WEBTOON's Q1 2025 Earnings Highlight Value Opportunity Amid Temporary Growth Hurdles

WEBTOON Entertainment’s upcoming Q1 2025 earnings report (set for May 13) offers a compelling entry point for investors seeking exposure to a high-growth digital content platform trading at a steep discount to its intrinsic value. Despite modest revenue growth and near-term headwinds, the company’s global IP pipeline, strong user engagement in key markets, and strategic investments position it for outsized gains as it capitalizes on a $14 analyst price target—over 50% above its current stock price of $9.17.

Reconciling Modest Revenue Growth with Long-Term Potential

WEBTOON’s Q1 revenue guidance of $318 million to $328 million reflects a 1.7%–4.8% year-over-year increase on a constant currency basis. While this marks a slowdown from 2024’s 5% growth, it’s critical to contextualize these figures:
- FX Headwinds: The guidance accounts for unfavorable currency movements, particularly the weakening Korean won and Japanese yen. Stripping out these effects, organic growth remains robust.
- Project Delays: A 6.9% year-over-year decline in Q4 2024 IP adaptation revenue was due to delayed projects in Korea, a temporary issue. Q1’s guidance assumes a rebound as delayed releases hit platforms like Netflix and Prime Video.

User Engagement: A Global Flywheel Effect

WEBTOON’s 160 million monthly active users (MAU) mask a nuanced story of resilience:
- Japan Dominance: Japan accounts for nearly half of revenue, with MAU up 6.6% year-over-year to 22.1 million. LINE Manga’s leadership in Japan’s non-game app market and eBook Japan’s rewarded video ads are driving monetization.
- Webcomic Growth: Excluding webnovel users, Webcomic MAU rose 6.7% YoY, fueled by hits like Zenpai is an Otokonoko (adapted into an anime film) and Savior of Divine Blood, produced by Japanese studio Number Nine (acquired by WEBTOON in 2024).
- Regional Diversification: Emerging markets like Thailand and France saw strong growth, offsetting a 3.7% MAU decline in Q4 2024 due to a Wattpad ban in one country.

The decline in total MAU is overstated, as the core Webcomic platform—WEBTOON’s highest-margin segment—continues to thrive.

Strategic Content Adaptations: The Netflix Effect

WEBTOON’s IP library is its crown jewel, with adaptations on Netflix, Disney+, and Tubi generating viral momentum:
- "Heroes on Call": A Netflix global hit that spent four weeks in the top 10 non-English category, proving WEBTOON’s ability to scale content beyond its platform.
- "Sideline the QB and Me": A Tubi success that became a top-performing title in the U.S., leading to a sequel greenlight.
- Disney+ Adaptations: ZangYunhee: The Star is Born ranked sixth in Disney+’s global TV show category, underscoring the platform’s appeal across demographics.

These adaptations not only drive brand awareness but also fuel user retention on WEBTOON’s platforms, creating a self-reinforcing “flywheel” of content creation and consumption.

Financial Strength: Cash Reserves and EBITDA Turnaround

While WEBTOON reported a $152.9 million net loss in 2024 (due to non-cash expenses), its adjusted EBITDA surged 600% to $67.9 million—a clear sign of margin improvement. The company’s $315 million IPO in 2024 bolstered liquidity, and its focus on AI-driven recommendations and localized content pipelines ensures capital is allocated to high-ROI initiatives.

Why Buy Now?

• Undervalued Stock: At $9.17, WEBTOON trades at a 35% discount to its $14.07 analyst consensus target, with a 12-month price target of $15.50 signaling further upside.
• Peer Outperformance: While peers like Stride (STRD) and Vimeo (VOO) face stagnation, WEBTOON’s global IP pipeline and Japan-led growth position it to outperform in 2025.
• Sustainable Growth: With 60% of its user base in Asia and 40% in the U.S./Europe, WEBTOON is uniquely positioned to capitalize on rising demand for diverse digital content.

Addressing the Risks

• MAU Declines: The Wattpad ban and webnovel user attrition are concerns, but these segments represent lower-margin revenue compared to high-engagement Webcomic users.
• FX Volatility: While a near-term headwind, a weaker dollar in 2025 could reverse these pressures.

Conclusion: A Buy for the Long Term

WEBTOON’s Q1 results are a temporary stumble in a long runway of growth. With its IP adaptations driving global reach, Japan’s dominance securing recurring revenue, and a valuation far below its peers, this is a rare chance to buy a $14 stock at $9.17. Investors who overlook the company’s structural advantages and focus on short-term noise risk missing out on a multi-bagger opportunity.

Action: Buy WEBTOON (WBTN) ahead of its May 13 earnings report. The stock’s discount to intrinsic value and its IP-driven flywheel model make it a standout pick for growth-oriented investors.