By Gen Alpha, Gen Z, they're probably big consumers already. WEBTOON is a global digital storytelling hub, and it's powered by 24 million creators who oftentimes have hardworking, full-time roles in their everyday lives. These are folks, for example, let me give you one, so Rachel Smythe in New Zealand, a hardworking graphic designer, thinks she has a story to tell, and like many that consume stories in this creator economy generation, they're looking for content that's unexpected. They're looking for a story that wouldn't be pushed to them normally. Rachel went to our platform. We make it very easy using data and AI for any creator, even a hobbyist, to tell their story, and they can tell it as a web novel, or they can tell it as what we call a web comic or WEBTOON. This is a cool format. This WEBTOON is a unique synthesis.
It's almost like a digital storyboard. With a flick of a finger, our core Gen Z, Gen Alpha consumers can see where a story is going. It's got visuals, dynamic motion, and only a few words, which is why it ports well to any language. It's why, in the case of Rachel Smythe, while she didn't know she was going to be a superstar and no longer need to be a graphic designer, we knew very quickly. Because we have nearly 170 million monthly active users, 60% of which are not in our origin in Asia. They're here. They're in Europe. They're in France. They're consuming stories, 120,000 of which appear daily. From these 24 million creators, this is the lowest cost, highest quality UGC digital storytelling system I've come across.
What's great about it is the great stories emerge with market signal because we're a global leader in every country, but we're also the biggest AI company you've never heard of. Because we uniquely enable someone to tell a story in one original language and then become a global superstar. Rachel Smythe, through our collaboration, ended up becoming not just a digital star on WEBTOON. She became a New York Times bestselling author, I mean in print. She's rumored to soon be announced as a featured animated release on one of the big streamers. If you enjoy great Netflix films, as an example, two of Netflix's top 10 of all time releases started as stories on our platform. If you enjoy Italian films, Love Me , Love Me was just released. That came from our Wattpad platform on Amazon Prime.
The Spanish release we highlighted in the last quarter was Sigue Mi Voz. So this isn't just about great Asian stories being consumed via Hallyu. This is about 100 examples of rich film releases that started as a WEBTOON or a web novel. Now, part of this story is new because we've been very quietly more focused on building the flywheel, building the 24 million creators strong and the nearly 170 million monthly active users. And it's now achieved escape velocity because, as a public company, we're posting positive income, $20 million in the last quarter, even as we consistently post 13.5% constant currency growth, as you saw in Q3. We went public at the end of June.
We've had two releases, and we have a lot of work to do to help explain who we are because the stock price does not reflect, I think, the fact that we believe we exceeded expectations provided to analysts in both of our releases, which is a big part of why we're here and why my colleague, Soohwan Kim, who joined the company two months ago to lead IR, is here as well. So if you have any questions, you can come see me or him.
Great. So how does the content that's available on WEBTOON differ from, I guess, the traditional sort of Japanese manga or the more anime, for lack of a better term?
Yeah. One of the ways I'd like to dimensionalize the content is by describing it as being all genres. In fact, we have genres we would never have created, created by our 24 million creators. So here in North America, we call her Maddie. Maddie's our target consumer. She's, call it, 24 or slightly younger. Our consumers skew female. They love romantic comedy. Lore Olympus, which is the great story that this woman, Rachel Smythe, created, for example, is a romantic comedy around Greek mythology. We would never have spent money or human judgment to say Greek mythology in a romantic comedy format is going to be hot, thankfully. We're not in the business of having to buy hits or predict hits. And that's what sets our content apart. We have a genre for every age group.
We oftentimes find our consumers start with an interest in one type of story, finish the story, but there's 120,000 more that come every day. They grow old with us. I bet I liked very different things in my 30s, and now I'm in my 50s, but there's a story for me if I had been around WEBTOON even as I started reading it because we have every genre. One little anecdote that we find compelling is it's a self-selecting process. When our consumer for free wanders around this vast digital universe with constantly updating stories from diverse locations, when she decides that she wants to read the latest episode, she spends in a micropayment, on average, $0.15-$0.70 only, just to see that latest episode that she's picked. She could have been looking around our digital universe for long periods of time or short periods of time.
Whether she's in Japan or she's in Korea or she's in France or she's in North America, her consumer behavior is really similar. They spend, on average, 30 to 60 minutes per day, and they are the demographic that advertisers seek. So you're seeing remarkably consistent consumer behavior because we have every genre that you could be interested in powered by a UGC source, cultivated and managed through AI and data.
Got it. Who are these creators? Is Rachel Smythe, is she the atypical creator, or is she somebody that's fairly typical of the 24 million that you have?
Listen, I don't want to characterize any creator as typical. One of the things we like to do is to fairly share in the benefit of how big a star a creator can be. But she is altogether very much a normal part of the story of creators. So we have 24 million creators globally, and they're in multiple languages. And one of the things that we find is the vast majority, intentionally, are folks who have full-time jobs who are not renting space in our platform. Their motivation is they think they have a great story to tell, and we make it super easy, having worked on this for 10 years with great technologists, so that anyone can tell their story.
What happens is that when a story becomes a hit, which we see uniquely as we're the global leader in the category, we go to Ms. Ochoa is another one from Central America. She was a kindergarten teacher, and she became a major hit. We go to the amateur and say, "Congratulations. You can be a star." And how far you go, we will only know together because we're going to fairly share your success, and we're going to uniquely enable it with all this AI and data, and we can talk about the specifics of our data and AI in a bit. We have not lost a single professional creator in the last three years because we are the best way for them not only to make a great living on our platform.
Our franchise stars make $1 million a year. The average professional creator makes around $50,000 a year, and they start as amateurs. And if they can be a great source of a film on Netflix or Amazon Prime, as we've seen, that's their upside and ours. So it is altogether normal, and we want the model to include global amateurs, that the market selects the emerging winner, and we cultivate it into a commercial enterprise with them.
So you touched on this a little bit. So there's an AI angle. So explain to me how the underlying technology is going to help the typical creator become that star, that breakout star, so they can quit their day job and do this on a full-time basis?
So it's funny. I started the company a year ago, and for what it's worth, I had retired from public company life, and I had founded and funded an AI startup. And so I tend to have strong points of view, having left an AI startup that I successfully funded for this. For us, it starts with you better have access to large amounts of data. There's a lot of great AI technology that, for demonstration purposes, is leveraging other sources of data. Large language models are a great example of this. Once you have the data, you have to have a clear link to a commercial business model, not a theoretical one, I mean, one that businesses and consumers are willing to pay for. So in ours, there are three areas that we leverage.
We've had over 100 full-time dedicated AI technologists hard at work, four years working with us. First, on data. We may have the largest repository of images and stories with a proven understanding of where they resonate with what demographic, even for what period of time people are reading them. We may have had the greatest amount of time to negotiate the IP rights for how we could use those images in collaboration with 24 million creators. I think starting with data and knowing what your limits are and avoiding the pitfalls in many companies to start with, because many AI companies start with tech, and then they try to get the data, and then they solve all these legal complexities around IP. What I really admire about our founder and the team is that he, from the origin of the company, was thinking through this problem.
So, we have data, and great examples of how we do it is one: we help the consumer. So, we're all familiar with ways in which recommendations can be personalized for us. Back in the day, when Amazon first rolled out its recommendation engine, they didn't call it AI. It was more correlated data. But we talked about in the quarter in Korea, where we have 50% household penetration. We are the digital Kleenex of stories in Korea. Half of the whole households in Korea use our product. When you have that much penetration and you have that many stories, using AI, which we just rolled out in the last quarter to improve the amount of episodes read, shows up as average revenue per paying. It shows up as ARPU, and it shows up as revenue. We talked about something similar for the consumer in Japan.
It's actually a separate form of AI technology we have. In Japan, LINE Manga, our product, is the number one consumer app as measured by revenue on iOS for two of the last three months in the quarter, for example, and that's in part driven by the AI. That shows up with real consumer payments based on recommendation, as an example. For the creators, we just won an award last week in Korea for protecting patented IP because we branded it Toon Radar. This endless battle for any content company, any global content company battles piracy. We think we have a real advantage in our ability to protect our creators. I think it's why we think we've been able to grow our creator set. That shows up as more creators supplying these 120,000 stories. It shows up tangibly.
And then there's what I call the more nascent businesses that we don't need to be profitable. We think they are big levers for growth, which is we haven't really monetized advertising. And we haven't really monetized the crossover IP success that we've proven to have delivered. You can imagine the predictive power of our data and AI to know. I mean, when Marry My Husband came out in North America in January, it was a global hit on Amazon Prime for a lot of people, including non-native Korean speakers. We knew that was a hit four years prior as a web novel that we turned into a WEBTOON thereafter, globally. So you can imagine with this application in crossover IP and in advertising. I think our core data sets and our tech will continue to expand.
Got it. How do you make money?
So how do we make money? If you think about the $347.9 million U.S. GAAP net revenue in Q3, roughly 80% of it was what we call Paid Content. Paid Content is a very simple business. When I was turning around a mobile gaming company called Zynga, sometimes this notion of paid content can get a little muddy. But for us, it's much more of a pure business model. Maddie, remember, Maddie, our core consumer, has wandered around our digital universe. We find that when Maddie self-selects into making a payment for the latest episode, which is called Fast Pass, or when Maddie wants something behind the paywall that has already been completed, not something that's going to drop a new release in a week, we call that Daily Pass.
Once Maddie spends this $0.15- $0.70 micropayment, she reads two and a half times more and spends to read two and a half times more organically over the next three years. Why is that? Well, even when Maddie finishes a piece of content, in mobile gaming and in other content businesses I've been a part of, that's a problem. You've squeezed the paid content engine. They've gone through the game or they've gone through the piece of content, and you've got to go find an expensive theoretical hit to go buy, a studio to buy, a screenwriter that's very expensive because they had it hit.
That gets backfilled on a constant basis.
On a constant basis, and so Maddie, when she finishes a story, we're pleased because she has greater confidence that she's going to find another story and maybe an unexpected one in a genre she hasn't tried before, so that's 80% of the revenue you saw in the quarter, this $347.9, and then you have roughly 10% if you look at the 2023 period, which is advertising. We've done a great job in Korea, in particular, developing high CPM, direct sold, achievement-based ads, or high CPM video ads. Because remember, we know what you're reading. We know what genre you're spending time on, but we've just started to focus on advertising in what we call Rest of World. Arguably, you could say Rest of World is 70%-80% of the global ad business, which is why we believe there's so much upside.
The last piece, of course, is crossover IP, which is sub 10%. The one thing I would mention, though, is that these business models are not cannibalistic. In almost every other business I've had, when I squeeze the ad lever, I reduce the organic experience in content. But think about this example. When Maddie has already begun to pay and read, and we have cohort data, she's going to read more, saying, "Maddie, you get to watch this video. It's high CPM for us, but maybe it's related. Maybe you're reading True Beauty, and we have an advertiser in the beauty segment. Watch this video, and you get a free episode in the form of free coin." What does that do? You monetize a high CPM product. The correlation of what she's reading and the type of direct sold ad reduces the kind of friction in her user experience.
We know she's going to read more because once she completes True Beauty, for example, we have an evergreen flow of more stories. So here, adding the additional business models actually could be a way to get folks who don't pay free coin faster into the higher cohort paying model, which is what we've seen in Korea and what we expect to demonstrate more and more as we're seeing in Japan and here in rest of the world.
Would it be disingenuous to think of, and I guess draw the analogy to your prior experience with Zynga? So there was a freemium sort of cohort of users, and some of those users convert into paying users. Granted, it's a little bit different. There's an evergreen sort of, not evergreen, but there's a constant backfill of content that's arriving to keep the user occupied.
But definitely not evergreen.
Yeah, not evergreen. But yeah, I guess this comes in cycles. But there has to be some sort of an underlying sort of free to paying conversion rate that we should be thinking about. So are there differences on a regional basis?
Yes. And this is probably the biggest lesson I've learned in the last year, that I have to do a much better job making sure investors understand how radically different it is. Let's take mobile gaming. Let's take a social network. Let's take global e-commerce, all of which I've done in other jobs. You are filling the top of a funnel with expensive MAU, oftentimes not targeted. In fact, you're looking for folks who haven't already started to pay. And that's expensive. And as you fill the funnel, and I hate to characterize this so negatively, I admire a lot of these companies, you're kind of hoping in a social network that somebody's going to post something to each other that's of interest to somebody you bought. And that MAU will turn into a paying user or a persistent user that you can monetize through advertising.
E-commerce is the same thing. You do a deep promotion to draw people into your e-commerce platform. You hope they fill their market basket. Mobile gaming, same thing. Words With Friends, Zynga Poker, radically different genres, different cohorts, different games. But my content was stagnant. Once you finish playing Zynga Poker, it's really one story. Poker is really one piece of content with many different users. So the CAC /LTV model is really important and very upside down. You're buying and buying more and more to fill the funnel. You're just hoping they shake out. You're just hoping they stick. And then once they stick, you're hoping you can just squeeze their monetization for largely the single piece of content oftentimes they want until they've used it up.
So for example, in mobile gaming, we would have these weekly meetings about what's the next big feature, what's the next big hit, how do we reprice a virtual cow in FarmVille, how do we dot, dot, dot. You can extend monetization for many, many years that way. Think about how different our business is. Let me give you an example that we talked about in the quarter. We partnered with a company called Duolingo in October, which will benefit Q4. They have a great set of consumers. We think we do too. We did this with Discord in Q2, so young, technology-savvy sub-25-year-old consumers. In our case, Duolingo, their iconic icon, Duo, brought to our platform stories, brought by Duo. We have over 7 million more series consumed and read just from bringing together audience.
Instead of having to buy top of funnel passive MAU, hoping that they like something, we're pairing content and partnership, so then when you put a little bit of marketing spend, or when you have a hit, like let's say it's True Beauty, or it's Marry My Husband, or it's Lore Olympus, when that hits the film world, when people are seeing this on Netflix for the first time, never been to WEBTOON, it's another example where that content drives interest to the platform, and there when you spend, it's a very, very high repeat ARPU ROI spend. Completely different model. It's a content-driven model where content is developed every day in an evergreen low-cost way versus a passive, expensive top of funnel MAU purchase that you hope you can monetize and make sticky for a longer period of time.
Which is why, when people react to the fact that a large country banned several consumer apps, Roblox, Meta, us in the quarter, and top headline MAU declined in web, the reason why that didn't affect the 13.5% constant currency revenue is because, while if you're used to a social network or a mobile gaming company or e-commerce provider, you're really sensitive to this very expensive MAU growth that you have to keep on to perpetuity, we're not. And that's a huge difference that I think the investors are only just beginning to appreciate. It may take a few quarters for us over-delivering again for them to understand that principle difference.
If I recall, I mean, some other regions like Japan and Korea might have a higher paying ratio, I guess conversion rate, if you will. Some of the other countries may be lower. I don't know. The optimist in me wants to believe that what you might be seeing in Japan, that should be the standard for everybody. But are there sort of cultural differences that we should be thinking about?
I can only point to the data that I've disclosed. I would say think about three key dimensions. There's how much of the penetration you've penetrated. There's what percent of those users, those monthly active users, are paying users, the conversion ratio. Then there's the amount that they consume on a daily basis. Underpinning that is consumer research and behavior. Even in North America, where we are sub 5% household penetration, when I compare the consumer behavior here versus the consumer behavior in Korea, where we're 50% household penetration, it's the same behavior. It's the same 30-60 minutes. In North America, over 70% of our consumers say that their experience, even though nascent, is more fun than Roblox, and that the same high percent can only get stories that they consume on our platform because of this evergreen source of stories. That's the key.
Because consumers appreciate good stories in all genres across all age groups universally and more so accepting it from a different origin, language, and country, we're seeing the consumer behavior be quite consistent. Now, where are the numbers? On household penetration, Korea is 50%. JK has been hard at work there for some time. In Japan, we've disclosed it's roughly 15%. We've only started to heavily work in Japan in the last couple of years. We are the number one consumer app, as I mentioned. So that's a rocket ship business. And in North America, it's sub-5%. But when I look at ARPU, the average revenue per paying user, I'm seeing that as businesses increase household penetration, they also increase their monthly paying user conversion and how much they spend. Because it's about how many stories you want to have access to. Remember, these are only short micropayments.
You can have in your wallet or in your head the desire not to go deep every day on one story. Once you have gained confidence that you're going to enjoy the story, you may want access to five, six, seven, eight, nine, 10. What that does is it means that even if MAU is flat, even if the paying ratio is flat, you're going to see greater cohort adoption in the form of ARPU, which applies to Korea. But in Japan and the rest of the world, you should see all of it grow.
Yeah. I mean, and sorry about, I guess, the somewhat ignorant nature of this question, but you could have structured the revenue model like the way Netflix does and just offered the content on a subscription basis? You are more on a micropayment. So as you go.
I am so thankful that what I admire about JK is from the origin of the company, he was solely focused on organic growth for consumer consumption and creators. Let me give you an example as to why. I'm not saying we won't do subscriptions. Subscriptions are fine. Subscriptions, when you have less evergreen source of content, make a lot of sense. If you have 120,000 stories coming every single day, you want people to be able to have a very low-risk way to get deeply engaged across all age groups. When you have a subscription, you monetize on a regular basis, but then you put the consumer on an expected treadmill. We like that our consumer can go deep on a story they fall in love with, take a break, come back, and go deep on two stories that they found. It's a much more patient business model.
It's also the reason why JK did not focus on advertising early. He was really focused on the micropayments. That creates a discipline. You have to have enough creators to create enough compelling stories to create an ongoing flywheel. And perhaps in early days, it would have been not self-sustaining, but I really believe we're at a point where we have enough of a flywheel to have an ongoing business that we can add advertising. And maybe over time, consider other business models like this subscription model. But we have so much room to run in global penetration with our existing paid content model, is our view.
Fair enough. You mentioned AI for, I guess, content recommendations, being able to identify what I'm going to like. Do you help the creators actually generate the content? I guess there was a language part of it as well. But are there other things that you can do to help creators, whether generate the images, content faster, or are there other things that you're doing to help them?
Yeah. I think one of the examples we can talk about, because outside of our company, there has been a lot of awareness of hot startups, Google Labs, Midjourney. These companies talk about the ability to use AI to characterize or create images. Well, I wonder if a company with the largest repository of images and had negotiated IP rights could do something similar, but in the style of the actual creator, where there's an ownable style. It's not just draw a banana, and it's a different banana. It's actually part of the storytelling. That theoretical example would be a great way we would want to pursue a feature like that. We haven't announced broadly any pending AI product releases. We have talked about the consumer application, which I've already mentioned.
There are also tools beyond piracy protection already that you can see on the platform that eliminate hours to increase productivity for a hit creator that really wants to get that next episode out with less time. So those fundamental pieces are there. But the limit of our application of AI is far, far away from what we're doing today. I think we're just getting going.
OK. I think, speaking of IP and image rights, I guess you're talking about, I guess, 10% of the revenue is across, I guess, the selling opportunity to Netflix and some of these other.
A little less than 10, but yeah.
A little less than 10. So if I were to quit my job tomorrow and become a content creator on WEBTOON, I mean, what can I expect? I guess, are there structures in place to help me cultivate my brand? And if it does become a hit, then I guess WEBTOON is entitled to a certain percentage of how that will work out?
Right. So two good questions. One is, how easy is it for someone who chooses to do this for the first time to create content? We had an investor through the IPO process, actually. We encouraged the investor to go be a creator on the side, and the person did. And so you can see firsthand that we've worked very hard to make it using technology really super straightforward for you to be able to tell a story and have a global audience. So that's one conversation. The next conversation is about rights and exclusivity in the business model. We are generally one where we encourage a massive intake of content from amateurs for which we do not seek any rights. Frankly, we don't yet know. If you were to quit your job, I really hope your thing's awesome and everyone loves it, but who knows?
But as I said, because we have early market signals for the global leader, when your story becomes a hit, we go to you and say, listen, we have a program. We've provided billions of dollars to creators. We have a unique track record, a unique set of tools, and we're the only global game in town. You should be a professional creator. At that point, we have exclusive digital rights per an agreement on our platform. And we usually negotiate option rights or first right of refusal if you end up becoming like Rachel Smythe, a New York Times bestselling author, or you become a Netflix star. We have generally not, however, exercised those rights. We've been so focused on growing the core that we've seen these 100 examples.
The reason why we're OK with it is when these things organically become a great film or a piece of merchandise or a mobile game, it draws consumers and users back to the monetization engine we have developed in earnest, which is the paid content engine. You can imagine, since I'm posting positive operating cash flow, we're an AI technology company, that we may choose in a de-risked way to spend a little bit on projects that we believe the data shows will be, that your project will be a great Netflix film, to get greater upside. We've been explicit in all our quarterly releases that we are not, we're very conservative, and we are not doing that today because we think the model and the growth and the profit doesn't require it.
We have so much to grow in our regions and our existing models that that's upside for us.
Got it. I guess this is a bit of an unavoidable topic, but your reporting currency is the dollar. I think your operating currency is the KRW, where you're capturing revenue from all kinds of different territories. So there's translation that needs to happen in U.S. dollars. And of course, there was some political activity in South Korea this morning. So I think the currency is off, I don't know, another 2% or thereabouts.
It's great that you're asking. I would say one important lesson for me in going public is that it's not enough to say we measure and track our business on a constant currency basis because fluctuation in currency doesn't affect the core business health. But I'm going to say it again. Even the crazy headlines we may have been reading, either from the presidential election in the United States or recent activity in South Korea or the ministry in Japan, those things do not affect my core business health. And that's why we've been able to post 11.5% constant currency growth despite whatever currency was happening, fluctuations in Q2 of this year and 13.5% in Q3. What it does affect is it does affect the headline USD number I report. And so I'm now extremely explicit to the street.
When we provide guidance for Q4, I now have said our policy is very similar to other global tech companies. We report on constant currency, and when we give a USD number, it's pegged to a defined FX rate the last day of the reported quarter, so when I set guidance at the end of Q3, the KRW was KRW 1,320 to the USD, $143 to JPY . And I'm explicit with investors because what I wouldn't want investors to do is if today we hit 1,428 because of turmoil, I'm agnostic. My constant currency growth, and I pay in oftentimes the same currency that I receive revenue, so it doesn't create a problem for my business, but it may not be understood by the street.
That could have been what occurred in Q2 and Q3, even as I believe we've over-delivered all the metrics we provided great analysts and explained constant currency. We are a different story. A lot of global tech companies say constant currency, and analysts are thinking, well, that's like maybe a 10% swing. We do have a lot of business in Korea. We do have a lot of business in Japan. They're also insulated. A lot of our OpEx is associated with the currency of the revenue. And so I'm explicit now to make sure investors understand that I look at constant currency and I'm privileged to not have to worry too much about a change at all to the business model. But it will change the headline USD number.
Understood. And we're out of time, so we'll leave it there.
OK.
Thank you.
Thank you so much.