WEBTOON Entertainment Inc. Common stock Q1 FY2026 earnings call

Creator Ecosystem Investments

• Major updates to the Canvas amateur creator platform, including a unified global platform supporting distribution across multiple key languages (English, Spanish, French)
• Introduced an opt-in AI-powered translation tool to help creators distribute their content globally, and expanded ad revenue sharing to all supported Canvas languages
• From 2021 to 2025, the company paid out $2.7 billion to creators, and will continue investing to grow and strengthen the creator ecosystem

Strategic Partnerships and IP

• The Disney collaboration remains on track: five new original titles have launched since Q4 2025 (including Star Wars and Daredevil titles), with another original planned for later this year, and the joint digital comic platform still on target to launch before the end of 2026
• Multiple successful IP adaptation launches: two WAPED web novel adaptations (Love Me, Love Me and Kissing is the Easy Part) launched to strong performance, with a webcomic adaptation of Kissing is the Easy Part planned for coming months
• Korean original content The Legend of Kitchen Soldier premiered at Europe's largest TV festival, and will launch globally on Disney+ and HBO Max (select regions) in May 2026 alongside its Korean premiere

Operational Updates

• MAU declined 5.9% YoY, driven by a new policy to exclude bot/fraudulent unauthorized users from MAU calculations starting in Q1 2026 for more accurate reporting
• Despite overall MAU declines, MPU grew 2.2% YoY, and English platform Webcomic AppMAU grew 3.1% YoY, supported by strong new title launches (Ties That Bind Us and Shifting Tails)
• Completed all planned Japan infrastructure projects in Q1 2026, and has redeployed resources to improve user experience in the market
• Organizational update: Yongsoo Kim was elevated to President to lead global operations; former Korea content head Yugi Champ was promoted to Chief Product Officer, and will focus heavily on the Japan business

By revenue stream (all constant currency):

• Paid content: 2.3% YoY growth, with 2.2% MPU growth and 0.1% YoY ARPU growth
• Advertising: 0.8% YoY growth; Naver ad revenue decline in Korea was offset by growth from other partners
• IP adaptations: 22.2% YoY revenue decline, which management notes is typical due to variable milestone-based revenue recognition

By geography (all constant currency):

• Korea: Revenue grew 3.2% YoY, driven by 13.9% double-digit growth in paid content, offset by double-digit IP adaptations decline and single-digit advertising decline. MAU was 23.1 million (-4.3% YoY), MPU grew 8.5% YoY to 3.7 million, paying ratio increased 189 bps to 16.1%, ARPU grew 5.1% YoY. Korea contributed ~36% of total Q1 2026 revenue.
• Japan: Revenue declined 3.4% YoY, with a single-digit paid content decline offset by single-digit advertising growth and triple-digit IP adaptations growth. MAU was 21.1 million (-3.6% YoY), MPU declined 8.3% YoY to 2.1 million, paying ratio decreased 50 bps to 9.8%, ARPU grew 3.7% YoY to $23.20. Japan contributed ~29% of total Q1 2026 revenue.
• Rest of World: Revenue grew 5.6% YoY, driven by single-digit growth in paid content and advertising, offset by a single-digit IP adaptations decline. MAU declined 6.7% YoY, paying ratio increased 17 bps to 1.7%, MPU grew 3.3% YoY, ARPU grew 4.4% YoY to $6.80. Rest of World contributed ~35% of total Q1 2026 revenue.

Overall consolidated Q1 2026 performance: Total revenue was $320.9 million (-1.5% YoY, +0.2% constant currency), gross margin expanded 390 bps to 25.9%, gross profit grew 16% YoY to $83 million, net loss narrowed to $8.8 million from $22 million YoY, adjusted EBITDA was $9.5 million (+132% YoY), adjusted EPS was $0.07 from $0.03 YoY.

• For Q2 2026, management expects constant currency revenue growth of 1.7% to 4.6% YoY, equal to $332 million to $342 million in reported revenue at current foreign exchange rates
• Q2 2026 adjusted EBITDA is expected to range from $0 to $5 million, for an adjusted EBITDA margin of 0.0% to 1.5%
• Management maintains its prior expectation of returning to double-digit overall consolidated revenue growth by Q4 2026, driven by investments in product, content, creators, and recovery of growth in Japan
• In the medium term (1-2 years), management expects gross margin to continue expanding driven by geographic mix shift and growth of the higher-margin advertising business, with long-term upside for both top-line growth and profitability
• The company intends to reinvest current cost savings from Japanese regulatory changes back into growth initiatives rather than retaining them as near-term bottom-line gains

• IP adaptation revenue is inherently volatile quarter-to-quarter due to milestone-based revenue recognition, which can drive uneven year-over-year performance
• The Japan business is experiencing near-term declines in MAU and MPU, and turnaround efforts will take multiple quarters to deliver results
• Non-core markets have historically had inflated MAU from bot and fraudulent automated traffic, requiring methodology changes that resulted in a reported YoY decline in overall MAU
• Advertising growth in Rest of World/North America is still in early stages of buildout, with sustained growth not expected before 2027

Q: What are the medium-term drivers of gross margin expansion, and what is the company's financial philosophy for deploying revenue upside?

A: Gross margin expansion will be driven by a mix shift toward higher-margin paid content outside Korea and growth of the higher-margin advertising business. A one-off 390 bps Q1 expansion included an isolated cost improvement from Japan's Smartphone Act, which the company will reinvest in growth rather than retain as bottom-line gain. The company is intentionally prioritizing long-term growth investments in creator tools, core marketing, product innovation and new features over near-term profitability. Management expects profitability to improve over the long term as the growth flywheel matures, and is open to both organic and inorganic growth opportunities to drive long-term shareholder value.

Q: What is driving the expected return to double-digit revenue growth by Q4 2026, and how large of a contribution will come from Japan?

A: Growth will come from three core areas: continued paid content growth driven by product improvements (including AI personalization and new interactive features) and content investment; the completion of Japan's infrastructure project, which will enable growth acceleration in the second half of 2026; easier year-over-year comparisons for advertising, plus diversification of the advertiser base; and a stronger slate of crossover IP adaptations. Turning around user and paying user growth in Japan is the company's top near-term priority, driven by product innovation and increased investment in local Japanese original content. Once Japan returns to growth, the full platform will return to a stronger overall growth trajectory.

Q: How do Canvas updates change creator competitive positioning, and what advertising investments are being made for long-term growth?

A: The company already maintains a highly competitive aligned revenue share model for creators, and the Canvas updates add more value (like AI translation and global distribution) under the existing model, with no planned changes to revenue share. The platform's model aligns creator and company incentives, and global expansion also improves the company's gross margin as content reaches more cross-border audiences. For advertising, the company is diversifying its Korean advertiser base after a decline from a major legacy partner, and has already seen solid advertising growth in Japan. In Rest of World/North America, management is prioritizing building long-term advertising infrastructure over short-term growth gains, with updates to come as initiatives progress.

Q: How does the new globally integrated leadership structure change the company's global platform strategy, and why are Korea and Japan not included in the initial Canvas rollout?

A: The global strategy focuses on spreading successful best practices across all regions, not just growing Rest of World. For example, successful product and business model improvements from Korea are now being scaled to Japan and other global markets, and a unified Canvas platform benefits all regions by enabling cross-market content distribution. A unified global structure also improves capital and talent allocation for maximum impact. Korea and Japan were excluded from the initial unified Canvas rollout due to their more mature, distinct local creator and operating ecosystems, but management is actively considering a phased rollout of the unified model to both markets over time.