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

Thank you. Okay, I think with that, and in the interest of time, we're going to start our last session of the day, Fireside Chat with Webtoon. It's great to have them back at the conference as a return participant and David, thanks so much for making yourself available. You and I've known each other a long time, but it's always great to get an opportunity to sit down and talk with you. Here you go. Okay. So look, I always do like to start with the opportunity of giving you the opportunity, but it's so much more fun to do it on Webtoon versus other places. There you go. For those who are less familiar, maybe take a little bit of an introductory answer here to sort of set the framework of the company's priorities, what you're trying to build and scale against, and just level set there. And then, as you're probably aware, I'm going to go a little bit deeper in all aspects of it.

Well, it's a pleasure to be with you as well, and for everyone listening in. Webtoon is, simply put, a global storytelling platform driven by technology and AI. On the one hand, we enable 27 million creators, most of whom are individual creators, most of whom are not professional creators, and on the other hand, we enable have full-time jobs, and they aspire one day to tell a story that maybe somebody else might like in the world. On the other hand, we have 155 million monthly active users who spend an average of 30 to 60 minutes per day, whether they are part of our most mature market in Korea, where we have half the population on our platform, or in a nascent market like North America, where we're sub 5%. Because in between all of that, there's what where we create an ability to give access to indie creators to tell a story that might make them a franchise star, that might allow them to tell stories not just on our platform. Franchise stars can make over $1 million a year on our platform, but also increasingly become stars off our platform in the form of a great hit movie on Amazon Prime or Tubi or Netflix, or with the recent announcement we've made as a hit mobile game or triple-A game. So we're a storytelling company that aspires to give access to any creator in the world to tell a story to any consumer, any reader in the world on and off our platform.

Okay, that's very well stated. So now we've got our benchmark to talk a little bit deeper about. One of the things that was interesting on the last earnings was you introduced sort of a double-digit growth target after a lot of back and forth in terms of some of the growth rates in the business. Talk a little bit about the confidence interval in progressing towards that target and help us better understand some of the building blocks to get to that target.

Sure. So just as a reminder to folks, as context, the thing about this business is doing approximately for the annual period $1.4 billion in U.S. GAAP revenue. 79% is in the form of paid content, our bread and butter. Paid content is not subscription. Paid content is Gen Z, and largest consumer base in rest of the world is Gen Z and young millennials, spending on average ¢15 to ¢70 to see the next episode of a breaking story that's created by one of these 27 million creators. I want that to sink in, a very different business model than a lot of the companies that many of you invest in or cover. At 79%, of course, we have this emerging growth in roughly 11%, which is advertising, which should be a lot larger, and it would be very creative once it is. And then we have crossover IP for the other remaining 8% or 9%. So I just want you to understand that's the revenue of the business. And by the way, the revenue of the business has so much run to room in paid content geographically, because while we started in Korea and we have 50% household penetration, in Japan we're sub 20%, and the rest of the world we're sub 5%. So, to answer your question, what we actually did is we reaffirmed double-digit growth exiting this year, 2026. We reaffirmed it based on confidence first in our paid content part, that 79% I mentioned. Look at Korea. Korea is where we've been the longest. It's our most mature market. And yet Korea grew in the most recent quarter 20% on a constant currency basis. It not only grew 20% constant currency, but it grew all important metrics significantly. Paying ratio remained 15.5%. You saw an increase in top of funnel MAU in Korea. You saw an increase in MPU. Korea is firing on its cylinders. And even though it may be the most developed market, it's doing quite well. If you look at rest of the world, our largest addressable market opportunity, it grew over 11%. If you look at advertising, which is that it created a business model that needs to be more than, say, 11% or 12% of total revenue, that grew double digits as well. And it grew over 20% in rest of the world in the most recent quarter. So why do we have confidence that we're going to exit the year? I think it's because we believe Korea will continue to perform as we've already proven it can this year, that we also believe that advertising as well as crossover IP. Crossover IP is when almost through osmosis today, one of our hit stories becomes a hit, not just on our platform, but on Amazon Prime or Netflix or outside our platform. We don't risk much capital to make that happen because we see a natural benefit in fandom when somebody sees on Amazon Prime or Netflix or outside our platform a major story, they want to know where it came from. But the timing of that 9% in a given quarter can fluctuate. And that's why even as I guided to 2% constant currency growth in Q3, I wanted to be clear. This is a healthy business that will go double digits this year. A big part of the swing, if you know our business, is Japan. We proved in 2025 after the IPO that Japan was a rocket ship. It may be sub 20%, but we became in that period the #1 consumer app, including mobile games. We knew how to do it. It's local content, a great product, and our tech services. But recently, we had to focus on making sure, I call it the launch pad, the infrastructure for Japan could support its rocket growth. And that meant until Q1 of this year, we focused on infrastructure. That's why you're seeing Japan in the recent quarter not perform the way it will. But we believe we know how to return it to growth. And that's part of our belief and our confidence that we're going to see double-digit growth ending this year as well. The last bit is all of the goodness that we announced around AI and auto translation and short dramas about a big deal with RI Games Holding that allows us to get upside. The IP adaptation fund that allows us to get more upside in IP, that is all upside to the Q4 exiting call of a double digit growth, because we didn't want to include it in what we provided as confidence in the core platform and the core platform health.

Building on that answer, probably one of the most often questions we get is if you take the way you report the business geographically, how do you think about the current competitive landscape and potential scope for user growth as an algorithm in Korea, Japan, and the U.S.?

And rest of world. Okay, so let's take these in turn, because they are quite different. In the foundation origin country of Korea, where we've been for 20 years, as I mentioned, we're 50% household penetration. We do not need to grow Korea's constant currency revenue based on top of funnel MAU growth. We happened to see 3% to 5% constant currency, I'm sorry, top of funnel growth in Korea. But what you saw in Korea was a strong habit formation that was already in place where people trust and know Naver for Webtoon to provide hit stories to them and eventually turn them into, for example, hit movies on Netflix. And that was reflected in the 20% constant currency growth, the higher MPU, the higher ARPU. We worked hard to deliver that. That wasn't an accident. If you recall 1 year ago when we spoke, I was telling you about improving improvement on the Korea business driven by product, by better identification of what consumers want to read, this personalization engine or CRM product. We're talking about improved local content flow. And all of those things have come to pass. In fact, the leader of our Korea business, Yuki Chae, was in this last spring recently promoted to be the Chief Product Officer because we know that his proven success in Korea can translate to other platforms like Japan and to the global Webtoon business. So Korea is a mature business. Consumers are already on the platform. We just need to execute as we have been to continue to see that growth. There really is not meaningful competition for the 30 to 60 minutes spent every single day from our consumers in Korea. We are dominant, and we need to continue to be dominant. Later, I'll come back to examples that leverage AI, like this interactive chat feature called By Us, B-Y space U-S, By Us, that I think is an example of leading tech that allows us to grow in our mature market in Korea. Talk about Japan. Japan's 45% of our revenue is actually larger in paid content revenue today than Korea. It wasn't always the case. It was a rocket ship in 2024. Japan, we have sub 20% penetration. Japan, as you know, is 3 times the population of Korea. And it is a very mature creator market. People are very used to creating in the Japanese language, but they're primarily used to creating in just a few genres, like manga and anime, with just a few publishing houses, with maybe perhaps not access to the ability to be a global hit in multiple languages. In Japan, as I mentioned, we completed our infrastructure work at the end of Q1, and we've begun to return it back to its path to growth. We also made leadership changes. We've installed a new Chief Business Officer in partnership with our President, Yongsoo Kim. And we've gone back to the basics of putting in place on top of the infrastructure, local content, product best practices that we know work quite well from our work in Korea, as well as partnership with strong local entities. So, for example, we partnered with McDonald's on September 1st. They have a little under, I think, 10 million MAU that skews quite younger in Japan versus some of their other demographics. We think that's a strong partnership. Or the 15,000 locations, community store locations of Lawson's, we think that's quite strong. And as we return to our sources of local content, we believe that that market will continue to grow. By the way, ARPU in Japan, significantly higher than Korea, something like 22%. This is ARPU on a monthly basis versus what we see for Korea around $7.80 or $8. Because that customer base, those readers are used to buying digital entertainment. And so there in that market, we will make it a rocket ship again, but we have to execute against what's already a habit in Japan, which is to seek great stories. For the creators, the local Japanese creators have the ability to not just publish 1 or 2 genres in 1 language, they have the ability to be a hit globally. We enable that. We also enable them to be a hit outside of our platform, like on Fuji TV, we have many examples. We've announced a slate, by the way, of 30 animation projects, and we have a real slate over the next 3 years that are going to launch. I think there are 9 projects we're excited to launch. So there's momentum in Japan, but we were sidetracked by a need to shore up the rocket pad, the infrastructure, and we're returning that to growth. Rest of world. What's interesting about rest of the world, our most nascent markets of 5% penetration is, if you look at consumers, they're young, by the way, they're Gen Z and young millennials. They act a lot like our consumers on our most mature market in Korea. It turns out Gen Z and young millennials in the U.S. really are looking for a story they can't find anywhere else. They want to find 1 from Korea or Japan or Europe or Southeast Asia. And with up to 120,000 stories arriving every day from our 27 million creators, our growth there is driven by content. One great example is we recently had this hit called Fog Land by this creator called POGO. It had 17.2 million views on the English platform as of September 7, 2026, since its launch in January 2026. Another example is we partnered with Duolingo again and we launched Duo Leveling. It had 2.2 million views on the English platform since its launch in June 2026. So you're not going Your investors may not realize that content can drive top of funnel and as well, real revenue growth in a nascent market for our business. In fact, in the most recent quarter, Webcomic AppMAU in English grew 3% plus, more than 3% between 3% to 4%. And we also are seeing that rest of the world constant currency revenue growth of 11%. So there, it's about pacing the pace of awareness and adoption, and it's leveraging partners like Duolingo, as well as hit content like Fog Land, and as well the best practices around retention that we have learned from our markets outside of the U.S., outside of the rest of the world. So I think that unlike a lot of other companies, we have the biggest TAMs yet available. A lot of folks that penetrated the U.S. and seek to penetrate markets outside the U.S. have the reverse. Here, I think we have product market fit. We just need to execute against it. And that's part of the geographic story of expansion for the company.

Okay, that was very detailed. I really appreciate that. Maybe now turning to some of the incremental growth drivers and partnerships that you've established for the business. You announced a partnership with Disney. I think we continue to get questions about what milestones and launch timeline and unit economics and all the things that can build out of that relationship that investors should expect. How do you think about the go forward with the Disney partnership from here?

I think the Disney collaboration is super exciting and still on track. Remember, it really had 3 different components when we announced it. The first component was to leverage great stories from their universe adapted to our platform. You can now find over 20 stories that originated from their world as adapted titles on ours, which we're excited about. I think I mentioned when we last talked, I was even more excited about new to the world original stories that take from a Disney storyline and create something brand new that people can't get anywhere else. And I think we have now a few examples of that. X-Men Korea is an example. From the Tony Stark universe, Tony's Girl is an example. I can't go through the title of the third one because it's excessively long by definition, but you can look it up; it's "That Time Deadpool Fell Into WEBTOON... and Found The Longest Title of All Time!!!" So now we have original stories. And by the way, we did a study, and something like 77% of our North America consumers, these Gen Z young millennials, they like us because they, quote, can't get stories they find on our platform anywhere else. So these originals are a core part of the adoption curve for rest of world. And then the third part is we had always said it would take us through this year, that we would launch this year a brand new consumer platform, a webcomic platform, in partnership with Disney that we would run, and we are on track. You will see that launch this year. So there's still a little bit of time that needs to come before investors can see that in market. But I think the Disney collaboration is on track, and we're very excited about it.

Okay, understood. You recently announced a $100 million adaptation fund in partnership with Naver. I think we've gotten a lot of questions about how to think about the strategic rationale of that, what that might mean for where the adaptation business goes medium to long term, and what signal you saw in terms of wanting to maybe take more ownership of how adaptation played out from the content that was being created on the platform.

First, I want to make sure that the audience has context on what we call our adaptation business, which, as I mentioned, is roughly 9% of our total annual revenue. We have a long history of seeing very successful rich film adaptations on Netflix, on Amazon, on Tubi. And we love that because when our creators had the hit story, sideline, the quarterback in musical for the U.S. that started on Wattpad, when that turns into a rich film adaptation, new fans see that and ask, where did that come from? They get drawn back to the platform, and obviously it's great for our creators. And we have largely not bet to receive the benefit of the fact that we have data, signal, and a track record of knowing in a web comic or a web novel what will likely be a very successful film release, maybe even a video game, because we've been quite conservative. And we have always had the positive externality of when somebody else is paying largely for their production, we still get a little bit of benefit from consumer acquisition and creator love. But what a missed opportunity for investors for us not to act in a very modest way on the fact that we do have data and signal and proven IP, but maybe very few other media entertainment companies have, to have a very de-risked way to know what's going to be a hit movie well in advance. We have examples of web novels years ago that became hit web comics on our platform. Married My Husband is a great example. That became Amazon Prime #1. I think of this IP adaptation fund, which is a $100 million USD fund of which we contribute 40%, as an extremely smart de-risk way to leverage our data and market signal very selectively to receive greater upside for our investors when we know that a story is going to be a hit outside our platform. We welcome other capital. We are grateful to have Naver contribute 60%. And I think it just creates opportunity for us to play off the core strategic advantage we have to grow that 9% into something that's more accretive and larger. We are not making a headlong move against our business model. This is a product of the long history of us knowing what could be a great crossover IP hit. And I think we're being prudent, but I think it's the right time for us to stop ignoring the competitive advantage we have on knowing what's going to be a big hit outside our platform.

Okay, understood. The other thing was you recently entered an agreement to acquire a 60% stake in a gaming company, RI Games. Talk a little bit about the genesis of what you saw in the gaming landscape that interested you in making that type of investment, how we think about that from evolving against the broader strategy over the medium to long term.