Revenue Growth: 5.3% on a constant currency basis; reported revenue roughly flat year over year. Net Loss: $22 million compared to net income of $6.2 million in the prior year. Adjusted EBITDA: $4.1 million compared to $22.2 million in the prior year. Adjusted Earnings Per Share: $0.03 compared to $0.20 in the prior year. Total Company MAU: Down 10.5% in the quarter. Gross Profit: $71.6 million compared to $82.4 million in the prior year. Gross Margin: 22% compared to 25.2% in the prior year. Advertising Revenue Growth: 13.6% on a constant currency basis year over year. IP Adaptation Revenue Growth: 20.7% year over year on a constant currency basis. Interest Income: $5.1 million compared to $1.2 million in the prior year. Income Tax Expense: $2.5 million compared to $6.7 million in the prior year. Depreciation and Amortization: $8.4 million compared to $9 million in the prior year. Second Quarter Revenue Guidance: Expected growth of 2.2% to 5.2% on a constant currency basis, representing $335 to $345 million.

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Release Date: May 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Webtoon Entertainment Inc (NASDAQ:WBTN) reported strong first-quarter revenue and adjusted earnings at the top end of their guidance range. The company has successfully expanded its presence in Japan, which now represents over 50% of its revenue, with growth in paid content, advertising, and IP adaptations. Webtoon Entertainment Inc (NASDAQ:WBTN) has launched successful cross-border strategies, taking Japanese content to the US and France, ranking in the top 10 of paid GMB for each country. The company is making key investments in its English language platform, with initiatives showing a 9% increase in episode reads among test users. IP adaptations continue to drive new users to the platform, with successful launches like 'Mala Influenza' on Netflix.

Negative Points

Webtoon Entertainment Inc (NASDAQ:WBTN) reported a net loss of $22 million for the quarter, compared to a net income of $6.2 million in the previous year, due to higher general and administrative expenses and marketing costs. Total company MAU decreased by 10.5%, driven by declines in the rest of the world, particularly due to issues with Wattpad's security upgrade and a government ban in one country. Gross profit and gross margin declined year-over-year, with gross profit at $71.6 million compared to $82.4 million, and gross margin at 22% compared to 25.2%. Revenue in Korea faced a single-digit decline in paid content, despite overall revenue growth in the region. The rest of the world saw a revenue decline of 4% year-over-year on a constant currency basis, with declines in paid content, advertising, and IP adaptation.

Story Continues

Q & A Highlights

Q: Can you discuss the user growth initiatives planned for the remainder of the year and their impact on margins? A: JunKoo Kim, Founder and CEO, explained that the company is seeing strong long-term growth in newer markets, particularly in English-speaking regions where web comic app MAU is up 19%. The focus will remain on content flow, product innovation, and marketing. Despite investments in infrastructure and marketing, the company expects to maintain positive adjusted EBITDA, indicating profitable growth in the mid to long term.

Q: How important is local content in local markets, particularly in Japan? A: JunKoo Kim emphasized the significance of local content, noting that Webtoon is the number one consumer app in Japan, including mobile games. The platform allows local creators to publish globally, as seen with Japanese content like "Over Summoned, Overpowered, and Over It" debuting in the US and France. The company also highlighted success in Spanish IP adaptations, showcasing the global reach of local content.

Q: What are the expectations for MAU growth in Korea, and can you provide an update on advertising revenue in North America? A: JunKoo Kim noted that Korea has high market penetration, making MAU growth challenging. However, the focus is on revenue growth, with a 3.6% increase in constant currency revenue driven by ARPU growth. In North America, advertising is still in early stages, with foundational products and a selling organization being developed for future growth.

Q: How do global franchises and reform launches affect monetization and gross margins? A: JunKoo Kim stated that global franchises are not new to the platform and continue to enhance the core pay content margin structure. Collaborations with existing franchises, like IDW Publishing's Sonic the Hedgehog and Godzilla, attract more consumers and provide a larger audience for creators, supporting both high-margin originals and popular franchises.

Q: Can you provide more details on the security update to Wattpad and its impact? A: JunKoo Kim explained that Wattpad's security update and a government ban in one country significantly impacted rest of world MAU. While Wattpad is not a major contributor to paid content, it is important for IP sourcing and advertising. The company is addressing the security issue and expects the impact to persist through Q2 and possibly part of Q3.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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