WEBTOON Entertainment Inc. (WBTN) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows mixed results: a strong increase in IP Adaptations revenue but declines in advertising revenue, gross profit, and MAUs. The Q&A revealed uncertainty and lack of details on key partnerships with Disney and Warner, and management's evasive responses likely raise concerns. Although the Disney partnership holds long-term potential, its immediate impact is unclear, and weak guidance for Q4 further dampens sentiment. Overall, these factors suggest a negative market reaction.
Key Financial Performance
Total Revenue $378 million, up 8.7% (9.1% on a constant currency basis) year-over-year. Growth driven by paid content and IP adaptations, partially offset by a decline in advertising.
Net Loss $11.1 million compared to a net income of $20.0 million in the prior year. Change due to lower other income and higher income tax expense.
Adjusted EBITDA $5.1 million compared to $28.9 million in the prior year. Decline attributed to increased costs and lower other income.
Adjusted Earnings Per Share $0.04 compared to $0.22 in the prior year. Decline due to lower adjusted EBITDA and higher income tax expense.
Advertising Revenue Decreased 8.9% year-over-year on a constant currency basis. Decline in Korea and Rest of World, partially offset by growth in Japan.
IP Adaptations Revenue Increased 171.8% year-over-year on a constant currency basis. Growth driven by theatrical release of 'My Daughter is a Zombie' in Korea and other adaptations.
Gross Profit $82.8 million, down 9.4% year-over-year. Gross margin declined to 21.9% from 26.3% due to reclassification of expenses and increased labor costs.
Global Monthly Active Users (MAU) Declined 8.5% year-over-year, primarily due to Wattpad being impacted by a government ban in two countries.
Korea Revenue Grew 22.2% year-over-year on a constant currency basis. Growth driven by triple-digit growth in IP adaptations, offset by declines in advertising and paid content.
Japan Revenue Grew 2% year-over-year on a constant currency basis. Growth in paid content and advertising, offset by a decline in IP adaptations.
Rest of World Revenue Declined 0.7% year-over-year on a constant currency basis. Decline in advertising offset by growth in paid content and IP adaptations.
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Operating Highlights
Digital Comics Platform with Disney: WEBTOON Entertainment announced a nonbinding term sheet with Disney to develop a new digital comics platform featuring over 35,000 comics from Disney's portfolio, including Marvel, Star Wars, Pixar, and more.
Short-form Video Innovations: Launched 'Video Episode' on the English platform and 'Cuts' in Korea, enhancing user engagement with motion, sound effects, and short-form animated videos.
IP Adaptations: Announced plans to co-produce 10 WEBTOON series with Warner Bros. Animation for global distribution and highlighted successful theatrical and streaming releases of titles like 'My Daughter is a Zombie' and 'Chicken Nugget.'
English-speaking Market Growth: WebComic app MAU in English-speaking markets grew by 12% year-over-year, driven by reformat title launches and product changes.
Japan Market Expansion: LINE Manga maintained its position as the #1 app for revenue in Japan for the third consecutive quarter, with MAU increasing by 12.6% year-over-year.
Revenue Growth: Total revenue increased by 8.7% year-over-year to $378 million, with growth in paid content and IP adaptations offset by a decline in advertising.
ARPU Growth: ARPU grew by 3% on a constant currency basis, with increases across all regions.
Wattpad Stability: Resolved search engine indexing issues, leading to sequential stability in Wattpad MAU despite prior government bans in two countries.
Collaboration with Disney: Entered into a nonbinding term sheet for Disney to acquire a 2% equity interest in WEBTOON Entertainment, strengthening their partnership.
Cross-border Content Distribution: Invested in labor and infrastructure to improve platform capabilities, aiming for long-term gross margin improvement.
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Risk or Challenges
Net Loss and Decline in Profitability: The company reported a net loss of $11.1 million compared to a net income of $20 million in the prior year. This was attributed to lower other income and higher income tax expenses. Adjusted EBITDA also declined significantly from $28.9 million to $5.1 million.
Decline in Advertising Revenue: Advertising revenue decreased by 8.9% year-over-year on a constant currency basis, with declines in Korea and Rest of World. This was partially due to a decline from a major e-commerce advertising partner in Korea.
Global MAU Decline: Global Monthly Active Users (MAU) declined by 8.5%, primarily driven by the impact of a government ban in two countries affecting Wattpad. This decline in MAU could impact user engagement and revenue generation.
Wattpad Challenges: Wattpad continues to face challenges, including a government ban in two countries and earlier search engine indexing issues. While the indexing issue has been resolved, Wattpad's MAU remains a concern.
Pressure on IP Adaptations Revenue: While IP adaptations saw growth in some regions, there was a decline in Japan. Additionally, the company anticipates pressure on IP adaptations revenue in Q4 due to the timing of milestones.
Gross Margin Decline: Gross margin declined from 26.3% to 21.9% year-over-year, impacted by increased labor costs and reclassification of Freepoint expenses from marketing to cost of revenue.
Revenue Decline Forecast for Q4 2025: The company expects a revenue decline of 5.1% to 2.3% on a constant currency basis for Q4 2025, with anticipated revenue in the range of $330 million to $340 million. This includes pressure from IP adaptations and infrastructure updates.
Decline in Korea Paid Content Revenue: Korea experienced a single-digit constant currency decline in paid content revenue, which could impact overall revenue growth.
Rest of World Advertising Decline: Advertising revenue in the Rest of World region saw a double-digit decline, further impacting the company's overall advertising revenue.
Increased Costs and Expenses: The company reported higher costs in areas such as labor and marketing, which contributed to the decline in gross margin and profitability.
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Guidance & Outlook
Revenue Guidance for Q4 2025: Expected revenue decline in the range of 5.1% to 2.3% on a constant currency basis, representing anticipated revenue in the range of $330 million to $340 million.
Adjusted EBITDA Guidance for Q4 2025: Anticipated adjusted EBITDA loss in the range of $6.5 million to $1.5 million, representing an adjusted EBITDA margin in the range of negative 2% to negative 0.4%.
Future Product Flow: Infrastructure updates are expected to be completed in Q4 2025, with improved product flow anticipated starting in early 2026.
Marketing Investments: The company plans to maintain its investment in marketing to drive future growth.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you elaborate on the long-term vision of the Disney partnership and its revenue potential and margin profile?
A:David Lee explained that the Disney partnership is in its early stages, with 7 out of 100 planned titles already in progress. The collaboration includes access to 35,000 stories and the potential for creating original stories with Disney. No material financial impact was disclosed for Q3 or Q4, reflecting the early stage of the partnership. The collaboration is expected to be a long-term game changer without materially affecting the company's margin structure. However, it is too early to provide additional details.
Q:What early engagement or monetization metrics are you seeing from video episodes compared to static webcomics?
A:David Lee stated that video episodes are in the early stages, with 14 English originals launched last quarter. The company is experimenting with new formats like video episodes to maintain leadership among the Gen Z demographic. While promising early signs include 12% growth in English webcomic app MAU and increased paid user conversion, it is too early to promise significant upside.
Q:Can you share details about the timing and economic terms of the new Warner partnership?
A:David Lee highlighted the partnership with Warner Bros. for 10 potential projects, including anime and animation. While the partnership is a significant step forward, no specific timing or economic terms were disclosed. The collaboration is expected to drive growth globally and strengthen the company's position as a source of stories in new formats.
Q:Are you considering breaking out Wattpad and web novel MAU figures in your regular disclosures?
A:David Lee explained that while total MAU is down 8.5%, the focus is on webcomic app MAU growth, particularly the 12% growth in English webcomic app MAU. Wattpad is the primary driver of MAU declines due to issues like search engine indexing and country bans. The company is not ready to provide definitive guidance on total MAU but emphasized the importance of webcomic metrics for future revenue growth.
Q:What are the drivers of the Q4 revenue guide and how is the company positioned for 2026?
A:David Lee attributed the Q4 revenue decline to the timing of IP adaptations, which are important for creating awareness. Despite the revenue decline, the company is maintaining its adjusted EBITDA guidance and managing costs effectively. Advertising in Korea was impacted by a decline from one e-commerce partner, but this is not expected to be a persistent issue. The company remains optimistic about its long-term growth prospects, supported by partnerships with Disney and Warner Bros.
Q:Can you elaborate on the engagement with Disney content and its monetization timeline?
A:David Lee stated that while early engagement metrics are positive, it is too early to provide specific quantified metrics. The Disney collaboration aligns with recent product improvements and represents significant upside potential, particularly in North America.
Q:What is the advertiser appetite for new platforms and channels?
A:David Lee noted strong interest in new advertising platforms, citing the success of pre-roll video in Japan. However, the company is still building infrastructure in markets like North America and is not yet realizing the full potential of these offerings.
Q:Review of Unclear Management Responses
A:Management avoided providing direct answers or specific details for several questions, including the economic terms and timing of the Warner partnership, quantified engagement metrics for Disney content, and specifics on advertiser interest in new platforms. Responses often emphasized the early stages of initiatives and lacked detailed data or timelines.
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