WEBTOON Entertainment Inc. Common stock Q2 FY2025 earnings call

Junkoo Kim's Remarks - Highlighted strong second quarter results with revenue and adjusted EBITDA above guidance range. - English-language WebComic app implemented product improvements to enhance user experience, saw increased user activity. - Expanded library and audience through reformat of existing franchise and titles, launched popular Japanese manga titles. - Partnered with Dark Horse Comics in June and announced collaboration with Disney to bring Disney, Marvel, etc. comics to mobile vertical screw format. - New original WEBTOON series in development. ### David Lee's Remarks - Discussed revenue growth, net loss improvement due to lower G&A expenses. - Operational health: Web comic app user growth, with English platform MAU up 19% for consecutive quarter. - Wattpad's impact on MAU due to government bans and security upgrade, expecting lap in Q3. - Update on revenue streams: Paid content, advertising, IP adaptations performance. - Gross profit increased, gross margin 25.1% compared to 25.9% prior year, up sequentially from Q1.

During the second quarter, revenue grew 5.5% on a constant currency basis, with reported revenue up 8.5%. Paid content had 2.0% constant currency revenue growth year-over-year, driven by Japan but offset by declines in Korea and Rest of World; ARPU/ARPPU constant currency growth was 7.4% with increases in all 3 regions. Advertising had 10.2% constant currency revenue growth year-over-year, driven by Korea and Japan but offset by Rest of World decline. IP adaptations business saw 42.6% year-on-year constant currency revenue growth in Q2, driven by Korea and Rest of World but offset by Japan decline. In Korea, revenue grew 9.2% year-over-year on constant currency basis; Japan revenue had 5.7% constant currency growth; Rest of World saw 4.4% constant currency revenue decline.

Third Quarter 2025 Guidance - Expected revenue growth in the range of 9.4% to 12.2% on a constant currency basis, anticipated revenue in range of $380 million to $390 million. - Anticipated third quarter adjusted EBITDA in range of $2 million to $7 million, representing adjusted EBITDA margin in range of 0.5% to 1.8%. - Expect to maintain investment in marketing to drive future growth.

Risks - Wattpad impacted by government bans in countries, with one country ban in Q2 and another smaller user country ban, expecting lap in Q3. - Search engine indexing issue from Wattpad security upgrade taking longer than anticipated, causing lingering effects on MAU in near term.

Q: Congrats on the Disney announcement parallel to the earnings release. Want to go back to Disney as well as the announcement intra-quarter around Dark Horse Comics and get a better sense from you as to how to think about bringing very established IP like this to the platform, what you think that might do to user growth, what it might do to monetization levels looking out over the next couple of years? And is there any way to have a better understanding of some of the unit economics between the content provider and your platform as some of these agreements scale?

A: This is David Lee to start us off. First, I wanted to highlight the difference in this major milestone in our collaboration with Disney versus our proven track record, as you know, in partnering with great franchises like IDW. We have a great history. We know how to bring Sonic the Hedgehog, for example, with IDW to our North America users, in particular, to mutually benefit our partner. But this relationship, this collaboration with Disney is remarkable, one, for the amount of IP that Disney holds. They are a great company, and we're privileged to be able to have this collaboration. I wanted to make sure I highlight that this includes partnership and collaboration with Marvel, 20th Century Studios, Star Wars. There was recently a variety article that posted where a sense of how this will roll out was revealed per quotes from Disney, Amazing Superman, Avengers, Star Wars, Alien, Disney As Old As Time. So the power of Disney's IP, I think, is a standout for us. However, we also have global category leadership and what we've called in the past, demographic gold, particularly here in the United States, where you're seeing us for actually 3 consecutive quarters drive nearly 18% to 19% English WebComic app MAU growth with importantly, a strong Gen Z population that is super relevant for global storytellers like Disney. We have not disclosed any significant deviation in our strong unit economics. And I think that when you think about the opportunity, it gives us the opportunity to accelerate new user growth to let them discover stories that they had not had access to prior. And we hope to deliver equal or more value to our friends at Disney by introducing a brand-new relevant format of vertical scrolling content in the hands of Gen Z consumers on their app. So we're really excited about this particular relationship, which will span several years. Let me caveat as I can imagine your next question is, how much of that is showing up in your Q3 guidance? And I also want to be explicit on that. We are extremely bullish on the strategic value to both parties in the mid to long term, but we are not incorporating any short-term financial benefit as we built this collaboration for the long term, and we expect to see those benefits to both parties in the mid- to long term over time.

Q: The next question comes from the line of Benjamin Black with Deutsche Bank. Unidentified Analyst: This is Jeff on for Ben. Just as a follow-up on the Disney partnership, is there any sort of marketing arrangements or any other kind of aspects of the partnership that you could talk about?

A: Yes. I think that this partnership being a milestone for us, it's also important to note, as we just mentioned, that being able to give Disney the ability to reach out to this next generation of users, the Gen Z generation, which is already spending upwards of 30 to 60 minutes on our English WEBTOON platform is critical. And then for us, attracting new users faster. We already are demonstrating nearly 19% WebComic app MAU growth. And I wanted to clarify, I think I got too excited. It's not Superman, it's Spider-Man that we're very excited to partner with Disney. At this point, we haven't provided more specifics that I can share, but I think it's strategically a great opportunity, a great collaboration for both parties.

Q: Unidentified Analyst: And maybe just one quick follow-up. You talked about your new onboarding process with the revamped home tab driving increased personalization. Can you talk about how we should be thinking about user trends going forward? You talked about the English language WebComic app MAU growing strong again. How can -- how should we see that impacting trends?

A: Yes. First, let me cover the specific introductions because they're quite significant in totality. So as you mentioned, we have a new onboarding process. And this allows for preference input. So it guides the consumer to be able to pick content that is more relevant. We have a new home tap. We have a new search tab. And a very exciting new upgrade is we have new and hot, which is how users can find new and trending titles using a trailer-like style video. All of which we've talked about has been aggressively rolled out to date. But frankly, there's more product updates to come. So we're not done. In terms of your question of how we expect it to roll out, going forward, the reason why we're clearly investing to drive this nearly 19% in the last 3 quarters WebComic English app MAU growth is because we're pairing it with ways for the consumer to discover and habituate content. I point you to ARPU. ARPU has been a highlight for us across all regions, even nascent regions, like what we call Rest of World. That ARPU growth for us for a new potential market where we are less mature. And here, we're talking about an increase in Rest of World of 2.2%, but it's strongly up as a total company. To us, that shows potential to habituate more WebComic app users, particularly those in our English-speaking regions and to pair it with improved product. We haven't provided guidance beyond Q3. So I'm not going to give you specific financial guidance tied to the product rollout. But our testing, as we've described, even before we began this rollout has continued to be quite promising. We look at everything from episodes red. We look at light, heavy medium users. And we're very excited about the promise of what we're doing here in the U.S. And the fact that it's the largest addressable market from a country size standpoint means that we're going to invest behind those opportunities as well.