Webtoon's Q3 2025 Earnings Call Reveals Contradictions in Disney Partnership Monetization, Advertising Growth, and IP Timing Impact

Date of Call: None provided

Financials Results

• Revenue: $378.0M, up 8.7% YOY (9.1% constant currency)
• EPS: GAAP loss per share $0.09 vs. EPS $0.15 prior year; Adjusted EPS $0.04 vs. $0.22 prior year
• Gross Margin: 21.9%, compared to 26.3% in the prior year

Guidance:

• Q4 2025 revenue expected $330M–$340M, a decline of 5.1%–2.3% on a constant currency basis
• Q4 adjusted EBITDA loss expected in range of $6.5M to $1.5M (margin -2% to -0.4%)
• Guidance includes $16.5M of non‑cash expenses (actuarial losses on retiree benefits and minimum guarantee write‑downs)
• Infrastructure updates largely finishing in Q4, with possible residual items into early 2026
• Will maintain marketing investment to drive future growth

Business Commentary:

• Revenue and Earnings Performance:
• WEBTOON Entertainment reported total revenue of $378 million for Q3, up 8.7% or 9.1% on a constant currency basis compared to the same quarter in 2024.

• The growth was driven by increased paid content and IP adaptations, although partially offset by a decline in advertising.

• User Engagement and Monetization:

• WEBTOON's webcomic app MAU, excluding web novel users, increased by 1.5% globally, with a significant 12% year-over-year growth in English-speaking markets.
• The growth in MAU was attributed to product updates and new features such as video episodes, which enhanced user engagement and conversion to paid users.

• IP Adaptations and Partnerships:
• The IP adaptations business saw a 171.8% year-on-year increase in revenue, driven by revenue growth in Korea and the rest of the world, and the success of theatrical releases like My Daughter Is a Zombie.
• The partnerships with Disney and Warner Bros. Animation are expected to further expand the IP adaptation pipeline and global reach.

• Regional Performance and Challenges:
• In Korea, revenue grew by 22.2% year-over-year on a constant currency basis, driven by IP adaptations, but offset by a decline in advertising and paid content.

• The decline in Korea's MAU was primarily due to the impact of a government ban on Wattpad in two countries, though search engine indexing issues were fully resolved in Q3.

• Investment in Product and Infrastructure:

• WEBTOON is investing in labor to improve the platform and has launched new product features like video episodes and CUT, aiming to enhance user engagement and monetization.
• The company is building infrastructure for future growth, which may affect short-term profitability but is expected to support long-term success.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted strategic wins and confidence: "pleased to report solid third-quarter results" and "confident in our ability to deliver further growth," but results and near-term guide were weak: "net loss $11.1M," "adjusted EBITDA $5.1M vs $28.9M prior year," and Q4 revenue guide of a 2.3%–5.1% decline driven by timing of IP adaptations.

Q&A:

• Question from Benjamin Black (Deutsche Bank): Can you elaborate on the long-term vision of the Disney partnership beyond the initial slate and how to think about revenue potential/margin profile versus the core app? Also, what early engagement/monetization metrics are you seeing for video episodes versus static webcomics?
  Response: Disney collaboration is very early with no material financial impact yet and no detailed economics to share; it's intended as a long‑term, margin‑neutral partnership. Video Episodes/CUT are early experiments showing promise for Gen Z engagement but too soon to provide monetization metrics.

• Question from Matthew Copp (Morgan Stanley): Any timing or economic details on the Warner Bros. Animation partnership? Will you break out web novel vs. webcomic MAU in future disclosures and how should we think about web novel user trends (Wattpad)?
  Response: Warner deal is a strategic, global catalyst (10 projects) but no economic terms or timing disclosed yet; focus remains on webcomic MAU (English growth) as the key revenue driver. Wattpad MAU decline is driven by country bans and a now‑resolved indexing issue; timing for full recovery is uncertain.

• Question from Doug Annemitt (J.P. Morgan): What are the drivers of the Q4 guide's slower revenue growth—IP adaptation timing vs. Korea ad decline—and visibility into the e‑commerce ad partner?
  Response: Primary driver of the Q4 revenue decline is lumpiness/timing of IP adaptations; there was also an ad decline tied to one large Korean e‑commerce partner but management does not view that as a structural, long‑term issue; guide also factors in $16.5M of non‑cash items.

• Question from Andrew Marrock (Raymond James): What engagement are you seeing from Disney content so far and how are advertisers responding to new platforms/channels given a mixed ad environment into Q4?
  Response: Disney content engagement is encouraging but too early for quantified metrics; advertiser interest is strong (notably Japan pre‑roll success), though ad monetization in rest of world is nascent while infrastructure is still being built.

Contradiction Point 1

Impact of Disney Partnership on User Growth and Monetization

It involves the strategic value and expected impact of the Disney partnership on user growth and monetization, which are crucial factors for investor confidence and market positioning.

Can you clarify the long-term vision for the Disney partnership beyond the initial content lineup? How should we assess the revenue potential and margin profile of the new joint platform compared to the core WEBTOON app? Second, what early engagement or monetization metrics are you seeing from video episodes compared to static webcomics? - Benjamin Black (Deutsche Bank)

2025Q3: The Disney partnership is early, with just seven titles announced and more collaborations in progress. The economic impact on the platform is minimal at this stage. - David Lee(CFO and COO)

What is the strategic value behind the Disney announcement and how will it impact user growth and monetization? - Eric James Sheridan (Goldman Sachs)

2025Q2: This collaboration with Disney is significant due to the vast IP they hold, including Marvel, 20th Century Studios, and Star Wars. It will enhance our platform's appeal, especially to the Gen Z demographic. While there's no immediate financial impact incorporated into Q3 guidance, we anticipate long-term benefits for both parties. - David J. Lee(CFO, COO & Director)

Contradiction Point 2

Advertising Growth and Market Dynamics

It involves the growth and market dynamics of advertising revenue, which are critical for revenue projections and market positioning.

What are the timing and economic terms of the Warner partnership, and what is the MAU growth for Wattpad and web novels? - Matthew Copp (Morgan Stanley)

2025Q3: Advertising grew 10.2% globally in Q2, with strong performance in Korea and Japan. Video ads can drive habit formation and increase CPM. - David Lee(CFO and COO)

What is your Q3 and H2 advertising outlook, especially for video ads, and how are these influenced by macro factors versus product levers? - Unidentified Analyst (Evercore ISI)

2025Q2: Advertising grew 10.2% globally in Q2, with strong performance in Korea and Japan. Video ads can drive habit formation and increase CPM. North America is still in early stages, with potential for growth in '26 and beyond. - David J. Lee(CFO, COO & Director)

Contradiction Point 3

Disney Partnership Revenue Potential and Engagement Metrics

It implies differing expectations and outcomes regarding the revenue potential and early engagement metrics of the Disney partnership, which can impact strategic decisions and investor expectations.

How should we assess the long-term vision, revenue potential, and margin profile of the Disney partnership compared to the core WEBTOON app? What early engagement and monetization metrics are you seeing for video episodes versus static webcomics? - Benjamin Black (Deutsche Bank)

2025Q3: The Disney partnership is early, with just seven titles announced and more collaborations in progress. The economic impact on the platform is minimal at this stage. Video episodes are an experiment to maintain leadership among Gen Z users. Engagement is promising, but monetization metrics are too early to disclose. - David Lee(CFO and COO)

What are the key priorities for user growth for the rest of the year, and how will these investments impact margins? - Eric Sheridan (Goldman Sachs)

2025Q1: Strong growth signs in newer markets like the English-speaking platform. Investment in content, product innovation, and marketing will continue. Investment impact on Q2 P&L results in consistent positive adjusted EBITDA, indicating long-term growth potential. - David Lee(CFO and COO)

Contradiction Point 4

Advertising Revenue Growth and Strategy

It reveals differing perspectives on the growth and strategy of advertising revenue, particularly in North America, which is crucial for future revenue projections and market positioning.

Can you discuss Disney content engagement and advertiser interest in new platforms? - Andrew Marrock (Raymond James)

2025Q3: Advertising revenue was $23.5 million in the third quarter, up 14.5% year-over-year, with growth in Korea and North America. Our North America advertising revenue saw solid growth in Q3, driven by our leadership in the Gen Z segment and further expansion in both B2B and B2C campaigns. - David Lee(CFO and COO)

What are realistic expectations for MAU growth in Korea? What is the update on advertising revenue in North America? - Mark Mahaney (Evercore)

2025Q1: Advertising growth (13.6%) was strong, including from Korea. North America advertising is early-stage, with mid- to long-term growth expected. - David Lee(CFO and COO)

Contradiction Point 5

IP Slate Timing and Impact on Growth

It involves the impact of IP slate timing on quarterly growth, which is crucial for investors to understand the company's operational efficiency and future growth prospects.

What are the drivers of Q4 revenue growth guidance and 2026 visibility? - Doug Annemitt (J.P. Morgan)

2025Q3: IP adaptation timing is favorable for Q4, contributing to our better-than-expected performance against our guidance. - David Lee(CFO and COO)

What was the bigger driver of Q1 impact—IP slate or political unrest in Korea? - Unidentified Analyst (JPMorgan)

2024Q4: IP slate timing impacts quarterly growth but is not a persistent long-term issue. Political turbulence impacted Q4 and early Q1. Current Q1 guidance includes these effects. - David Lee(CFO and COO)