your existing users?

A: David Lee said it depends on the platform, but license IP has potential to be additive to the platform and partners, with historical experience of user engagement increase.