Webtoon 2025 Q1 Earnings Misses Targets as Net Income Declines by 452.5%

Webtoon Entertainment reported its fiscal 2025 Q1 earnings on May 14th, 2025. The company's results missed expectations, with a significant decline in net income compared to the previous year. Despite achieving revenue and Adjusted EBITDA above guidance, Webtoon faced increased expenses that led to a net loss. The company also provided cautious guidance for Q2, anticipating a modest revenue growth in constant currency terms and continued margin pressure.

Revenue
Webtoon Entertainment reported total revenue of $325.71 million for Q1 2025, representing a slight decrease of 0.3% from the $326.74 million in Q1 2024. The decline was primarily driven by a reduction in Paid Content revenue, which was partially offset by growth in Advertising and IP Adaptations. On a constant currency basis, revenue grew by 5.3%, with all three segments contributing positively to this growth.

Earnings/Net Income
Webtoon swung from a net income of $6.23 million in Q1 2024 to a net loss of $21.97 million in Q1 2025, a deterioration of 452.5%. This shift was primarily due to higher general and administrative expenses and increased marketing costs. The company reported a loss of $0.17 per share compared to a profit of $0.06 per share in the previous year, reflecting challenging profitability conditions.

Price Action
The stock price of Webtoon dropped 6.29% during the latest trading day, declined 13.07% over the past week, and edged down 0.49% month-to-date. This negative price movement reflects investor concerns over the company's disappointing earnings results.

Post-Earnings Price Action Review
The strategy of buying Webtoon stock following a revenue miss and holding for 30 days resulted in poor performance, yielding a return of -62.98%. This was significantly below the benchmark return of 0.95%, resulting in an excess return of -63.93%. The Sharpe ratio stood at -0.91, indicating substantial risk and negative returns. The strategy's failure highlights the challenges in timing investments amid revenue misses, as market conditions and investor sentiment shifted unfavorably.

CEO Commentary
Junkoo Kim, Founder and CEO, expressed satisfaction with achieving revenue and Adjusted EBITDA above the midpoint of guidance, noting a 5.3% revenue increase on a constant currency basis. He emphasized growth across Paid Content, Advertising, and IP Adaptations, and outlined efforts to enhance the English-language platform with AI-powered discovery features. Kim highlighted the introduction of major franchises like 'Godzilla' and 'Sonic the Hedgehog' as part of the strategy to expand the content library and engage fans.

Guidance
For Q2 2025, Webtoon anticipates revenue growth on a constant currency basis between 2.2% and 5.2%, translating to $335 million to $345 million. Adjusted EBITDA is expected to range from $0.5 million to $5.5 million, resulting in an Adjusted EBITDA margin of 0.1% to 1.6%.

Additional News
In recent developments unrelated to earnings, Webtoon Entertainment has announced a strategic partnership with a major content creator to enhance its storytelling platform. Additionally, the company has appointed a new Chief Marketing Officer to lead its global marketing initiatives. Webtoon has also launched a new AI-powered feature aimed at improving user engagement and content discovery across its platforms. These moves align with Webtoon's commitment to innovation and expanding its market presence.