WEBTOON Entertainment Inc. (WBTN) Earnings Call Transcript & Summary

Thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the WEBTOON Entertainment Second Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Sean Kim, Vice President of Investor Relations. Mr. Kim, please go ahead.

Good afternoon, and thank you for joining us. As a reminder, our remarks today will include forward-looking statements, including those regarding our future plans, objectives, expected performance and our guidance for the next quarter. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings, including those in the Risk Factors section of our filings with the SEC. These forward-looking statements represent our outlook only as of the date of this call. We undertake no obligation to revise or update any forward-looking statements. Additionally, the matters we'll discuss today will include both GAAP and non-GAAP financial measures. Reconciliations of any non-GAAP financial measures to the most directly comparable GAAP measures are set forth in our earnings press release. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. Joining me today on the call are Junkoo Kim, Founder and CEO; Yongsoo Kim, President; and David Lee, CFO. With that, I will now turn the call over to our Founder and CEO, Junkoo Kim.

Thank you, everyone, for joining us today. I will begin by providing a brief overview of the quarter, and Yongsoo will share more details on a few strategic investments we announced today. David will then walk through our financial results in more detail. As always, I encourage you to read our shareholder letter, which is available on our Investor Relations website. We delivered another solid quarter with revenue of $338.5 million and adjusted EBITDA of $5.5 million, reflecting continued execution across the business, and I'm proud of the progress we are making. This quarter, we are introducing a new strategic direction that we believe will power our flywheel into the future. This includes further investment in AI-powered initiatives that strengthen and expand our core on-platform business, which I will share in more details. We are also scaling our Off-Platform IP adaptation business to create greater franchise value and bring more fans back to our global platform. Yongsoo will share more on this in a moment. Turning to AI. This quarter, we took meaningful steps to further integrate AI across our platform with features designed to strengthen our flywheel by expanding audience reach, deepening engagement and creating new opportunity for creators. Fandoms are built on connection and shared passion, and our AI initiatives are designed to further strengthen this sense of community. A great example is our AI-powered Auto-Translation program. By making it easier for stories to reach readers across languages, we can help creators expand their global audience and give users access to more content in their native language. We launched the beta program in May for eligible English language CANVAS creators, and the early response from both users and creators has been encouraging. We look forward to expanding the program later this year to a broader group of CANVAS creators, and we believe it has the potential to become an important driver of growth. We are also going beyond simple character chat with byUs, an AI interactive stories chat service that we introduced this quarter in Korea, where fans hold conversations with creators and build stories of their own. ByUs brings to life the characters fans already love, built on official worlds with the approval of the creators who made them. Initiatives like this move webcomics from a one-way reading experience to a deeply engaging and interactive one, and the early results have been positive. We are planning to expand this service to Japan later this year. We also continue our video innovation in Korea. We recently launched Cuts Make, a new AI-powered short-form animation tool that lets fans create and participate in their favorite story using official IP. In its first week, new CUTS content rose 136%, and the number of creators making content grew 188% over the week prior. Video initiatives overall remain an important focus area for us, and we are continuing to explore short animation as a way to extend how users experience our IP. Our ambition to be the world's storytelling technology platform is also being supported by exciting collaborations like the one we have with Disney. A quick update on our Disney collaboration. We are excited to introduce an original series later this year and remain well positioned to launch the new digital comics platform before the end of this year. Before I turn it over to Yongsoo, I want to reiterate my belief in our strategy. We are launching new initiatives to accelerate our growth and receiving great feedback from the fans and creators who make WEBTOON the destination of storytelling. We continue to expect to return to double-digit growth by the end of the year and look forward to the road ahead. With that, Yongsoo will provide an update on our Off-Platform initiatives. Yongsoo, please go ahead.

Thank you, JK, and thank you to everyone joining us. I'm excited to share more details on the next phase of growth for our Off-Platform IP adaptation business. IP adaptations are a critical element of our flywheel, creating greater franchise value and bringing more fans back to our global platform. With our massive catalog of popular content and database of user engagement, we have a unique opportunity to identify high potential franchises and participate in their growth. The strong performance of multiple WEBTOON adaptations this quarter, including 3 series reaching Netflix Global Top 10, reinforces our confidence in this strategy. To support this evolution, we made 2 strategic investments during the third quarter. The first is an investment in RI Games Holdings, which will enable us to turn proven IP into immersive gaming experiences. Games are one of the most engaged forms of fandom, pulling fans deep into our story universe. Unlike many others in this space, we are starting with a strong pipeline from Day 1. Together, WEBTOON and RI Games Holdings plan to develop and launch multiple games over the next 4 years based on proven IP. The formula underpinning our strategy does not stop at games. With RI Games Holdings, we are building an adaptation pipeline that can extend a single IP across multiple formats, creating a repeatable success formula of adaptations that flow from webcomics on our platform to animation and games. In particular, we hope to match game launches with animation releases to maximize their impact. Today, we also announced a dedicated IP Adaptation Fund. Together with NAVER, we entered into a limited partnership agreement in July to establish a $100 million fund to invest in IP adaptations. This fund will help us capture more value from massive global hits evolve beyond licensing to secure strong IP rights and gain more control over our growing adaptation slate. Our investment reflects our conviction in the long-term value of these projects and aligns our capital with our strongest IP. I'm excited about these investments we have made to accelerate our business and would like to thank our team, our creators, our users and our partners. With that, I will now turn the call over to David. David, please go ahead.

Thank you, Yongsoo, and thank you, everyone, for joining us. I'll be discussing the details of our second quarter 2026 results compared to the comparable quarter in the prior year, unless otherwise noted. For the second quarter, we reported revenue of $338.5 million that declined 2.8% but grew 5.2% on a constant currency basis. This growth was driven by increases across all 3 revenue streams: paid content, advertising and IP adaptations. We expanded gross margin by almost 100 basis points to 26% in the second quarter. We remain focused on expanding profitability further over time and believe our cross-border content distribution as well as growth in higher-margin businesses like advertising will continue to support this. We posted a net loss of $14.6 million in the quarter compared to a net loss of $3.9 million the year prior, driven by higher income tax expense and marketing investment. We reported adjusted EBITDA of $5.5 million, exceeding the high end of guidance. This compares to an adjusted EBITDA of $9.7 million in the same quarter of 2025 as we increased our marketing investments. As a result, our adjusted EPS for the quarter was $0.04 compared to an adjusted EPS of $0.07 in the prior year. Turning to operational health. Global MAU increased 0.5% in the quarter. We continue to focus on driving users to our app as well as converting them to paying users. While app MAU and webcomic app MAU declined 8.0% and 1.5%, respectively, year-over-year, we are pleased to have posted MPU growth of 1.8%, driven by growth in Korea, partially offset by decreases in both Japan and Rest of World. We believe we can continue to drive MPU growth by further advancing our AI capabilities and initiatives. Importantly, our English platform webcomic app MAU increased by 3.7% year-over-year. Titles that supported this growth included Situationship, an English language original, as well as Starting Over as a Tree and The Devil Never Cries. Now I'd like to provide an update on our revenue streams at a consolidated level. Starting with paid content. In the quarter, we posted 4.3% revenue growth on a constant currency basis. As I just mentioned, we're pleased to post another solid quarter of MPU growth, up 1.8% in Q2. We believe we can continue to drive MPU growth as we lean further into our AI capabilities, including the initiatives that JK mentioned earlier. ARPU also increased 2.5% in the quarter on a constant currency basis. Advertising revenue grew 11.5% in the second quarter on a constant currency basis. This was driven primarily by growth in Korea and Rest of World, offset by a decline in Japan. Korea, in particular, saw an increase in ad revenue from both NAVER and other partners. Finally, our IP adaptations business revenue grew 4.2% year-over-year on a constant currency basis in Q2. As we have noted previously, revenue recognition for IP adaptations can vary quarterly based on the achievement of certain milestones. Now I'd like to look at our results in the context of core geographies. In Korea, during the second quarter, our revenue grew an impressive 20% year-over-year on a constant currency basis, driven by double-digit growth in paid content and advertising, offset by a single-digit decline in IP adaptations. During the second quarter, MAU of 24.3 million increased 5.9% year-over-year with MPU of 3.8 million, representing 10.4% growth year-over-year. Our paying ratio of 15.5% increased 64 basis points year-over-year and Korea ARPU was up 14.8% year-over-year on a constant currency basis. Moving to Japan. For the quarter, Japan revenue declined 6.7% year-over-year on a constant currency basis. While we saw triple-digit growth in IP adaptations in Japan, it was more than offset by single-digit declines in both paid content and advertising, all on a constant currency basis. Japan's MAU of 21.8 million declined 3.3% year-over-year but increased on a sequential basis. MPU of 2.1 million remained steady from the first quarter, but declined 9.5% year-over-year and paying ratio of 9.4% was down 65 basis points year-over-year. Second quarter Japan ARPU of $24.40 grew 2.9% year-over-year on a constant currency basis. In Rest of World, we saw revenue growth of 11.1% year-over-year on a constant currency basis in the quarter, driven by single-digit growth in paid content and double-digit growth in advertising and IP adaptations. Second quarter Rest of World MAU of 110.7 million increased 0.2% year-over-year. While paying ratio of 1.5% was relatively flat year-over-year, MPU declined 0.6% to 1.7 million. However, we're pleased that Rest of World ARPU of $6.90 increased 4.4% year-over-year on a reported and constant currency basis. Turning to profitability. Gross profit for the quarter grew 1% year-over-year to $88.1 million. This resulted in a gross margin of 26%, which expanded almost a full percentage point compared to the prior year. Adjusted EBITDA for the quarter was $5.5 million compared to $9.7 million in the prior year quarter, primarily due to increased marketing investment. This resulted in an adjusted EBITDA margin of 1.6%, which compares to 2.8% in the prior year. On the cost side, total G&A expenses for the quarter were $65.4 million, roughly in line with the prior year quarter. Interest income in the second quarter was $4.5 million compared to $4.9 million in the prior year, and other income was $2.5 million compared to other loss of $1.4 million in the prior year period. We had an income tax expense of $6.9 million in the quarter compared to a benefit of $0.8 million in the prior year. Depreciation and amortization was $7.3 million in the second quarter compared to $8.4 million in the prior year. We posted a net loss of $14.6 million, driven by higher income tax expense and marketing investment. This compares to a net loss of $3.9 million in the prior year quarter. As a result, Q2 GAAP loss per share was $0.11 compared to a loss per share of $0.03 in the prior year period. Adjusted EPS was $0.04 in the quarter compared to an adjusted EPS of $0.07 in the prior year period. Our balance sheet remains strong with a cash balance of $583 million and another $11 million of short-term deposits included in other current assets. We have a capital-efficient business model, and we believe we have the financial strength and flexibility to invest for the long term. Before I wrap up, I'd like to spend a few moments discussing our third quarter outlook. For the third quarter of 2026, we expect to deliver revenue growth in the range of 0.7% to 3.3% on a constant currency basis. This represents revenue in the range of $358 million to $368 million based on current FX rates. We anticipate third quarter adjusted EBITDA in the range of $0 million to $5 million, representing an adjusted EBITDA margin in the range of 0% to 1.4%. We are excited about the new strategic direction for our company. We believe leaning further into AI-powered initiatives on platform and investing to scale our off-platform IP adaptations business will continue to strengthen our offering and improve engagement for the long term. We continue to build on WEBTOON's position as the destination for storytelling, and we continue to expect we will return to double-digit revenue growth by the end of the year. With that, I'd like to turn it back to our operator to begin the Q&A session.

[Operator Instructions] Our first question comes from the line of Kunal Madhukar with Deutsche Bank.

One on engagement and another one on the financials. So on the engagement side, can you talk about how many minutes per day do your users actually use the platform? And can you talk about how many minutes the paying users use on the platform? And then I have a follow-up.

Thank you, Kunal. Great questions. So first, with regard to engagement, what is remarkable about this business is even as you look at the Gen Z users, for example, in North America or the users in our original market here in Korea, you're seeing a very consistent consumer behavior on webcomics and webnovels. We say typically that it averages approximately 30 minutes per day. But the reality is for those who have habituated, we know that, that number can be larger for the heavier users. What's interesting, though, is even for users that are new to this idea of a webcomic, when you think about North America users, they're not traditional paper-based comic fans. They're fans of digital-first entertainment. And for them to flick a finger on their mobile device allows them instant gratification and yet they still spend that 30-minute average we've seen. With regard to our paid users, we haven't released a separate engagement number for our paid users. But we know that the amount of time they spend and the access because of our micro payment structure to multiple episodes is the driver of our paid content engine. So this is why we tend to report ARPU because, for example, when you see in Korea, where we've been for nearly 20 years and we have 50% market penetration, it's remarkable that you're seeing constant currency revenue growth of 20%, growth in MPU and MAU being a growth driver and ARPU, which is up 5%. That's why we tend to focus more on ARPU as the measure of deep engagement because we see habit formation in markets that we've been in for some time.

That's a great segue to the second question that I had and which was on the marketing side. So the marketing expense delevered during the quarter, and you had delivered 3 quarters of like leverage on this line, small leverage but leverage. Where are you spending this money on? Is that in Korea? Is that in Japan? And what kind of LTV to CAC are you targeting on this marketing spend?

Another great question, Kunal. Thank you. So just as we think about marketing, as you know, we spent $38 million in the quarter, approximately up 11%. And so the question is, where do we spend and where do we leverage? We have a very diversified portfolio regionally. So when you think about the business I just mentioned in Korea, right, our country of origin where we have the largest market penetration that's driving 20% growth. There is, I would call it, a relatively efficient steady state of marketing because we already have strong penetration, and we have a flow of great content consistently arriving in the market. But when you look at hyper growth markets, as we see Japan will become again, we are sub-20% penetration in Japan, and we're sub-10% penetration in Rest of World. You see that we deliberately chose to invest with a longer LTV time frame, particularly in Rest of World. And we're seeing it pay off. And while we don't disclose these numbers, we have in the past noted that this north of 3% growth in English webcomic MAU is also paired with significant growth in English webcomic increase in actually paid users as well. So we manage a diversified portfolio where we have efficient spend in mature markets like Korea, but we intentionally are investing on the forward curve because we think adoption will grow in places like North America.

Our next question comes from the line of Mark Mahaney with Evercore.

Okay. I want to ask 2 questions, please. Can you just spend a little bit more time on Japan and what specifically you need to do to return Japan to growth? And then I'm sorry if you had mentioned this earlier or not, should we still count for, lean on an exit of double-digit revenue growth -- percent revenue growth in the fourth quarter?

Thanks, Mark. First, to cover your second question, we absolutely are strongly committed to the double-digit growth and believe we'll deliver it in the most important ways on platform by the end of Q4. And to cover that, there are 2 components of that, that you see evident in the quarter. Korea, our most mature market growing 20% on a constant currency basis and then double-digit growth in advertising globally. I think it's up 11% on a constant currency basis. And importantly, within advertising, we typically don't disclose this, but I have to tell you, Rest of World advertising on a constant currency basis is up north of 20%. Now the question relates to your first piece, which is Japan. There are 3 key priorities that we've been working on since the completion of our infrastructure project by the end of Q1. One is returning Japan's growth through stronger local content, greater engagement and distribution partnerships. And I think the evidence in the posted quarter in these areas would include things like our partnership with Studio White, which we think is significant on content, getting agreement with KADOKAWA and featuring the spin-off of Ryo Mizuno's fantasy series Record of Lodoss War is an example of the type of local content initiatives you're going to see much more of. Our partnerships, for example, with Lawson, which we talked about in our materials, is an example of what's more to come. And you'll remember, we elevated Yuki Chae, our Chief Product Officer, to implement the proven track record of growth established in Korea and Japan. And that includes things like CRM and deeper engagement with our customers there. So we feel very good about our Q4 commitment, and we think Japan is a proven growth market that we are now taking the time to deliver and stabilize through the course of this year.

Our next question comes from the line of Eric Sheridan with Goldman Sachs.

I want to go a little bit deeper in the pivot around IP commercialization. Can you talk a little bit about what you saw in the market from your IP adaptation strategy going backwards that made you want to take maybe a more proactive approach and make the type of investments you're making today? And on the go forward over the next 2 to 3 years, how should we be thinking about the capital or OpEx intensity of standing up IP commercialization? And how much of it either upfront will be borne through investment and whether you'll earn more of the return profile on larger hits on the outside of the investment cycle as some of these properties mature?