WEBTOON Entertainment Inc. Common stock Q2 FY2026 earnings call

New Strategic Direction

• Double down on AI-powered on-platform initiatives to expand audience reach, deepen engagement, and create creator opportunities, while scaling off-platform IP adaptation to build franchise value and drive users back to the core platform.
• Target return to double-digit revenue growth by the end of 2026.

AI Product Launches & Early Results

• Launched beta AI-powered author translation for eligible English Canvas creators in May 2026, with positive early feedback; full expansion to more creators planned for late 2026.
• Launched BIOS, an AI interactive story chat service that lets fans converse with approved official Webtoon characters, in Korea this quarter; early results are positive, with expansion to Japan planned for late 2026.
• Launched Cuts Make, an AI-powered short-form animation tool that allows fans to create content using official IP; in the first week, new cut content rose 136% and creator participation grew 188% week-over-week.

Off-Platform IP Adaptation Updates

• Multiple Webtoon adaptations reached Netflix's global top 10 this quarter, validating the IP adaptation strategy.
• Announced a strategic investment in RI Games Holdings to develop multiple games based on top Webtoon IP over the next four years, with plans to coordinate game launches with animation releases to maximize impact. Webtoon will hold majority control of the venture, leveraging RI Games' existing development expertise.
• Launched a $100 million joint IP adaptation fund with Naver to invest directly in adaptations, allowing Webtoon to capture more value beyond traditional licensing and gain greater control over its adaptation pipeline.

Strategic Partnerships

• The Disney collaboration remains on track, with an original Webtoon series and new digital comics platform expected to launch before the end of 2026. New original partnerships with Marvel have also been announced, including an original Deadpool Webtoon series.

Consolidated: Q2 2026 total revenue was $338.5 million, a 2.8% decline year-over-year (YoY) but 5.2% growth on a constant currency (cc) basis. Gross profit was $88.1 million (up 1% YoY) with a gross margin of 26% (up 100 bps YoY). Adjusted EBITDA was $5.5 million (down from $9.7 million YoY), with an adjusted EBITDA margin of 1.6% (down from 2.8% YoY). Net loss was $14.6 million, compared to a $3.9 million net loss YoY.

By revenue stream:

1. Paid content: 4.3% revenue growth cc YoY; MPU grew 1.8% QoQ, ARPU increased 2.5% cc YoY.
2. Advertising: 11.5% revenue growth cc YoY, driven by growth in Korea and Rest of World (RoW) offset by a decline in Japan.
3. IP adaptations: 4.2% revenue growth cc YoY, with triple-digit growth in Japan offset by a single-digit decline in Korea.

By geography:

1. Korea: Revenue grew 20% cc YoY, MAU was 24.3 million (+5.9% YoY), MPU was 3.8 million (+10.4% YoY), paying ratio 15.5% (+64 bps YoY), ARPU up 14.8% cc YoY.
2. Japan: Revenue declined 6.7% cc YoY, MAU was 21.8 million (-3.3% YoY but up sequentially), MPU was 2.1 million (-9.5% YoY, flat QoQ), paying ratio 9.4% (-65 bps YoY), ARPU $24.40 (+2.9% cc YoY).
3. Rest of World: Revenue grew 11.1% cc YoY, MAU was 110.7 million (+0.2% YoY), MPU was 1.7 million (-0.6% YoY), paying ratio 1.5% (flat YoY), ARPU $6.90 (+4.4% YoY).

• Q3 2026 revenue is expected to grow 0.7% to 3.3% on a constant currency basis, equaling a range of $358 million to $368 million based on current foreign exchange rates.
• Q3 2026 adjusted EBITDA is guided to a range of $0 to $5 million, representing an adjusted EBITDA margin of 0% to 1.4%.
• Management reaffirmed its commitment to returning to double-digit revenue growth exiting Q4 2026 (not a full-quarter growth target), to set up persistent growth going into 2027 and beyond.
• Growth drivers for hitting the Q4 target include ongoing strong 20% YoY cc growth in Korea, 11.5% YoY cc global advertising growth (with over 20% YoY cc growth in RoW advertising), and stabilization and growth in Japan.

• Quarterly IP adaptation revenue can vary significantly based on milestone achievement, leading to inconsistent quarterly results.
• Japan has underperformed, with declining revenue, MAU, and MPU YoY, creating a headwind to near-term growth. The company is actively implementing turnaround initiatives, but results are not yet guaranteed.
• Game development carries inherent uncertainty around hit rates, even with proven Webtoon IP, and carries potential downside risk despite structured risk management in the RI Games partnership.
• Forward-looking results may differ materially from current guidance due to general business and market uncertainties, as detailed in the company's SEC risk factor filings.

Q: What is the average daily user engagement on the platform, and why does the company focus on ARPU rather than separate engagement metrics for paid users? / A: Average daily engagement across all users is approximately 30 minutes, with higher engagement for heavier habituated users. This 30-minute average holds even for new digital-first users in North America who do not have traditional comic consumption habits. The company focuses on ARPU as the core metric for paid engagement, as it directly reflects the deep habit formation and consumption that drives the paid content business, particularly visible in mature markets like Korea with strong ARPU growth.

Q: What steps is the company taking to return Japan to growth, and is the commitment to double-digit growth exiting Q4 still in place? / A: Management reaffirmed that the commitment to double-digit revenue growth exiting Q4 remains strongly in place. To stabilize and restart growth in Japan, three core priorities are being implemented: 1) expand local content partnerships (such as the recent collaboration with Studio White and Kadokawa for a Record of Lodoss War spinoff), 2) expand distribution partnerships (such as the collaboration with Lawson), 3) implement proven engagement and CRM frameworks from Korea under newly elevated leadership. Management expects these initiatives to deliver results by the end of the year.

Q: What led the company to shift to a more proactive direct investment approach for IP commercialization, and how capital-intensive will this strategy be over the next 2-3 years? / A: Historically, the company relied on a licensing model for IP adaptations, which meant Webtoon did not capture enough direct economic upside from successful adaptations even with proven built-in fandom. The company already has a large pipeline of proven hit IP from its core platform, so it does not face the uncertainty of sourcing new hits that many new entrants face. The $100 million joint fund with Naver structures capital intensity by leveraging partner capital, avoids consolidating quarterly revenue volatility, and allows Webtoon to capture more upside from successful projects without putting undue balance sheet risk at risk.

Q: What advantages does Webtoon have in game development, when many IP holders have exited the space due to low hit rates and poor returns? / A: Unlike companies that built in-house game development from scratch, Webtoon is leveraging RI Games' existing deep development expertise, so it does not need to build new capability ground-up. Webtoon contributes its unique advantage: a massive pipeline of proven IP with existing fandom, plus first-party data to identify which IP has the highest off-platform hit potential. The partnership structure also includes downside risk management provisions, including forced put options that incentivize aligned growth for both parties and limit potential losses.