WEBTOON Entertainment Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Performance: 2024 was an important year for WEBTOON as it became a public company. Revenue was $1.35 billion, up 5% reported and 13% constant currency. Adjusted EBITDA was a record $67.9 million, a more than 600% increase from 2023. Highlights included Japan taking the top position in the non-game app market in the second half of 2024, investment in Japanese studio No. 9, and successful IP adaptations like Jeongnyeon: The Star Is Born, Sidelined: The QB and Me, and The Trauma Code: Heroes on Call.
• Operational Health: Total company MAU was down roughly 3.7% in the fourth quarter. However, webcomic app MAU increased 6.7% when removing the impact of webnovel users, led by growth in English-speaking markets, France, and Thailand. Rest of World MAU was impacted by a government ban on Wattpad in one country, accounting for two-thirds of the MAU decline in Q4.
• Geographies:
  • Korea: Fourth quarter revenue grew 6.6% on a constant currency basis, but full year revenue was down 0.5% constant currency. MAU was 24.5 million, MPU was $3.6 million, and the paying ratio was 14.5%.
  • Japan: Fourth quarter constant currency revenue growth was 18.9%, and full year revenue was 25.8% constant currency. MAU was 22.1 million, MPU was 2.3 million, and the paying ratio was 10.3%. Japan now represents nearly half of total revenue.
  • Rest of World: Fourth quarter constant currency revenue declined 3.3%, but full year revenue was 14.9% constant currency. MAU and MPU declined, but ARPU was up 2% on a constant currency basis.

Segment Performance

• Paid Content: In the fourth quarter, constant currency revenue growth was 10.9% year-over-year, and for the full year, it was 12.6% constant currency. Driven by Japan's double-digit growth, as well as successful monetization in Korea and the Rest of World. ARPU on a constant currency basis increased 12.4% in the fourth quarter and 13.7% for the full year.
• Advertising: Fourth quarter constant currency revenue growth was 27.4% year-over-year, and for the full year, it was 19.8% constant currency. Strong growth in Korea and Japan, with Japan's growth driven by LINE Manga and eBook Japan, and rewarded video ads introduced in eBooks Japan during Q4.
• IP Adaptation: Fourth quarter constant currency revenue declined 6.9% year-over-year, driven by declines in Korea and Rest of World, but partially offset by growth in Japan. For the full year, IP Adaptation revenue was up 6.7% on a constant currency basis. There were prolonged delays in project timing in Q4 Korea, but the pipeline of entertainment projects remains strong for 2025 and beyond.

Guidance

• Q1 2025: Expected revenue growth in the range of 1.7% to 4.8% on a constant currency basis, translating to revenue between $318 million and $328 million. Anticipated adjusted EBITDA in the range of $0.5 million to $5.5 million, with an adjusted EBITDA margin of 0.2% to 1.7%. Facing FX headwinds in the first quarter and first half of 2025. Continues to invest in marketing and infrastructure, with no full-year guidance provided but confident in the long-term strategy.

Risks

• Wattpad Ban: Rest of World MAU was impacted by a government ban on Wattpad in one country, which accounted for two-thirds of the MAU decline in the fourth quarter.
• IP Adaptation Delays: There was a prolonged delay in project timing in the fourth quarter in Korea, affecting IP Adaptation revenue.
• FX Headwinds: The first quarter and first half of 2025 are expected to face FX headwinds due to less favorable exchange rates compared to the first half of 2024.

Question and Answer

Q: Strength in Japan sustainability and Q1 guidance.

A: David Lee stated they are extremely confident in Japan's growth, but Q1 guidance includes discrete issues like IP slate timing and FX headwinds. The fundamental business is strong.

Q: User engagement and new formats.

A: Eric Sheridan asked about user engagement and new formats. David Lee mentioned investments in onboarding, AI personalization, and testing new formats like Highlights, with marketing investments for long-term growth.

Q: AI recommendation engine and user growth.

A: Benjamin Black inquired about the AI recommendation engine and user growth. David Lee said the AI engine helps in Korea, focusing on webcomic app MAU growth, and Q1 guide reflects the impact of political turbulence in Korea.

Q: IP Adaptation delay and impact.

A: Unidentified Analyst asked about IP Adaptation delay. David Lee said IP slate delay affects Q1, but it's not a persistent issue long term as IP slate is a source of strength.

Q: Advertising scaling and app MAU.

A: Matthew Cost asked about advertising scaling and app MAU. David Lee said advertising is growing, and webcomic app MAU up 6.7% excluding webnovels, with Wattpad ban impacting Rest of World MAU.

Q: Supply side and content mix.

A: Andrew Marok asked about supply side and content mix. David Lee said Japan's local content creators drive global reach, and crossover IPs lift the platform organically.